Before the public sector will assume the financial risk of financing a multi-year, billion dollar project, Fluor-Transurban must have assurances (within a degree of certainty) that their investment can be recovered through a dedicated income stream. Tolls or user fees are common sources of revenue as part of projects that deliver major highway infrastructure.
The private sector consortium of Fluor-Transurban is financing three quarters of the cost of the project. In return, the joint venture will operate the HOT lanes and collect user fees in the form of market-based tolls for non-HOV vehicles.
Before the development of a comprehensive financing plan and the commencement of contract negotiations, Transurban hired an expert transportation-consulting firm to conduct an investment grade traffic and revenue study. This type of study, a common practice with any transportation investment that involves financial risk, is necessary to estimate the level of traffic and potential revenue stream. The study was used as an entering argument in the negotiations of the final business terms between all parties completed on August 31, 2007.
The traffic modeling predictions in this study estimate that the average trip during rush hour will be $5 to $6 with tolls varying from 10 cents to $1 per mile depending on the day and the level of congestion. Barbara Reese, VDOT's Chief Financial Officer, stated that the study estimates 66,000 vehicles per day will cross through the HOT lanes during the first year. After the ramp up period (approx one year), daily trips are projected to rise to 125,000. A key feature of the agreement is that High Occupancy Vehicles (HOV) carrying three persons or more that use the HOT lanes will not be charged user fees. To provide insurance to the concessionaire that this allowance will not dominate the lanes, the state will provide reimbursement for HOV use if it exceeds 24 percent of daily traffic. This part of the agreement is effective for 40 years.
At the time we conducted research for this report, submission and verification of the final operational models to ensure congestion will be adequately addressed was the only outstanding item remaining. After this part of the agreement is finalized, the investment grade traffic revenue study and final business terms will be made public (expected by year-end 2007).
Finally, VDOT will be entitled to receive a share of toll revenues if HOT lane revenues exceed predictions. This share will range from five percent to 30 percent of gross tolls. A series of return benchmarks will be established and agreed upon as part of the completed financial arrangement.