State releases some details of Midtown Tunnel deal

When local leaders told the governor earlier this month that they want the Patriots Crossing built before a new U.S. 460, they were not aware that such a shift could impact another needed project - the Midtown Tunnel expansion.

The Midtown project, which includes extending the Martin Luther King Freeway and upgrading the Downtown Tunnel, is close to becoming a reality with the state poised to sign an agreement with a private consortium that would begin construction, and toll collections, next year.

Because it's a public-private partnership, details have been kept under wraps during negotiations. Now, with the debate over priorities spurring rumors about financial implications of a competing Patriots Crossing, Transportation Secretary Sean Connaughton has released some details about the Midtown Tunnel deal, which is expected to be signed by the end of the year.

There is no noncompete clause, he said, meaning the state can build or expand other water crossings. However, there is a provision that allows the private company Elizabeth River Crossings to seek money from the state if a competing facility draws away too many paying customers.

That process, which Connaughton said is standard in public-private agreements, requires that Elizabeth River Crossings prove its claim and verify it with an independent third party.

Likewise, if Elizabeth River Crossings collects more toll money than expected, the agreement provides for revenue sharing with the state.

Additionally, the state is not guaranteeing a return on investment. Elizabeth River Crossings and its investors are assuming the risk that its revenues will hit their forecasted target of a 10 to 12 percent return. Connaughton said the rate of return is consistent with other transportation deals with similar risks.

Connaughton revealed the financial points in a letter responding to Del. Chris Jones of Suffolk, who sought answers after hearing rumors of profit guarantees and a noncompete provision.

"My intent was to get more information," Jones said. "I never intended to put into jeopardy or call into question the Midtown/Downtown agreement. I just wanted to get information on the potential impact of one of the top priorities of the region."

Jones said he appreciates the response but still has more questions.

Aubrey Layne, who represents Hampton Roads on the Commonwealth Transportation Board, notes that building the roads with a private partner will cost more, but acknowledges that the state does not have the money to do even one of the projects alone.

"To me, it's a fair deal in today's world because they're willing to take the risk," he said. "I just wish we were in a different world."

He said the private partnerships for the Midtown Tunnel and U.S. 460 are "a good and proper use of our monies based on where we are now.... What we're really faced with is: Do these projects as public-private partnerships with tolls or do nothing. Doing nothing is not acceptable to me."

With so little money for new roads, local leaders have questioned whether the state is spending its limited transportation dollars on the best projects.

The state is set to invest $900 million into the two public-private partnerships to expand the Midtown Tunnel and build a new U.S. 460 as a limited-access highway.

Highway officials say neither project could be built anytime soon without private participation as they total about $3.4 billion.

Earlier this month, the Hampton Roads Partnership asked state leaders in a letter to shift the $500 million for U.S. 460 to the Patriots Crossing, a proposed third bridge-tunnel at the Hampton Roads harbor, contending it will have greater congestion relief and stimulate more job growth.

Connaughton also wrote back to the Partnership, defending the U.S. 460 project as the governor's top priority to provide an alternative to the notoriously congested harbor tunnels and Interstate 64, and to support economic growth in the corridor and at the ports. He added that while the governor supports Patriots Crossing, it's estimated to cost $3.7 billion and is years away from being shovel-ready.

"The project that is ready to go is the Midtown Tunnel, and I wouldn't want that slowed down because of other debates," Norfolk Mayor Paul Fraim said. "The logic behind the Patriots Crossing is so compelling, it will eventually be built."

Meanwhile, Portsmouth Mayor Kenny Wright said that while he supports the Midtown project, he said the tolls are too high.

Toll collection would start later next year at $1.84 for cars and $7.36 for trucks during peak hours. Connaughton said in his letter the peak-hour tolls could reach $3.22 for cars in 2027, assuming a 3.5 percent escalation rate starting in 2016.

"We're going to be an island here," Wright said. "If people have no reason to come here, they won't come here, and that will hurt our citizens and our businesses."

Connaughton said the state has "worked very hard to keep the price of the tolls to a manageable level.... Unfortunately during this time period for projects like this that cost billions of dollars, tolls are going to become a necessary evil."

Debbie Messina, (757) 446-2588, debbie.messina@pilotonline.com