Work can begin on the controversial $2.1 billion construction project that will toll the Midtown and Downtown tunnels, the state's private partner said Friday.
The announcement came after the state and its partner secured all the financing they need to pay for the project. The U.S. Department of Transportation approved a $422 million federal loan this week, and $675 million in bonds were issued.
Closing the financial terms means Elizabeth River Crossings can hire contractors and begin work on the E-ZPass tolling system for the tunnels, though the public won't see site work for weeks, said Mary Humphreys, public affairs manager for the private consortium.
Opponents who are planning a lawsuit to stop the project and its $1.84 rush-hour tolls said they are undeterred. Their suit has not been filed yet, but it is expected to challenge the constitutionality of the 1995 Public-Private Partnership Act and the Virginia Department of Transportation's authority to negotiate the Midtown deal.
"It doesn't change anything," said Patrick McSweeney, the lawyer working for the group, which includes some 200 potential plaintiffs. "The basis of the suit is either valid or not. It has nothing to do with whether (the state and its private partner) want to go forward with the risk they want to take."
The threat of a lawsuit was of little concern to the ratings agencies assessing the debt that Elizabeth River Crossings issued for the project. In an April 3 conference call with investors, a Standard & Poor's analyst said its rating assumed the project would have tolling authority, adding that the agency based its information on the legal opinions of the Virginia Attorney General's office and a law firm.
A bigger concern to investors was how many people will try to avoid the tolls when they start. Standard & Poor's predicted average annual daily traffic will initially fall by 44 percent before it begins to rise again, compared with the 28 percent drop-off predicted by Elizabeth River Crossings. However, the ratings agency noted that the developer has a $50 million line of credit to cover lower-than-anticipated toll revenues.
The analysts also counted as a strength the fact that the tunnels are heavily used by commuters and that few convenient alternatives exist.
"Other options really aren't viable, given the extra time constraints," an analyst said during Fitch Ratings' conference call.
The agencies rated the project's debt BBB-minus, on the low end of what is considered investment-grade debt. It was Standard & Poor's first public rating for a public-private partnership project in the United States, the agency said.
The state has withheld a copy of a 2008 toll-feasibility study conducted on the project, calling it a confidential and proprietary negotiation document that needs to remain exempt from public disclosure under the state's Freedom of Information Act. The Virginian-Pilot asked VDOT for a copy of the document Friday after the project's financial closing was announced, but one was not provided.
The project will double the Midtown Tunnel's capacity by adding a second tube, refurbish the Downtown Tunnel and extend the Martin Luther King Freeway in Portsmouth to Interstate 264. It is expected to create 500 jobs directly and three times that number indirectly, ERC's Humphreys said.
Also funding the project is a $362 million contribution from VDOT and $352 million in private equity from Elizabeth River Crossings. Tolling during construction is estimated to cover an additional $350 million.
No date has been set for the beginning of tolling, but the earliest that could happen is July, Humphreys said.
The tolls - beginning at $1.84 during peak travel times and $1.59 at off-peak hours - are scheduled to last for 58 years. They can be increased by at least 3.5 percent a year beginning in 2016, when the project is expected to be substantially complete.
Gov. Bob McDonnell, who has defended the project as a priority for the region and said it could not be built without tolls, did not issue a statement Friday on the closing of the deal's financial terms.