Can Pocahontas Teach Us a Modern Day Lesson?
By Geoffrey F. Segal
5/16/2006 -- Literally moments after Governor Kaine signed SB666, which tweaked the state’s Public-Private Partnership Act to authorize concession agreements with private companies, into law the Commonwealth inked a concession deal with Transurban, a private toll road operator who manages roads in Australia, for the 9 mile long Pocahontas Parkway. While just one deal toward improving our transportation system, when compared against other recent transportation deals, Pocahontas can teach us lessons.
The 99-year lease is quite unique in that it does not include an upfront concession fee that is common in most other toll road leases. Rather, the operator/concessionaire has agreed to share profits with the Commonwealth, generating a long term revenue source that can be used to fund other transportation projects in the area.
As part of its “permit fee” (the equivalent of a concession fee), the Commonwealth will receive 40 percent of gross revenues once net cash flow yields an internal rate of return of 6.5 percent. That number increases to 80 percent once that rate hits 8 percent. This stands to send millions in new revenue into state coffers over the life of the 99-year deal, assuming a profit of course.
Transurban has also agreed to build the $150 million spur to the airport, if federal loans are approved. In addition, state loans and operating expenses will be repaid under the deal. Even with these promises and the capital improvements, toll rates are capped protecting the public from dramatic price increases. Tolls will go up as part of a scheduled six-step increase will take tolls to $4.00 by 2016.
Perhaps most importantly, Transurban guarantees its product. The agreement requires Transurban to maintain acceptable levels of service and to “cure” congestion before it reaches unacceptable levels.
While largely deemed a bailout, the concession is still a sign of what Virginians could expect from similar deals around the state for existing toll facilities—private capital to support existing and new highway functions, private expertise in road management and operations, and better customer service. This is on top of any cash payment or profit sharing mechanism potentially bringing the state’s transportation treasury tens of millions of new dollars – dollars not now accounted for in the transportation projections.
Given this, the Dulles Toll Road seemed like the single greatest opportunity to bring similar public/private cooperation to the benefit of the people of Virginia. With offers upwards of $1 billion in cash and capital upgrades on the table, the potential concession deal seemed like a classic win-win proposition. Unfortunately much of this was all but thrown away with Governor Kaine’s decision to sign a Memorandum of Understanding with the Metropolitan Washington Airports Authority, choosing a public-public partnership instead of a public-private partnership.
The Governor claims that MWAA has agreed to consider the private proposals, which may be the case, however, it is not included in the MOU. From the Commonwealth’s perspective, what is perhaps most disturbing is what happens if MWAA does indeed go forward with a private concession deal. Rather than the Commonwealth reaping the benefits, MWAA will be the sole beneficiary.
Rather than utilizing new resources from cash payments and tolling income to improve traffic conditions throughout the region, MWAA will use proceeds to fund the Metrorail extension. While some argue that this is needed, the facts suggest otherwise. Rail to Dulles sounds like a great idea especially if you work at the airport. However, it will do little to relieve congestion and diverts limited resources into less efficient and less effective transportation modes. The cost of which will be borne almost entirely by toll road users.
While Speaker Howell has justifiably called for hearings and a review of this transaction by Governor Kaine, many in the transportation sector consider it a done deal.
If true, it means the state did not learn what it could have learned from the Pocahontas Parkway experience.
First, the Commonwealth needs to stop investing in “nice ideas” and rather should invest its limited resources on those programs and functions that generate the greatest return. Given its cost, Metrorail extension will produce limited benefits to commuters at a total cost of some $4 billion or more. Second, business as usual will not work and we need to seek innovative solutions. The Pocahontas Parkway deal demonstrates that innovative solutions are in fact out there. We need to be ready and willing to embrace them.
A modern transportation system is important to the future of Virginia. But “being stuck in the past” in the way we choose our projects and invest our resources will only bring disappointment and further citizen distrust in government. The Pocahontas Parkway deal is an example of the future while the rail-to-Dulles deal lacks the thoroughness and creativity required in today’s world.
Geoffrey F. Segal is Director of Government Reform at Reason Foundation and a Senior Fellow on Government Reform at the Thomas Jefferson Institute for Public Policy. Opinions expressed are his own, and do not necessarily represent the views of either the Thomas Jefferson Institute or its Board of Directors. Geoff can be contacted at