Five hundred million. Think about it for a minute. Imagine you're the city of Richmond, sitting on piece of real estate that would sell for half a billion dollars, probably more. In one lump payment.
Half a billion. That's enough to wipe out a third of the city's debt. Triple-A bond rating? Check. It's enough to erase the city's 6-percent meals tax for 20 years. Or give everyone in Richmond a two-year break from paying real estate taxes, or knock a few cents off the tax permanently.
No money to build a new baseball stadium? Half a billion dollars is enough for 10 stadiums. Two, maybe three Richmond Coliseums. Dreams of high-speed rail at Main Street Station? It's now reality. Think Norfolk's progressive new light rail system is cool? Richmond's will be bigger. Remember Doug Wilder's $300 million City of the Future plan, the renovation of 15 city schools? Done — with money left over to build a new coliseum and a ballpark.
Half a billion dollars is enough money to redevelop Gilpin, Mosby, Fairfield — maybe all of the housing projects. Food deserts are a thing of the past. Want to create jobs? Just think of the financial incentives Richmond could dangle to land Wal-Mart, Target, or a whole fleet of grocery stores.
Now imagine you wake from that dream. You're in your car, on the way to the office, sun breaking over the horizon. You zip through the EZ-Pass lane and hop off the expressway into downtown. You just drove through the gold mine and didn't even know it.
IN ANOTHER 11 years, that Downtown Expressway system is going to be paid off. The Richmond Metropolitan Authority, a political subdivision of the state, has owned and operated it and Powhite Parkway, which includes the 10-lane bridge over the James River and the toll plaza to the south, since the early 1970s. When the debt is paid in 2022, the toll road is scheduled to become city property.
Richmond put up the land and the money in the 1960s, but the RMA holds the debt off the city's books. The deal was that the expressway system would become Richmond property when the mortgage cleared.
How much is the road worth? A single pass through the tolls costs 70 cents. Those few quarters add up. Between 150,000 and 160,000 trips are taken through the tolls almost every day. Last year that amounted to $34.5 million. After expenses and debt service, there was about $10 million left over. Most of that $10 million is used for upkeep — repaving, bridgework and regular maintenance. When the debt is paid off in 2022, there will be an extra $13 million a year.
This isn't exactly an up-and-down business, either. The expressway offers the only major bridge across the James, connecting the biggest residential suburbs of Chesterfield County with downtown Richmond. It's a commuter road with almost no competition. There are alternate routes into and out of the city, but they all tack on at least 15 minutes or more of drive time, and that's not including the headaches of stop-and-go traffic lights. During the height of the recession, the expressway system notched two of its best years in terms of traffic, generating more than 59 million trips through the tolls in 2007 and 2008.
All that adds up to a valuable, profit-churning business. In the last five or six years, big institutional investors and overseas transportation companies started offering big bucks to take over U.S. highways — but only those with tolls. Most are long-term lease deals, between 75 and 99 years. Investors paid $1.83 billion for the Chicago Skyway. The Indiana Toll Road went for $3.8 billion. Back in 2004, a team of private construction companies offered $581 million for Richmond's expressway system and the Powhite extension. Today, experts say it's worth at least $500 million.
BLINK, HOWEVER, AND that $500 million disappears — at least for another 30 years. Mayor Dwight Jones and his administration are pushing for a quicker, but much smaller payoff.
In June the expressway authority approached the city with a proposal: It wants to pay back the city, which paid to get the road running in the early 1970s, a cool $60 million. It's been long overdue. The money is part of a bond issue that the authority says it needs to float — increasing its debt by $197 million — for capital improvements. Because interest rates are so low, it can roll it all into one deal. The city gets its money and the authority gets its money — on the cheap. But there's a catch: If the city agrees to the deal, it will push out the debt on the road for another 30 years. Instead of owning the expressway system in 2022, the city wouldn't get it until at least 2040.
Transportation economists say it might be a mistake to take the money and run, especially if the road's in good condition (it is) and the city hasn't at least tested the market. Perform a financial analysis, maybe issue a request for proposals, see what comes back. Big institutional investors are searching for stable cash cows to invest in. Cash-strapped municipalities are desperate to leverage their moneymaking assets.
"This is an asset that's slated to fall into the city's pocket here and be quite a valuable asset that could be sold off or operated by the city, or a number of alternatives," says Jonathan Gifford, director of the transportation policy, operations and logistics program at George Mason University. "If they are keeping the road in good shape, and they are doing it at current toll levels and they are paying down the debt, why would the city take $60 million today instead of a much larger amount 10 years from now?"
Politics, for one. It's easy to see why the mayor wants the $60 million now. Next year is an election year. Big-ticket construction and budget surpluses pad the campaign résumé, perhaps pave the way for higher office. Jones doesn't have much else. Plans for a new jail are a mess and school construction has been delayed. It's too late for Jones to build a new ballpark or a new coliseum. If City Council approves the expressway authority's deal, it would float the bonds this fall and the city would get its big check — $60.3 million to be precise — by the end of 2011.
THE $60 MILLION would allow the city to reduce its debt and get closer to a Triple-A bond rating, Mayor Jones says, making future capital projects cheaper — the higher the bond rating, the lower the interest rates. Jones also wants to use the money to address the social cost of the Downtown Expressway, the construction of which led to the displacement of hundreds of families and business in the late 1960s.
"Massive relocations were undertaken, eminent domain laws were used to seize property and communities were torn apart," Jones says in a statement. "The communities impacted the most were the lower income areas and the poor."
Many people assume that the city and Chesterfield share ownership of the expressway system. Not true. It's entirely in the city. There are two major sections: First is the Downtown Expressway, which is about 2.5 miles long, picking up at the Interstate 95 interchange just east of the Riverfront Towers to Meadow Street to the west. A state road connects the Downtown Expressway at its western end to the second major portion, Powhite Parkway.
The parkway is 3.4 miles long and curls south across the James River to Chippenham Parkway. This is where the confusion sets in. Many people assume that the parkway and its main toll plaza are in Chesterfield. There's an extension of Powhite Parkway beyond Chippenham that's in the county, and it's about 10 miles long (there are two 50-cent toll exits off Midlothian Turnpike and Courthouse Road, and a main 75-cent toll plaza) — but all of that is owned by the Virginia Department of Transportation.
That the city gave up so much land, and displaced so many residents, is the reason the city has a majority of the seats on the board of the expressway authority. The mayor appoints six board members; Chesterfield appoints two; Henrico appoints two; and there's spot set aside for a state transportation official.
At various points during the last two decades, this board's makeup has caused political tensions in the county. More than 60 percent of the expressway system's customers live in Chesterfield, and when tolls are raised — the last time in 2008, from 50 cents to 70 cents — those drivers get upset. This usually leads to a renewed push in the General Assembly to strip away some of the city's seats on the authority's board to give Chesterfield more equal representation. The last attempt, which failed, came in 2008 after the toll increase, which in part helped pay for the new EZ-Pass lanes at the Powhite toll plaza.
"There has been some public complaint that the counties don't have equal representation, but I think that those complaints are from people who don't understand," says Bill Pantele, a local lawyer and former mayoral candidate who served on City Council during the 2008 ruckus. "It's city neighborhoods that were torn down and relocated. It was the city providing the financial backstop for the roadway. The counties didn't participate."
That's one reason why the Jones administration isn't too keen on the city taking ownership of the toll roads, City Hall sources say. There aren't many guarantees in life, but whoever owns the expressway — the authority, the city, private investors — eventually will raise the tolls. If that happens under city ownership, it could damage political relationships with Chesterfield. The city needs the help of the county, along with Henrico, to help to build a new ballpark, and there are ongoing regional transit issues. Would the county really participate in extending full-service bus lines across its borders if the city is jacking up tolls all the time?
Besides, the expressway authority is a rare thing in this town. It's a regional body, and since the General Assembly created it in 1966, it's overseen the metro area's greatest regional projects to date. The authority built The Diamond, multiple downtown parking decks, and operates a bunch of smaller bridges and roads in the city, including the Boulevard Bridge. "The reversionary right to the city is very valuable," says Jonathan Murdoch-Kitt, a Richmond lawyer and former authority board member (whose wife, Norma, is a Richmond School Board member). "But this whole thing about regional cooperation, which comes about in the RMA, is a pretty rare thing."
Indeed, the expressway opened up hundreds of millions of dollars in retail and residential development, having an enormous impact on the city and the counties during the last 40 years, says Mike Berry, the authority's general manager. In other words, the city already has received plenty of payback.
"Say the road was not there. What would it be like?" Berry asks, citing as an example the recent relocation of MeadWestvaco's corporate headquarters to downtown, just off the expressway. "Would MeadWestvaco be there if they couldn't get anywhere in this metropolitan area to their workplace in 15 minutes? I'm not saying it's only because of the expressway. What I'm saying is in terms of the competitive advantage of downtown Richmond to a lot of jurisdictions, whether it be Austin, Texas, or it be Northern Virginia ... the RMA as an asset has rendered tremendous economic development to the city and the counties."
NO ONE IS advocating for the road's disappearance. And certainly the political consequences of the road becoming city property in 2022 needs to be considered. Still, isn't it worth figuring out how much this asset might be worth?
It's been suggested that if the city turns down the $60 million now, and the authority doesn't float the $200 million in bonds for repairs soon — pushing back the date the city would gain ownership of the road to at least 2040 — the expressway won't have much value. Richmond likely would be stuck with a giant repair bill, rendering the road somewhat worthless. In an interview in late June, Berry says that during the next 10 years the expressway likely will need $126 million in repairs; from 2022 through 2035 it will need an additional $353 million in repairs.
In other words, the city might get ownership in 2022, but the needed maintenance costs would eat up most of the profits for the foreseeable future.
Calculating needed repairs 25 years down the road, however, isn't an exact science. In reality, the authority is confident it can handle repairs through 2022 — adjusted for inflation, the expected maintenance and repair needs come to about $10 million a year. If necessary, the tolls may have to be increased, but they're typically raised every 10 years or so anyhow.
And no, the road won't fall into a state of disrepair if the authority doesn't do the $200 million bond issue and give the city back its $60 million.
"I'm good," says David Caudill, director of operations for the Richmond Metropolitan Authority, referring to the existing "pay as you go" financial plan through 2022. "Maintaining my asset, I'm good."
In an interview last week, Berry offers some clarification: The biggest reason the authority proposed paying the city back its $60.3 million? Interest rates are low. The authority expects it can get 6 percent on 30-year bonds, and if it doesn't act soon the rates could go up.
"We're just saying it's an opportunity," Berry says. "If the city says they don't want to do it — then fine, we pack our bags and go."
It's plausible that the authority's proposal to the city is the best deal. After 2022, yearly capital and maintenance costs are expected to reach $20 million. But experts say other options at least should be explored. The city hasn't done an in-depth financial analysis of the expressway system to figure out what it might be worth.
The value of the expressway system depends on a multitude of factors. Would the city sell the roadway outright, enter into a long-term lease agreement with private investors or negotiate a public-private bond issue over, say, 30 years? Calculating traffic projections and the potential toll earnings hinge on many different variables.
Estimating, though, it's likely worth at least $500 million — if not much more.
In 2004, Clark Construction Group of Bethesda, Md., and Lorton-based Shirley Contracting attempted to purchase the Downtown Expressway, Powhite Parkway and the Powhite extension for $581 million. That deal fizzled. The Clark-Shirley group wanted to use the downtown tolls to fund another extension deep into Chesterfield. People freaked out over the possibility of giant toll increases.
What's it worth today? An investment manager who specializes in public infrastructure says a sensible benchmark would be the Chicago Skyway, leased for $1.83 billion. The 7.8-mile Skyway is similar in length to Richmond's Downtown Expressway and Powhite Parkway, which measure 5.9 miles.
The Chicago toll road averages 40,000 to 50,00 vehicles a day; Richmond's expressway system averages at least 150,000 vehicles a day. The tolls are much higher in Chicago, starting at $3.50 for two-axle cars and trucks. Most agree that Richmond's expressway tolls, 70 cents at the main plazas, could go much higher without detrimentally affecting traffic counts.
"This is a smaller, more specific road, but it wouldn't be unreasonable to expect a long-term concession could well be worth north of $500 million," says the investment manager, who spoke on the condition of anonymity, of Richmond's expressway system. "No doubt about it."
Selling the road to private investors will mean higher tolls, possibly much higher, which could have a negative impact on traffic — and really fire up all those Chesterfield commuters. The city, however, can negotiate the rate of toll increases, and the new owners likely wouldn't push tolls so high that people stop driving on the expressway system altogether — or, at least, that's the general theory.
And almost everyone agrees that the tolls are nowhere near the tipping point. When the tolls went from 50 cents to 70 cents in 2008, traffic dropped off about 8 percent, but it's inching back upward.
"There comes a point when people won't pay them, or not make so many trips into the downtown area. I don't think they are at that point at the moment," Peter Samuel, editor of Tollroadsnews.com, says of the city's expressway authority. "They could raise the toll rates without doing too much to the traffic for a while."
There are some people who simply want the tolls gone. After all, when the authority was created and the road construction began in the early 1970s, that was the plan. Once the debt was paid, the tolls were supposed to come off.
"First, the [Jones] administration has got to explain to us why we need to receive this money now," City Councilman Bruce Tyler says. "The second task ... My goal has always been to have the tolls removed from this highway and turned over to the Commonwealth of Virginia so that they can take ownership of it."
Tyler says removing the tolls would encourage even more economic development. More people would come into the city, leading to more commerce. "I think a lot of people avoid using the highways, because they don't have the money to pay the tolls," he says.
While Tyler's position is the more politically popular one, it may not make the most sense economically. First, keeping the expressway system as a toll road has economic advantages, says George Hoffer, professor of transportation economics at the University of Richmond.
"Having a premium road downtown for those whose time is worth the most is more of an economic growth factor for downtown Richmond than making it free and congested," Hoffer says. "I would argue that there is value to the toll road because the people whose time is worth the least stay off of it. It frees up the road for those whose time is worth more for economic activity."
Another problem with taking the tolls off is that the state is strapped for cash, particularly for road maintenance. And the authority has lots of bridges, including the main 10-lane span over the James, making it huge potential expense. The tolls are what cover the maintenance costs.
So if the tolls don't come off, doesn't it make sense to at least find out how much the expressway system is worth? The question soon may be moot. The Jones administration has asked City Council to approve the $60 million deal with the Richmond Metropolitan Authority; if the council says yes, the city won't own the road for another 30 years. A public hearing has been set for Sept. 26.
Having an asset that's worth in the neighborhood of $500 million simply can't be ignored, some say. The city can't afford to wait.
"The bottom line is that the economics involved are so substantial that before anyone makes a short-term decision they need to carefully assess long-term financial impact," Pantele says, suggesting that the city needs to conduct an independent analysis of the expressway's potential value — now. "Decisions involving this much money need to be done very carefully." S