RICHMOND VA Fluor Daniel

RICHMOND VA

Fluor Daniel’s VA-895

Connector a go

After nearly 18 months negotiations FD/MK LLC a partnership of Fluor Daniel and Morrison Knudsen has signed a contract with the Virginia Dept Transp (VDOT) to build the 895 Connector or Pocahontas Parkway, financing the $302m construction project through formation of a non-profit which will borrow the money needed on the basis of prospective tolls. The project located in the southern part of Richmond VA (pop 900k) involves at its western end adding long ramps to an existing interchange on I-95 at Chippenham Parkway leading directly onto a high level bridge over the shipping channel of the James River and a motorway leading to the airport and the surrounding industrial areas, ending on I-295 the peripheral highway along the eastern fringe of the metro area. It is a simple job except for the bridge — a total of 14km (9mi) of 2x2-lane motorway with just one intermediate interchange and 5 overpasses through flat rural country along the southside of the airport. There is provision at a later date for a second intermediate interchange providing a direct entry to the airport.

There’s one mainline and a pair of ramp plazas for toll collection.

The James River bridge and I-95/Chippenham Pkwy connections are about half the total cost. The bridge, in fact two identical bridges, will have a main span of 205m (670’) with 44m (145’) clearance – 4-lanes each bridge to provide 2-travel lanes, an accel/decel lane for the eastside ramps plus deck for a later 3rd travel lane. They will be constructed as balanced cantilever concrete box girders, being cast in place on traveling formwork.

James R. Carroll head of the FD/MK development group says the design was a cooperative effort with VDOT which had done preliminary designs itself. VDOT’s first plans were for a shorter steel girder span with piers in the river, but Carroll says after looking at the costs of fendering the in-river bridge piers against ship hits and the nervousness such a vulnerable structure might engender in the bond market, they decided to pull the piers back onto the shoreline. At this greater length concrete became cheaper than steel in a box girder design. Recchi of Italy has a contract for $126m with FD/MK to build the bridge superstructure. Emilio Rosiello who is in charge told us he built his first bridge of this type in Europe in 1965, just a few years after the first were built there. This will be his fourth in the US and one of the longest of its type here, though considerably shorter than a number of European ones. The ramps have to drop 30m (100’) onto I-95, so they are long and expensive bridges in their own right — 720m, 809m and 855m of bridge, a mix of steel plate girder, precast concrete girder and precast concrete segmental box.

Traffic projections and costings suggested only the ramps to the Chippenham Pkwy and 2 ramps connecting to I-95 on the south could be justified. VDOT at first wanted the northern ramps built as well. In what seems a compromise FD/MK is building the northbound ramp in toward Richmond, but leaving the southbound loop (Richmond to the airport) for future construction.

The project is complex and the first non-profit involving a private sector developer in Virginia. FD/MK has a fixed price design-build contract with VDOT, which will own and operate the facility. The state under the agreement appoints a not-for-profit corporation the Pocahontas Parkway Association (PPA) as the statutory operator (the term concessionaire is not used but it seems to amount to that) responsible for raising capital funds and entitled to collect tolls. The PPA will issue $371m of toll revenue bonds to cover construction costs, developer fees, some VDOT expenses and to establish a fund to cover early year losses. $18m of loans will come from a State Infrastructure Bank and $9m spent by the state on design is donated to the project.

The US tax code heavily shapes the financing. By excluding any equity and adopting the non-profit form of ownership the project receives tax exempt status under section 6320 of the US tax code. According to Bear Stearns’ James Taylor this enables it to raise money at about 6% compared to 10% it would pay if it were profit-seeking company with equity. The PPA has no members, staff or assets and is formally administered by a Richmond law firm Williams Mullen. Three of its four voting directors, with 2 and 3 year terms are appointed by VDOT (the fourth by FD/MK) so it is effectively under state control. However the voting directors are not employees of the state as part of the arrangement to dissociate the state from responsibility in case of financial default. The chief of finance at VDOT James Atwell is a non-voting member of the board. Under the agreement PPA has appointed VDOT to operate the toll facility and collect the tolls for it, though VDOT could decide to subcontract this by competitive bid.

FD/MK as the developer will get a developer’s fee of $6m on financial closing. Jim Carroll head of FD/MK says the negotiated fee covers the partnership’s costs but is not really enough to encourage further proposals if there is a risk of their not reaching fruition. The group in effect has gained a substantial negotiated bid design-build project. It walks away once the project is built.

“This is not privatization,” says Carroll succinctly.

In fact a reading of the prospectus makes clear that the bond buyers carry the financial risks without having any control over the management, which is in the hands of the state appointees at the PPA. None of which has stopped Virginia politicians from extolling it as an example of “innovative public-private partnership” though the major innovation seems to be that public officials manage to maintain complete control while giving the impression that the private sector is accountable for the success or failure of the project. Which seems a brilliant deal for politicians and public officials, who are able to claim they got the project built and earn the gratitude of motorists, while they have the private sector as a built-in whipping boy if it defaults.

Carroll says he worked well with VDOT and that he is happy with the collaboration. He says that the value engineering which produced the final design was a cooperative effort with VDOT engineers with Parsons Brinckerhoff (bridge) and Site-Blauvelt overall designer. He says that the procedure enables the state to get its highway built more quickly because of the financing arrangements. Others say the process was touch-and-go and that FD/MK at one point considered abandoning it out of frustration at the time the agreements were taking to negotiate.

Under the design-build contract FD/MK has 45 months from financial closing (expected in July) to open the facility and then there are damages of $25k/day. This arrangement differs from the first 6320 which will build the Greenville Southern Connector toll road (see TRnl#26 Apr 98 p4) in Greenville SC to the extent that the non-profit, not the state transp agency, contracts the construction. The SC non-profit directors also are state-appointed (SCDOT) but not state employees.

Traffic & revenue

The WASHINTON POST report (6/4/98) attributed to VA officials the statement that “unlike the financially troubled Dulles Greenway, which has suffered from low use, the (895) parkway will likely be used by 20,000 suburban Richmonders daily.” It quoted the governor James Gilmore as saying: “This new act and the way it is being utilized is designed to improve on the Greenway. It’ll work. We think it’ll be financially viable, and all that has been thought about based on the learning experience of the Greenway.”

Transp Secretary Shirley Ibarra said that the difference between the Dulles Greenway and the 895 Connector was “the difference between the Stone Age and today.”

The suggestion that 20,000 patrons is better than the Greenway is comic since the Gway is currently doing 30,000 tolls/day at a basic toll of $1.25. It is unable to service its debt and is negotiating a rescheduling. TRnl#27 May 98 p12) The Gway cost about the same $300m as 895.

WSA’s traffic forecasts for the 895 are indeed for 20k vehs daily with $1.50 tolls in the opening year 2002 but for 28k in ‘03 rising to 37k in ‘10 and 49k in ‘20. That is based on it getting 14% of traffic in a corridor between I-64 and VA-10. The strength of the 895 project as compared to the Gway is that it saves about 14km (9mi) and 10 to 20 mins as compared to the unpriced alternatives, perhaps a third more than the Dulles Gway time savings and twice the distance savings. The financing for 895 also apparently loads the debt service further back than the Gway. It projects over 2x debt service coverage through ‘05 and then 1.3x. The plan of finance has no explicit provision for operating expenses though the prospectus says that the PPA will establish an annual operating budget to pay VDOT operations costs. VDOT, which under the agreement has been delegated the responsibility for toll collection, maintenance and other operating expenses will apparently only be paid for those costs by PPA after PPA has paid its debt service. So the VA taxpayers bear the risk of paying operating costs in case of difficulty paying the bondholders, something which is not spelled out in any of the press materials on the project. By one account the operating costs have been estimated by VDOT at only $3.5m/year.

Also a positive for the project is that according to WSA calculations the maximum revenue generating toll rate is between $2.00 and $2.50 so there could be scope for improving the viability of the project through raising tolls. The WSA estimates also used lower growth forecasts than local officials provided, judging them to have a boosterish element. There is disagreement about how far development should spread from the airport westward along the 895 corridor. Many locals want to preserve it as rural countryside. The 8-lanes of bridge is a bet on development. (Jim Carroll FD/MK 864 281 8349, Mark White VDOT 804 225 4957)

Richmond’s “deep water port”

On a couple of visits I never saw a ship at the port of Richmond which is immediately upstream from the 895 bridge site, and even though the road there was called Deepwater Terminal Road, I wondered if you could wade across the river. So I called the port to find out why the bridge needed to be so high and so expensive. I’d hardly said anything when port director Marty Moynihan, a fiesty New Yorker, gave me an earful. “You’re trying to close us down,” he said aggressively. I guess I’d got across the thought that this inland port on a lazy river hardly makes sense when just 100km (60mi) away by the mouth of Chesapeake Bay is one of the world’s great natural harbors at Norfolk/Hampton Roads, but Moynihan had all the answers off pat.

Owned by the city, the port of Richmond is a moneymaking venture, Moynihan says. It finances its own improvements and expansion. As for my inquiry about relocating the port below the bridge that would cost $80m to $100m. Moreover there are 17 private terminals further up the river, mostly oil related, which would have to be moved too. An independent study by Martin O’Connell ten years ago found port relocation not cost-effective.

The natural advantage of the port, he says, is its location right on I-95 and close by I-85 heading into the Carolinas. The channel is only 7.6m (25’) — half the depth of Hampton Roads but it’s enough for a lot of shipping and the port gets 110 ships a year, medium sized ships from Europe and the Caribbean. As a trucking port serving an area of 500km (300mi) radius it has one great advantage over Hampton Roads.

“We’re central here. We’re right on the interstates. You drive right out our gate and there’s ramps onto 95. They (Hampton Roads) have got good rail connections for stuff going to Chicago or St Louis, but they have lousy roads to travel before they get on the real truck routes. The truckers either have backups at the bridge-tunnels or get mixed up with tourists and vacationers on I-64 or else they go three hours on back roads. We’re right there. We’re right on 95.”

That little port certainly has one great salesman, and I’m not surprised he’s getting a big bridge. I’m just surprised he hasn’t got them to make the bridge into a giant sign gantry over the shipping channel announcing in 10 foot high letters and illuminated at night “Welcome to the Great Deepwater Port of Richmond right on I-95.”