The Pocahontas Parkway, also known as Virginia SR-895, is an 8.8 mi, four-lane toll highway that connects I-95 with I-295 near the Richmond International Airport. The parkway was constructed without the use of toll revenue bonds through an innovative PPP that was the first construction project under Virginia's Public-Private Transportation Act of 1995 (PPTA).48 The Virginia Department of Transportation (VDOT) established a 63-20 public benefit corporation called the Pocahontas Parkway Association (PPA) to finance the development and construction of the toll facility by issuing $354 million in tax-exempt toll revenue bonds, obtaining $18 million from Virginia's State Infrastructure Bank, and using $9 million in federal funds for design costs. VDOT also entered into a comprehensive development agreement and a D/B contract with a Fluor/Morris Knudsen joint venture. Construction began in the fall of 1998, and the Pocahontas Parkway opened to traffic in stages beginning in May 2002. The construction phase was complicated by a costly bridge over the James River and by complaints from the City of Richmond about the lack of access to I-95. VDOT also learned from FHWA in 2002 that it would be unable to designate the toll road as I-895 because, under 23 U.S.C. § 129(a)(1)(A), federal funds may not be used for a tolled Interstate. VDOT had used approximately $9 million in federal funds for preliminary engineering purposes.
Upon the completion of construction, the joint venture's outstanding rights and obligations under the comprehensive agreement (including the rights to operate and maintain the facility) were transferred to the PPA. The Pocahontas Parkway was opened under the management and control of PPA. Unfortunately, PPA experienced serious financial difficulties during the operations phase, as toll revenues produced only half of the forecasted amount. PPA struggled to meet its debt repayment obligations, the rating agencies downgraded the PPA bonds, and PPA was forced to raise the aver-age toll for the 8-mi link to $2. As a result of these financial woes, VDOT and PPA entered into discussions with Australian toll way operator Transurban about taking over the Pocahontas Parkway in response to an unsolicited proposal by Transurban and its finance partners.
In June 2006, Transurban agreed to acquire the Pocahontas Parkway from PPA through a special purpose entity and also entered into an Amended and Restated Comprehensive Agreement with VDOT. Under the terms of those agreements, Transurban obtained a 99-year concession to manage, operate, maintain, and collect tolls on SR-895 for the price of $548 million. The agreement with VDOT contains specific restrictions on the amount of toll increases that can be imposed by Transurban over time (for example, after 2016 the maximum toll increase will be the greater of the increase in the CPI, Real GDP, or 2.8 percent). Transurban also agreed to a revenue-sharing provision whereby VDOT will receive a "permit fee" equal to a percentage of toll revenue in excess of a specified rate of return.49 VDOT has the right to terminate the arrangement for convenience after 40 years, which is the estimated time it would have taken for the prior operator to pay off all liabilities.
Transurban also agreed to construct a 1.58-mi, four lane extension of the parkway to the Richmond International Airport. Transurban's obligation to construct the extension was contingent on receiving $150 million in TIFIA financing, which would be used to refinance $95 million of long-term senior bank debt, pay for $7 million in upgrades to the electronic tolling systems, and contribute $48 million to the construction of the airport connector. Construction on the airport connector is expected to begin in 2008 and end in 2010, at which point Transurban will operate and maintain the toll connection, which is viewed as a vital link in the regional transportation network serving the Richmond International Airport.
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48 See Va. Code §§ 56-556-56-575.
49 The "permit fee" equals 40 percent of aggregate toll revenue once real net cash flow yields a pretax internal rate of return (IRR) of 6.5 percent on total invested project funds paid on par with operating costs prior to payment of debt service. If pretax IRR of 8 percent is reached, the "permit fee" increases to 80 percent of total invested project funds. Transurban Presentation, VDOT: Pocahontas Parkway Agreement (July 2006).