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Virginia Judge Throws Out Toll Plan for Norfolk Project

A Virginia judge threw out a plan to pay for a $2.1 billion tunnel project in the state’s southeastern region, ruling that lawmakers can’t give the state transportation department free rein in setting tolls.

“The General Assembly has exceeded its authority by ceding the setting of toll rates and taxes,” Judge James Cales said in a ruling from the bench, according to a transcript of the May 1 hearing. The legislature “has given unfettered power to the Department of Transportation without any real or meaningful parameters,” Cales said.

Funding for the improvements, which are designed to reduce traffic congestion and include building a new tunnel under the Elizabeth River connecting Norfolk and Portsmouth, relied in part on toll revenue from two existing tunnels. Tolling was slated to start in February, according to the project’s website.

Financing for the project was developed through a public- private partnership that included $675 million of private activity bonds, a $463 million federal loan under the Transportation Infrastructure Finance Innovation Act and $421 million from the Virginia Transportation Department, among other sources, according to the website. The Virginia Transportation Department is providing the revenue from the planned tolling in the interim.

A group of community businesses and residents sued in 2012, claiming the plan for tolling at the tunnel violated Virginia’s constitution.

‘Economic Vitality’

Virginia Governor Robert McDonnell called the project “vital to the safety, transportation and economic vitality” of the region and said in an e-mailed statement the state will seek a stay and appeal the ruling.

Cales’s ruling calls into question the future of public- private partnerships to construct major transportation projects in Virginia, Brian Gottstein, a spokesman for Virginia Attorney General Ken Cuccinelli, said in a statement.

“We are disappointed with the court’s decision,” Gottstein said. “The tolls cannot be considered a tax and it’s completely within the Virginia Department of Transportation’s authority to set reasonable tolls to pay for the construction, operation, and maintenance of the project.”

Existing Tunnels

The state’s non-government partner, Elizabeth River Crossings OpCo LLC, took over operations of the existing tunnels in July. The project, which was slated to be finished in 2016, included the construction of a second Midtown tunnel, renovations of the existing tunnel and the extension of the Martin Luther King Jr. Freeway to Interstate 264.

“Construction on the Elizabeth River Tunnels Project remains underway” and Elizabeth River Crossings continues to operate and maintain the tunnels and associated roadways as they have since assuming responsibility for the project, the company said in an e-mailed statement received today.

Even with the lawsuit, the value of the municipal bonds has increased since the Virginia Small Business Financing Authority sold the debt April 9, 2012, to help finance the tunnel project. Bonds maturing January 2042, and subject to the alternative minimum tax, traded May 3 with an average price of 107.35 cents on the dollar, compared with 100 cents when the authority sold the debt last year, according to data compiled by Bloomberg.

Jayne Ross, an analyst for Standard & Poor’s, said the rating firm is reviewing the judge’s ruling and couldn’t comment on how it may affect the bonds or the debt’s credit rating.

Soctt Zuchorski, an analyst at Fitch Ratings, said the company’s view on the bonds hasn’t changed at this point.

“We’ll just continue to monitor it see how the appeals process plays out,” he said.

Standard & Poor’s and Fitch rate the bond BBB-, one step above non-investment grade.

The case is Meeks v. Virginia Department of Transportation, 740-CL-12001705-00, Circuit Court for the Commonwealth of Virginia (Portsmouth).

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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