Project Overview

The $2 billion I-495 Capital Beltway High-Occupancy Toll (HOT) Lanes project expanded and improved a 14-mile section the I-495 Capital Beltway in Fairfax County, VA.  In addition to adding four new managed HOT lanes (two in each direction) and reconstructing the existing general purpose lanes, the project included construction of over 50 bridges and overpasses, close to a dozen interchanges, and dedicated HOV ramps.

Advanced traffic management technology is being used to ensure that both the HOT lanes and the adjacent regular lanes operate a maximum efficiency.  Prices charged to use the HOT lanes are set so as to regulate demand such that high and dependable service levels are maintained.   In other words, travelers may choose to pay for premium service that will get them to their destination on time, or they may elect to travel in the free general purpose lanes.  Buses, carpools, emergency vehicles and vehicles with three or more occupants can all access the HOT lanes for free.

Project History

Beginning in the late 1980s, the Virginia Department of Transportation (VDOT) undertook a number of high profile studies to explore options for addressing the chronic congestion on the Capital Beltway. These efforts resulted in solutions that could be implemented in the short term, to include truck restrictions, implementation of ITS techniques, and geometric design improvements. Then, in the 1990s, VDOT formally assessed a broad range of longer-term improvement strategies, completing a Major Investment Study in 1994.

Meanwhile, the idea of public-private partnership (P3) procurements was gaining support in Virginia.  In 1993, construction began on the Dulles Greenway project, the first P3 highway concession in the US.  In January 1995, the General Assembly enacted the Virginia Public-Private Transportation Act (PPTA), making Virginia the first state in the US to issue blanket authority for the use of P3 procurements in the transportation sector.

In the early part of 2000, VDOT assessed a range of options for improving the Capital Beltway, to include HOV widening alternatives and concepts for improving interchanges.  Estimated costs ranged upward from $2.5 billion and impacts included displacing hundreds of residences.  Local stakeholders expressed concern over the potential solutions.

In June 2002, Fluor Daniel (now Fluor Enterprises), a private engineering, procurement, construction, maintenance and project management company based in Irving, Texas, submitted an unsolicited proposal to VDOT to develop the Capital Beltway under Virginia’s 1995 PPTA.  The proposal called for Fluor to design, build, finance, operate and maintain (DBFOM) HOT lanes on the Capital Beltway.  Fluor would finance the project, and revenues from the toll lanes would compensate them for their investment.

Unlike VDOT’s proposal, Fluor’s scaled back plan was well-received by local stakeholders as costs were reduced, as was the requirement to displace residences. Initially, the plan was for Fluor to provide 100 percent of the financing.  However, Fluor eventually partnered with Transurban to improve its position relative to roll road operation and its ability to finance the project.

Project Financing and Delivery

In December 2007, VDOT awarded the DBFOM Capital Beltway concession to Capital Beltway Express, LLC (CBE). The contract period included five (non-operational) years for construction and 75 years for operations and maintenance of the facility. The CBE is a special purpose entity established by Fluor and Transurban to execute the concession.  In addition to being a partner in CBE, Fluor also served as the design-build team prime contractor.  Likewise, Transurban, is serving as the toll operator.

The concession is providing roughly $350 million in shareholder equity. Additionally, CBE borrowed another $1.2 billion, using two different credit programs administered by the U. S. Department of Transportation (USDOT).  First, CBE secured a $589 million loan from the TIFIA Federal credit program.  And, second, it issued (through a State conduit) $589 million in tax-exempt Private Activity Bonds (PABs).   USDOT authorized the PABs from its Congressionally-provided $15 billion allocation.  The TIFIA loan, as well as the PABs reduced financing costs for the concession and will be repaid with project revenues.  VDOT also contributed $409 million in public funding.  VDOT’s contributions are a subsidy and will not be repaid.

This project marked a number of precedent-setting “firsts” in transportation project delivery in the US.  It was the first to (1) use dynamically priced tolls to manage congestion and leverage a project financing package; (2) use PABs; and (3) implement an extraordinarily complex plan of finance that included multiple sources of funds.

The concession agreement shifts certain risks from VDOT (and the taxpayer) to the private developer, CBE.  For example, CBE has unrestricted rights to set tolls, but at the same time has assumed the risk of lower-than-projected toll revenues.  Revenues generated from the tolls are intended to cover all project costs, including debt service, operations, maintenance and administrative costs, as well as provide a reasonable return on investment.

Many contractual provisions exist to protect the public interest.  For example, if the HOT lanes exceed financial expectations, excess toll revenues will be shared with VDOT.  Additionally, the concession contract includes condition, performance and safety standards. CBE must hand back the facility to VDOT in a state of good repair and fully operational at the end of the concession period.  VDOT retains ownership of the land and improvements, as well as oversight of the HOT lanes.

Construction began in spring 2008 and the facility opened to traffic ahead of schedule in November 2012.

Due to a slower than expected ramp-up period, the project concessionaire and senior lenders announced a change in the project’s debt structure that includes a 60 percent reduction of senior debt and associated commitments funded by a $280 million private equity investment and $150 million in existing project reserves.  The change improves the credit structure of the borrower and strengthens the creditworthiness of the TIFIA loan by reducing the project’s debt load.  The agreement was finalized in May 2014.