SD12 - Proposed Financing Plan for the Route 168 South/South Battlefield Boulevard Bypass

Executive Summary:
Battlefield Boulevard, South (Route 168), is the major north/south corridor connecting the Hampton Roads urban area of Southeast Virginia and points north to North Carolina's resort area known as the Outer Banks. The existing Battlefield Boulevard South corridor extends from the south end of the Great Bridge Bypass at Hanbury Road in the City of Chesapeake (the City), south to the North Carolina State Line, a distance of approximately 10.2 miles. Route 168 is a city street maintained and operated by the City as a part of the urban system of highways in Virginia.

Traffic on Route 168 has tripled since 1970. The two-lane rural road's capacity is strained to the extent that the safe and efficient movement of people and goods through the corridor is often jeopardized. A "Level of Service" study conducted by the Hampton Roads Planning District Commission indicates that in 1994 most of the existing facility operated at an unacceptable level of service and that by the year 2000, the entire facility will operate at an unacceptable level of service if left unattended.

While there are many different strategies for easing congestion, they are not all appropriate for Route 168, given the large proportion of through traffic. Some alternatives, such as ridesharing, will ease congestion slightly; however, additional highway capacity is clearly warranted.

The planning and approval process for improvements to Route 168 has been underway for many years and in 1988 an alignment was approved by the City and the Commonwealth Transportation Board (CTB). However, due to the need for a permit from the U. S. Army Corps of Engineers (the Corps) and new environmental regulations, the Corps required an environmental document be prepared and the alignment reassessed. The draft environmental document addressed nine alternatives. Based on information gathered throughout the public information process, the proposed improvement was narrowed to three alternative alignments for the location public hearing.

The three alternative alignments are designated Alternative 1, Alternative 5, and Alternative 6. Alternative 1 is an entirely new alignment which runs parallel to existing Route 168. Alternative 5 proposes widening of the existing two Route 168 to four, six and eight lanes. Alternative 6 follows Alternative 1 to Indian Creek Road, then follows Alternative 5 to the North Carolina border.

Escalated at a rate of 4% to the projected date of construction, cost estimates for the three alternatives are $110,017,000 for Alternative 1, $99,299,000 for Alternative 5, and $94,419,000 for Alternative 6.

Currently identified funding for the three alternatives is as follows:

Alternatives 1 & 6:

State Urban Allocations: $16,504,000
Toll Facilities Revolving Account: $18,107,000
Regional Surface Transportation Program: $1,000,000
City of Chesapeake 1994 General Obligation Bonds: $8,100,000

TOTAL: $43,711,000

Alternative 5:

State Urban Allocations: $16,504,000
Regional Surface Transportation Program: $1,000,000
City of Chesapeake 1994 Bond Referendum Funds: $8,100,000

TOTAL: $25,604,000

Alternative 5 is designed as a non-limited access facility, which does not lend itself to tolling. Therefore, Toll Facilities Revolving Account funds are ineligible as a funding source for this alignment. Application of identified funding versus the inflation-adjusted project cost estimates reveals funding gaps of $66,306,000 for Alternative 1, $73,695,000 for Alternative 5, and $50,708,000 for Alternative 6.

This study considered the following as sources of funding to bridge the gap between available funding and project costs: privatized delivery and operation of the facility; public-private partnerships and risk-sharing; Intermodal Surface Transportation Efficiency Act funds; institutional delivery options such as an authority or a multi-jurisdictional or state commission; state and/or local bonded indebtedness; state funds; local funds; value capture financing; and toll revenue bond financing.

Because Alternative 1 is designed as a limited access facility and Alternative 6 is designed with approximately 5 miles of limited access, tolling all, or at least a portion, of the facility under either of these two alignments provides a means of bridging the funding gap through toll revenue bond financing. Based on analysis provided by Virginia Department of Transportation's (VDOT) financial advisor, Public Resources Advisory Group, approximately $56.5 million could be raised-through a toll revenue bond issue for Alternative 1. The remainder of the financing needs, totaling $9.8 million, could be generated as investment earnings on all project funds including bond proceeds and currently identified funding. The use of interest income for the Route 168 project would be dependent on meeting a two-year construction schedule and the establishment of a non-reverting fund authorized to retain interest earnings on allocations from currently identified funding sources.

Due to the break in the limited access for Alternative 6, traffic and revenue projections, as well as other relevant data, were either not available or not feasible for preparing this study. Therefore, a similar analysis could not be completed for Alternative 6.

Based on the assumptions made in this analysis and the results, it appears that the facility can be financed through application of currently identified funding and accrued interest thereon in conjunction with issuance of toll revenue bonds. The bonds can be structured as senior lien debt without the need for subordinate debt and maintain an adequate coverage over 30 years.

Prior to finalizing a financing plan for the facility, ultimate ownership of the improved facility will need to be resolved. An outstanding issue remains as to whether Route 168 will be a city street in the City of Chesapeake or become incorporated into the State's Arterial Network. Settlement of this issue will determine which entity, the State or the City of Chesapeake, will issue debt to finance the facility.

Regardless of which entity moves forward to finance the Route 168 project, traffic growth, toll rates and expense projections should be thoroughly reviewed before a financing is undertaken. It is necessary that a traffic and financial consultant provide a feasibility report on project costs, operational costs and project revenues as well as recommend an appropriate toll rate structure.

The study recommendations are as follows:

• The City of Chesapeake should proceed with a solicitation for proposals pursuant to the Public-Private Transportation Act of 1995 for a private entity to construct improvements to Route 168 to settle the issue of whether there is private sector interest in this project.

• Determine whether the improved facility will be a part of the Urban System owned and operated by the City of Chesapeake or become part of the State Arterial Network owned and operated by VDOT as part of the State Highway System.

• Contract with a traffic and financial consultant to provide a detailed analysis of traffic growth projections, verify project costs, recommend a toll rate structure and project revenues.

• Evaluate the impact on the State's Debt Capacity of issuing either Section 9(c) or 9(d) toll revenue bonds to finance the Route 168 improvement program if this is proposed to be a state facility.

• Pending the result of prior recommendations, and if necessary, submit legislation to the 1999 General Assembly authorizing issuance of debt in an amount not to exceed $70 million plus an amount to fund issuance costs and other financing expenses to provide funds for the Route 168 improvement program.