Interstate Tolling: Why and How

byRobert W. Poole, Jr.Director of Transportation PolicyReason Foundationwww.reason.org/transportationbob.poole@reason.org

Why the new interest in tolling?

Large and growing highway funding shortfall;Vehicle miles traveled increasing at least 10X as fast as highway lane-miles;Little or no political will to increase fuel tax rates;Surveys show people prefer tolling to tax increases, for new roadways.

Interstate funding shortfall

Annual total ShortfallCurrent $16.5B --

Sustain $24.8B $ 8.3B/yr

Improve(B/C>1.5) $39.0B $22.5B/yr

Source: FHWA 2008 C&P Report, 2006 $

Interstate system investment needs

Rebuild 233 interchange bottlenecks: $128BAdd HOT networks in 19 most-

congested metro areas:$139BReconstruct and modernize long-haul Interstates, starting with key

truck routes: $1-2 trillion?

Advantages of tolls over gas taxes

Tailored to the cost of each roadFairness: those who benefit paySelf-limiting: roads onlySource for adding capacity when neededEnsures long-term maintenanceCan be used to control congestion

Advantages of gas tax

Lower cost of collection

21st-century tolling

Permanent funding sourceNo toll booths; all-electronicVariable rates (if congestion)Inflation-adjustedNo impact on state bond ratingHighways as network utility; tolls as utility bills.

Political feasibility?NCHRP Synthesis 377, public opinion & tolling:

Public wants to see valuePublic prefers tangible rationalesPublic cares about use of revenuesPublic learns from experiencePublic uses knowledge & informationPublic believes in equity and fairnessPublic wants simplicity

Public favors tolls if the alternative is taxes.

Value-added tolling principle

Don’t put tolls on “existing” highways.Do use tolls where you add value for highway customers:

New highwayMajor capacity additions Major reconstruction

A reconstructed highway is not “existing capacity.”

Wisconsin Interstates tolling study (value-added tolling)

$26B cost to reconstruct and modernize 743-mile system.Assumed baseline toll rates of 5¢/mi. for cars and 20¢/mi. for trucks.Rural Interstates: NPV of revenue =110% of NPV of costsUrban Interstates: NPV of revenue = 71% of NPV of costs.

Urban Typical Sections for Scenario 3

Rural Typical Sections for Scenarios 3 and 4(Also used for HPV configuration analysis)

Needed expansion of federal tolling pilot programs

Remove limits on number of new and reconstructed Interstates with toll finance.Remove limits on number of states or projects in Value Pricing and Express Lanes programs.Retain current limits on use of toll revenues (supported by highway user groups).

Why public-private partnerships (PPPs)?

Especially suited to major projects (mega-projects)Significant risk transfer to concession firm:

Construction riskCompletion riskTraffic & revenue risk

Incentive to design to minimize life-cycle cost, not initial costProper maintenance assured, long-termGrowing U.S. as well as global track record.

Track record of PABs and TIFIA loans on PPP toll projects

Four tolled mega-projects financed during credit-crunch years:Capital Beltway (VA): June 2008 $1.9 billionI-595 (FL): March 2009 $1.6 billionN. Tarrant Express (TX) Dec. 2009 $2.1 billion LBJ I-635 (TX) June 2010 $2.8 billion

Total: $8.4 billion

Expanded PPP tools for state DOTsTIFIA

Large funding increase to $1B/year (budget scoring is only 10% of amount loaned)Remove new “livability” criteriaRetain 1/3 maximum and need for investment-grade rating.

PABsRemove the $15 billion cap.

FHWA Office of Innovative Program DeliveryMake it a clearinghouse for best practices for tolling and PPPs.

Conclusions

We need a large increase in highway investment to reconstruct the Interstates.Tolling is a better user fee than fuel taxes.Value-added tolling is politically feasible.Reconstruction is not “tolling existing Interstates.” Congress should open the door to expanded tolling, in the reauthorization bill.

Questions?

Contact information:www.reason.org/transportationBobp@reason.org

Frequently asked questions

1. Isn’t tolling “paying twice? Not if project can’t be afforded via fuel taxes.

2. Isn’t a toll the same as a tax? Not if it’s a true user fee, used only for the toll project.

3. When do the tolls come off? Never. Will be needed for proper maintenance and eventual reconstruction.