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5 Questions to MWAA Andy Rountree, Vice President of Finance and CFO of the Metropolitan Washington Airports Authority, answered the following questions regarding the Dulles Toll Road. 1) What percentage of the total cost of the Silver Line (Phases 1 and 2) will be borne by DTR users?
The slide below depicts the allocation of costs. The toll road will finance about $3 billion of costs, which represents about 54% of the total costs of phase 1 and 2 combined.
METROPOLITAN WASHINGTON AIRPORTS AUTHORITY
Allocation of Dulles Metrorail Project Costs
Excluding Route 28 Station and Phase 2 Parking Garages
SOURCES OF CAPITAL FUNDS
(Thousands YOE Dollars) PHASE 1
% of T otal
Federal Commonwealth of Virginia Fairfax County Loudoun County MWAA (Aviation Funds) MWAA (Dulles Toll Road) TOTAL SOURCES OF FUNDS
900,000 251,700 400,000 -
*23,300 500,746 268,545 229,383
900,000 275,000 900,746 268,545 229,383
16.1% 4.9% 16.1% 4.8% 4.1% 54.0% 100.0%
= Contribution is fixed amount = Contribution is fixed percentage of total cost = Neiher amount is not fixed - amount and percentage of total cost can change. Contribution or Percentage is fixed
Allocation based on 100% Preliminary Engineering Estimate for Phase 2. Assumes Fairfax secures $236 million for the Route 28 station and two parking garages and Loudoun secures $168 million for three parking garages. If the $2.831 billion Independent Cost Estimate with higher assumed escalation is used, the Loudoun contribution is $275 million. Allocation assumes the $150 million to be provided by the Commonwealth of Virginia for Phase 2 will be used to pay interest o n Dulles Toll Road revenue bonds, not direct project costs.
2) What factors may alter the projected toll increases as outlined on page 11 of the CDM study
that show tolls reaching about $18 one-way in 40 years? For instance, will MWAA lobby Richmond for an increase in Va. state contribution?
First, it must be understood that the CDM Smith report does not set the toll rates. Toll rates are set by the MWAA Board of Directors, generally for a range of 1 to 3 years out into the future, to meet the operating, maintenance, and debt service (principal and interest payments on borrowed funds). The long-‐term schedule is primarily to illustrate to investors (buyers of toll road revenue bonds) that the toll road can produce sufficient revenues over time to pay back the debt plus the required interest payments. There has been approximately $1.3 billion borrowed to date via toll road revenue bonds, and so the repayment schedule for this amount of debt is already known. However, there are still several unknowns that could impact toll rates in the future. 1) When the remaining funds are borrowed, what will be the actual interest rate?, 2) when will the funds actually need to be borrowed to meet construction requirements? (i.e., if phase 2 is delayed, borrowing would be pushed back), 3) will Loudoun opt out? The manner in which to fund the project is a public policy decision. The current plan has 54% funded by the toll road. If public policy decision-‐makers want to lessen the potential future burden of toll payers, then the way to do that is to provide additional funding. Either additional state funding, or the ability to access TIFIA financing (subsidized federal loans), or a combination of both can have the impact of reducing the burden on the toll road. The Authority is simply implementing the public policy decision on funding that was previously made by the Commonwealth and the Project partners. If policy-‐makers provide additional funding, we will take that into account when setting required toll increases. Minimizing required toll rate increases is certainly a goal.
3) How did the DTR wind up being the main financing engine for the project? For instance, was the federal government's decision to fund only Phase a significant factor in placing the burden on toll road users?
The Commonwealth of Virginia had targeted the use of Dulles Toll Road Revenues to pay for the Metro rail project before the Authority became involved. However, in 2005, the Commonwealth was entertaining Private Proposals to operate the toll road and the Authority became concerned that the source of revenue that Virginia had targeted for rail, might have been handed over to a private company to run for a profit, and there would be no commitment to get rail built to Dulles. With the toll road sitting on an easement provided by the federal government and the Authority, the Authority felt compelled to become engaged. The Authority offered Virginia an alternative proposal whereby the Authority agreed to build rail to Dulles and beyond into Loudoun county, if the Commonwealth of Virginia turned over all operating rights to the Toll Road (including right to the toll revenue) to the Airports Authority so that the Authority could leverage toll revenues to construct the project. Because the federal government’s contributions were limited to phase 1, and because the funding partners together agreed to provide up a combined 25% of the total project, the residual costs were to be borne by the toll road.
4) Is CDM Smith calculating the result backwards when it comes to revenue forecasts for the DTR? For instance, rather than determining a toll rate based on revenue needs (to pay off bonds, etc.), it seems CDM was given the tolls and told to calculate traffic & revenue.
As you observed, toll rate setting is a complex process. Development of potential toll rates can best be described as an iterative process between our financing experts and the traffic and revenue consultant. The known variables are the amount that needs to be financed, and we know that we need to repay the debt over a limited number of years. So the objective is to minimize increases to tolls in any given year, but to generate sufficient revenue to pay operating costs and repay the debt. The debt has to be structured so that the toll road can afford to grow into the debt payment in any given year. If the debt was set up like a mortgage payment for example, there would be only one toll increase and the tolls collected in any given year would make the debt payment. Because the debt is so large, it is not feasible to have only one toll increase as it would become too expensive immediately. So, the debt structure is such that in any given year, the amount that is due and payable will go up, and accordingly tolls will have to go up to cover the debt payment. This has always been the plan and is very typical of the way large projects are financed. So the iterative process allows our financing experts to pose gradual levels of toll increases, and the work of the traffic and revenue consultant produces the resultant transaction and revenue that should be expected as a result. With the resultant revenue stream, the financing experts can determine if the underlying debt can be structured and repaid within the given amount of time. If the potential toll schematic produces too little revenue, or more revenue than required, then the potential toll schematic can be modified and the traffic and revenue consultant again generates the expected transactions and revenue. Accordingly, you are correct in that the traffic and revenue consultant does not generate a toll solution to solve for revenues. First the financing needs are identified, then tolls are considered that potentially solve for revenues needed to repay the structured debt payments.
5) How does MWAA account for the possibility that high tolls on the toll road may force those drivers onto other roads, depleting revenues?
The traffic and revenue forecast accounts for the impact on transactions, as well as the resultant revenue expected as a result of any given toll increase. Accordingly, we don’t fully understand what you mean by “depleting revenues.” As noted earlier, the Authority’s goal is to minimize the toll increase in any given year, thereby minimizing to the extent possible any drivers diverting off of the roadway in any given year.
6) Does MWAA or WMATA have ridership projections for the Silver Line?
Please refer to WMATA. Also, there were projections in the Environmental Impact Statement. To view the EIS visit http://www.dullesmetro.com/community/impact_report.cfm
7) How will Loudoun's decision to opt in or out of the project affect toll rates?
If one assumes that the Metro rail stops at Wiehle avenue as a result of the opt out, tolls will still need to be increased over time to repay the $1.3 billion already borrowed, and the remainder to be borrowed to complete phase 1. It is safe to assume that the toll levels to finance $1.3 billion (the toll road share of phase 1 alone) would be less than a toll burden to finance $3 billion (the toll road share for both phases). If one assumes that the remaining funding partners continue to build the project to Dulles, then there will obviously be a delay and a need to renegotiate the agreements, but it is likely that the toll rates
would be similar whether Loudoun opts in or out. So in this scenario, Loudoun residents would be paying similar toll rates, but without the benefit of the stations and access in Loudoun.
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