"We're paying to build a road for private companies, and now we're continuing to subsidize the private company. This just gets worse and worse."
Deal to Allow Free Carpooling on Beltway Project Might Leave Virginia Owing Millions
July 20, 2008
By Eric M. Weiss
The Washington Post
Rising gas prices are increasing transit and carpool use, which normally would be a good thing in the traffic-choked Washington region.
But under an agreement Virginia signed with the private companies building high-occupancy toll [HOT] lanes on the Capital Beltway, the state could be liable for millions of dollars a year if too many carpoolers, who will be exempt from tolls, use the lanes.
The carpool subsidy is in addition to the $409 million that taxpayers are investing in the $2 billion, 14-mile project, expected to break ground next week.
Under the 80-year contract signed in December, when gas prices were much lower, Virginia officials insisted that carpools of three or more people and buses be allowed to use the lanes for free and offered to reimburse 70 percent of the tolls carpoolers didn't pay.
At the time, transportation officials estimated that the provision would cost the state $1 million a year. The carpool subsidy will continue for 40 years or until the builders make $100 million in profits, according to the contract between Virginia and Transurban, an Australian company, and Fluor Corp. of Texas. The subsidy kicks in when carpools exceed 24 percent of
"Oh, you're kidding!" said Corey A. Stewart, the Republican chairman of the Prince William Board of County Supervisors, who carpools to the District several times a week and said there are better ways to spend the state's limited transportation dollars. "We're paying to build a road for private companies, and now we're continuing to subsidize the private company. This just gets worse and worse."
The HOT lanes, two in each direction, will be built on Interstate 495 between Springfield and just north of the Dulles Toll Road. Tolls will fluctuate based on the amount of traffic. Non-carpool vehicles could pay an average toll of $1 a mile.
Similar projects across the country limit the number of carpools allowed or charge them reduced tolls. Virginia officials said their unprecedented agreement was a way to balance the need for the toll lanes to succeed financially while not discouraging carpooling.
"In negotiating, we realized there was a conflict between what we wanted and what they wanted," said Barbara Reese, deputy transportation secretary and a key negotiator on the deal. "Somebody has to pay."
Reese said the carpool subsidy would kick in when the HOT lanes are at maximum capacity for more than 30 minutes. After that point, the state is liable for every 15 minutes that the HOT lanes are at maximum capacity for that day. She said the estimated $1 million-a-year liability exposure to the state seemed reasonable to state officials. She acknowledged, however, that the spike in carpooling and transit use could increase the state's liability, but officials said they could not estimate by how much.
Reese said the contract includes protections for taxpayers, in addition to a revenue-sharing plan if the project exceeds financial expectations. The money the state is contributing -- $157 million from surplus funds from prior years and $252 million in state and federal highway construction funds -- will pay for changes and improvements that the state requested, including building bridges, repairing ramps and connecting the HOT lanes through the Springfield interchange.
"This was not something for nothing," Reese said.
Financing for the project is also being provided by the federal government. The private companies are putting up $349 million in cash and will be responsible for building and operating the lanes and repaying the federal bonds and loans. The road will be turned over to the state after 80 years.
The project, in the works for nearly a decade, was planned as a way for private companies to add capacity to one of the most congested roads in the country, with little cost or risk to the public.
Now some transportation officials wonder whether the deal will wind up costing taxpayers much more at a time when the state's transportation budget is empty. The state will have to transfer $3 billion from construction projects just to maintain the roads it has over the next six years. With the General Assembly's failure to come up with a funding plan in a special session this month, there is little hope on the horizon.
"If we are going to pay this money ourselves, why not build it ourselves and keep the tolls for ourselves?" said Stewart Schwartz, executive director of the Coalition for Smarter Growth.
But others said the state was left with little choice.
"Is this the ideal way to build public infrastructure? No," said Gerald E. Connolly (D), chairman of the Fairfax County Board of Supervisors. But he said that voters have turned down tax increases and that the General Assembly has failed to come up with additional money.
"At some point, we have to find a way to fund public infrastructure," Connolly said. "We're left with other models, all of which have undesirable side effects."
The goal of the HOT lanes is to use variable pricing to keep the lanes free-flowing. There is no upper limit on rates. Motorists who don't want to pay can drive in the free, non-HOT lanes.
During negotiations, the private companies argued that too many carpoolers in the HOT lanes at peak times would bog down the lanes and cost them revenue needed to repay the financing, because single- and double-occupant drivers would hardly pay a premium of $1 a mile or more to sit in stop-and-go traffic.
Other projects have struggled with how to encourage carpooling while keeping the "express" in express lanes.
In Houston, a HOT lane project set to open this fall limits carpoolers and transit vehicles to 25 percent of traffic. In California, carpoolers were initially allowed on HOT lanes for free but were soon charged half-fare after the lanes clogged. In the Virginia agreement, only state law could change the free-ride status of carpoolers and mass-transit vehicles.
Virginia's deal to subsidize carpools is unique in the fast-growing world of variable-cost toll lanes and public-private partnerships, according to Robert Poole, director of transportation studies for the Reason Foundation and an early proponent of HOT lanes.
"This is a way to get a significant amount of relief at a pretty modest cost to the state," said Poole, who tracks developments in the private toll-road arena. Also, "it's in the interest in both parties to ensure a good revenue stream."
Poole said that if the HOT lanes are flooded with motorists who don't pay tolls, "then it doesn't work."
Adding HOT lanes to the Capital Beltway, already one of the busiest highways in the country, is unprecedented in its ambition. In addition to building four lanes largely in the existing footprint of the Beltway, the builders had to figure out ways to get customers quickly in and out of job centers and such destinations as Tysons Corner, the Dulles Toll Road, the Springfield interchange and Route 66.
Fluor-Transurban is negotiating with the state to convert and expand the two reversible high-occupancy vehicle lanes on Interstate 395/95 into three reversible HOT lanes. Carpoolers and sluggers are concerned that the change would upset the successful system that has evolved on the highway over the years.
Ronald F. Kirby, transportation director for the Metropolitan Washington Council of Governments, said that once the Beltway HOT lanes connect with HOT lanes planned for I-395/95 and the HOV lanes on the Dulles Toll Road and I-66, drivers would realize that piling three people into a car could provide a free rocket ride across the region.
"I don't have any numbers to say that their numbers are too high or too low," Kirby said. "We don't have any experience with a facility like this."
But he said the "network effect" could provide greater incentives to carpool and perhaps trigger much larger carpool payments than state officials estimated. "There is some assumption of risk on the part of the state here."
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