RD888 - The Downtown Tunnel and Midtown Tunnel Analysis – December 2021

Executive Summary:

Item 433(L) of Chapter 854 of the 2019 General Assembly Appropriation Act required the Secretary of Transportation to evaluate potential opportunities to mitigate the financial burden on the commuting public at the Downtown Tunnel and Midtown Tunnel in Hampton Roads. The evaluation was to be reported to the Governor, the House and Senate Committees on Transportation, House Committee on Appropriations, and Senate Committee on Finance and Appropriations no later than June 30, 2020. However, the Northam Administration became aware of plans by Macquarie Infrastructure Partners II (MIP II) and Skanska to sell the Elizabeth River Crossings (ERC) concession arrangement as this analysis was underway. Given the opportunities that could be negotiated with a new owner, the decision was made to finalize the report after the sale was completed and a new relationship could be established.

Preceding the requirement for this evaluation, the Hampton Roads Transportation Planning Organization (HRTPO) ERC Task Force was formed in early 2019 and charged with evaluating options to address the impact of the tunnels’ tolls, and providing recommendations to the HRTPO Board. While the Task Force’s work is ongoing, the Secretary of Transportation’s office has coordinated with the Task Force and their efforts.

The Commonwealth has already provided three types of toll mitigation measures, in both the original comprehensive agreement and in subsequent amendments:

1. The Commonwealth spent $581.6 million in State transportation funds during the rehabilitation of the two tunnels and construction of a second two-lane Midtown Tunnel, with all work completed in 2017. The amount of $308.6 million was agreed to in the original comprehensive agreement and additional funds were provided in subsequent amendments (This is described further in Section 3.1).

2. Based on the original comprehensive agreement, toll rate escalation is capped at 3.5% or the annual change in CPI, whichever is greater.

3. A Toll Relief Program was established for Portsmouth and Norfolk commuters that represents an annual contribution of $500,000 per year, or up to $5,000,000 total. This program was implemented in 2017 and was planned to continue through 2026. This program was subsequently amended and will be discussed further in this report.

Working closely with the Virginia Department of Transportation (the Department), the Secretary of Transportation tasked the Department with evaluating a range of options to further mitigate the financial burden on commuters that travel the Downtown or Midtown Tunnels. The evaluated options were:

• Extend the life of the Toll Relief Program;
• Increase funding of the existing Toll Relief Program;
• Modify future toll rates; and
• Terminate the Department’s agreement with ERC.

A key assumption applied to all evaluated options was to preclude any impact to the Commonwealth’s general fund. For example, while an income tax credit has been legislatively proposed for various toll facilities in the Commonwealth, the financial impact of the credit reduces general fund revenue and therefore has not been enacted into law by the General Assembly. Likewise, an authorization of debt supported by state taxes would impact the Commonwealth’s debt capacity and potentially its credit rating.

While each of the options analyzed in the report would require financial resources to implement, the Northam Administration remains committed to working with the region and the new concessionaire to advance the principles of toll mitigation and reduce the impact of compensation events.