Financing Slows Rte. 28

Financing Slows Rte. 28

A public-private partnership that put the Route 28 corridor expansion project into the fast lane has run into a deflating device, namely a low bond rating.

The project — to add two lanes and install 10 interchanges for a limited access freeway from Route 7 in Loudoun County to Interstate 66 in Fairfax County — has been given a triple B minus rating.

“They are one step above junk bonds,” said Supervisor Jim Burton (I-Mercer). “Government and public facilities have no business being encumbered with bonds that risky.”

The contractors for the project, the Clarke-Shirley Route 28 Corridor Improvements, LLC, could not secure insurance on the bonds, Burton said. The county, and possibly Fairfax County, could provide that security by backing the project through a moral obligation bond with a promise to appropriate funds in case of a default, county staff said at the Feb. 4 Board of Supervisors meeting. Or, a state agency may provide the backing as presented by a transportation official later that day.

County staff presented the board with two options for bolstering the project, including the moral obligation bond and a second pay-as-you-go option both to fund and to speed up the building project, which would take 35 years with the low bond rating.

“I’m not sure what advantage it is for us to get into this,” said Supervisor Bill Bogard (R-Sugarland Run).

A Shirley-Clarke representative said the county would not likely be required to pay any debt service for the project.

“There are several funding reserves that can be used to pay debt services before any moral obligation,” said Raymond Pelletier, Jr, chairman and CEO of Public Private Solutions, Inc. (PPSi), in Leesburg.

THE VIRGINIA DEPARTMENT of Transportation (VDOT) and the Route 28 taxing district of commercial properties along the corridor tried to accelerate the project through the Public-Private Transportation Act (PPTA). The taxing district agreed to provide 75 percent of the funds for the $354 million project through a special tax, 20 cents for every $100 in assessed value.

“The tax district will pay as long as it takes,” said Laurence Millspaugh, chairman of the taxing district’s advisory board, adding that the debt is risky without any public sponsorship.

The district is using the tax to pay for a previous expansion project that added four lanes to the two-lane roadway, and asked to borrow money to pay off the first phase and to fund the second phase. Shirley-Clarke proposed the second phase be built in two steps, with six intersections in the first step, or phase, and the remaining intersections and addition of two lanes in the second.

“The market’s changed, and the best proposal they could come up with is to build six interchanges and sometime later build the additional four,” said Paul Arnett, deputy director of finance and county controller. “The investor in the securities is going to require a higher interest rate because there is more perceived risk. … It was more expensive and it was causing less to be done.”

A project representative said the Virginia Resource Authority may provide the backing for the bonds at the Finance and Government Services Committee meeting following the board meeting.

“It would be nice to have the county’s support … to get it to a double A rating,” said Leonard “Hobie” Mitchel, Commonwealth Transportation Board member.

“That’s probably good news for the project. I don’t think our board was willing to do that,” Burton said. “This bunch made their financial proposal confidential. None of our staff or the supervisors got to see it.”

The supervisors found out about the project’s funding dilemma in December after staff requested the financial data, Burton said. “The details are making us very nervous,” he said.

“This is not good business,” said Supervisor Chuck Harris (D-Broad Run).

SHIRLEY-CLARKE’S competitor bidding for the project had proposed building express lanes on the corridor, funded through toll charges. Last year, the Commonwealth Transportation Board selected the Shirley-Clarke consortium, which proposed finishing the project by 2005. If the project fails, VDOT will take over and operate the project according to its regular schedule, taking another 10 to 15 years to finish and building the interchanges one at a time, Burton said.

VDOT agreed to pay $75 million toward the project, including funding a limited-access intersection at Route 625 and providing partial funding for the Route 606 intersection.

However, VDOT is reviewing several transportation projects in the region and may delay or eliminate some of the projects to accommodate deficits in highway funding.

Meeting federal air quality standards also could delay the project. The state approved three of the first phase intersections last year, including those at Routes 625 and 606 and at Innovation Drive. But the remainder of the project may not receive approval until the metropolitan region lowers its daily nitrogen oxide (NOx) emissions. The region has until 2005 to meet federal ozone standards, an extension from 1999 by the Environmental Protection Agency (EPA), or could risk losing federal highway funds and be required to follow a federal plan the EPA imposes on the region. The Clean Air Act has placed restrictions on any regional roadway projects that increase capacity.

“This threat to the transportation system is real, and it’s here now. This is serious, and all these Richmond, Virginia politicians really don’t understand the problem,” Burton said. “The region’s going to have to learn how to adjust its land use pattern to live with what it has now. Outward sprawl is coming to a stop, and that’s being covered by the Clean Air Act.”

The Board of Supervisors will meet with the taxing district next week to determine what steps the landowners want to take and if they want to incur any additional debt. Under the current arrangement, the landowners’ debt extends until 2037.