Virginia Transportation Authority’s Approach Will Incur Unnecessary $500 Million Cost

Sept. 22, 2013 - PRLog -- The Northern Virginia Transportation Authority (NVTA) recently received and accepted advice from a financial advisor that, if followed as is currently planned, will reduce by close to half a billion dollars the present value of the amount available for investment in transportation projects over the next twenty years. According to Stuart M. Whitaker, president of Whitaker Associates, NVTA has adopted this advice despite being provided with a separate report detailing this cost and despite the sore need for improvement in the local transportation infrastructure.

After being hired to provide advice about the advantages and disadvantages of issuing bonds for northern Virginia transportation projects, the advisor reported that "debt leads to greater project funding capacity."

“This advice is simply wrong," according to Mr. Whitaker. "Anyone with basic financial literacy understands that one doesn't increase the amount of money available for spending by borrowing--to the contrary, transaction costs and interest payments from borrowing will reduce the amount available for investment.” A careful technical review of the advisor's report revealed two glaring mistakes--an apples to oranges comparison between unlevered versus levered scenarios, and a failure to include the full repayment cost of the bonds.

“It is difficult to understand how these errors could have occurred--they should have been discovered by even a junior financial analyst,” according to Mr. Whitaker.

When viewed in the context of the increased income and wealth disparity which has been underway in the US over the past thirty years, this financing plan is merely part of an ongoing trend. This economic disparity we have been witnessing is furthered in this instance by a regressive tax on sales--the source of 80 percent of NVTA’s funds--combined with the immediate enrichment of Wall Street from the bond issue. The corresponding reduction in transportation investment would be harmful to everyone in Virginia. Though the plans to issue these bonds are well underway, the bonds have not yet been issued. NVTA still has the opportunity to change course and must also overcome a legal challenge to its approach.