Virginia’s Revised P3 Process Aims to Expedite Projects

By Libby Bruch

The Commonwealth of Virginia is on the move, with population, commercial, and military growth, and the state has overhauled its P3 program to meet the infrastructure challenges of those changes. With the support of Gov. Bob McDonnell, Virginia created the Public-Private Transportation Act (PPTA) Office in 2010. Along with revised guidelines and an implementation manual, the PPTA Office marks a more focused approach to managing P3 projects under Virginia Secretary of Transportation Sean Connaughton.

“The goal of the identification, screening, and prioritization process is to show the private sector that there is a pipeline of potential PPTA projects out there,” explains Charlie Kilpatrick, the chief deputy commissioner of the Virginia Department of Transportation (VDOT) and the interim director of the new PPTA Office. The pipeline will, he says, help private sector companies develop their resources. A clearly defined methodology is intended to streamline the P3 process and speed up projects.

A new organizational structure, consisting of the PPTA Office director working with the four transportation agencies – the Virginia Port Authority, the Department of Rail & Public Transportation, the Department of Aviation, and the Department of Motor Vehicles – will help address matters such as right-of-way, environmental concerns, and utilities, among others. A steering committee will prioritize projects.

DJ Gribbin, a managing director at Macquarie Capital, notes that in the past Virginia’s P3 procurement process has been slow but very steady. Now, though, with dedicated personnel, he characterizes it as “a great evolutionary step forward.” Agreeing with Kilpatrick, he says the implementation manual will help the private sector understand what the public sector needs. “Virginia has positioned itself well in terms of legal authority,” Gribbin adds. “It’s coupling that legal authority with government infrastructure to get deals done in a timely manner.”

Market Drivers – Reducing Congestion
Identifying the need for transportation projects in both urban and rural areas, state officials have turned to the P3 process to address the state’s growing pains.

Easing congestion and creating connectivity are factors in Northern Virginia. The proximity of that part of the state to Washington, DC has contributed to an increase in population and commuter traffic, but the area has also become commercially vibrant in its own right. More military personnel are also part of the mix because of the growth at bases in Quantico, Mark Center, and Ft. Belvoir.

Improvements to Route 28, which include new interchanges and additional lanes, began as far back as 2002 and are continuing. They are designed to relieve congestion in Northern Virginia’s Fairfax and Loudoun counties. To finance the project, the state is contributing 25% of the cost using highway funds, with the remaining 75% coming from revenue bonds backed by assessments from a tax district composed of private companies along Route 28. The project is a part of Virginia’s PPTA program.

Kilpatrick notes that a 17.5-mile stretch of Route 28 in the Richmond area has allowed residents in nearby counties to save 20 minutes because they no longer have to drive on secondary roads. Use has exceeded projections, he adds.

The proposed P3 to build a parallel road to the existing Route 460 also has the objective of relieving traffic volume on the current road, which is a major truck route; it will serve as an emergency evacuation route in the event of hurricanes; and it will enhance connections to military bases. The Route 460 project has encountered obstacles along the way, however. VDOT first initiated a procurement process in 2008, but postponed it after all three teams competing for the project said it wasn’t feasible without a state subsidy of between USD500m and USD1bn. A new procurement process began in May 2010 and is ongoing.
Getting the Model Right
The concept underlying all P3s is to transfer revenue risk to the private sector, but financing methods vary. For some of those earlier P3 projects, Virginia relied on a combination of state funds, often including bonds, to make payments to design-build contractors under its PPTA program. Route 28 used this approach.

Alternatively, the state has provided a subsidy by using Federal Highway Administration (FHWA) grants. It has also successfully applied for TIFIA loans, including those for the I-895 Pocahontas Parkway and I-495 Capital Beltway HOT Lane projects. “For several projects, we’ve put letters of interest into the program to seek federal funds,” says Kilpatrick. The lower interest rate on those loans has helped to reduce capital costs.

To date, Virginia has favored tolling over the availability payment-based project structure. “So far, we haven’t identified the availability structure as having the best value because it requires long-term investment,” Kilpatrick says. Tolling concessions, however, are a central part of several active and proposed projects under the PPTA program.

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