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www.thenewspaper.com/news/24/2458.asp

New Virginia Toll Lanes Designed to Create Congestion
7/8/2008

Illegal political donations helped give Australian company full control
over Virginia transportation until the year 2087.

Illegal political contributions helped an Australian firm land a
lucrative toll road deal that grants the company unprecedented power
over Northern Virginia's transportation future. Last week, Transurban
wrote and asked state lawmakers to return checks that the
Melbourne-based toll road operator had written in violation of federal
campaign laws (details). But the deal these contributions helped bring
about has already been finalized.

In June, the US Department of Transportation created a first-of-its-kind
$1.6 billion financing package that consisted of tax-free bonds, loans
and state taxpayer grants to support the project that will add a pair of
High Occupancy Toll (HOT) lanes to the Interstate 495 Capital Beltway
just outside of Washington, DC. To this amount, Transurban only added
$349 million of its own capital -- less than the cost of interest --
toward the construction of the toll lanes (details).

In return for that small investment, Transurban received from Virginia
officials the right to demand payment from state taxpayers any time that
improvements are made to a number of free roads near the Beltway. In
effect, the contract between the Virginia Department of Transportation
(VDOT) and Transurban is designed to ensure the area remains
sufficiently congested so that motorists will have an incentive to pay
to use the toll lanes.

For example, VDOT can make no changes, expansion or improvements to the
free lanes on the Beltway until the year 2087 unless the agency first
consults Transurban. VDOT agreed that if any such changes were made to
the general purpose lanes without Transurban's explicit approval, they
would at least be made in such a way as to guarantee the company
maintained a high level of profit.

"If the department [VDOT] determines that additional traffic lanes on
the Capital Beltway Corridor are in the state's best interests, the
department shall consult with the concessionaire [Transurban] as to an
appropriate strategy to implement such additional traffic lanes," the
contract states. "At the department's sole discretion, [it shall] permit
the construction of additional lanes as part of the project with a view
to minimizing any detrimental impact on the project or its ability to
generate revenues..."

In the past, most toll road deals included "non-compete" clauses that
strictly prohibited transportation departments from making improvements
to nearby, competing roads. They did so because free-flowing traffic on
alternative routes would hit the toll road's bottom line. Simply put:
why take a toll road, when there's a free alternative?

Explicit non-compete provisions have become politically controversial,
and as a result companies have recently embraced a more subtle approach
that accomplishes the same goal. For example, the contract for the State
Highway 130 toll road in Austin, Texas included a provision giving the
Texas Department of Transportation a financial incentive to lower the
speed limit on the nearby Interstate 35 freeway. As first reported by
TheNewspaper last year that, this provision was designed to create
congestion and inconvenience for the motorists who choose the free
alternative route (details).

For the Beltway project, improvements such as adding additional free
lanes to the highway are absolutely permitted -- for a price. The
contract considers any improvement to the Beltway to be a "Department
Project Enhancement" which means that Virginia taxpayers must pay
Transurban for the right to improve the free portion of the highway.
Given VDOT's stated lack of funding, adding an extra monetary premium to
the cost of any improvements effectively gives the foreign company the
ability to prevent such projects from happening.

The effect is not limited to the Beltway. The contract specifies that
payments called "compensation events" must be made in the event that the
state decides to improve the connections between the Beltway's general
purpose lanes and the Dulles Toll Road or any "improvements to I-66
outside the Capital Beltway Corridor" made over the course of the next
eighty years.

An "independent engineer" determines how much compensation Transurban
will receive by calculating an expected traffic impact. This means that
the more the public is likely to use a free alternative, the more
Transurban is paid. In Sydney, Australia, for example, the Lane Cove
Tunnel toll project contained a provision requiring the state government
to narrow the lanes of a nearby free road to generate congestion that
would drive motorists into the tunnel. After the state decided to
postpone the narrowing until after an election, the toll road concession
was paid A$25 million (US $24 million) for that compensation event.

Transurban's control goes beyond lane improvements. Although the stated
purpose of the "high occupancy" part of the toll lane project is to
encourage motorists to carpool, the contract contains a provision
directly designed to discourage any increase in the number of motorists
sharing rides.

"The department agrees to pay the concessionaire, subject to Section
20.18, amounts equal to 70% of the average toll applicable to vehicles
paying tolls for the number of High Occupancy Vehicles exceeding a
threshold of 24% of the total flow of all permitted vehicles that are
then using such toll section going in the same direction for the first
30 consecutive minutes during any day, and any additional 15 consecutive
minute periods in such day, during which average traffic for a toll
section going in the same direction exceeds a rate of 3,200 vehicles per
hour based on two lanes," the contract states.

This means if carpooling becomes popular on the Beltway, taxpayers could
end up making multi-million dollar annual payments to Transurban.

Finally, the contract insists that if any homes happen to lie in the way
of the the construction of the new lanes, Transurban will pay no more
than the current market value to purchase the land in question. If the
owner refuses to move, VDOT will condemn the property and confiscate it
for the use of the private, for-profit company through eminent domain.
The Beltway project, however, was designed to be built within existing
VDOT right-of-way to ensure the exercise of this power would not be
needed.

Transurban shares on the Australian Stock Exchange jumped 15 cents to
A$4.60 today after the company announced quarterly earnings results. On
Virginia's Pocahontas Parkway, the company reported a 7.8 percent
increase in revenue over the same quarter last year, despite a 6.9
percent drop in the number of motorists using the toll road. It credited
the positive performance to an 11 percent toll hike in January and the
cancellation of the discount previously given to transponder users.

Relevant excerpts from the Transurban contract are available in a 260k
PDF file at the source link below.

Source: Comprehensive Agreement Relating to Route 495 HOT Lanes -
Excerpts (Virginia Department of Transportation and Capital Beltway
Express, 12/19/2007)
http://www.thenewspaper.com/rlc/docs/2008/va-495hot.pdf
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