(Editor’s note: this is the continuation of the article that began in the last issue of the Jefferson Policy Journal, on October 17, 2013. This article discusses the extent of public private partnerships in Virginia’s transportation spending and the active work that is being done by the Office of Transportation Public Private Partnerships – OTP3.)
As for the notion that they are churning out deals, OTP3(Office of Transportation Public Private Partnerships) officials emphasize that they do not pursue every deal they come across. The office looked at upgrading the pavement on Interstate 85 but concluded that the state would not have gotten much bang for the buck, says Jackie Cromwell, an OTP3 program manager. “Not every project is right for P3s.”
But P3s appear to be the solution to a lot of projects — more than anyone could have imagined before Kinn came on board in 2011. Aside from the expected transportation projects, the office is looking at the leasing of cell phone towers in highway Right of Way, the use of smart technology to weigh trucks and check their credentials while running at highway speeds, addition of a retail component to state-owned park-and-ride lots, creation of a Wallops Island visitors facility, and the enhancement of highway rest stops.
But the ideas that gets Kinn the most excited — and he does get quite animated — are the development of air rights over VDOT right of way and the creation of “availability payments” as a new financing option.
OTP3 has identified several locations where the state potentially can sell or lease air rights over highway or Metro stations in order to reap a revenue stream from real estate developers. “Air rights are fallow assets,” declares Kinn. Massachusetts has converted air rights into veritable annuities, and he sees no reason why Virginia cannot as well.
The idea has progressed the furthest in Arlington County where the state and the county have issued ideas for re-development in in Rosslyn, a commercial district across the Key Bridge from Washington, D.C.’s Georgetown. Nine developers have responded. Initially, he had expectations for two million square feet of development. Responses have run as high as 3.5 million square feet.
The other hot concept, availability rights, is a novel way — novel for the United States, at least — of financing infrastructure for which the state won’t accumulate funding for many years. The idea is to identify a project for which the needs are immediate and the safety, congestion-mitigation or economic-development benefits substantial, then outsource the design, construction, financing and operation & maintenance of the project to a private company. The state would repay the company when funds become available, typically within a 20-year period, and assume control at the end of the deal. The financing technique has been used in Europe.
Kinn sees the idea working for improvements to Interstate 64 on the Peninsula, where state funds will trickle in over many years. Stretched-out funding means the project will be built in segments, one following the other, subjecting travelers to years of bottlenecks and traffic disruptions. Packaging the projects as a single job would create construction savings and would allow the improvements to be built earlier and with less inconvenience to the traveling public. Says Kinn: “Pay a little more and have 15 miles [built] in four years, or save a little and have construction bottlenecks for years.”
Similarly, design-build-finance (DBF) projects can accelerate construction of smaller projects, which haven’t received much P3 interest. One fairly advanced example is a cluster of projects in Lynchburg, where a group led by English Construction Company has proposed building an interchange on Odd Fellows Road, providing bicycle and pedestrian access, replacing a traffic light with a roundabout and making other improvements. The projects would cost between $31 and $70 million, depending upon the final scope. The proposal would allow the improvements to be made two to three years earlier than they appear on VDOT’s Six Year Improvement Program.
DBFs and availability payments create an option for smaller-scale projects where tolling is impractical. It could be a boon to rural Virginia, says Kinn.
The recognition from Infrastructure Investors is just icing on the cake. He and his compatriots at the OTP3 have “won every award it’s possible to win,” Kinn says. Other states look to Virginia as a model for public-private partnerships. They’ve copied the Virginia legislation. They send delegations to Virginia to see how P3s work. He gets dozens of speaking invitations every from around the country. “People follow very closely what we’re doing.”
By objective measures, Kinn says, Virginia probably ranks higher in the P3 arena higher than anywhere in the world but the United Kingdom, which is unsurpassed. But there is competition from 50 states and he refuses to get complacent. Count on him to continue pushing the envelope. In the words of baseball legend Satchell Paige, “Don’t look back. Something might be gaining on you.”