This Means Everybody

Public-private partnerships keep Virginia highway projects moving ahead

Article February 17, 2004
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Virginia has a proud history of finding innovative solutions to difficult challenges. After all, leaders such as George Washington, James Madison and Thomas Jefferson laid the foundation for the most prosperous nation on earth.

However, these founding fathers never could have imagined the transportation challenges their native state would face in the 21st century. The Virginia Department of Transportation (VDOT) must maintain, improve and operate the nation’s third-largest state-maintained highway system, which comprises:

• 57,100 miles of highways;

• Three toll roads;

• 12,600 bridges (including one toll bridge);

• Four bridge tunnels;

• Two mountain tunnels;

• Four ferry services;

• 41 rest areas;

• 10 welcome centers; and

• 107 commuter parking lots.

The annual budget for roadway maintenance is a staggering $1.1 billion, nearly one-third of the agency’s $3.7 billion budget. The state’s traditional “pay-as-you-go” approach to maintenance clearly was not getting the job done, especially during recent state budget shortfalls.

Transportation leaders in Virginia had a simple yet groundbreaking idea: Why not share the expense between the public-sector and private-sector interests with a stake in getting a project completed? That was the concept behind Virginia’s Public Private Transportation Act of 1997 (PPTA). This act has been highly successful in jumpstarting a number of projects that otherwise would be gathering dust in a sluggish economy.

The strength of the PPTA is that all of the major stakeholders—state agencies, developers, designers and contractors—share in the risks and rewards. All have the same incentive: Complete the project on time, on target and on budget.

The process is similar to the familiar design-build concept but with a key added requirement to incorporate a plan for funding for the project and a revenue source. Therefore, developers with an entrepreneurial spirit are attracted to these projects.

The owner, such as VDOT, seeks project partners who can guarantee project delivery—usually in a shorter time than the traditional owner-sponsored design-bid-build process—for both a fixed price and deadline. Then they need to fund that project without using current or future funds earmarked for other transportation programs.

By forming a partnership, contractors and designers work together using the materials, means and methods of construction most favorable to on-time delivery and designed to the budget. The developer assumes the risk for bringing the project in on time and initiating the revenue sources that repay the investment. The state lends its considerable resources in right-of-way acquisition, permitting and oversight, because it ultimately will become the owner.

The PPTA approach streamlines the overall process. Design-build projects usually are started after concept design and environmental clearance; therefore, the role of the team is strictly in executing the project construction. By contrast, some of the more innovative PPTA projects have a vision for a solution and a way to accomplish the goals of the project that would otherwise be deferred or scrapped due to the financial limitations of the owner.

The PPTA approach empowers the team to conceive of new ideas that may include concepts, public approval and environmental clearance. PPTA teaming assumes more of the traditional risk held by the DOT in the early development phases of the project, so the project team will anticipate higher rewards in the investment-recovery model. Nonetheless, these projects still are collaborative ventures. The private party needs the state’s power of eminent domain to acquire right-of-way, especially in populated areas. States, as agents of the Federal Highway Administration, also enjoy a level of authority in determining environmental compliance.

Simply put, Virginia’s PPTA creates a win-win situation for all stakeholders.

Here’s how it works

In its brief history, PPTA already has led to the successful completion of a number of high-profile projects.

Dulles toll road extension

The need for this road was readily apparent to all and the local area was ripe for development, but no funds were in the state’s transportation plans to build the roadway facilities.

A private entity came forward and, using the PPTA process, promised to build and operate the extension. The facility was built with a limited state guarantee, the financial basis was modified and it has realized the traffic projected. VDOT currently is looking at further expansion of the facility as envisioned in the original plan.

Metrorail line extension

Negotiations recently were completed between the Virginia Department of Rail and Public Transit (VDRPT) and Dulles Transit Partners to construct an extension of the Metrorail Orange line west of Falls Church and through Tysons Corner.

The PPTA allowed funding for the project to be drawn from several sources, including Federal Transit Administration New Starts Program funds, state co-pay from the adjacent resources of the Dulles Toll Road and a special tax district assessment for communities adjacent to the project.
The system will be turned over to the Washington Metropolitan Area Transit Authority at the conclusion of start-up and testing to operate seamlessly with its existing transit network.

I-495 HOT lanes

Another active PPTA proposal is the I-495 High Occupancy Toll (HOT) Lanes project proposed by Fluor Corp. The plan is to build two lanes of High Occupancy Vehicle (HOV) lanes in each direction on the Capital Beltway from the Springfield interchange to a point north of the Dulles Toll Road and Tysons Corner.

The project will create the missing link for the existing HOV network in this area of Virginia and will allow users willing to pay a toll access to the capacity of the HOV lanes during rush hours (although HOV traffic will not be charged a toll). The proposal is for a design-build-operate arrangement that will revert to the state highway system after toll revenues pay for the project expenditures. (For more information about the benefits of funding through tolls, please see sidebar.)
What does this type of public-private partnership mean to architects and engineers? First, A/Es must decide whether to get involved. The decision must be based on the strength of relationships with owners and contractors, as well as public support to warrant an investment of marketing dollars, because most partnership activities require up-front preliminary design and dialogue to sell the concept.

The next question is, “Who will be good partners?” Past relationships and a little research will identify contractors who can add value to the project, have recent experience, have a local presence and are willing to partner with the A/E to find the right balance between the scope of the project and the price tag.

Finally, the A/E will enter into agreements with potential partners to pursue the project well in advance of public notice that a plan is forthcoming. Two to three years of advance activity by the major parties in a public-private venture is not uncommon.

Fresh money streams

The PPTA has been used numerous times as a funding resource for projects in Virginia. The scope of these projects range from small local jobs to the I-895 beltway construction in Richmond and the Rte. 58 construction in southwestern Virginia. Many projects initiated did not identify new money sources but used the bonding capacity of Virginia’s AAA bond rating.

After the first projects were completed, entrepreneurs came along with proposals that found ways to spend Virginia’s previously untapped bonding capacity. The bonds soon reached the limit Virginia would tolerate without affecting its excellent bond ratings.

The bonding capacity of the state as a revenue source is now depleted. Considering the annual budget dedicated to transportation infrastructure, the VDOT budget is at the maximum ceiling allowed for debt service and/or maintenance of transportation systems. Because the PPTA was enacted to allow private participation in projects that are begging for funding, the funding source has become an integral component of a public-private venture.

Last summer, VDOT reissued PPTA procedures and ground rules for eligible projects. All future proposals require identification of new sources of revenue and all funding commitments required by the state if the proposal is accepted. Under the new criteria, VDOT has solicited revised proposals for I-81 and has other proposals pending.

What does the future hold? State DOTs realize that the days when tax revenues alone would fund all projects in the capital improvement program are long gone. As the population grows and budgets shrink, the demand for highway construction and maintenance likely will far exceed the funding supply.
That is why innovative public-private partnerships, as exemplified by the PPTA, are clearly an idea whose time has come.

About the author: 
McDowell is vice president and senior project manager at HNTB Corp., Arlington, Va.
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