Project Overview

The Downtown Tunnel/Midtown Tunnel/MLK Extension project is located in the cities of Portsmouth and Norfolk, Virginia. This three-facility project consists of transportation improvements to two tunnels connecting the two cities under the Elizabeth River and one adjacent highway. The project includes:

• Construction  of a new 4,500 foot tunnel on Route 58 parallel to the existing Midtown Tunnel and modifications to interchanges at both portals to improve traffic flow
• Rehabilitation and upgrades to the existing Midtown and Downtown Tunnels to achieve compliance with current fire and life safety standards
• A 0.8-mile extension of the Martin Luther King Freeway (MLK) south to I-264 in Portsmouth, including a new intermediate interchange at High Street

The $2.1 billion project is being developed as a public-private partnership (P3) between the Virginia Department of Transportation (VDOT) and Elizabeth River Crossings, LLC (ERC), comprised of Skanska Infrastructure Development and the Macquarie Group. A 58-year design-build-finance-operate-maintain (DBFOM) P3 concession grants ERC the exclusive right to finance, develop, design, construct, manage, operate, and maintain the project in exchange for the right to collect and retain all toll proceeds levied on the Elizabeth River tunnels.

Project History

The original Downtown Tunnel opened to traffic in 1952, and was followed by the Midtown Tunnel in 1962. Both tunnels initially operated as two-lane, single-tube tolled facilities. A second tube was subsequently added to the Downtown Tunnel in conjunction with its incorporation into the route of I-264 through the two cities, opening in 1988, and tolls on both tunnels were removed at that time.

The original project plan known as the Route 58/Midtown Tunnel involved the construction of a new limited access highway and tunnel to provide east-west connections between Route 58 and Route 164 in Portsmouth and Norfolk. At the time that a Final EIS for the project was completed in 1996, funding had only been identified for the Portsmouth-side interchange and western approach in the region’s fiscally constrained long-range plan, and FHWA thus issued a Record of Decision (ROD) only for those portions of the project. The tunnel itself and its eastern approach were later added to the long-range plan in 2006 and included in a revised ROD in 2009.

In parallel to the development of the Midtown Tunnel, a series of studies was conducted in the 1990’s analyzing alternatives to close a one-mile gap between Route 58 (MLK Freeway) and I-264. The resulting MLK Extension project received environmental clearance from FHWA in 2009.

VDOT initially considered implementing the Midtown Tunnel project as a standalone P3, and received approval to pursue the project under Virginia’s Public-Private Transportation Act (PPTA) in April 2005. VDOT subsequently decided to bundle the Midtown Tunnel project with the MLK Extension and Downtown Tunnel improvements in a single P3 procurement, allowing it to better leverage the private sector’s technical and financial resources. VDOT also made the decision to reintroduce tolls on the two tunnels in order to help pay for the costs of the combined project. It sought and received tolling authority under the Federal Value Pricing Pilot Program, executing a tolling agreement with FHWA in September 2009. Under the terms of the agreement, variable tolls must be used to manage demand on the facilities.

VDOT issued a Solicitation for Proposals in May 2008 and received a single response from ERC in September. Following a public comment period and review by an Independent Review Panel, VDOT entered into an interim agreement with ERC in January 2010. An Environmental Assessment of the combined project was cleared in April 2011, and ERC and VDOT signed a Comprehensive Agreement in December 2011. The combined project reached financial close in April 2012.  Construction began in mid-2012. Work on the new Midtown Tunnel, Downtown Tunnel, and MLK Extension was completed in 2017.

Project Financing and Delivery

ERC’s financing sources for the project include $675 million in Private Activity Bonds; a $422 million TIFIA loan; and $272 million in equity contributions. All financing sources for the project will be repaid by tolls collected over the life of the concession. The TIFIA loan is further secured by a fully funded debt service reserve fund. ERC also expects to collect up to $250 million in tolls on the existing tunnels during the construction period, which will be used to help defray the upfront costs of the project.

In addition to toll revenues, VDOT agreed to provide $309 million in public funding to ERC during the construction of the project. VDOT’s sources of funding for this contribution include $425 million in GARVEE bond proceeds backed by future Federal highway funds; $12 million in current and future state maintenance funds (including repayments of $9.5 million in funds advanced from the Virginia’s Toll Facilities Revolving Account); and $57 million from the state’s Priority Transportation Fund.

Under the terms of the concession agreement, tolling of the existing Midtown Tunnel and the Downtown Tunnels was originally scheduled to begin in August 2012. VDOT subsequently reached agreements with ERC to increase its total contribution by a total of $195 million in order to delay the start of tolling until February 2014 and to reduce the maximum toll rates through 2016, bringing its total contribution to $504 million. Tolling of through traffic on the MLK Extension is scheduled to commence in 2017 after the project is complete.