Elizabeth River Tunnels Project

Transportation around South Hampton Roads is complicated by the various branches of the Elizabeth River (Virginia), which are crossed by two major highways. The busiest spur route in the area, I-264, crosses the river's Eastern Branch (via the Berkley Bridge) and its Southern Branch (via the Downtown Tunnel). Built in 1952, the westbound Downtown Tunnel is the oldest tunnel in Hampton Roads; much of it, including its ceiling tiles, has reached or exceeded its designed service life and requires repairs. The eastbound tube, built in 1987, also requires maintenance, as well as several updates to comply with NFPA 502 regulations.

The primary alternate route to the Downtown Tunnel is the Midtown Tunnel upstream. Built in 1962 to carry U.S. 58, the Midtown allows direct access to Portsmouth without passing through Downtown. Built with one lane in both directions, it served nearly 8,400 vehicles per day in its first operating year[1] and nearly 40,000 per day in 2013, making it the "most heavily traveled two-lane road east of the Mississippi", according to the VDOT and ERC. Traffic is projected to rise to nearly 50,000 vehicles per day by 2026.[2]

The Martin Luther King Jr. Freeway carries U.S. 58 after the Midtown Tunnel to its surface-street connection on London Boulevard in Portsmouth. As part of the long-term plan, regional leaders and VDOT looked to extend the freeway from its terminus at London Boulevard down to I-264, creating a highway-speed alternate that connected I-264 to the Midtown Tunnel and the new Western Freeway. Efforts to extend the MLK Freeway have been in the works with VDOT as far back as the early 1990s, when the agency completed its initial environmental assessment. The project received a new environmental assessment in 1999, when VDOT began pursuing the parallel Midtown Tunnel.

In June 2004, the Hampton Roads Planning District Commission wanted to add the parallel Midtown Tunnel and the extension of the Martin Luther King Freeway (along with several other congestion-relieving projects) to the 2026 Regional Transportation Plan (RTP). The construction cost was estimated at $686 million.[3] However, the Commission removed the project from the RTP after concluding that state funding would be insufficient, and because VDOT determined that "reliance on a regional gas tax [was] not a reasonably foreseeable source of revenue" for the plan.[4]

In 2006, the Hampton Roads Metropolitan Planning Organization (MPO) (formerly a subcommittee of the HRPDC, now known as the Transportation Planning Organization) concluded that new tolls could help secure funding for transportation projects that were removed from the 2026 RTP, including the Midtown Tunnel and MLK Extension. This would include tolling the parallel Downtown Tunnel to create a congestion-management plan to prevent the diversion of potential Midtown Tunnel traffic to a competing free facility. Both tunnels were initially tolled (25 cents, both ways) to pay off their construction bonds; both were made free in the late 1980s after the opening of the second (eastbound) Downtown Tunnel.[1] Options included adding a 58-cent toll to the Midtown Tunnel (and a 19-cent toll to the MLK Extension), which could raise $427 million for the project; or adding a $2.05 peak/$1.50 off-peak toll for the Midtown, and a $2.20 peak/$1.60 off-peak for the Downtown Tunnel, which could raise nearly $4.8 billion.[5] Based on this study, the MPO added the projects to the regions 2030 RTP, now estimated to cost around $779 million— if the Virginia General Assembly approved the new tolls and several tax increases.[6]

After receiving the proposal, the General Assembly enacted House Bill 3202 introduced by State Delegate William J. Howell, which allowed the region to enact tolling on the project by creating the Hampton Roads Transportation Authority, as well as authorizing tax increases requested by the MPO to finance the other major projects in the region's plan, including the controversial civil remedial fees, a plan that would have allowed the HRTA to raise nearly $169 million in taxes in its first year. However, the authority's taxing authority was short-lived. On February 28, 2008, the State Supreme Court ruled in Marshall v. Northern Virginia Transportation Authority that the taxation authority granted to these non-elected bodies violated the Constitution of Virginia:

The General Assembly also may not accomplish through Chapter 896 [HB 3202], indirectly, that which it is not empowered to do directly, namely, impose taxes on the citizenry in the absence of an affirmative, recorded vote of a majority of all members elected to each body of the General Assembly. Thus, by enacting Chapter 896 [HB 3202], the General Assembly has failed to adhere to the mandates of accountability and transparency that the Constitution requires when the General Assembly exercises the legislative taxing authority permitted by the Constitution. If payment of the regional taxes and fees is to be required by a general law, it is the prerogative and the function of the General Assembly, as provided by Article IV, Section 1 of the Constitution, to make that decision, in a manner which complies with the requirements of Article IV, Section 11 of the Constitution.[7]

The opinion did not find the existence of the HRTA (or the NVTA for that matter) to be unconstitutional, nor did it strike the authority of the regional authorities to impose tolling on the roadways.

As early as 2004 while the political wrangling continued, VDOT had determined that in order to fund the project, it would need to be a public-private venture, sending out an informal request for information for private entities interested in pursuing such a project.[8] Three companies[9] [10] [11] expressed an interest in the project, including Skanska. Both Skanska and one of the other interested parties stated that tolling on the Downtown Tunnel and the Midtown Tunnel would bring about the best financial outcome for completing the project.[9][11] Following that, VDOT began the process to solicit bids from private companies to partner with the state in executing the Elizabeth River Tunnels Project (which now included the rehabilitation of the Downtown Tunnel) through Virginia's Public Private Transportation Act.[12] Transportation Secretary Pierce R. Homer said that "It desperately needs upgrading." and that "it's a very expensive project and we have no public‐sector resources to pay for it.",[13] which was underscored in the solicitation request, which stated that "user tolls will ultimately pay for the work".[13] Ultimately, although three companies expressed an interest, only one actually submitted a proposal, which was what is now Elizabeth River Crossings.[14]

After the lengthy review process required under the PPTA, then-Governor Bob McDonnell and VDOT executed the Comprehensive Agreement with ERC on December 5, 2011.[15][16] Under the agreement, VDOT retains ownership and oversight of the tunnels, while ERC finances, builds, operates and maintains the facilities for a 58-year concession period. Funding is expected from tolls, private equity, contributions from the Commonwealth and a low-interest Federal Highway Administration loan.[17] ERC is responsible for paying back all debt on the project, as well as assumes the entire risk of a decrease in toll revenue if traffic counts do not meet projections. However, if traffic exceeds projections and increases revenue, VDOT will receive a portion of the excess revenue, after all other costs and debt service has been paid for the period.

The deal reached financial close on April 13, 2012. The cost of the project, at financial close was $2.1 billion.[18] ERC eventually received $300 million from VDOT, $663.75 mil from the Virginia Small Business Financing Authority[19] and $422 million from the U.S. Department of Transportation, all of which went to pay down the toll rate.[18] The 58-year concession period will end on April 13, 2070.

The agreement gave ERC the authority to impose tolling on the roadway in order to recoup the private parties the money they put into the project. Initially, ERC estimated the toll rate to be between $2–3 (for cars),[14] however the Comprehensive Agreement scheduled the tolls to begin at rates of $1.59/non-peak hours and $1.84/peak for cars and $4.77/non-peak and $7.34/peak for heavy vehicles after the infusion of VDOT and FHWA money and the extra eight years added to the concession.[20] However, after public outcry at the rates, the incoming governor, Terry McAuliffe announced a further, $82.5 million buydown of the tolls through the completion of the construction. This buydown reduced tolls to 75-cents/off peak and $1.00/peak for the light vehicles, and $2.25 during non-peak or $4.00 during peak hours for heavy vehicles. Under Gov. McAuliffe's plan, toll rates would increase by 25-cents each year until January 2017 or until the new Midtown Tunnel is completed, at which point they would return to the rates set in the Comprehensive Agreement.[21][22]

After 2017, rates increase annually by a factor equal to the greater of changes to Consumer Price Index or 3.5 percent.[23][24]

Each level of the project was laid out in detail in the Comprehensive Agreement as four separate projects/services, along with the dates that construction on them must be substantially completed to avoid the contract penalties.

• Public-private partnerships in the United States