Illegal political contributions helped an Australian firm land a lucrative toll road deal that provides unprecedented power over Northern Virginia's transportation future. Last week, Melbourne-based toll road operator Transurban wrote and asked state lawmakers to return checks that the had written in violation of federal campaign laws (details). But the deal these contributions helped bring about has already been finalized.

In June, the US Department of Transportation created a first-of-its-kind $1.6 billion financing package that consisted of tax-free bonds, loans and state taxpayer grants to support the project that will add a pair of High Occupancy Toll (HOT) lanes to the Interstate 495 Capital Beltway just outside of Washington, DC. To this amount, Transurban only added $349 million of its own capital -- less than the cost of interest -- toward the construction costs (details).

In return for that small investment, Transurban received from Virginia officials the right to demand payment from state taxpayers any time that improvements are made to a number of free roads near the Beltway. In effect, the contract between the Virginia Department of Transportation (VDOT) and Transurban is designed to ensure the area remains sufficiently congested so that motorists will have an incentive to pay to use the toll lanes.

For example, VDOT can make no changes, expansion or improvements to the free lanes on the Beltway until the year 2087 unless the agency first consults Transurban. VDOT agreed that if any such changes were made to the general purpose lanes without Transurban's explicit approval, they would at least be made in such a way as to guarantee the company maintained a high level of profit.

"If the department [VDOT] determines that additional traffic lanes on the Capital Beltway Corridor are in the state's best interests, the department shall consult with the concessionaire [Transurban] as to an appropriate strategy to implement such additional traffic lanes," the contract states. "At the department's sole discretion, [it shall] permit the construction of additional lanes as part of the project with a view to minimizing any detrimental impact on the project or its ability to generate revenues..."

In the past, most toll road deals included "non-compete" clauses that strictly prohibited transportation departments from making improvements to untolled roads nearby. They did so because free-flowing traffic on alternative routes would hit the toll road's bottom line. Simply put: why take a toll road, when there's a free alternative?

Explicit non-compete provisions have become politically controversial, and, as a result, companies have recently embraced a more subtle approach to accomplish the same goal. For example, the contract for the State Highway 130 toll road in Austin, Texas included a provision giving the Texas Department of Transportation a financial incentive to lower the speed limit on the nearby Interstate 35 freeway. As first reported by TheNewspaper last year that, this provision was designed to create congestion and inconvenience for the motorists who choose the free alternative route (details).

For the Beltway project, improvements such as adding additional free lanes to the highway are absolutely permitted -- for a price. The contract considers any improvement to the Beltway to be a "Department Project Enhancement" which means that Virginia taxpayers must pay Transurban for the right to improve the free portion of the highway. Given VDOT's stated lack of funding, adding an extra monetary premium to the cost of any improvements effectively gives the foreign company the ability to prevent such projects from happening.

The effect is not limited to the Beltway. The contract specifies that payments called "compensation events" must be made in the event that the state decides to improve the connections between the Beltway's general purpose lanes and the Dulles Toll Road or any "improvements to I-66 outside the Capital Beltway Corridor" made over the course of the next eighty years.

An "independent engineer" determines how much compensation Transurban will receive by calculating an expected traffic impact. This means that the more the public is likely to use a free alternative, the more Transurban is paid. In Sydney, Australia, for example, the Lane Cove Tunnel toll project contained a provision requiring the state government to narrow the lanes of a nearby free road to generate congestion that would drive motorists into the tunnel. After the state decided to postpone the narrowing until after an election, the toll road concession was paid A$25 million (US $24 million) for that compensation event.

Transurban's control goes beyond lane improvements. Although the stated purpose of the "high occupancy" part of the toll lane project is to encourage motorists to carpool, the contract contains a provision directly designed to discourage any increase in the number of motorists sharing rides.

"The department agrees to pay the concessionaire, subject to Section 20.18, amounts equal to 70% of the average toll applicable to vehicles paying tolls for the number of High Occupancy Vehicles exceeding a threshold of 24% of the total flow of all permitted vehicles that are then using such toll section going in the same direction for the first 30 consecutive minutes during any day, and any additional 15 consecutive minute periods in such day, during which average traffic for a toll section going in the same direction exceeds a rate of 3,200 vehicles per hour based on two lanes," the contract states.

This means if carpooling becomes popular on the Beltway, taxpayers could end up making multi-million dollar annual payments to Transurban.

Finally, the contract insists that if any homes happen to lie in the way of the the construction of the new lanes, Transurban will pay no more than the current market value to purchase the land in question. If the owner refuses to move, VDOT will condemn the property and confiscate it for the use of the private, for-profit company through eminent domain. The Beltway project, however, was designed to be built within existing VDOT right-of-way to ensure the exercise of this power would not be needed.

Transurban shares on the Australian Stock Exchange jumped 15 cents to A$4.60 today after the company announced quarterly earnings results. On Virginia's Pocahontas Parkway, the company reported a 7.8 percent increase in revenue over the same quarter last year, despite a 6.9 percent drop in the number of motorists using the toll road. It credited the positive performance to an 11 percent toll hike in January and the cancellation of the discount previously given to transponder users.

Relevant excerpts from the Transurban contract are available in a 260k PDF file at the source link below.