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The Impacts of Increased Phase 2 Dulles

Metrorail Construction Costs: Toll Road Users

Pay Three-Quarters, Huge Public Subsidy for
Dulles Airport Metrorail Station

An RCA Reston 2020 Committee Paper


April 27, 2011

The Impacts of Increased Phase 2 Dulles Metrorail Construction Costs:
Toll Road Users Pay Three-Quarters, Huge Public Subsidy for Dulles Airport
Metrorail Station

Prepared by
The RCA Reston 2020 Committee
April 27, 2011


The growing projected construction costs of Phase 2 of the Metrorail Silver Line linking eastern Loudoun
County and Dulles Airport along the Dulles corridor to West Falls Church has raised serious questions
about who pays for the increased cost, how those added costs are financed, their potential impact on
traffic diversion to other roads, and whether there may be less expensive alternatives.

Based on the current funding agreement among the parties to the Metrorail project parties, Dulles Toll
Road (DTR) users will pay for most full project and more than three-quarters of the extra one billion
dollars that has been added to the cost of Phase 2 (P2) in the last year. As currently agreed, while the
federal government and state of Virginia agreed to pay fixed amounts, Fairfax and Loudoun counties and
the MWAA Aviation Fund agreed to pay fixed percentages, and the balance is to be paid by tolls from
the DTR. The addition of one billion dollars to the cost of P2 means the fixed percentage contributors
will up their costs proportionate to the overall cost of the project—about 19%--while DTR users’ share
will increase more than 27% to about 56% of total project costs. In the end, DTR users pay $752 million
of the one billion dollar P2 cost increase, more than three-quarters of the added cost in increased tolls.

Figure S-1: Funding Commitments & Shares among the Parties to the Dulles Metrorail Project

% Share by Participant Cost by Participant


80% 4,000 Old Cost

Old Cost 2,767
Thsousands of Dollars

70% 3,500 New Cost


New Cost
60% Increase 3,000 Increase
50% 2,500

40% 2,000


30% 1,500

20% 1,000









0% 0

Updating the cost and traffic analysis prepared for the Metropolitan Washington Airports Authority
(MWAA) by Wilbur Smith Associates (WSA), our analysis indicates:
 Virginia and the federal government are unlikely to increase their current combined funding
commitment of about $1.2 billion, and both have become critics of the project’s rising costs.
 Fairfax and Loudoun counties together will have to add about $210 million to their existing
commitments to help pay for the Silver Line’s construction, raising their total contribution to
about $1.0 billion.
 Tolls on the Dulles Toll Road (DTR) will likely need to increase from the $11.25 in 2047
projected by WSA to $15.40 or more, or more than $6.00 in 2010 dollars—triple today’s full
toll cost--to cover the additional debt servicing costs.
 Traffic on the DTR is likely to decrease about 15% over the next 37 years as a result of the
higher tolls, driving more traffic from a growing jobs and residential population onto nearby
roads as well as on to the Silver Line.

The $257 million that MWAA has pledged to pay for overall Dulles line construction costs is about one-
quarter of the one billion dollars its own staff expects will be the cost of the Dulles modified
underground station alone. Given that the station will almost exclusively serve airport clientele and
employees, MWAA’s pledged share of the cost is extremely inequitable. While the bulk of the
difference will have to be made up by toll increases under the current agreement, this also means that
Fairfax and Loudoun counties will be subsidizing the costs of the Dulles Metrorail station.

We believe there are at least two additional options for funding the Metrorail construction available to
ease the burden on DTR riders and local counties in particular.
 Charge tolls on the Dulles access highway once Metrorail is operational to the airport. Besides
easing the burden on toll road users, this would encourage the use of Metrorail for airport-
bound travelers and employees.
 Use MWAA Aviation Account funds to build all Metrorail facilities at the airport. At the very
minimum, this should include funding the difference between any selected station design
option and the least expensive option as originally estimated.

We believe these alternative funding sources should be at the center of an alternative MWAA financing
strategy that seeks to share the project costs more equitably while sustaining near full utilization of the
DTR. In particular, we believe the 2047 full DTR toll should be reduced from the full toll projected under
the current arrangements to help sustain about 100 million DTR transactions per year—roughly its
current pace and essentially full capacity utilization. By our calculations based on the WSA approach, a
full toll of about 13.00-$13.50 in 2047 (with similar 10-15% reductions in earlier years) would accomplish
that 100 million transaction per year objective. This toll schedule would leave a roughly $825 million
shortfall in DTR revenues over the 37-year period to be made up by the alternative revenue sources. If
project costs continue to rise, those additional deficits would need to be offset by increases in funding
from the alternative sources identified about or other funding sources.

The growing costs and delays in building the Silver Line are increasingly putting its full completion in
doubt. The added billion dollars in construction costs and three-plus billion dollars in MWAA financing
costs over 37 years are not something Fairfax County, Loudon County, or especially their residents and
employees who use the DTR should have to shoulder. Based on this project’s cost growth, these costs

may even increase further, making it vital to find alternative means of financing this and any further cost

Figure S-2: Summary of Financial & Transactions Impacts of Increased Metrorail Phase 2 Costs

2047 Projections from MWAA Percent Change

WSA 2010 Increase from From 2010 From 4/10
Benchmark April 2010 April 2011 April 2010 Benchmark Projection
Phase 2 Construction Cost ($ Billions) $2.5 $3.5 $1.0 40%

Needed DTR Toll Revenues

Needed DTR Revenues (2047) ($
$489.1 $622.1 $133.0 27%
Cumulative Needed DTR Toll
$11.7 $14.9 $3.2 27%
Revenues (2010-2047) ($ Billion)

Toll & Transactions Impact

2047 Full Toll ($2047) $1.75 $11.25 $15.40 $4.15 880% 37%
2047 Average Fare per Transaction $0.85 $5.26 $7.17 $1.91 843% 36%
2047 Tolls in 2010 Dollars
Full Toll $4.51 $6.18 $1.66 353% 37%
Avgas Fare per Transaction $2.11 $2.87 $0.76 338% 36%
2047 Transactions (Millions Annually) 103.2 92.9 87.3 -5.6 -15% -6%
Percent Share of
Increase Total Cost
Total Funding* ($ millions) $5,256.0 $6,259.0 $1,003.0 19.1% 100%
Fairfax County (16.1%) $846.2 $1,007.7 $161.5 19.1% 16.1%
Loudoun County (4.8%) $252.3 $300.4 $48.1 19.1% 4.8%
Virginia Funding (Fixed) $275.0 $275.0 0.0% 4.4%
Federal Funding (Fixed) $900.0 $900.0 0.0% 14.4%
MWAA Aviation Fund (4.1%) $215.5 $256.6 $41.1 19.1% 4.1%
MWAA Toll Revenues (Balance) $2,767.0 $3,519.3 $752.3 27.2% 56.2%
*Assumes all parties honor their obligations under the current funding agreement.


The Metropolitan Washington Airports Authority (MWAA) is in the process of building a new Metrorail
line, unofficially dubbed the Silver Line, linking eastern Loudoun County via the Dulles Airport, the Dulles
corridor, and Tysons Corner to the Orange Line at East Falls Church station. Construction of the line is
the anchor upon which leaders in both Loudoun and Fairfax counties have hung massive urban
development plans at destinations along the way. The construction effort has been divided into two
phases, the first—now underway—links East Falls Church Station through Tysons Corner to Wiehle
Avenue in east Reston. It is expected to be completed in 2013 within its budget of $2.76 billion. Phase 2
(P2) construction, which would complete the line into Loudoun County, is scheduled to begin in 2013
with Metrorail operations tentatively scheduled to begin in 2017 according to MWAA statements.

In October 2010, MWAA published new figures showing the potential cost of the second phase
construction of the Metrorail Silver Line had escalated from $2.50 billion to $3.84 billion, a more than
50% increase in P2 costs. The October 2010 increase in P2 construction costs raised the estimated total
cost of Silver Line construction from $5.26 billion to $6.59 billion, a 25% increase.

In April 2011, the MWAA Board decided to build an underground Metrorail station in the middle of the
parking lot outside the terminal instead of underneath the terminal. As a result, MWAA believes that
projected cost for P2 could be reduced by up to $330 million from its October 2010 projection. If this
cost estimate stands, the cost of P2 would be about $3.5 billion—a billion dollars more than projected a
year earlier—meaning the total Dulles Metrorail line would cost $6.3 billion instead of $5.3 billion.

The currently projected one billion dollar increase in construction costs for the Silver Line from one year
ago—which remain in flux pending at least finalization of the preliminary engineering effort in June
2011—has raised a number of questions among political leaders and the public about the practicality of
the Silver Line’s construction. Among the questions:
 What does the increased construction cost mean for increased tolls on the Dulles Toll Road
(DTR), since most of the costs of the Silver Line construction will be borne by increased tolls?
 What will be the effect of increased construction costs on long-term debt payments?
 What will be the potential impact on Fairfax and Loudoun county payments for construction and
related debt, since they have at least preliminarily agreed to pay a specific percentage of the
Silver Line costs?
 Will Virginia and Washington increase their fixed dollar contributions to the Silver Line?
 How much traffic will the higher DTR tolls shift to other roadways?
 Are there less expensive options or alternative strategies for constructing the Silver Line that
would achieve its key objectives while lowering the cost to current funding agreement
participants, especially DTR users?

The Dulles Metrorail Station Location Cost Red Herring

MWAA's recent decision to build the Metrorail station mid-lot underground at Dulles International
Airport has become both a source of confusion that we believe mis-focuses attention on the true cost of
P2 and who pays it. Spokespersons for MWAA have highlighted saving “up to $330 million” over the
option to build an underground station under the terminal. Critics highlight that the underground mid-
lot alternative costs hundreds of millions more than an above ground station at the North Parking

Originally, when the 2010 cost projection for the Dulles Metro Phase 2 stood at $2.5 billion, it included
an underground station beneath the Dulles Airport terminal and included a two-mile tunnel to serve it.
Published reports indicate it was to cost about $600 million, although MWAA’s share P2 costs from its
Aviation funds was originally $215 million and, with the recent P2 price hike, is now put at $257 million.

This April, MWAA’s staff put together an analysis of the cost of several alternative airport Metrorail
station arrangements.1 Here are their cost projections:
Cost over--
Description Cost Original Current Min.
Terminal Tunnel Station (Original Plan) $1.44 billion $840M $853M
Modified Tunnel Plan Station (Selected) $912-949 million ~$330M ~$344M
North Parking Garage Aerial Station $587 million -$13M -0-

Even with the least expensive alternative, MWAA is contributing only one-third of the cost of a station
that will serve its passengers and employees almost exclusively. Moreover, the merits of the station
options aside, we believe the focus on the two options loses sight of the fact that the original 2010 cost
estimate for P2 has escalated a year later by 40%, from $2.5 billion to $3.5 billion. Little public
explanation has been offered why or where the overall costs changed so dramatically at such a late
date—and risk growing further.

This paper begins to answer these questions through analysis of publicly available data. While the
analysis relies on data officially published by MWAA, the results must be considered tentative given (a)
the assumptions underlying the initial data, (b) the uncertainties inherent in statistical analysis, and (c)
the unknowns regarding future Silver Line costs, design, and other decisions affecting them.
Nonetheless, it is important that both government officials and the public understand the current state
of play in the financial aspects of this important infrastructure project, even with the uncertainties
acknowledged here.

Recommendation Paper to the Dulles Corridor Committee, Analysis of Alternative Airport Alignments for
Metrorail at Dulles International Airport, April 2011.
The Analytical Process

Publicly available data on future costs to build and finance the balance of the Silver Line remain limited
and uncertain since key decisions, ultimately resulting in the award of a contract late this year, have not
been made about the design or costs of P2. In the meantime, a few documents highlight the growing
expected construction cost of the Silver Line.

The most important—and most comprehensive—report about the projected costs of the Silver Line was
prepared by Wilbur Smith Associates (WSA) and presented to MWAA in July 20092. The report provides
a thorough investigation of the factors that should shape toll increase decisions, including financing
costs, travel choices, demographic factors, etc., including sensitivity analysis exploring alternative
scenarios. In conducting our analysis, we have accepted WSA’s approach, methodology, and
assumptions, although we recognize that they may have some shortcomings. For example, the WSA
report assumes that the Metropolitan Washington Council of Governments (MWCOG) has accounted for
the full diversion of potential DTR drivers to Metrorail once it is fully operational. We are not confident
this is true, especially under varying DTR toll and Metrorail fare scenarios.

At its core is a summary table that shows the tolls, transactions, expected revenues, and average fares
that WSA projected would meet the DTR’s debt servicing and other financial requirements through 2047
when P2 was expected to cost $2.5 billion and project’s total cost was put at $5.3 billion. (See Appendix
A for WSA’s and our results side-by-side.) In brief, that table indicated that:
 The fare for driving the full length of the toll road would rise to $11.25 in 2047.
 The average DTR toll paid would be $5.26 in 2047.
 The annual gross DTR toll revenues needed in 2047 to finance the construction and pay for
O&M, plus some reserves, would reach about $489 million.
 The cumulative gross toll revenues needed from 2010-2047 would reach about $11.7 billion.
 Annual transactions on the DTR would drop from 103 million in 2010 to 93 million in 2047.

This excellent study needs to be updated in two ways. Most obviously, it should reflect the latest
projections for future costs of P2 of the Silver Line project. Second, the residential and employee
population along the Dulles corridor needs to be updated with the latest MWCOG data.

Two periodic financial update presentations prepared for MWAA’s Dulles Corridor Advisory Committee
(DCAC), one presented on June 23, 2009,3 and the other presented on November 18, 20104, provided
the basis for updating the cost projections.
 The first of these two presentations reflects graphically (Figure 1A below) the toll revenues that
were expected over through 2047 through toll increases. It tracks the WSA study based on the
then current P2 costs estimate of $2.56 billion. For 2047, along with the WSA study, the MWAA
brief projects gross toll revenues of about $489 million to cover a debt service requirement of

Dulles Toll Road Traffic and Revenue Consulting Services: Comprehensive Traffic and Revenue Report, Wilbur
Smith Associates, July 2009.
Dulles Corridor Advisory Committee, Plan of Finance for the Dulles Metrorail Project and Dulles Corridor
Improvements, June 23, 2009.
Dulles Corridor Advisory Committee, Dulles Corridor Enterprise Financial Update, November 18, 2010.
about $390 million that year, plus operating costs and a margin for reserves. Indeed, in this
projection, debt service requirements begin to decline substantially in the 2050s.
 The second presentation reflects the effects of the new higher cost estimate for P2 of $3.84
billion presented to MWAA in November 2010, including an underground Metrorail terminal
under the Dulles Airport terminal. It, too, includes a graphic (Figure 1B below) that suggests toll
revenue needs in 2047 will significantly exceed $800 million.

We believe the November 2010 MWAA projection (Figure 1B) —a linear growth projection beginning
about 2015—is actually on the high side. Our calculations suggest that amount MWAA will have to
borrow to meet its debt, operation and maintenance, and reserve obligations will increase about 27%
from about $2.77 billion to $3.52 billion. Most of that increase is to cover higher debt service, but the
remaining MWAA costs for the DTR—reserves and operations & maintenance—appear to be a relatively
constant percentage of total costs in MWAA’s figures, and would thus rise to the same degree. A key
qualification of this judgment is that the current cost estimate does not change in the future and all the
other parameters that affect this figure—from county participation to interest rate costs—remain as
currently agreed upon. We accept that this may not be true given the history of cost growth with this
project, but we have used this conservative approach in assessing future project-related costs in the
absence of a reasonable alternative.

Figure 1A: DTR Revenue Required to Support Anticipated Bond Issues, June 23, 2009*

Figure 1B: Anticipated Toll Revenue Debt Bond Service, November 18, 2010*

* In both the graphics above, we have interpreted the top line Gross Toll Revenue figure as the sum MWAA calculates it
needs to meet annual costs, including debt service, operating & maintenance costs, and reserve requirements. This “gross”
number should drive MWAA toll adjustment decisions, and it appears to do so in the WSA study. We believe the Net Revenue
line reflects the funds MWAA will need for debt service after it meets its O&M and reserve requirement, although the graphics
are unclear on this point. More broadly, the two MWAA graphics use slightly different definitions for the lines in the graphs
and we can not discern if they actually mean something different.

The final key data source is the updated estimate of MWCOG’s projections for population and jobs
growth (Round 8.0, 2005-2040, published 2010) over the period analyzed because the earlier WSA study
used the then-current Round 7.1, 2005-2030, MWCOG data compiled in 2008. This data is available
from MWCOG’s website. A comparison was made between the Tysons Corner, Dulles Corridor, and
eastern Loudoun employment centers adjusting for the changes made in the transportation analysis
zones (TAZs) between the two forecast rounds. Surprisingly, the projections showed a pattern of slower
growth in the more recent round, only exceeding the early Round 7.1 totals beyond 2040. The
projections, in which the Round 7.1 data is extrapolated from 2030 to 2040, are shown below (Figure 2).

Figure 2: MWCOG Projected Total Tysons and Dulles Corridor Employment and Population,
Round 7.1 and Round 8.0, 2005-2040

Round 7.1

Round 8.0

In general, these data sources were used in the following ways to generate an estimate of the toll rate
needed in 2047 and its impact on transactions.
 Using the original WSA projections, the data was divided between pre-Metrorail P2 opening
(~2020) and after it opens.
 Examining the post-Metrorail P2 opening period, the negative revenue and transaction effects
of toll rate increases were isolated from the positive effects of population and job growth along
the Metrorail route. This was examined by looking separately at the effects on revenues and
transactions in the years in which toll rate increases did and did not occur.
o By looking at the years in which tolls changed, the price elasticity of demand and its
impact on revenues could be calculated. We identified an elasticity of demand
coefficient of -0.2519 and revenue elasticity of 0.6777. In brief, that means every one
percent increase in tolls leads to a roughly quarter-percent reduction in transactions
resulting in roughly a two-thirds percent increase in revenues.
o By looking at the years in which the tolls did not change, the effects of population and
jobs growth along the Dulles Corridor could be isolated.
 The data—including the impact on transactions and revenues--was updated to reflect the new
forecast for total jobs and population along the Dulles Corridor in MWCOG’s Round 8.0.
 Given the April 2011 MWAA decision to locate the Dulles Metrorail terminal mid-lot instead of
under the terminal, the needed revenue for P2 was reduced proportionately, about 23%.
 The toll rate was adjusted for 2047 to achieve the minimum annual gross revenue needed to
cover the projected higher cost of the Silver Line from increased P2 costs.
 The new higher toll rate, in turn, determines the number of transactions and total annual
revenues for the year through the elasticity of demand function.

Bias in in Our DTR Toll Fare Analysis

Although this report tries to look at the impact of higher construction cost-driven DTR fares without
introducing new biases, we acknowledge that such an outcome is nearly impossible. Nonetheless, the
biases we are aware of generally tend to make our estimate of future tolls conservative.

Among the biases that tend to understate the projected toll increases are:
 Using a conservative estimate of the toll revenues needed to cover debt service and other
MWAA DTR costs as presented in the MWAA briefing of November 2010. In contrast to our
debt scaling approach which suggests that DTR revenues in 2047 would need to reach $621
million, the November 2011 MWAA chart projecting future needed toll revenues suggests that
total needed revenues in 2047 will exceed $800 million. In the absence of major changes, we
believe our projection is more accurate.
 Projecting no increases in long-term MWAA borrowing costs beyond those in WSA’s and
MWAA’s projections. There are two very important risks here:
o In general, market interest rates for this type of borrowing are more likely to rise above
current projections than decline in our view.
o The larger borrowing required by MWAA will create a greater credit risk and, therefore,
a greater borrowing cost than projected.
We examine this in Appendix B in more detail. In general, each quarter percentage point added
to the interest rate on MWAA’s bonds is likely to add about $8 million to its annual debt
 Using a linear elasticity of demand. As rates escalate substantially in real terms, there is a
significant risk that the price elasticity of demand will rise, accelerating the decline in
transactions and decelerating revenue growth in response to fare changes. This effect would
also likely add more cars to nearby roads.

The only bias we have identified that may lead to overstating the toll impact of the P2 construction cost
increases is using a 2.5% annual price deflator for calculating the cost of tolls in 2010 dollars. We used
this deflator because WSA used the same percentage figure to inflate costs over the timeframe of its
analysis. A higher deflator would reduce the 2010 dollar cost of future tolls.

The Financial and Traffic Impacts of Higher Silver Line Costs

By a 2007 Memorandum of Agreement, MWAA and the governments of Loudoun and Fairfax County
agreed to split the cost of building the Silver Line above and beyond specific contributions from the
Commonwealth of Virginia ($275 million) and the federal government ($900 million). In this agreement,
Fairfax County agreed to pay 16.1% of the costs and Loudoun County agreed to pay 4.8% of the costs,
whatever they might be. MWAA agreed to pay the balance with a small portion from its aviation fund
and over half from its management of the DTR. This is what those obligations looked like in the April
2010 presentation to the Dulles Corridor Advisory Committee when the total project was projected to
cost $5.3 billion:

Figure 3: Projected Cost and Funding Sources for the Metrorail Project, MWAA, April 2010

Source: Dulles Corridor Financial Update, April 21, 2010, presented to Dulles Corridor Advisory Committee

In a follow-up presentation to the Dulles Corridor Advisory Committee on October 25, 2010, the
financial update reflected the new, higher costs for P2 at $3.8 billion versus the earlier $2.5 billion. The
higher cost was largely attributed to the cost of building an underground Metrorail station at the Dulles
airport terminal. Here is how that new preliminary cost estimate was presented to the advisory

Figure 4: Projected Cost of Phase II of the Metrorail Project, MWAA, October 2010

Source: Dulles Corridor Metrorail Project Finance Plan, October 15, 2010, presented to Dulles Corridor Advisory Committee

The change in costs for P2 envisioned in the November 2010 plan have significant ramifications for the
costs prospectively to be borne by drivers on the DTR in higher toll fares and the contributions of Fairfax
and Loudoun counties. Those changes may also affect Metro ridership, alternatives routes to the DTR,
and other considerations in the Dulles Corridor area.

On April 6, 2011, the MWAA Board of Directors rolled back the total cost of the project from $6.6 billion
projected at the November meeting to $6.3 billion by choosing to build the Dulles Metrorail station
underground in the middle of the main parking lot outside the terminal rather than underneath the
terminal itself. A third option, building above ground across the main parking lot at the North Parking
garage, that would have saved an additional $300 million was rejected by the Board.

Arrangements for paying for the project, including the new P2 cost of $3.2 billion, are spelled out in a
2007 agreement among the participants. The federal government and Virginia pledged fixed amounts of
$900 million and $275 million respectively to the project. Fairfax and Loudoun counties as well as
MWAA’s Aviation Fund pledged fixed percentage to the project, respectively 16.1%, 4.8%, and 4.1%, and
comprising one-quarter of the total project cost. The balance of the cost was to be collected by MWAA
through tolls on the DTR, although no one represented the DTR users when the agreement was signed.

Figure 5: Cost Allocation among the Partners to the Dulles Metrorail Financial Agreement


3,500 Old Cost

New Cost
3,000 Increase
Millions of Dollars






Fairfax Loudoun Virginia Federal MWAA MWAA Toll
County County Funding Funding Aviation Revenues
(16.1%) (4.8%) (Fixed) (Fixed) Fund (4.1%) (Balance)

Total Dulles Metrorail Debt and Debt Service. The revenue bonds that MWAA issues and the
accompanying debt service related will be the principal drivers of the escalating DTR tolls. With
construction costs projected to be one billion dollars higher than the $2.5 billion projected last year, we
expect these costs to grow tremendously even if the local counties fulfill their percentage commitments
at the new level. WSA does not discuss the debt and debt service issues in its study, so we can only
provide a rough sense of what those might be. MWAA’s debt obligation will likely rise three-quarters of
a billion dollars to $3.5 billion under the latest plan, excluding issuance and reserve-related costs for the
debt (about 5% per MWAA documents). Under current financing arrangements, MWAA would pay off
this additional debt by increasing DTR toll rates substantially, costing toll road users an extra $3.2 billion
dollars over the next 37 years. It would cost more if the project or interest rate costs climb or Virginia
and Loudoun and Fairfax counties decide not to participate at their currently agreed upon percentage

Financial Impacts

Toll Road Revenue Needs Impact. Based on the table available from MWAA, we estimate that the total
DTR toll revenues needed to cover debt servicing and other operating costs for MWAA in 2047 would
climb to at least $622 million to cover the projected $6.26 billion cost of completing the Silver line. Over
the 37-year period from 2010-2047, MWA would need to collect about $14.9 billion in DTR tolls to cover
the debt-related and operating costs of the DTR. This is a 27% increase—about $3.2 billion—from the
2009 WSA estimate of total needed toll revenues of about $11.7 billion over the same timeframe.

Toll Impact. The projected change in P2 costs is likely to force a 37% or more increase in toll fares above
the $11.25 toll projected for the DTR in 2047 WSA’s cost estimate. Based on WSA’s fare calculation
approach, we believe a minimum full toll of $15.40 each way will be required to meet MWAA’s revenue
objectives in 2047 under the new cost estimate. Moreover, discounting by the 2.5% inflation factor
used for inflating prices by WSA in its study, which is the equivalent of a $6.18 toll in 2010 dollars—more
than three times the current DTR full toll.

County Contribution Impact. If Fairfax and Loudoun counties agree to honor their percentage share
commitments to the construction of the Silver Line—and they do have an opportunity to amend or opt
out of that agreement following completion of the preliminary engineering design for P2—their
commitments would rise by about 19%.
 Instead of $846 million, Fairfax County would be committed to paying $1,008 million, a $162
million increase.
 Instead of $252 million, Loudoun County would be committed to paying $300 million, a $48
million increase.

More importantly, each county’s total debt service costs would increase by about the same amount as
the commitment increases, about 19%, assuming they use the same financing approaches as currently
planned. We cannot calculate the amount at this time because the counties have not decided how—or
even whether--to finance their added potential commitments. In general, while businesses along the
Dulles Corridor in Fairfax County have agreed to special tax district arrangements to pay for a
substantial portion of the P2 costs, those amounts are capped and the County would need to finance
the higher projected costs through other means—presumably county-wide taxes—if they chose to
participate in funding the added costs. The Loudoun County Board of Supervisors has been considering
a similar funding arrangement for the Metrorail extension into Loudoun County, but it has not yet
established how (or whether) to pay its committed share of the projected costs—old or new—of P2.

If Fairfax and Loudoun counties decide the added amounts are too large and agree only to fund the
Silver Line project at the levels projected last year, then MWAA would have to raise tolls further to
cover the extra cost if they continued to plan to build the Metro line as it is currently designed. That
extra $210 million that MWAA would need to finance would add about $0.75 to the $15.00 full 2047
DTR toll in the baseline projection.

Virginia and Federal Government Commitments. Richmond and Washington have agreed to aid in the
financing of the Silver Line by committing specific amounts.
 Richmond has agreed to fund a total of $275 million, of which only $23.3 million is intended to
aid in the construction of P2.

 The federal government, through the Federal Transit Administration (FTA), agreed to provide
$900 million in funding for P1, but refused to continue to pay half the cost of the P1 project as
cost projections grew from $1.8 billion to $2.756 billion.
Both Richmond and Washington have expressed strong concern about the growing costs of the project
over the last several years. Most recently, Rep. Frank Wolf of northern Virginia called for a federal audit
of the project and for MWAA to re-visit its decision to build an underground station at Dulles Airport.
Similarly, the Virginia House of Delegates Transportation Committee, at a hearing held near Dulles
Airport in March 2011, questioned the growing costs and proceeding on P2 without a firm plan, costs,
and schedule in place.

Figure 6: Summary of Financial & Transactions Impacts of Increased Metrorail Phase 2 Costs

2047 Projections from MWAA Percent Change

WSA 2010 Increase from From 2010 From 4/10
Benchmark April 2010 April 2011 April 2010 Benchmark Projection
Phase 2 Construction Cost ($ Billions) $2.5 $3.5 $1.0 40%

Needed DTR Toll Revenues

Needed DTR Revenues (2047) ($
$489.1 $622.1 $133.0 27%
Cumulative Needed DTR Toll
$11.7 $14.9 $3.2 27%
Revenues (2010-2047) ($ Billion)

Toll & Transactions Impact

2047 Full Toll ($2047) $1.75 $11.25 $15.40 $4.15 880% 37%
2047 Average Fare per Transaction $0.85 $5.26 $7.17 $1.91 843% 36%
2047 Tolls in 2010 Dollars
Full Toll $4.51 $6.18 $1.66 353% 37%
Avg Fare per Transaction $2.11 $2.87 $0.76 338% 36%
2047 Transactions (Millions Annually) 103.2 92.9 87.3 -5.6 -15% -6%
Percent Share of
Increase Total Cost
Total Funding* ($ millions) $5,256.0 $6,259.0 $1,003.0 19.1% 100%
Fairfax County (16.1%) $846.2 $1,007.7 $161.5 19.1% 16.1%
Loudoun County (4.8%) $252.3 $300.4 $48.1 19.1% 4.8%
Virginia Funding (Fixed) $275.0 $275.0 0.0% 4.4%
Federal Funding (Fixed) $900.0 $900.0 0.0% 14.4%
MWAA Aviation Fund (4.1%) $215.5 $256.6 $41.1 19.1% 4.1%
MWAA Toll Revenues (Balance) $2,767.0 $3,519.3 $752.3 27.2% 56.2%
*Assumes all parties honor their obligations under the current funding agreement.

Traffic Impacts

DTR Traffic Impact. As might be expected, the large increase in toll fares will lead to reduced DTR
traffic—reflected in annual transactions—despite a projected 50% or more increase in total jobs and
population in the employment centers along the Metrorail route by 2047. Our analysis suggests that
traffic on the DTR will decrease from an estimated 103 million transactions in 2010 to about 87 million in
2047, a roughly 15% decline in usage from today, but only a small decrease from WSA’s previous
estimate of 93 million transactions in 2047.

Traffic Diversion. The decline in DTR transactions, reflecting a decline in traffic on the toll road, will be
offset by increases in the use of the new Silver Line and additions to traffic volumes on alternative
routes. The decline in traffic and revenues on the Dulles Greenway from the airport to Leesburg
provides a good example of this phenomenon. In recent years, MacQuarie Atlas Roads, half owner and
operator of the Greenway, have raised Greenway tolls substantially. As reflected in the graphic below
(Figure 6), those fare increases have led to reduced traffic on the Greenway and steep increases on
alternative routes. The report notes, “The Dulles Greenway has 2 key competitors – Route 7 and
Waxpool Rd. Both these competing roads have received considerable capacity upgrades since 2005,
diverting significant traffic away from the Dulles Greenway.” The toll increases are not mentioned.

Figure 7: Peak Traffic as % of Estimated Capacity, Dulles Greenway and Nearby Roads, 2001-2009

Source: MacQuarie Atlas Roads, Half Year Results Presentation, June 30, 2010, p. 24.

We are not able to isolate transportation mode choice between Metrorail and the alternative route
diversion effects of the prospective increases in DTR tolls. Nonetheless, given the 50%-plus projected
increase in residents and jobs over the next four decades among the employment centers along the
Dulles Corridor and nearby Loudoun County, we believe alternative roads will be forced to absorb added
traffic. If we accept that the MWCOG projections include consideration of the use of Metrorail as the
WSA study does, as many as 20,000 cars per day could be added to local roads near the DTR. Key

among these would be Byrd (Rt. 7) and Lee-Jackson (Rt. 50) highways among major arterials, and lower
capacity local roads, such as Sunset Hills, Sunrise Valley, Fox Mill, Lawyers Road, Elden, the Herndon
Parkway, and others in the Herndon-Reston-Vienna area. The added traffic would be a huge burden for
these communities and could require substantial investment in traffic calming and other measures to
lower and facilitate the additional through traffic volume.

Tolling on the DTR: Fixed-rate or Mileage-based

MWAA currently charges fixed-rate tolls on the DTR—a larger charge at its main toll plaza at the
east end of the DTR, and a smaller charge at the other gates along its route. We believe this is
unfair to DTR users traveling shorter distances through the main toll plaza, and adds to the
congestion at Tysons Corner as drivers headed to the beltway or beyond divert through the area to
save money.

A preferred method would be to have mileage-based tolls on the DTR. This would be consistent
with the way most toll roads are managed, including the Dulles Greenway. Aside from alleviating
the above mentioned problems with unfairness and traffic diversion, it might also encourage more
drivers to use the DTR knowing that they will be getting what they pay for. We do not believe it
would add costs to the operation and management of the DTR beyond the cost of making a
transition to the new system.

Looking at Financing Alternatives and an Overall Approach

Costs for P2 of the Silver Line have are now pegged at $3.5 billion, a billion dollars more than one year
ago and equal to the total cost of the Silver Line—P1 and P2—as outlined in the Final Environmental
Impact Statement in 2004. With the final construction cost of P2 still more likely to escalate than
decrease, it is useful to look at ways to cut costs for the Silver Line. In looking at those prospects, it is
important to understand the two key goals of the Silver Line:
 Enable airline passenger and employee Metrorail access to Dulles International Airport.
 Provide Metrorail transit for commuters and other travelers along the Dulles Corridor and
eastern Loudoun County to facilitate transportation to employment centers, enabling their
substantial economic growth.

We believe the first place to look at options is finding other means of revenue generation beyond the
current arrangements. There appear to be at least a couple of options that might save significantly on
costs to current participants in the Dulles Metrorail funding arrangement that completed in a timely
manner while not interfering with future improvements and expansion opportunities.

 Dulles International Airport Access Highway (DIAAH) Tolls. Begin charging tolls on the Dulles
airport access road and the DTR once the Metrorail line is completed to the airport. In essence,
it would become the equivalent of the beltway “hot lanes” where, if drivers want express
service, they have to pay for it. Airport users, whether employees or passengers, will have
Metrorail available as an alternative and their continued use of the access road free of charge
would no longer be warranted. This would probably lead to greater use of Metrorail by airport-
bound travelers and help ease the burden on DTR users and other financial partners.

 Use MWAA Aviation Funds for All Dulles Metrorail –related Construction. The use of MWAA
aviation funds is generally excluded from use in building the Metrorail unless it serves an airport
purpose. MWAA has committed to paying 4.1% (now estimated at about $257 million) from its
Aviation Account, presumably to pay for the Metrorail station at the airport. We do not believe
that this comes close to the full cost of diverting Metrorail to the airport and building an
underground terminal in the middle of the parking lot. When the increased costs of P2
construction were announced last October, the principal driver identified in that $1.3 billion
increase was building an underground Metrorail station underneath the airport terminal
connected by a two-mile tunnel.

 In presenting alternatives, MWAA officials said they could save $660 million by building an
above ground terminal at the North Parking garage. That is, the total cost of P2 would be about
$3.2 billion vice $3.8 billion.

 In its April 2011 meeting, the MWAA Board chose an intermediate option: building the airport
Metrorail station underground in the middle of the main parking lot. This option was described
as saving “up to” $330 million from the cost of a station beneath the terminal. Still, the total
cost of P2 rose from $2.5 billion to $3.5 billion, including an extra $330 million or more to build
the station underground mid-lot.

Figure 8: Dulles Airport Metrorail Station Alternative Placements

We believe that MWAA should pay for all costs related to the construction of the Metrorail station at
the airport. The station is being built there to serve MWAA’s aviation functions and has little to do with
the commuting and other transportation purposes of the DTR. Moreover, the Dulles Metrorail station is
reportedly the most expensive station along the route, costing at least $300 million more than whatever
its unknown previously estimated cost was. At the minimum, we believe MWAA should fund the
difference between any selected station option and the least expensive option out of its own pocket.
That would go a long way in closing the growing financial gap.

According to a finance briefing on April 6, 2011, to the MWAA Board, MWAA staff continues to look at
other financing schemes. (See Figure 8 below). In our view, except for the aviation-related options,
these options are either improbable or unlikely to generate the revenue stream needed to cover debt
service and other costs of managing the DTR in the decades ahead.

Figure 9: MWAA Options to Enhance DTR Financing

We also examined curtailing construction of stations along the Dulles corridor Metrorail line, but
generally decided the options were not particularly constructive. The options either resulted in small
savings, severe disruption to growth along the Dulles Corridor, or were politically unacceptable. About
the only option that made some sense is not to extend the Metrorail line into Loudoun County in the
event its Board of Supervisors decides not to contribute to its financing. Even this would require some
amendment because MWAA does not want the Metrorail line to terminate at the airport with its extra
repair and storage facilities for security reasons, not to mention limiting opportunities for airport
expansion. This might save $200 million or more, would not severely impair Corridor growth, and would
seem to be acceptable to the Loudoun County Board if it decided not to participate financially in the
project. At the same time, potential Metrorail users in Loudoun County would continue to have the
option of parking at the airport and taking Metrorail from there.

We believe the two alternative funding options we have identified above lie at the center of a
reasonable approach to better balance financing among the participating parties, and sustaining DTR
use near capacity. In particular, we believe the 2047 full DTR toll should be reduced from the full toll
projected under the current arrangements to help sustain about 100 million DTR transactions per year—
roughly its current pace and essentially full capacity utilization.
 By our calculations based on the WSA approach, a full toll of about 13.00-$13.50 in 2047 (with
similar 15-20% reductions from WSA estimates in earlier years) would accomplish that 100
million transactions per year objective.
 This toll schedule would leave a roughly $825 million shortfall in DTR revenues over the 37-year
period—roughly six percent--to be made up by the alternative revenue sources

 Fairfax and Loudoun counties also want to hold their dollar commitments constant at their
current levels. If they reach agreement with MWAA on that solution, then MWAA financing
from other sources would have to increase to offset the expected county funding as well.
 Moreover, if project costs continue to rise, those additional costs would need to be offset by
increases in funding from the alternative sources identified above or other MWAA funding
The risk that we foresee under the present arrangement is that all future added costs burdens will be
put on DTR users, which we believe is not only inequitable, but risks seeing the DTR substantially

The growing costs and delays in building the Silver Line are increasingly putting its full completion in
doubt. The added billion dollars in construction costs and four billion dollars in MWAA financing costs
over 37 years are not something the Fairfax County, Loudon County, or especially their residents or
workers who use the DTR should have to shoulder. Based on this project’s cost growth, these costs may
even increase further, making it vital to find alternative means of financing these cost increases and
assuring that the DTR is used near its operating capacity.

Appendix A: Wilbur Smith Associates and RCA Reston 2020 Study Data

WSA Study Results Reston 2020 Results

Average Average
Total Revenue Total Revenue
Transactions Total per Calendar Transactions Total per
Calendar Year Tolls (1,000s) Revenues Transaction Year Tolls (1,000s) Revenues Transaction
2010 $1.75 103,219 $86,282 $0.85 2010 $1.75 101,801 $109,751 $0.84
2011 $2.00 103,292 $97,128 $0.94 2011 $2.14 100,907 $123,547 $1.00
2012 $2.25 103,389 $107,104 $1.04 2012 $2.57 100,118 $136,236 $1.18
2013 $2.75 100,015 $127,475 $1.27 2013 $3.35 96,070 $162,148 $1.55
2014 $3.00 100,023 $136,426 $1.36 2014 $3.88 95,364 $173,534 $1.77
2015 $3.25 100,042 $145,409 $1.45 2015 $4.39 94,731 $184,960 $1.96
2016 $3.75 97,719 $166,619 $1.71 2016 $5.10 91,952 $211,939 $2.32
2017 $3.75 99,772 $170,118 $1.71 2017 $5.13 93,346 $216,390 $2.33
2018 $3.75 101,867 $173,691 $1.71 2018 $5.15 94,809 $220,935 $2.34
2019 $5.00 93,875 $216,261 $2.30 2019 $6.91 86,957 $275,084 $3.18
2020 $5.00 95,193 $219,897 $2.31 2020 $6.94 87,801 $279,709 $3.20
2021 $5.00 96,781 $224,172 $2.32 2021 $6.96 88,923 $285,147 $3.23
2022 $6.25 98,407 $228,559 $2.32 2022 $8.73 90,108 $290,727 $3.25
2023 $6.25 93,224 $271,436 $2.91 2023 $8.76 85,105 $345,267 $4.08
2024 $6.25 94,700 $275,655 $2.91 2024 $8.78 86,226 $350,633 $4.09
2025 $6.25 96,206 $279,957 $2.91 2025 $8.80 87,400 $356,105 $4.10
2026 $6.25 97,742 $284,336 $2.91 2026 $8.82 88,629 $361,675 $4.10
2027 $6.25 99,308 $288,801 $2.91 2027 $8.83 89,912 $367,355 $4.11
2028 $7.50 94,848 $331,455 $3.49 2028 $10.61 85,773 $421,611 $4.94
2029 $7.50 95,376 $333,261 $3.49 2029 $10.62 86,179 $423,908 $4.95
2030 $7.50 95,908 $335,081 $3.49 2030 $10.62 86,616 $426,223 $4.95
2031 $7.50 96,442 $336,908 $3.49 2031 $10.63 87,083 $428,547 $4.95
2032 $7.50 96,980 $338,747 $3.49 2032 $10.63 87,581 $430,886 $4.95
2033 $8.75 93,621 $382,248 $4.08 2033 $12.39 84,587 $486,219 $5.78
2034 $8.75 94,144 $384,385 $4.08 2034 $12.38 85,125 $488,938 $5.78
2035 $8.75 94,457 $385,661 $4.08 2035 $12.37 85,501 $490,561 $5.77
2036 $8.75 94,770 $386,940 $4.08 2036 $12.35 85,904 $492,188 $5.76
2037 $8.75 95,083 $388,219 $4.08 2037 $12.33 86,334 $493,815 $5.75
2038 $10.00 92,537 $432,419 $4.67 2038 $14.06 84,191 $550,037 $6.57
2039 $10.00 92,884 $433,853 $4.67 2039 $14.03 84,702 $551,861 $6.55
2040 $10.00 93,152 $435,292 $4.67 2040 $13.99 85,169 $553,691 $6.54
2041 $10.00 93,461 $436,737 $4.67 2041 $13.95 85,702 $555,529 $6.52
2042 $10.00 93,771 $438,178 $4.67 2042 $13.91 86,265 $557,362 $6.50
2043 $11.25 91,706 $482,643 $5.26 2043 $15.40 84,666 $613,922 $7.29
2044 $11.25 92,012 $484,252 $5.26 2044 $15.40 85,277 $615,969 $7.27
2045 $11.25 92,318 $485,865 $5.26 2045 $15.40 85,920 $618,020 $7.23
2046 $11.25 92,626 $487,484 $5.26 2046 $15.40 86,596 $620,080 $7.20
2047 $11.25 92,935 $489,109 $5.26 2047 $15.40 87,306 $622,147 $7.17
$11,708,063 $14,892,656

Appendix B: Debt Service Costs and the MWAA DTR Bond Interest Rate Issue

A vital element in assessing the costs associated with building the Dulles Metrorail line, and their impact
on DTR toll rates, is the interest rate that must be paid on the bonds MWAA must sell to finance it.

In its simplest terms, those rates will be driven by the general bond market interest rate environment
and the risk or credit worthiness of MWAA’s DTR revenue bonds. The market is offering some of the
lowest bond rates in history, although—in the wake of the financial market crisis of 2008-2009—a
relatively higher premium is being paid for less creditworthy bonds of a given types.

As evaluated by S&P, MWAA’s DTR revenue bonds have added credit risk as they have added
subordinated issuances since 2009, all for Phase 1 of the Metrorail construction.
 S&P rated MWAA’s first senior lien bonds as “A”-rated in issued in May 2009. S&P defines this
rating as “Strong capacity to meet financial commitments but somewhat susceptible to adverse
economic conditions and changes in circumstances.” These bonds still hold this rating and are
“outlook stable.”
 S&P rated MWAA’s May 2010 subordinate lien revenue bonds one step lower at “BBB”-rated,
the second lowest investment grade rating out of five. S&P defines this rating as “Adequate
capacity to meet financial commitments, but more subject to adverse economic conditions.”
 New MWAA bond issuances are expected in May 2011, but their ratings are not yet publicly

The actual market price of existing MWAA issuances (and inversely related interest rate of new
issuances of comparable MWAA bonds) reflects the market’s perceptions of the viability of the bonds
and the cost of borrowing. The price of MWAA’s DTR revenue bonds has moved significantly with the
news that the costs of P2 will be substantially higher than identified a year ago. For example, MWAA
issued a $150 million “Build America Bond” in May 2010 at an 8% interest rate.
 Its price rose by as much as 11% from par in August 2010, driving yield down to 7.15%, before
indications of P2 cost increases became evident.
 In light of the revelations about likely future project cost hikes, the price of the bond has
declined 15% (about 6% below par) and the yield has risen to 8.5%.

MWAA will have to deal with these market fluctuations when it issues DTR toll revenue bonds in the
future. We believe that MWAA will generally face a more costly bond market in the future because:
 In general, the bond market is now operating in a period of near record lows in borrowing costs
driven by the Federal Reserve Board’s low-interest rate policies to stimulate economic growth.
 To the extent that each issuance has a lower claim on MWAA’s financial capacity than its
predecessors, this will drive borrowing costs up as it issues more debt.
 The likelihood and actuality of seeking more financing that MWAA had originally planned will
raise the risk of each bond, forcing up borrowing rates for MWAA.
While we cannot project what interest rates will be, we would note that a quarter percent addition to
the interest rate from the 8% level will add about $8 million on average to annual debt servicing costs
and over $300 million over 40 years on the entirety of an expected $3.7 billion in MWAA borrowing.


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