RCA: Forecast Overestimates Toll Revenue

The Reston Citizens Association says that a recent forecast of traffic and revenue from the Dulles Toll Road contains "many very large errors" and wants an additional study be untertaken before there are any more decisions made on moving forward with Phase 2 of the Metro Silver Line.

“Our analysis of a number of Wilbur Smith Associate’s forecasts for toll facilities indicates they frequently overestimate the toll revenues,” said Colin Mills, President of the Reston Citizens Associations (RCA) Board of Directors.

“These overestimates have led to major financial restructurings and even toll road bankruptcies in the cases we looked at, resulting in major losses to investors and bondholders as well as often requiring new public funding and higher tolls.” 

RCA sent its study on Friday to Gov. Bob McDonnell, Fairfax County Board of Supervisors Chair Sharon Bulova, Metropolitan Washington Airports Authority Board Chair Michael Curto and other stakeholders in Phase 2.

The study was finished as Wilbur Smith Associates (WSA) is about to complete its third traffic and revenue forecast for the Dulles Toll Road and the funding partners for the Silver Line are preparing to approve a decision to move forward with Phase 2 of the line’s construction.

The 81-page analysis,  titled Wilbur Smith Associates’ Traffic and Revenue Forecasts:  Plenty of Room for Error, examines the “optimism bias”—overestimating traffic and revenues—in toll road forecasts.

Data from a national study of toll road overestimates indicates WSA’s forecasts averaged a 127 percent overestimate of revenues—more than double—for the first five years for 12 projects it supported.  Other forecasting groups performed nearly as poorly, but WSA’s forecasts did not improve over that time span while the others improved markedly.   

 The RCA assessment notes that WSA’s work in its two studies of the Dulles Toll Road so far (2005 and 2009) show overestimates as well.  Its 2005 forecast put the revenue maximizing toll at $2; its 2009 study called for tolls to reach $11.25.  It used the highest available population and employment forecasts in both forecasts, overestimating 2010 Fairfax employment by 25 percent in 2005 and 52 percent in 2009.

The pattern of overestimates in WSA’s forecasts suggests a substantial risk in proceeding with the Metrorail line’s current financial plan. Among the risks: 

• Lenders will not fund the $3 billion needed to finance Dulles Toll Road construction, or will require state guarantees or funding for an investment grade rating.
• Tolls may double those forecast by WSA to meet debt servicing requirements, compensate for the revenue overestimate, pay higher interest rates, and offset reduced traffic demand.
• Much higher toll rates on the Dulles Toll Road will discourage economic growth along the Dulles Corridor and force a substantial flow of traffic to already congested nearby highways and roads. 
• MWAA may have to use airport revenues to pay Dulles Toll Road debt servicing obligations.  
• MWAA may face default or restructuring of its Dulles Toll Road debt at a greater debt servicing—and greater toll— expense over a long period of time. 

RCA also calls for MWAA to release the upcoming traffic and revenue study as soon as possible, and for all the funding partners to engage the public in a dialogue on whether and how to proceed with Phase 2 under the current financial plan.  Longer term, it calls on FHWA to oversee a process that would lead to a substantial improvement in traffic and revenue forecasts.

“RCA has long been enthusiastic about Metrorail to Dulles via Reston,” said Terry Maynard, the report’s principal drafter, said in a statement. “But we do not want a rail line at any price, especially one that forces Dulles Toll Road users to absorb most of the financial burden and area communities to absorb added traffic on already crowded local roads.  The prospects are even worse if the WSA forecasts overestimate revenues as much as our research suggests."

 
The entire report can be found here: RCA Study--Wilbur Smith Traffic & Revenue Forecasts--012712

Dear Honorable Lady and Gentlemen,The Reston Citizens Association (RCA) is pleased to provide you the attached analysis of the traffic and revenue (T&R) forecasts of Wilbur Smith Associates, Inc. (WSA), now known as CDMSmith, approved by the RCA Board on January 23, 2012.  Our examination indicates that WSA has made many very large errors in its forecasts that have been costly to investors, bondholders, governments, and toll road users who have relied on them to approve construction of major toll road projects.As our recommendations propose, we believe that it is imperative that a second, independent T&R forecast be completed by another forecasting group before any decision is made to move forward with the construction of Phase 2 of the Silver Line.  We recommend that the Virginia Department of Transportation take on that task given its expertise and the intention of the Commonwealth to provide $150 million of state tax revenues to help finance Phase 2 Silver Line construction.  At the same time, we call upon the “funding partners”—MWAA and Fairfax and Loudoun counties— to defer any decision to proceed with Phase 2 until that independent analysis has been completed and substantive differences between the two studies resolved.  We also ask that they make the upcoming WSA T&R forecast and the Virginia-sponsored study available to the public as soon as possible, and engage the public in discussion about the merits and means of proceeding before any decision is made.Finally, we believe the federal government, specifically the Federal Highway Administration, has a longer term obligation to develop through an open and inclusive process a set of “best practices” for T&R forecasting that will set regulatory standards fort federal funding—grants, loans, and guarantees—of toll road and other road infrastructure projects.  

RESTON CITIZENS ASSOCATION STUDY SHOWS MASSIVE OVERESTIMATES IN WILBUR SMITH FORECASTS UNDERMINE FINANCIAL VIABILITY OF TOLL ROADS; CALLS FOR INDEPENDENT FORECAST BEFORE PROCEEDING WITH PHASE 2 OF THE METRORAIL SILVER LINE.