The N.C. Department of Transportation’s contract with a private developer to build toll lanes on Interstate 77 includes a controversial noncompete clause that could hinder plans to build new free lanes on the highway for 50 years.
The clause has long been part of the proposed contract. But it was changed in late 2013 or early 2014 to also include two new free lanes around Lake Norman – an important $431 million project supported by local transportation planners.
Some area officials were surprised that under the contract with I-77 Mobility Partners, the developer would likely collect damages if the state added two new general-purpose lanes from Exit 28 to Exit 36 at the lake.
Bill Coxe, a transportation planner with Huntersville, said he doesn’t know who lobbied for the revision. The new language wasn’t part of the draft contract from 2013, but it was added before the final deal was signed in June.
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“We saw that late in the game,” he said. “We aren’t sure who modified that.”
According to the noncompete clause, if DOT wants to add new free lanes to I-77, including Lake Norman, it would have to pay I-77 Mobility Partners compensation for lost toll revenue. That could be millions of dollars a year.
The clause allows the state to build new toll lanes on the highway, so long as I-77 Mobility Partners manages them and keeps the revenue.
Some are concerned that the length of the agreement – 50 years – will result in the free lanes on I-77 being far more congested in 10 or 15 years than they are today, even after the first toll lanes are built by 2018.
Mooresville’s representative on an advisory committee that helps make transportation recommendations said she didn’t know about the change to the contract with the developer.
Neither did Andrew Grant, a Cornelius assistant town manager who helps shape regional transportation policy.
He said the committee on which he serves, which makes recommendations about transportation, “was not aware of the revision until after the contract was executed.”
The N.C. Department of Transportation declined to comment about the contract language, citing pending litigation over the express toll lanes.
The private developer, I-77 Mobility Partners, a subsidiary of Cintra U.S., declined to comment. It referred questions about the project to the state.
Noncompete clauses have been used in other toll projects nationwide, but they remain controversial.
The rationale is that if private investors are going to spend hundreds of millions of dollars on a project, they need some guarantee that the state won’t undercut them with a new highway or new lanes that would siphon off their business.
Robert Poole from the Reason Foundation, which supports the concept of express toll lanes, said the noncompete clauses are needed for people to invest in such projects.
“This is a response to the bond market community,” he said.
Here is what the state can and can’t do under the 50-year contract:
▪ The DOT can add lanes to N.C. 115 and U.S. 21 – two highways that run parallel to I-77. But if the state chooses to convert those highways to limited access highways, I-77 Mobility Partners could seek compensation for lost business.
▪ The Transportation Department can build new rail transit in the area. There is a long-term plan to build a new commuter rail line, but that project has no funding.
▪ It can add new express toll lanes to I-77, so long as I-77 Mobility Partners has the “exclusive right” to manage them.
The contract is silent as to who would pay for the construction of any new toll lane.
In the contract signed last year, DOT would pay up to $88 million of the $655 million initial toll lane project. The state could pay an additional $75 million if toll revenues don’t meet projections.
Proponents of the project have touted DOT’s limited amount of funding as a positive for the tolling concept.
In the future, I-77 Mobility Partners would have much more leverage to negotiate a better deal in terms of who pays for the costs of the new lanes.
Or it’s possible the developer could refuse to pay any share of the construction costs at all.
“They are holding all the cards,” said Cornelius commissioner Dave Gilroy, who opposes the toll lanes but hadn’t previously known about the details of the noncompete clause.
Planned vs. unplanned
In the draft version of the toll lane contract, from October 2013, the state was allowed to build anything in its long-range transportation plan without penalty. The idea is that if local transportation planners had a project on their master plan, I-77 Mobility Partners couldn’t later claim it was an unplanned project.
Robert Cooke, the Charlotte Regional Transportation Planning Organization’s secretary, said the group voted in 2011 to add an I-77 widening project with general-purpose lanes.
The project, currently listed as costing $431 million, would add one free lane each way on I-77 from Exit 28 to Exit 36.
When asked why the project was added to the noncompete clause, DOT did not answer directly. A spokesperson said that the Lake Norman widening project hasn’t yet scored high enough on a new 10-year ranking system to move forward.
The planning organization’s intent wasn’t to build the project by 2025, however. Its plan was to widen the highway between 2031 and 2040.
The Transportation Deparment also said the final terms of the agreement were posted on DOT’s website in January 2014, five months before the comprehensive agreement was signed.
The I-77 noncompete clause is actually less restrictive than a clause included in a 1990 contract for toll lanes on California State Route 91 in Southern California. That contract set financial penalties for the state to make any transportation improvements within a half mile of the highway corridor.
The Orange County Transportation Authority later bought the rights to manage the lanes from the private developer, a move that ended the noncompete clause.
How will the area grow?
When the express toll lane project is finished, the existing carpool lane will be converted to a toll lane. In addition, the developer will build a new toll lane in each direction from uptown to exit 36 in Mooresville.
Will that be enough capacity to handle the region’s expected growth?
Planners said they expect the region to continue growing rapidly, with hundreds of thousands of people moving into north Mecklenburg and Iredell counties in 50 years.
The state’s view is that a toll lane is the only way to manage that congestion.
“Over the long term we have that resource available in 20 or 30 years,” said Scott Cole, a deputy division engineer with the N.C. DOT. “We could add a (free lane) and it would be congested in five or 10 years.”
The price of the toll will be determined by how many people want to use the road. At 10 a.m., it might cost $2 to drive from uptown to Lake Norman. At 5:30 p.m., that same trip might cost $10 or $15.
The price is geared toward keeping traffic flowing in the express lane at at least 45 mph.
It’s possible a one-way trip from Charlotte to Mooresville could cost $20 by 2035, according to a projection from I-77 Mobility Partners.
David Hartgen, a transportation consultant and former UNC Charlotte professor, said two free lanes and one toll lane is not enough capacity to handle congestion that will build over the next five decades.
He said the noncompete clause will create intense congestion that could drive tolls even higher.
Some demographers predict the Charlotte area’s growth will mirror Atlanta over the next half-century.
“This is one of the most foolish decisions made in last 25 years,” Hartgen said. “The (transportation planning organization) is guaranteeing congestion to the northern suburbs for the next 50 years.”
Kurt Naas, the leader of the anti-toll group Widen I-77, believes the financial penalties will scuttle any future widening of the interstate. He has questioned whether the noncompete clause is too restrictive.
“Once the toll lanes are put in, that’s it. There will be no more improvements to I-77 in 50 years,” Naas said. “It will never be improved with any other general-purpose lane. The reality is, that’s it.”
The state is also planning to build toll lanes on Interstate 485 and U.S. 74.
On those projects, DOT will build and administer the lanes – not a private contractor. If the state wants to add more lanes to the highway in the future, it’s free to do so without financial penalty.
Poole of the Reason Foundation said a drawback to public-private partnerships of highways is a loss of control by the government. But he said there is an upside.
“One important benefit from the state not doing it is that the traffic and revenue risk is assumed by the private sector,” he said.