In response to growing interest in private investment in transportation facilities, Virginia's General Assembly in 1988 authorized private development of toll roads in the commonwealth. A group of investors, the Toll Road Investors Partnership II, thought that a toll road linking Washington's Dulles International Airport and Leesburg, Virginia, would be a promising investment. Their analysis was based on residential and commercial growth in the area, which was causing increased congestion on existing arterial roads serving the corridor.
The product of its investment is the Dulles Greenway. The Greenway is a 14-mile, limited-access highway extending from the State-owned Dulles Toll Road, which carries traffic between Washington's Capital Beltway and Dulles Airport, to Leesburg. The two roads connect at a toll plaza. Drivers pay one toll, which the operators of the two facilities divide. Vehicles equipped with prepaid electronic tags may drive through "Fastoll" lanes without having to stop at a toll booth; their tags are read and their accounts debited automatically.
To finance the Greenway, investors put up $40 million in cash and secured $310 million in privately placed taxable debt. Ten institutional investors led by CIGNA Investments, Prudential Power Funding Associates (a unit of the Prudential Insurance Company of America), and John Hancock Mutual Life Insurance Company provided $258 million in long-term, fixed-rate notes (due in 2022 and 2026). Three banks (Barclays, NationsBank, and Deutsche Bank AG) agreed to provide part of the construction funding and $40 million in revolving credit. Loans are to be repaid with toll revenues, and the financing is secured by a first mortgage and security interest in the developer's right, title, and interest in the facility.
The Greenway opened to traffic in September 1995. Initially, the toll was $1.75 each way, but when traffic fell short of projected levels, the toll was reduced to $1.00. Lowering the toll attracted more users but not enough to increase total revenues. Consequently, in July 1997, the Greenway's operators raised the toll to $1.15.
The shortfall in toll revenues from the project has brought problems for its investors. They had projected toll revenues for the first year at $27 million; $7 million was to go for operating costs and $20 million toward the $30 million in annual interest. When those revenues did not materialize, the investors began to miss their quarterly interest payments of $7 million each. However, they won approval from lenders to skip the payments for the rest of the year, avoiding foreclosure through the end of 1997. In December 1997, the sponsors were discussing a further extension of their standstill agreement with the lenders.
The 1988 enabling legislation passed by the General Assembly prohibited the State from bailing out the Greenway or other such facilities. Nevertheless, after the disappointing results of the first few months of the toll road's operation, the Virginia legislature considered such action. In the end, it rejected a bailout; however, it voted to allow the speed limit on the Greenway to rise (from 55 to 65 miles per hour) in hopes of attracting more motorists.
The Greenway is a build/operate/transfer facility and becomes the property of the State after 42.5 years. Under that kind of arrangement, the people of Virginia get a road financed through tolls, not taxes, that is built sooner than otherwise would have been the case. The developers receive the profits (assuming that the market eventually provides profits) for a long enough period to recoup their investment. Virginia's State Corporation Commission limits the rate of return on the project to 18 percent, but profits appear unlikely to approach that level anytime soon.