Bob McDonnell Breaks Virginia’s Transportation Gridlock

For the past decade, drivers in the Hampton Roads area of Virginia could count on two types of gridlock: the traffic kind on the region’s highways and the political kind in the state legislature over how to deal with it.

Both have taken their toll on the area’s businesses and 1.7 million residents. The region is a bustling crossroads both on land and sea. Its network of ports is the East Coast’s third-busiest. It has seven cities and a dozen military bases, including the world’s biggest naval station in Norfolk. To get around, drivers must navigate a jigsaw puzzle of bays, rivers and inlets via two tunnels and a bridge. The main arteries are so busy that it only takes one minor accident or a summer surge of beach-bound tourists to slow traffic to a crawl.

Republican Bob McDonnell is only the latest of Virginia’s governors to make a top priority of alleviating congestion, especially in Hampton Roads and in the Virginia suburbs of Washington, D.C. The sticking point has always been finding new revenue to pay for transportation improvements. Democrats Mark Warner and Tim Kaine made tax increases a key part of their transportation proposals. Warner was thwarted in a regional vote; Kaine could not get his plan past Republicans in the legislature and saw a subsequent compromise on how to raise transportation revenue get thrown out by the state Supreme Court.

This year, though, McDonnell seems to have broken through. This week, the General Assembly passed the bulk of McDonnell’s transportation agenda, a plan that comes up with $3 billion to pay for 900 transportation improvement projects. Critically, the plan does not rely on new revenues. Instead, it hinges on borrowing money and speeding up previously-approved bonds in order to take advantage of historically low interest rates that McDonnell says will not last forever.

Legislators did not give McDonnell everything he wanted — they significantly pared back his plan for a state infrastructure bank, for example. But in a dismal budget year for states, McDonnell’s package represents one of the most ambitious transportation plans likely to emerge anywhere. It also shows one way to make big, long-term investments despite the climate of budget austerity. While debt is becoming a dirty word in some state capitals — Maine Governor Paul LePage has sworn off borrowing money at all — taking on more debt may be the only politically feasible way to get some long-needed projects done.

The governor’s plan

McDonnell calls his transportation program “the largest influx of transportation funding in a generation.” In a statement released after the legislation was sent to his desk, he also stressed that spending money on transportation would create an economic stimulus. The plan “will not only address the needs of the aging highway system upon which we all depend,” he said, “but it will also provide a needed injection of funding into our economy to spur recovery from the difficult recession of the past several years.”

The governor’s office says the plan would expand the Virginia economy by $13.1 billion and generate more than 105,000 jobs over the next six years.

“This is a huge win for Hampton Roads,” agrees Ira Agricola, senior vice president of the Hampton Roads Chamber of Commerce. All told, a quarter of the statewide money could go to Hampton Roads, he says.

The influx of money also could speed up a number of transportation projects that would rely on leveraging private dollars to build. Adding public money to these proposed public-private partnerships could keep the tolls required to build and operate the highways low enough to make the plans feasible. Planners, for example, want to double the capacity of Norfolk’s Midtown Tunnel but still keep the cost of tolls near $1.50 a car. Without the public money, the tolls would start at .17.

But Agricola says there is more work to be done. He and the chamber want a long-term solution to make sure the region’s infrastructure does not deteriorate. Agricola says a tax increase is needed. He is not the only one.

Democratic state Senator Yvonne Miller of Norfolk, a veteran of many battles over funding in the legislature, also says new revenues will be needed to handle Virginia’s transportation problems. McDonnell’s plan “will get some activity moving,” Miller says, “however, that is really a very small part of what the need is.”

Bob Chase, the president of the Northern Virginia Transportation Alliance, a business-based group, says McDonnell had few options to improve transportation this year other than the direction he took. “You were not going to get a tax bill through,” he says. “The choices are: You can do this or you can wait until next year. It’s hard not to support something like this.”

Big plan, big borrowing

Under McDonnell’s framework, the state will aggressively borrow money over the next three years in order to get projects going while financing and construction costs are low. Interest rates are down as the Federal Reserve tries to get an economic recovery off the ground. Meanwhile, construction companies have been especially hard-hit by the recession and, in their eagerness to gain new business, have been submitting low bids for new projects.

McDonnell’s plan would last three years, which is when the governor must leave office because of term limits. Some Democrats are skeptical at the amount of borrowing. For example, state Senator John Miller of Newport News told the Daily Press he was “concerned that the governor’s solution is a credit card… Debt should be part of the answer. But we need to address the next three decades, not the next three years.”

McDonnell’s plan has three major components:

• .8 billion comes from speeding up a 10-year construction plan approved in 2007 under Governor Kaine. The state is behind schedule in issuing the bonds, which are backed by taxes on insurance premiums.
• .2 billion would come from a program that lets states borrow money they expect to get from the federal government later on.
• A new state infrastructure bank, which would lend money to developers and localities to build improvements.

The infrastructure bank is a long way from having the $1 billion in capital that McDonnell envisions. When it is operational, the bank would act similar to neighborhood banks: It would evaluate potential projects to invest in and then put up the money. But because the money would be paid back, the bank could continue to fund new projects far into the future, unlike traditional construction programs that pay for one set of projects. It is an idea used by many states and recently touted on a national level by President Obama.

So far, McDonnell is more than a quarter of the way to his $1 billion goal. His transportation department found the first $250 million from reserves within the agency’s existing budget. The governor asked lawmakers for another $150 million from unexpected new state revenues, but legislators settled on only $33 million.

A spokesman for the governor says McDonnell has not decided whether to amend the legislation to direct more money toward the bank.

A frustrating legacy

In many ways, McDonnell is building off an outline passed by Kaine, his predecessor. In 2007, Kaine got the legislature to allow the state to issue $3 billion in bonds over 10 years and gave the most gridlocked areas — the Washington, D.C., suburbs and the Hampton Roads area — the ability to raise taxes on their own to pay for more projects. Many Republicans remained critical of the compromise, and it was largely for naught, anyway. The state Supreme Court dealt a major blow, ruling that the local taxes were illegal, because of the way the local taxing authority was structured.

The court’s ruling did not affect the statewide bonds authorized by the deal. But even the first batch of those took years to take place because Virginia had to pay off prior debts first. The state finally sold $492 million of bonds from Kaine’s package last spring; the original plan was to sell $300 million every year for a decade. It is those bonds that McDonnell wants to accelerate, now that market conditions are favorable.

In Hampton Roads, local leaders largely welcome the progress, even if it is a small first step. Agricola says the area’s ports need better infrastructure to be competitive. They recently made improvements to speed rail shipments to Chicago, but 70 percent of the Port of Virginia’s cargo is distributed by truck.

“We have an advantage with our geography, but that advantage goes away if a truck sits in traffic for too long a time,” he says. “It’s a time-sensitive business.”