Relieving Pressure on the Beltway

To relieve congestion on the Capital Beltway around Washington, Virginia’s Department of Transportation (VDOT) is using a public-private partnership (PPP) to fund construction and operation of 14 miles of high-occupancy toll (HOT) lanes. The project, scheduled for completion in 2013, will be the nation’s first deployment of a dynamic congestion pricing PPP.

Virginia contracted with New York-based KPMG to help explore financing and risk management options for the construction project. After studying the feasibility and the public policy considerations of contracting with a private company to design, build, finance and operate the HOT lanes, Virginia signed an agreement in December 2007 with a private consortium to build the lanes, which will link high-occupancy vehicle (HOV) lanes on I-95/395 and I-66 and require non-HOV motorists to pay a toll to travel on the less congested lanes. The consortium includes Irving, Texas-based Fluor Enterprises and Australia-based Transurban. Construction began last year, and upon completion, Fluor/Transurban will operate and manage the HOT lanes for 75 years, and VDOT will retain ownership.

The state is contributing approximately $409 million, and the private sector approximately $1.5 billion to fund the project. Fluor-Transurban’s $1.5 billion includes the first Private Activity Bonds (PABs) used in a transportation project ($586 million), a low interest-rate federal loan provided under the Transportation Infrastructure and Innovation Act (TIFIA) ($585 million) and approximately $350 million in equity investment. KPMG, which acted as an advisor in closing the agreement, worked with VDOT and Transurban to structure the private funding under TIFIA as well as the PABs for the $2 billion project.

Tolls will vary depending on the amount of congestion, and toll revenue will go to the private consortium to pay for ongoing maintenance, operations and a return on their investment. If toll revenues exceed expectations, the state will share in them.

Project: Public-private partnership for HOT lanes
Jurisdiction: Virginia
Agency: Department of Transportation
Companies involved: KPMG; Fluor Enterprises; Transurban
Construction began: 2008
Cost: $2 billion