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Populists Attack on Tolling in Virginia

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(This first ran in Surface Transportation Innovations.)

Virginia’s Midtown Tunnel P3 project, being delivered as a $1.7 billion toll concession, has been challenged in court as an unconstitutional delegation of tolling authority to Virginia DOT (and hence to the concession company, a joint venture of Macquarie and Skanska). To the surprise of many observers, earlier this year a state Circuit Court agreed with the plaintiff’s case, so it is now on appeal to the Virginia Supreme Court.

Virginia has been one of the pioneers in long-term P3s for transportation infrastructure. After its very first such project, the Dulles Greenway, endured a difficult birth as (legally) a public utility under the jurisdiction of the same regulatory agency that regulates electric utilities, the legislature enacted the Public-Private Partnership Act (PPTA) of 1995. A number of tolled and non-tolled projects have been carried out under the PPTA, including the tolled express lanes on the Capital Beltway (I-495) and the under-construction tolled express lanes on I-95, with more such projects in the pipeline. None of those projects faced constitutional challenge.

What aroused the ire of local activists and legislators about the Midtown Tunnel concession was the financing deal worked out to minimize the toll rates for the new tunnel. With the addition of the new tunnel via this project, there will be three parallel tunnels under the Elizabeth River linking Norfolk and Portsmouth. The original tunnels were financed with toll revenue, but when their original bonds were paid off, the tolls were (foolishly) rescinded. Given that the three tunnels will be close substitutes for each other, charging only to use the new one would (a) mean large numbers of motorists would opt for the non-tolled alternatives, and (b) require sky-high toll rates on the new tunnel, which would exacerbate problem (a). So the concession agreement calls for the company to be responsible for operating and maintaining all three tunnels, with comparable low tolls on each.

I recently read over VDOT’s opening brief to the Supreme Court. I am not an attorney, so I can give you only a transportation policy perspective on its arguments—but I find them highly persuasive. The first main point is that, contrary to the plaintiffs’ allegations, the tolls are not “taxes,” either in the legal meaning under Virginia law or in any common-usage sense of the two terms. The tolls are user fees that do not raise revenues for unrelated purposes. There’s a huge legal literature on this subject, not only in Virginia but in many other states. And VDOT argues that there is ample legal precedent, in utility law and elsewhere, that user fees to support a bond financing may support a “project” that consists of multiple facilities operating as a network.

VDOT also argues that the tolls are not taxes because they are voluntary, since there will remain alternative ways to cross the river without paying a toll; hence there is no delegation of taxing power to VDOT. The brief also notes that the “plaintiffs have not cited even a single case holding that tolls are taxes, in Virginia or elsewhere.” And finally, arguing that the PPTA does not unlawfully delegate legislative authority to VDOT, the brief says that “Compared to the generally stated policy objectives upheld in other cases, the PPTA easily passes muster.”

This case poses a direct challenge both to toll finance and to one of the nation’s first, and most-used, transportation P3 enabling laws. It would be a travesty for the Virginia Supreme Court to uphold the horribly flawed Circuit Court decision

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