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Reason Foundation

Surface Transportation Innovations #74

Road pricing and capacity expansion, congestion relief, private activity bonds

Robert Poole
December 10, 2009

In this issue:

Road Pricing and Capacity Expansion—A Winning Combination?

Many advocates of urban road pricing envision it as a one-time change that would “solve” urban traffic congestion by simply imposing pricing on existing roadways. But since current peak-period demand in congested metro areas is much greater than capacity, that approach would force large numbers of people out of their cars and into alternatives: ride-sharing, transit, telecommuting, shifting to off-peak times, or not traveling at all.  Many of those “tolled off” would consider their welfare reduced by having to resort to those alternatives. Fear of political backlash from such people seems to be a principal reason why very few metro areas have actually implemented congestion pricing.

If you could start with a clean sheet of paper and design a modern motorway system where none exists, it would be relatively easy to persuade motorists to pay directly (via tolls, including congestion-priced tolls) for the improved service. That’s essentially what Sydney, Australia and Santiago, Chile have done over the past two decades, creating largely self-supporting tolled motorway systems that could easily be switched from current flat-rate to variable tolling. Large numbers of people in both metro areas willingly pay those tolls to avail themselves of faster and more reliable trips than available off the motorway system.But all the large U.S. metro areas with congestion problems already have extensive expressway systems, operating largely without tolls—and with massive peak-period congestion. What hope is there for, in effect, making a deal with motorists that persuades them to accept pricing in order to gain congestion relief without creating large numbers of tolled-off losers?
 
South Africa’s Johannesburg/Pretoria metro area (called Gauteng, meaning “gold place”) is attempting to do just that. To relieve its six hours a day of peak-period congestion, the Gauteng Freeway Improvement Project will expand 115 route-miles of existing freeway to between four and six lanes each way, and a second phase will add 112 route-miles of new motorway and upgrade another 236 route-miles to motorway standards. As part of the deal for this $3 billion project, the entire limited-access system will be electronically tolled, with a combination of open-road tolling using transponders plus license-plate recognition for billing non-transponder vehicles. The system is expected to generate $500 million per year in toll revenue. Phase 1 began in 2008 and is due to be completed in time for the 2010 FIFA World Cup events. (www.nra.co/za/live/content.php?Category_ID=58)

A second example is Stockholm, which implemented cordon pricing for its central area on a trial basis in 2006 and won voter approval to make it permanent as of 2007. A special report for the City of Stockholm Traffic Administration department found that the program continues to produce significant congestion reduction. Interestingly, it also found no evidence of “induced demand” due to the reduced congestion—i.e., “no general tendency towards increased use of the road space freed up by reduced traffic in the central city as a result of the congestion tax.” But what few Americans realize is what use is being made of the considerable net revenues. As the report explains, “The revenues are reinvested in improvements to the road network in the Stockholm region.” (“Analysis of Traffic in Stockholm, with Special Focus on the Effects of the Congestion Tax, 2005-2008,” www.stockholm.se/trangselskatt)

This makes political sense, since most of those who pay the congestion tax live outside the central city and either drive into it to work or shop or drive through it to get somewhere else. In order to win majority support from voters in the entire metro area, it was necessary to provide congestion-relief improvements in the rest of the region. One such major project is the $3.75 billion Bypass Stockholm project, approved this year, for construction starting in 2010. This 20 km route (of which 17 km will be in tunnels) will connect the southern and northern suburbs, bypassing the central city and relieving large-scale congestion in the Essingeleden area. Stockhold already has a large urban tunnel, encompassing 4 km of the 6 km Sodra Lanken, the southern portion of Stockholm’s ring road, which opened in 2004.

I think the lesson here is that the right combination of congestion pricing and expressway capacity expansion can get us where we need to go.

Capacity and Congestion Relief

The question of how much sheer physical capacity it would take to keep urban traffic congestion in U.S. metro areas from getting worse has been regularly asked in the Texas Transportation Institute’s Urban Mobility Reports. The 2009 report is no exception.(http://mobility.tamu.edu ) On pages B-27 and B-28, the report summarizes a calculation exercise in which TTI researchers Tim Lomax and David Schrank looked into how much each metro area added to its roadway capacity, compared with how much it would need to add to keep the average “loading” of the roads from getting worse. Their Exhibit B-18 compares average annual lane-miles needed with average annual lane-miles actually added, for urban areas in the four size categories used in the report: very large, large, medium and small. The “small” areas added about 50% of the lane-miles needed, while the other groups averaged only 43%, so obviously, congestion kept increasing..

However, some individual metro areas did better and some did worse than these averages. Exhibit 12 in the main 2009 report compares the congestion levels from 1982 through 2007 in 90 metro areas, divided into three groups. Ten percent of those metro areas (i.e., only nine) kept their road capacity growth to within 15% of the growth in vehicle miles of travel (VMT), and their congestion growth has actually been in a gradual down-trend since 1999. The 44 urban areas that allowed VMT growth to exceed capacity growth by between 15% and 35% had much higher congestion by 2006, and saw a small drop only in 2007, most likely due to $4 gasoline. And the 37 urban areas that added even less road capacity (where demand grew more than 35% faster than capacity) had even higher congestion by 2006 (again, with a small drop in 2007).

To be sure, all of these calculations are based on adding un-priced lanes. The addition of priced lanes, instead, would be a “two-fer,” in that the new lanes could provide guaranteed uncongested traffic flow in addition to the gross capacity increase. Plus, they would be at least partially self-funding. I guess that would make such additions a “three-fer.”

Private Activity Bonds for Toll Roads Are Back

One of the casualties of the 2009 credit crunch has been the disappearance of a financing tool that had been expected to play a major role in funding public-private partnership (P3) concession projects. In SAFETEA-LU, Congress finally (after many years of advocacy) permitted the issuance of tax-exempt revenue bonds for highway projects carried out by private-sector firms. For many years, such private activity bonds (PABs) had been available for other transportation infrastructure, but not highways. That put P3 projects on a non-level playing field with public-sector toll agencies, which could issue long-term revenue bonds at tax-exempt rates, thereby achieving lower debt-service costs.

But the credit crunch that began in late 2008 caused the PAB market to dry up. The only two U.S. P3 concession projects that got financed in the first three quarters of 2009—the I-595 project in Ft. Lauderdale and the Port of Miami Tunnel project—are both being funded via availability payments rather than tolls, and instead of PABs they made use of TIFIA loans and bank debt for financing their construction costs.

Therefore, it was big news when the $2 billion North Tarrant Express managed lanes project in Fort Worth, TX late last month obtained $400 million in senior lien revenue bond funding, issued on the project’s behalf by the Texas PAB Surface Transportation Corporation. Fitch assigned a rating of BBB- to the bonds, which are to be priced by mid-December. The rest of the funding package for this P3 project consists of a $650 million TIFIA loan, $420 million in equity from the P3 team (Cintra, Meridiam, and the Dallas Fire and Police Pension System), and $570 million in TxDOT funding.

The fact that the first PAB toll road offering of 2009 was for a managed lanes project is highly significant. Generally speaking, projects relying on toll revenue are considered much riskier than those relying on some kind of underlying tax flows. And managed lanes, in general, are considered riskier than ordinary toll roads. That’s because managed lanes are still new and the experience base on how they perform over time is quite modest—and they have parallel “free” competition not a few miles away but a few feet away. So this transaction is therefore an even stronger signal that PABs are back and can provide part of the financing mix for P3 toll projects.

Innovative Approaches to Highway Contracting

The traditional state DOT approach to procuring highway projects has been to provide the design and a detailed set of specifications—and accept the lowest-priced bid for the construction work. Even when a DOT uses the design-build method, where a single team both designs and builds the project for a guaranteed fixed price, the team is still constrained to build exactly what the DOT has called for and approved.

Recently, faced with far more project needs than funds, several state DOTs have taken a different approach. Instead of specifying the exact size and scope of the project, they outline what they would like to have accomplished, state how much money they can devote to the project, and ask teams to compete based on how much they can accomplish for that fixed sum, while complying with performance standards, not detailed specifications. So far, this approach seems to be leading to a lot of innovation by contractors, producing more bang for the buck.

One of the innovators is the Missouri DOT. Their pressing need was to completely rebuild I-64 through St. Louis—a roadway that had not been designed to Interstate standards and was thoroughly obsolete. MoDOT decided to challenge the private sector with a design-build contract worth $420 million, for however much of the desired reconstruction each team could credibly promise to deliver. Rather than require compliance with its usual detailed specifications, MoDOT instead required bidders to comply with performance standards from AASHTO. Winning bidder Gateway Constructors (Granite Construction, Fred Weber, Millstone Bangert, and Parsons Corp.) proposed to completely shut down that stretch of I-64, in two phases, to permit a much shorter project duration. MoDOT accepted that approach and did yeoman work to make alternative routes more viable during the construction (by restriping one route to add an additional temporary lane each way and by accelerating traffic signal timing projects on several routes). Though controversial at the time, this approach proved successful. And MoDOT Director Pete Rahn was recently selected by Governing magazine as one of its nine 2009 Public Officials of the Year.

Utah DOT applied the same performance contracting approach to its I-15 CORE project, calling its process fixed price/best design (FP/BD). This $1.725 billion project aims to add two additional lanes each way to a section of I-15 from American Fork to Provo, rebuild interchanges, replace or modify bridges, and extend the express lanes from Orem to Provo. The RFP went out in June, and the design-build team selection is expected this month. UDOT told Better Roads magazine that in addition to its I-15 project, it is aware of similar FP/BD projects in Missouri (including the St. Louis I-64 project) and Colorado (I-25 in Colorado Springs).

Actually, Texas DOT has also used a variant of this approach for its two largest managed lanes P3 projects in the Dallas/Ft. Worth area, the North Tarrant Express and the LBJ. Both of these multi-billion dollar projects involve not only adding priced managed lanes but also large-scale freeway revisions, making the cost far more than could be supported solely based on toll revenue financing. For NTE, TxDOT laid out the full scope of what it eventually wants in those corridors, told bidders it could put up to $600 billion into the project, and asked them to bid on how much they could deliver for their own and TxDOT’s money. The winning Cintra-led team offered to build 169 lane-miles using $567 million of TxDOT’s money; the other bidder offered 64 lane-miles and asked for nearly $1 billion from TxDOT. For the LBJ (I-635) project, the winning team (also led by Cintra) requested only $445 million of the available $700 million, for this $2.7 billion project.

I applaud these innovative DOTs not only for tapping into the private sector’s creativity but doing it in ways that get maximum value for the taxpayers’ dollars.

Port Trucking Proposal Threatens Deregulation

A long-running battle over reducing diesel emissions from port drayage trucks has turned into a serious threat to nearly 30 years of trucking deregulation. Several years ago an alliance of union and environmental groups threatened to make it politically impossible for the ports of Los Angeles and Long Beach to expand unless they cracked down hard on emissions from the thousands of trucks used in drayage of containers to and from rail yards and distribution centers in Southern California. Their package deal was that the ports would henceforth deal only with companies rather than thousands of individual owner-drivers, on the grounds that only large companies could afford to replace all those trucks with new trucks compliant with 2007 federal diesel emission standards. The not-so-hidden agenda was that drivers in truck fleets would be easy for the Teamsters to unionize, whereas they can’t do anything with owner-drivers.

The entire goods-movement industry, including the American Trucking Associations, objected to this plan as violating the federal pre-emption of state or local economic regulation of trucking—and they prevailed last March in the 9th Circuit Court of Appeals. The Port of Long Beach dropped out and set up its own registration and certification program, pertaining solely to requiring clean-air compliance on a truck-by-truck basis. Both ports are offering subsidies to help truckers purchase compliant trucks, and as of a recent count, over 5,500 trucks have either been replaced or retrofitted in less than a year. An October headline in the Los Angeles Times said “Diesel Emissions Down Drastically at Ports of L.A., Long Beach.”

Having lost in court, the Coalition for Clean and Safe Ports, representing 80 environmental and labor groups, has mobilized to change federal law. Besides Los Angeles Mayor Antonio Villaraigosa, they have recruited the mayors of Oakland, Newark, and New York (and their ports) to urge Congress to amend the Federal Aviation Administration Authorization Act of 1994 (the most recent law dealing with federal pre-emption of transportation economic regulation) to permit ports to exclude owner-driver operators and deal only with fleets. Their aim is to get union-friendly legislators to slip such a provision into the surface transportation reauthorization bill.

That would be a huge mistake. As Journal of Commerce editor Paul Page wrote recently, “We’re talking about setting unprecedented limits on the pre-emption of federal regulatory authority over state laws that has been established and upheld in court rulings over many decades. We’re talking about the legal fabric of commerce in the United States.” Moreover, should individual ports be allowed to create this patchwork of policies, those that did so would put themselves at a competitive disadvantage. The ports of L.A. and Oakland compete with Canada’s Vancouver and Prince Rupert and Mexico’s Lazaro Cardenas, all well-served by long-distance rail. And the Port of New York and New Jersey competes with major ports in Virginia, Georgia, Houston and elsewhere.

Even partially rolling back trucking deregulation would set a terrible precedent, emboldening those who would like to undo railroad and airline deregulation as well. Let’s hope cooler heads prevail as Congress drafts and debates reauthorization.

Open Road Tolling Gives Safety a Boost

Back in 2006 the National Transportation Safety Board called for national design standards to reduce accidents and deaths at toll plazas. My response, in Issue No. 32 (June 2006) was that instead of wasting time doing that, we should phase out toll booths and toll plazas as quickly as possible.

Fast forward to 2009. The Florida Turnpike Enterprise is well along on its implementation of that idea, having taken the initial step of converting numerous plazas to normal-speed open-road tolling, with a few cash lanes off to the side. Enough of these conversions have been done in 2007 and 2008 to have before/after safety data—and those data tell a very positive story.

As reported Oct. 26, 2009 in the South Florida Sun-Sentinel, crash rates per million vehicles at seven converted plazas have been reduced by an average of 58%, comparing the 12 months prior to conversion with the period between conversion and Aug. 2, 2009. That’s a pretty dramatic reduction, and these safety benefits are in addition to the large time savings and emission reductions brought about by reducing long lines of stop-and-go traffic waiting to pay tolls.

And this is only the beginning. FTE plans to eliminate cash tolling on the Turnpike’s southern section by 2011, and later on its entire system. The Miami-Dade Expressway Authority is under way on a similar plan, and cash tolling has already been eliminated on E-470 in Denver and the North Texas Tollway Authority is proceeding to do likewise. It’s only a matter of time before this happens on all the major toll road systems.

Upcoming Conferences

Note: I don’t have space to list all the transportation conferences going on; below are only those that I or a Reason colleague are speaking at.

IBTTA Transportation Policy & Finance Summit, Washington, DC, Dec. 13-15, 2009, Grand Hyatt Hotel. Details at: www.ibtta.org/Events/eventdetail.cfm?ItemNumber=3855.

Transportation Research Board Annual Meeting, Washington, DC, Jan. 10-13, 2010, several hotels. Details at: www.trb.org/AnnualMeeting2010/Public/AnnualMeeting2010.aspx.

News Notes

Brazil Moves to Universal Transponders
Tollroadsnews.com reports that Brazil’s national legislature has given final approval for a nationwide system of “sticker-tag” transponders, similar to action taken earlier this year by the government of Mexico. Deployment will begin in 2011 and is expected to be completed in three years, covering 50 million motor vehicles. The immediate purpose is to serve as an electronic license plate, but as editor Peter Samuel points out, “Once every vehicle has a transponder, electronic tolling and road pricing suddenly become much easier.” (www.tollroadsnews.com/node/4442)

Pushback on Federal Limits on Tolling
The National League of Cities 2009 Statement of Policy on Transportation lists congestion pricing as a tool cities should use to manage traffic congestion. And it states that “Congress should allow the use of toll financing on federally aided highway, tunnel, and bridge projects. (www.nlc.org/ASSETS/87799BB8D2F94417BE7BD13A77C747B6/5%20TIS%20Resolutions%20%20for%202009.pdf)

British Defense of Suburbia
“For almost as long as suburbia has existed, it has been derided,” notes The Economist’s favorable review of The Freedoms of Suburbia by Paul Barker and Philippa Lewis, published by Frances Lincoln in the UK, at £25 (and available at Amazon.com for $26.40 when I checked Dec. 8th). I have not read the book, but it sounds provocative.

Feedback to DOT on “Livability”
Transportation Secretary Ray LaHood has embarked on a multi-city outreach tour on the Administration’s surface transportation reauthorization ideas. At the first such event, in New Orleans, after LaHood talked up the three-agency (DOT/EPA/HUD) “livability” agenda, he received some feedback. Various attendees expressed concerns about DOT focusing on non-highway modes of transportation. According to ARTBA’s Washington Update (Dec. 1, 2009), DOT officials responded, “We know that livability means something different in different places. It might mean a road in Mississippi while it may mean something different in New York City.”

Will Higher Densities Mean Lower Infrastructure Costs?
One premise of “smart growth” is that doubling densities in already built-up central areas of urban regions will lead to lower per-capita costs for infrastructure such as water, sewer, gas, and electricity (as well as roadways). Solid data on this point are scarce, and I have seen a number of critiques saying that, especially in older big cities, the aging infrastructure could not handle large increases in volume without costly reconstruction and modernization. I thought of this when I read a recent article in the New York Times headlined, “Sewers at Capacity, Waste Poisons Waterways,” describing serious problems with Brooklyn’s sewer system. (www.nytimes.com/2009/11/23/us/23sewer.htnl)

Critique of Europe’s Emissions Trading Scheme
Most things I’ve read about Europe’s cap-and-trade system (called the Emissions Trading Scheme—ETS) have been critical, and this new report is no exception. It provides data on the volatility of the ETS market, the windfall profits it has permitted for selected firms and industries, and the high costs it has imposed on consumers. Since most US cap-and-trade proposals are similar to ETS, this numbers-filled critique is well worth perusing. “The Expensive Failure of the European Union Emissions Trading Scheme,” by Matthew Sinclair (www.taxpayersalliance.com/ets.pdf).

Corrected URL
Last month’s article included what turned out to be a broken link to the excellent TRB report, “Discerning a Pathway to Implementation of a National Mileage-Based Charging System.” The correct link is: http://onlinepubs.trb.org/onlinepubs/sr/SR299Mileage.pdf.

Quotable Quotes

“To index the federal fuel tax [to inflation]—that’s something Congress is going to have to decide. As we get into the reauthorization bill, the debate will be how we fund all the things we want to do. You can raise a lot of money with tolling. Another means of funding can be the infrastructural bank. You can sell bonds and set aside money for big projects, multi-billion-dollar projects. Another way is [charging for] vehicle miles traveled.”
--Secretary of Transportation Ray LaHood, 7th Annual North Texas Transportation Summit, Ft. Worth, Nov. 30, 2009.

“We are teamed with a lot of Washington-based interests to do our best to prevent the re-regulation of the trucking industry through this full frontal assault by the Port of Los Angeles (and, it would appear, New York as well). We think it’s absolutely wrong-headed, absolutely bad policy, absolutely a step backward after successfully deregulating that industry several decades ago, to step back and through legislation empower local government to set the terms of operation for truckers. Not to be silly about it, but the Balkanization that could lead to, between local, state, and regional political jurisdictions, is a nightmare.”
--Bruce J. Carlton, President, National Industrial Transportation League, in “Shipping into 2010,” Journal of Commerce, Nov. 9, 2009
 
“High-speed rail can offer fast and reliable connections between cities, but to be beneficial it needs very high traffic volumes, typically 9 million passengers in the first year of operation. Few routes currently offer such volumes. The benefits of release capacity on conventional railways and in airports can be an important part of the overall benefits, but it may be more economic to expand airports rather than rail. Assessments show small climate-change benefits from investing in high-speed rail, but they are not a key argument in directing resources to high-speed rail—strong passenger demand growth is what counts.”
--“Links Between Research and Transport Policy Need to be Strengthened,” press release, International Transport Forum, Nov. 18, 2009 (www.internationaltransportforum.org/Press/PDFs/2009-11-18.pdf)

“Certainly the term ‘livability’ will need to be subjected to far more rigorous delineation of its scope and content before tangible programs with measurable performance outcomes can be structured. Without these steps it would become perhaps the perfect federal program: almost anything could be funded under the rubric of livability. With such an amorphous goal, there would be no real measure of success or failure, and funding could go on forever with no real accountability.”
--Alan E. Pisarski, “Research and Development to Support the Department of Transportation’s Strategic Goals,” testimony before the House Subcommittee on Technology and Innovation, Nov. 19, 2009.

“Dr. Ronald D. Utt of the Heritage Foundation discovered an interesting definition in the [House surface transportation reauthorization] draft: ‘sustainable modes of transportation means public transit, walking, and bicycling.’ (Section 333(P)7, page 219, accessed Nov. 18, 2009) This definition means that a Toyota Prius that emits one-half as many grams of greenhouse gases per passenger mile as a transit system (not an unusual occurrence) is not sustainable transportation, while the transit system is. There will be more cases like this as time goes on, as vehicle fuel economy improves and the impact of alternative fuel technology is expanded.”
--Wendell Cox, “Contrived Sustainability,” Nov. 19, 2009
(http://www.newgeography.com/content/001208-contrived-sustainability)

“Taking a broad look at the data, it is apparent that many factors influence travel behavior. Density is only one of those factors, and in the range of density prevalent across most American cities, it is less influential than many planners and social engineers would like to believe. . . . We should keep in mind just how hard it is to dramatically increase urban densities beyond what the market would naturally support. Just because planners want higher density doesn’t mean businesses and individuals will modify their location decisions and travel behavior accordingly. Most city centers are already zoned for much higher densities than currently exist, and many are having a hard time attracting new businesses and residents. Residential densities fell in the central areas of most large US cities fell from the 1940s through the 1980s, and in many instances the declines were dramatic. So regardless of whether we believe there are substantial benefits from increasing urban density, it is a moot point if the comparatively weak tools that planners use to encourage density are likely to be overwhelmed by the much stronger market forces that produced the last half-century’s trend toward decentralization.”
--(Name withheld by request), transportation planner for a large state DOT, personal communication, Oct. 12, 2009


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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