A fiscal train wreck for Fairfax County—a $400 million annual drain on the County and its residents and businesses.
The first complete compilation of the real costs of the Silver Line to our localityThe real total cost of the Silver Line for Fairfax County is composed of several elements:
1. WMATA Subsidy.
Currently Fairfax County gives WMATA $105 million a year as its share of the regional subsidy. This is 13.5 % of the $775 million contributed by the compact jurisdictions.
Fairfax currently is charged for 5.5 stations. When the Silver Line is built out, 8 stations will be added to Fairfax’s total, bringing the total to 13.5 stations. This will make Fairfax the second largest jurisdiction in terms of stations, and the second largest in terms of both population and assumed ridership in the whole system—ahead of the Maryland counties, and only behind the District of Columba.
Assuming that ridership is proportionate to the existing Fairfax per station figures, Fairfax’s share of the WMATA subsidy will rise to 22%.
The Silver Line will increase WMATA’s operating deficit by $120 million a year (Environmental Impact Statement estimate). At today’s numbers plus the Silver Line addition, the deficit would then be $900 million for FY 2012.
22% of $900 million is about $200 million. Thus, the Silver Line will double Fairfax’ yearly obligations to WMATA, adding a minimum of $100 million (and rising) to the general budget of Fairfax each and every year for the future.
This figure does not include the cost of any capital campaign or special assessments for Metro Matters or other campaigns. Since the base system requires $10 billion in upgrades, Fairfax’ share of this would be $2.2 billion.
2. Dulles Toll Road
MWAA placed $900 million in bonds secured by revenue of the Dulles Toll
Road in their Series 2009. The interest rate was north of 6%.
MWAA just approved- after one minute of presentation and no discussion-
another $700 million in Series 2010 bonds. While we do not know the
pricing, it is likely, due to a rise and interest rates and the adverse
impact of increasing debt, that the average interest rate will be
closer to 6.5%.
The rates being paid by MWAA, which will have to be borne by Toll Road
users, are about 2% higher than they could or should be if the issuer
were the Commonwealth of Virginia or a recognized and diversified
entity like the Maryland Transportation Authority, which is relying on
bonds to cover part of the cost of the Intercounty Connector.
This means, on $4 billion in bonds, that $80 million in unnecessary
interest costs will be incurred, every year. This wasted premium is
more than the total tolls from the Toll Road in the year that MWAA
assumed operations ($65 million).
According to MWAA’s plan for Phase II, 75% of the cost will be borne by
the Toll Road. Assuming the cost is the same as Phase I, another $2.4
billion in bond financing will be required. This will result in a total
burden of $4 billion. This burden would make the Dulles Toll Road the
most heavily indebted roadway segment in the world. Assuming a cost of
6.5% to cover interest, plus a 10% debt service coverage, this means
the Toll Road would have to cover 6.5% times $4 billion times 1.1 or
$285 million a year, every year for 40 years.
There is no way that $4 billion in debt can be supported by tolls on
the Toll Road. As a near example, the 13 mile Dulles Greenway was
valued in 2005 at $650 million. Since then traffic has stayed flat
(declining in 2008-9) but toll increases have kept overall revenues
rising. In other words, the Greenway has demonstrated the point where
rising fares will cause traffic loss. Since the Toll Road generates
twice the revenues as the Greenway (prior to MWAA increases), it is
likely that the true market value of the Toll Road is no more than $1.5
billion. This number is consistent with the valuation on other similar
toll roads worldwide.
Accordingly, placing $4 billion in debt on an asset worth $1.5 billion
is overfinancing of 250%. The situation is actually worse since much of
the bond structure consists of zero coupon bonds, which require no or
low payments in the early years of the bond issue, followed by
correspondingly higher coupons in the out years. This is an exact
equivalent of the teaser loans that brought down the world financial
structure when they were part of residential loan practice just a few
years ago. Why are we knowingly repeating this failed model?
Would you loan $400,000 on a house worth $150,000? Even if there were no immediate interest or principal payments due?
Since Fairfax County residents or workers are 90% of the traffic on the
Toll Road, we attribute $250 million of this annual bond cost to
Fairfax.
MWAA’s attitude towards the project is simple: “We own the road.”They
have resisted every effort to open their processes to the Freedom of
Information Act. They insist on their right to spend bond money
anywhere in the Loudoun-Fairfax area that they deem to be part of the
“Dulles Corridor”, such as the HOT lanes in Tysons and Route 606 in
Loudoun.
Unfortunately, the current structure was designed by former governor
Kaine in concert with Gerry Connolly and Jim Bennett of MWAA to make
the rail project impervious to political control and the public
interest. The advisory committee which was set up to monitor this
process has yet to meet.
The Federal Government will not be funding any part of Phase II.
3. The special tax districts
Between the Phase I and II special tax districts, and underwriting fees
and interest, almost $1 billion of debt will be incurred, supposedly by
the Economic Development Authority, which will cost around $50 million
to service.
4. Parking Garages
Parking garages would not be necessary at all if the County were to run
a truly modern coach bus system. Right now, routes and stops are not
even identified at the street, and shelters are nonexistent. No serious
attempt has been made to optimize the current excellent bus service.
Instead, bus routes are being eliminated in an effort to herd Corridor
commuters to Wiehle to help the rail patronage numbers, instead of
allowing users to choose the cheaper and faster bus routes that exist
today.
The Wiehle Avenue station will cost $150 million including interest and
present a yearly burden to the County of $7.5 million. The idea that
any of this money will come back from a proposed “joint venture” is a
pipe dream.
Other garages will be proposed, and the County will be on the hook for those costs, too.
Between the Special Tax Districts and the Parking Garages, the balance
sheet of the Fairfax County Economic Development Authority will double.
Does the County really wish to use up its credit capacity to this
extent on one project?
Annual Costs of Dulles Rail to Fairfax County so far, PER YEAR, for the foreseeable future:
--Extra WMATA subsidy allocation 100,000,000
--Tolls on Toll Road 250,000,000
--Special Tax Districts 50,000,000
--Parking Garage(s) (so far) 7,500,000
Total Annual Costs to Fairfa 407,500,000
PLUS:
Fairfax County has agreed to fund 16.1% of the cost of Phase I, which
the Federal Transit Administration pegged at $3.2 billion. Accordingly,
Fairfax is obligated for $520 million, while the Phase I Special Tax
District can only supply $400 million. Accordingly, the County must
come up with $120 million additional. “Fortunately”, this is just a
one-time contribution.
5. Fiscal Overview
No county of Fairfax’s size, regardless of how wealthy it may currently
be, can afford to burden its citizens with this staggering sum.
If the recent recession has taught us anything, it is that prosperity
is fragile and can be fleeting. History is replete with examples of
once wealthy areas that overextended themselves and lost their
competitive edge. It is likely that Fairfax, dependent as it is on
federal contracting, is at its historic peak as federal expenditures
must be cut back in the future to balance the budget.
6. What do we get for this money?
It is important to realize that none of this money would be needed if
Dulles Rail did not exist. In fact, tolls could be removed permanently
from the Toll Road within two years, instead of being projected to rise
to $11.50 one way before long.
Dulles Rail actually provides worse service for all classes of travel
than we now enjoy. The train will operate at 23 mph, instead of the
current bus system that travels at 50 mph in the Corridor. For the 80%
of Corridor traffic that wishes to bypass Tysons, the rail trip will be
slower than currently is possible—35 minutes by rail rather than 20
minutes by bus from the Corridor to the Orange Line.
Adding Silver line service to the core system will overload the Rosslyn
tunnel and force existing Blue line service to Reagan to bifurcate
between alternate trains of the Blue line and Yellow line. This will
make Reagan’s rail service less convenient and more confusing than it
is now. (As it is, the Blue line frequency is inadequate).
Is the rail worth it? According to studies by the Brookings
Institution, almost all rail systems produce less in benefits than
their costs. This was found to be true for the core WMATA system as
well.
The Silver Line represents an intrusion of expensive federal job
practices, such as a project labor agreement, and Davis-Bacon wage
rates, into a right to work state. It is partially for this reason that
Dulles Rail is so overpriced. And, the county will be stuck with their
share of expensive union labor to operate the Silver Line, with labor
costs 50% higher than privately contracted services.
Is the Silver Line worth a subsidy of more than $400 million per year from Fairfax County alone? Definitely not.
According to the projections provided by the rail promoters, Dulles
Rail represents a 22% increase in system mileage but only a 3% increase
in ridership. They project transit usage of 1,300,000 people a day in
2025. Only 39,000 will be gained from the Silver Line expansion. Such
projections are notoriously optimistic. It is likely that the true net
gain will be about 25,000. Assuming half of this increase can be
attributed to Fairfax, this is 12,500 net new transit users from
Fairfax. Even this number is suspect, since it represents a doubling of
the Corridor direct bus patronage experienced today.
12,500 patrons per day times 290 days (the yearly multiplier used for
transit) is 3,800,000 new trips per year. Divide into $407,000,000 a
year and the cost to Fairfax per new rider is more than $100
However, the Dulles Corridor is largely built out . According to MWAA’s
bond prospectus, actual traffic on the Dulles Toll Road is expected to
decrease as tolls are raised. This means that there will be less
economic activity in the Corridor after rail than before it (since
traffic counts are an accurate proxy for economic activity).
It would be cheaper to get each new rider attracted by the Silver Line a chauferred Rolls Royce!
Or cheaper to simply give out taxi vouchers.
This $100 per new rider total cost is consistent with other studies of
heavy rail in the suburbs, for example the San Jose to Fremont rail
extension which would complete the BART loop around the South Bay .
That project is at least partially financed by a regional sales tax of
5/8% . Recently the feds turned down a grant to connect this project to
the San Jose airport. (By the way, San Jose is the wealthiest city of
its size in the world—outranking Fairfax County, and yet it can’t
afford this extension despite the voter approved sales tax).
The actual subsidy is higher than $100 per rider, since other
jurisdictions will be picking up their share of the $120 million of
increases in the annual operating deficit of WMATA,
7. Suggested Next Steps
Due to the chicanery of Kaine, Connolly, and Bennett, Dulles Rail has
been placed outside the realm of proper political and economic control.
It is an end in itself—an obsession and gift to Tysons Corner
landowners- rather than a cost effective community asset.The result is
a financial catastrophe for the Dulles Corridor and for Fairfax County.
This is the most disastrous set of fiscal negligences that Fairfax
County has ever encountered in its long history. It has the potential
of dragging Fairfax down and impairing business activity forever.
1)Fairfax has indicated in court documents that its approval of the
Silver Line is “subject to appropriations.” It should exercise this
position by refusing to fund any further expenditures on the Silver
Line until more non-Fairfax sources are found.
2)The currently built segment should be operated as a spur line from
East Falls Church and not tied into the core system. This way,
frequency of the spur line can depend on Corridor demand, not on the
operation of the core system, which will limit the necessary frequency
of operations. Also, Fairfax will escape its $100 million in annual
increased subsidies
3)The current excellent express bus system should not be eliminated,
but expanded where needed, and publicized better. Although it is
typical for rail agencies to eliminate more convenient bus service to
force users to patronize rail, this is a mistake.
4)The Wiehle Avenue garage is not necessary and should not be built.
With modern geopositioning software available on smartphones, it is
easy for anyone traveling from a residence to find out when the next
collector bus will pass by, in real time, and when the destination
arrival will occur. Large parking garages at heavy rail stations are
not necessary with today’s networking technology. The idea that people
will spend several dollars on the Toll Road to access a 2,300 car
parking garage that costs $5 and then pay another $5 for a slow train
ride is ludicrous. People either will take a bus that collects them
near their residence, and travel to the Orange Line or ultimate
destination more conveniently, or they will drive. Both methods are
cheaper and faster.
5)The State needs to rescind the operating agreement with MWAA until it
agrees not to burden the Toll Road with unreasonable debt (which is
likely to go into default and have to be assumed by the State when the
zero coupon, teaser introductory rates wear off), and until a plan to
finance Phase II is developed that does not further burden the Toll
Road. The scope and size of Phase II also needs to be defined—is the
Toll Road expected to pay for the mile long tunnel under the airport?
8. Conclusion
Dulles Rail is an extravagance that we cannot afford. Responsible
adults need to reexamine the real costs of this boondoggle and ask
whether it is prudent to burden the Corridor and Fairfax County
taxpayers generally with such staggering annual subsidies. Both
representatives from the Corridor and elsewhere in Fairfax County
should be alarmed at the way costs have ballooned out of control, and
the novel, and ultimately unsustainable way, the project is proposed to
be financed. It is time to blow the whistle before our fiscal burden
becomes unmanageable.
The Dulles Rail financing scheme is novel and will not succeed without
dealing a crippling blow to the financial position of private and
public entities. It has never been tried, nor even proposed elsewhere,
an indication that it is harebrained from the start.
Dulles Rail, if it is built, is a regional transportation facility and
needs to be financed from regional sources, not predominately Fairfax
County and its long suffering congestion plagued drivers along with
residents and businesses along the Dulles Corridor. There is no valid
reason to disproportionately tax the Dulles Corridor for this facility.
Chris Walker, Dulles Corridor Users Group
P.S. It has been the usual practice of the rail promoters to ignore
facts and criticism of their pet project, to which which logic and
economics seemingly don’t apply. These same people, who currently
dominate Fairfax County politics, will probably ignore the fiscal train
wreck their negligence has allowed to occur.
If there are any factual errors in the above analysis, DCUG would like
to know. Write us at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
and consult our web page at
www.dullescorridorusersgroup.com
The numbers given in this analysis are from published, and public sources,
PPS. How can Fairfax County and other players have gotten this project
so wrong? The appended paper by Bent Flyvberg entitled “Delusion and
Deception in Large Infrastructure Projects” has some of the answers.
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