Archive for November 2013

Virginia Supreme Court Upholds P3 Project Using Toll Revenue to Finance the Project

November 25, 2013

In a case closely watched by advocates of public/private partnerships, state legislatures and contractors alike, the Virginia Supreme Court recently overturned a trial court decision that invalidated the use of tolls on a tunnel project in Portsmouth, Virginia that was structured as a public/private partnership.  The decision in Elizabeth River Crossings OpCo, LLC v. Meeks, confirmed the validity under Virginia’s constitution of the use of tolling provisions for public/private transportation projects under Virginia’s Public-Private Transportation Act of 1995.

The case involved a project valued at over $2 billion in Portsmouth, Virginia to relieve traffic congestion in that city by authorizing the development, design, construction, operation and maintenance of a new tube for that city’s mid-town tunnel, retrofitting the existing mid-town and downtown tunnels and building a feeder freeway extension to connect them.  Under the P3 agreement, the Commonwealth of Virginia maintained ownership of the facility but the agreement with the concessionaire, Elizabeth River Crossings OpCo LLC, authorized the concessionaire to construct, maintain and operate the facilities for over 50 years.  A primary source of funding for the project to allow the concessionaire to recapture its investment was toll revenue from the existing tunnels.  Motorists who used the existing tunnels filed suit in the Virginia trial court against the Virginia Department of Transportation and the concessionaire challenging the Public-Private Transportation Act of 1995.  The trial court upheld the challenge finding that the Virginia General Assembly had exceeded its authority by ceding the setting of toll rates and taxes and giving unfettered power to the Department of Transportation to set toll rates.

The Virginia Supreme Court reversed and entered judgment in favor of both the concessionaire and the Department of Transportation.  Among other things, the court held that tolls are valid user fees and not taxes and that the Virginia General Assembly can validly delegate its legislative power to impose and set user fees to both the Department of Transportation and the concessionaire.

The trial court decision initially sent a chill down the spine of every sector of the industry (state governments, contractors, concessionaires, lenders and others involved in P3 projects) over concern that the validity of P3s structured similarly to the Portsmouth project would be subject to copycat challenges.  A number of trade organizations including the National Conference of State Legislators and the American Road and Transportation Builders filed amicus briefs in the matter.  While certainly the Virginia Supreme Court’s decision does not immunize all P3 projects against challenges to innovative financing structures that are required under P3 project delivery, it certainly provides helpful precedent to allow cash strapped state and local governments to invoke existing legislation and enact new legislation that borrows from and/or builds on Virginia’s Public-Private Transportation Act to create, improve, and maintain vital transportation infrastructure assets.

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