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Toll judgment throws Midtown into chaos 22 May 2013
Peter Kenyon, TunnelTalk
A court ruling that tolls to help pay for construction of the new Midtown immersed tube tunnel in Virginia, USA, are unconstitutional, has cast doubt on the major funding source for the US$2.1 billion PPP project.
Construction of tunnel elements is already under way in Baltimore

Construction of tunnel elements is already under way in Baltimore

The ruling, confirmed by Portsmouth Circuit Judge James Cales on Tuesday (20 May, 2013), means a final decision will now have to be referred to the Virginia Supreme Court.
Advance construction of the 1,700m-long two-lane submerged road tunnel that will run parallel to the existing Midtown Tunnel and will connect Norfolk and Portsmouth, is already well under way. Elizabeth River Crossings Consortium (ERCC), the private partner of Virginia Department of Transportation (VDOT) in the project, reports that fabrication of the first six of eleven 15,000 tonne, 109m x 16.5m x 8.5m reinforced concrete elements is already under way in dry dock in Baltimore. Dredging of a channel under the Elizabeth River has also begun. Since VDOT transferred management of the Elizabeth River tunnels, and authorized a start on construction on the new Midtown crossing in July last year, ERCC has generated expenses of US$348 million.
ERCC, a private consortium comprising Skanska Infrastructure Development and private equity firm Macquarie Financial Holdings, says it will continue as per its construction schedule even though it is unlikely that the case will be heard in the Supreme Court until October. How long after that hearing takes place before a final decision is announced is uncertain.
Dredging has begun on Midtown submerged tunnel

Dredging has begun on Midtown submerged tunnel

Under the terms of the PPP agreement signed between ERCC and VDOT in December 2011, tolls of between US$1.59 and US$1.84 (for cars) were due to start being collected on both existing Elizabeth River tunnel crossings from February 1, 2014. The ruling by Judge Cales means that ERCC cannot start to begin collecting tolls until the Supreme Court says otherwise.
A group of residents and businesses, backed by the local Portsmouth City Council, appealed the State General Assembly's right to cede "unfettered power" to VDOT to set toll rates for the Midtown project. Judge Cales said this was unconstitutional and that the power to set the rates had been given "without any real or meaningful parameters." From 2016 the operator was given authority by the State to increase tolls by at least 3.5% per year, which at the end of 20 years could mean tolls would be double the current set rate. The final decision is likely to rest on whether a toll can be considered a form of taxation.
A resolution in support of the plaintiff (Meeks et. al.) passed by Portsmouth City Council (which opposed the toll rate all along) says: "The tolls are actually an illegal tax imposed on users of the facilities by an unelected entity in violation of the Constitution of Virginia" and that the "unconstitutional delegation" of power to set rates and raise them further "closes the door on all public comments on any future toll increases."
The resolution added: "The tolls that will be imposed on the citizens and businesses of Portsmouth and Hampton Roads are inequitable and not based on the actual improvements at each tolled facility."
At Tuesday's hearing Judge Cales said: "The General Assembly has exceeded its power by ceding the setting of toll rates and taxes in violation of Article 4, Section 14, of the Constitution of Virginia."
Judge Cales ruling (May 21, 2013)
Judge James Cales

Judge James Cales

"Defendants' motion for summary judgment is denied and Plaintiffs cross motion for summary judgment is granted as to those counts to the extent that the General Assembly has exceeded its authority by ceding the setting of toll rates and taxes in the circumstances of this case for the use of facilities that have been bundled solely for revenue-producing purposes in violation of Article IV s.1 of the Constitution of Virginia and to the extent that the General Assembly has given unfettered power to the Virginia Department of Transportation to set toll rates without any real or meaningful parameters."
"If there is any irreparable damage [caused by not being able to charge tolls], it's the State that did it to themselves as far as the Court is concerned by entering into the Faustian contract." A Faustian contract is a deal with the devil.
ERCC's Attorney Stuart Raphael said after the hearing: "The project is on time and on budget and we are going to deliver it. There has never been a decision (in America) that has rejected tolls as a tax so we are going to take that to the Supreme Court."
11 elements for parallel Midtown submerged tunnel

11 elements for parallel Midtown submerged tunnel

He added: "This was, of course, a disappointment for us but we get a fresh start in the Supreme Court of Virginia and that's where we're headed next."
ERCC said in a statement yesterday (Wednesday 22 May, 2013): "Elizabeth River Crossings will continue working with our partners at the Virginia Department of Transportation toward an appeal of the Portsmouth Circuit Court ruling and final order handed down today."
"In the meantime, ERC remains committed to delivering the project consistent with our agreement with VDOT and the Commonwealth of Virginia in accordance with the terms of the circuit court order."
Approximately 120,000 journeys are made through the existing tunnels each day, six times more than when the Midtown Tunnel first opened. According to an official estimate ERCC expects to raise US$87.1 million in tunnel tolls in 2016, rising to US$117.1 million a year by 2026 and US$139.5 million a year by 2034. No tolls have been charged at either the Midtown (opened 1962) or Downtown (opened 1952) tunnels since 1986.
  • ERC tunnels across the Elizabeth River

    ERC tunnels across the Elizabeth River

  • The Elizabeth River

    The Elizabeth River

Under the terms of the PPP agreement that was signed in December 2011, the ERCC was to finance, build, operate and maintain the new tunnel and an extension to the Martin Luther King Freeway. It also assumed responsibility for a full refurbishment program for the existing tunnels at Downtown and Midtown. The 58-year concession allowed it to charge tolls on all the tunnels, not just the new one at Midtown. Part of the Plaintiff's argument is that by allowing tolls to be charged at a set rate at all three tunnels, drivers will be paying for tunnels that are already paid for.
ERCC assumed the risk of delivering the project on a performance-based, fixed-price contract, with VDOT retaining ownership of the facilities and contributing US$362 million specifically designated to lower tolls that were to initially range between $1.59 and $1.84 for cars. According to the contract, the ERCC will provide financing through a $422 million TIFIA loan, and approximately $1.3 billion through equity, debt and revenue from operations. A consortium of Skanska/Kiewit/Weeks Marine form the design-build construction JV, with Skanska the lead partner (45%) in the US$1.47 billion construction contract.
References
Judge Cales' judgment summary - 21 May 2013

Financial close seals Midtown Tunnel start - TunnelTalk, April 2012
Midtown PPP contract awarded in Virginia - TunnelTalk, December 2011

           

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