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Prospectus Blog Tolling Goes Mainstream

Approaching 2008, tolling has entered the mainstream and begun to influence transportation decisions throughout the country. At the same time – as Forbes magazine notes – transponder technology is enabling higher-speed, automated “open road” tolling, foreshadowing an eventual end to the era of tollbooths.
Recent news reports underscore the increased momentum for tolling – although often the pathway to implementation is challenging, and some proposals pencil out while others ultimately do not.
Let’s survey the tolling landscape.
With the state facing a projected 30-year, $74 billion shortfall in needed road funding, Georgia Board of Transportation member David Doss has unveiled a plan which includes a 10-year statewide one percent sales tax hike to raise $22 billion for transportation, and which calls for the infusion of private capital for a tolled east-west connector north of Atlanta and an eight-mile tolled tunnel to relieve downtown congestion.
Near San Francisco, the (Silicon) Valley Transportation Authority is vetting plans to widen Highway 101 and add a High Occupancy and Toll (HOT) lane that is free to some carpoolers but for which lower-occupancy vehicles would be charged. Conversion of current High Occupancy Vehicle (HOV) lanes to HOT lanes that are open to toll-paying solo drivers is also being evaluated for other Bay Area highways, including portions of southbound I-680, I-580, I-880 and Route 101 in the North Bay.

Installing more HOT lanes has increasingly become a priority for the federal Department of Transportation, which recently released $1.2 billion to agencies across the country willing to charge tolls….”The feds are looking for dramatic, dynamic ways to get big projects moving,” said John Ristow, who is overseeing the VTA’s toll plan for 85 and 101. “The huge piece is there had to be tolling involved. You see that in Seattle, in New York…That is where the trend is moving both on the federal and state level in a major way.”

Virginia is proceeding with plans to construct HOT and toll lanes on a 14-mile stretch of the Capital Beltway. Private firms will finance $1.3 billion of the $1.7 billion project, the state will provide the rest. The private partners will maintain and operate the HOT and toll lanes. Transit and commuter buses, plus vehicles with three or more passengers will ride free in the HOT lanes; vehicles with fewer than three passengers will pay a congestion-based fee to use the HOT lanes, typically five to six dollars.
Alabama Governor Bob Riley has directed the state transportation department to evaluate the feasibility of private or public-private funding for toll roads on up to five key projects which can’t be fully financed by the federal goverment or via a raised state gas tax, which is considered politically unviable. The projects include a southern bypass around Huntsville; an elevated roadway to skirt the congested intersection of two interstates in Birmingham; and a limited access road from Dothan to I-10 in Florida’s Panhandle. Alabama already has four privately-operated toll bridges.
Meanwhile, in Maine, The Kennebec Journal reported last week:

The Legislature’s Transportation Committee voted Wednesday to direct the Maine Turnpike Authority to study the feasibility of charging tolls on the Interstate. Just hours after the vote, Gov. John Baldacci released a strongly worded statement opposing new tolls. “I oppose the idea of adding tolls to Maine’s existing Interstate highway system, and I can assure you it will not happen during my term in office,” he said.
Regardless of the governor’s feelings, Transportation Committee Chairman Rep. Boyd Marley, D-Portland, said the study will go forward. “I think it’s irresponsible not to at least look at it,” Marley said, adding that the state Department of Transportation is facing a funding crisis. “We’re at such dire straits,” he said. “The gas tax is flat, construction costs are out of control, we have 288 bridges in need of repair.” The department is projecting a $2.2 billion funding gap over the next 10 years. The study will look at the feasibility of adding tolls to I-295 from Falmouth to Gardiner and I-95 from Augusta to Houlton.

In North Carolina, regional planning officials have signed off on a state-backed plan for a $553 million 21-mile tolled bypass road running parallel to I-74 from Monroe to Marshville.
Backers of an interstate highway forking together from the North Carolina and South Carolina coasts and then running through Virginia, West Virginia and Ohio to Michigan’s Canadian border heard from U.S. Assistant Secretary of Transportation Tyler Duvall at a recent gathering. He said the multi-billion dollar proposal would certainly require extensive tolling, transponders instead of toll booths, and would would also greatly benefit from pension and hedge fund investment. Any interstate road projects costing more than $500 million will need to incorporate tolling, Duvall said.
The Palm Beach Post reports that at Florida Governor Charlie Crist’s urging, the state will closely examine possible privatization and new or increased tolls on four road facilities: “Alligator Alley,” or I-75 running east-west between Naples and Fort Lauderdale; the Tampa Bay Sunshine Skyway Bridge; Pinellas Bayway in St. Petersburg; and the Bee Line Expressway in Orange County. Early indications are that management of I-75 may be best retained by the state.
A combination of factors has helped to propel highway tolling into the mainstream.

  • Growing transportation budget shortfalls have been keeping the tolling option front and center before governors, state legislatures and state transportation officials. In a Washington Post op-ed, U.S. Transportation Secretary Mary Peters wrote:

    “A substantial increase in the nation’s gas tax is ill-advised. Of far greater promise than traditional gas taxes is direct pricing of road use similar to how people pay for other utilities.”

    Secretary Peters’ skepticism about the potential of increasing the fuel tax is well founded. As the New York Times recently observed, “The mere mention of raising gasoline taxes remains almost tantamount to political suicide.”

  • Private capital markets, especially institutional investors with long term investment horizons such as pension funds, have discovered transportation infrastructure to be an attractive investment opportunity. Toll facilities in particular, produce a steady cash flow that is relatively unaffected by economic downturns, and offer stable, long term investment returns with a relatively low risk. CalPERS, the nation’s largest public pension fund ($246 billion in assets), may have been the harbinger of the new mindset when it announced in September that it was creating a $2.5 billion pilot infrastructure program and establishing a new asset class focused on investments in new roads, bridges, airports and other utilities. In announcing the decision, Charles Valdes, Investment Committee Chair, said “CalPERS could become a major player in solving some pressing public policy problems related to transportation.”
  • State legislatures and public authorities have recognized the need for periodic toll increases to keep up with inflation, enhancing the attractiveness and popularity of toll road investments to private capital markets, which now consider toll roads a sound long-term investment.
  • The willingness of private toll concessionaires to accept availability payments and toll revenue sharing has contributed to the public sector’s embrace of tolling, by allowing the state to retain the toll revenue. — This arrangement is politically more defensible than letting a private concessionaire pocket the toll proceeds. Second, by tying payments to the volume of traffic, the state creates a profit incentive for the private concessionaire to manage the facility efficiently and attract a maximum number of customers. Third, the state owes money to its private sector partner only to the extent the facility generates revenue. If traffic is lower than forecast, the private partner bears the risk.
  • Unlike the politically unpopular private leases of existing public toll roads (as exemplified by the Indiana Toll Road and Chicago Skyway deals), concession agreements involving new toll roads have received a positive reception.
  • Tolls may well assume a dominant role in the funding of new highway capacity as early as the next decade. This conclusion does not stem from an ideological preference for “privatization” nor from a libertarian impulse to seek a reduced federal presence in the nation’s transportation program. Rather, it is grounded in the reality that every last cent we can raise through the gas tax will be needed to maintain and modernize our aging infrastructure.
    Resorting to tolls and private capital to help finance future highway capacity is not only the logical way — it’s the only way to ensure the growth and long-term vitality of our surface transportation system without imposing an unacceptable tax burden on the American people.
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