Surface Transportation Innovations # 56

Topics include: new threat to HOT lanes; Georgia DOT's truck lanes study; risky start-up toll roads; $4 gasoline's impacts; what about "mode neutrality"?; greenhouse gases and urban sprawl; and other news.

In this issue:


A New Threat to HOT Lanes

Now that all six of the country's most-congested urban areas are pursuing a strategy of HOT lanes (via a combination of converting HOV lanes and building all-new HOT lanes), a bill has been introduced in Congress that could make the process harder. The "Free Way Act of 2008" (HR 6002) was introduced last month by Rep. Gary Miller (R, CA). It would prohibit transportation agencies that convert HOV lanes to HOT lanes from charging any type of carpool that formerly used the HOV lanes. It is aimed at undercutting Los Angeles Metro's federally assisted plan to covert three HOV lanes to HOT lanes. Two of the three are currently HOV-2, but in order to bring about uncongested (Level of Service C) conditions in the converted lanes, the plan calls for charging all vehicles with one or two occupants, letting only HOV-3 or higher use them at no charge.

Early this month I wrote to Rep. Miller, expressing dismay that he-a conservative Republican who has supported other toll projects in Southern California-would be putting this obstacle in the path of an important free-market transportation reform. This led to some discussion with his transportation staffer, who cited pro-HOT lanes literature (including some from Reason Foundation) claiming that nobody loses when HOV lanes are converted to HOT lanes. While that is certainly true in cases like the forthcoming I-95/395 conversion in northern Virginia and the nearly completed Katy Freeway Managed Lanes project in Houston, both of which are already HOV-3, it will not be true for many cases (like Los Angeles) where existing HOV-2 lanes are jammed with "fam-pools," hybrids, and violators. To be able to use pricing to manage traffic flow and ensure uncongested conditions, the nu mber of vehicles using such lanes must be limited, and so most of them must be charged. Pricing simply won't be effective if it applies to only 10-20% of the vehicles in these lanes.

The underlying problem is that public officials in quite a few large metro areas have not had the courage to increase HOV occupancy levels from HOV-2 to HOV-3. This should have been done years ago in Los Angeles and the San Francisco Bay Area. Both Los Angeles and Miami are currently proceeding, with federal assistance, with converting HOV-2 lanes to HOT-3 lanes-i.e., making two major policy changes at once. Other things equal, it would be easier to make those changes one at a time. But in my view, it's better to do it the harder way than not to do it at all.

I'm told HR 6002 is unlikely to be enacted this year, but will more likely be included in the debates on reauthorization next year. That means LA and Miami will get in before the door is closed, should this misguided measure actually get enacted. But if it does pass, all is not lost for sensible HOV to HOT conversions. HOV lane operators will still retain, as they must, the authority to define HOV eligibility. Indeed, being able to increase from HOV-3 to HOV-4 is one of the provisions that Houston Metro has committed to as part of the ground rules for the Katy Managed Lanes (with the local toll agency likewise committed to increasing toll rates, as necessary, to maintain LOS C conditions). So if worse comes to worst, transportation planners will have to do HOT lane conversions in two steps instead of one: first increase the HOV occupancy level and then (after a decent in terval) convert to HOT.

The more Congress mucks around in the details of how state DOTs and other transportation providers can operate their facilities, the more support there will be for devolving large fractions of transportation funding and responsibility from Washington to the states. Those who wish to retain the current large federal program should realize that, by increasing micromanagement, they are playing with fire.

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GDOT's Strange Truck Lanes Study

Several months ago, in Issue No. 53, I critiqued a Georgia DOT study of the feasibility of truck-only lanes on selected Interstates. My assessment was preliminary, since the final report had not yet been released, and I was working from a Powerpoint summary. Last month, however, the good folks at GDOT sent me the three-volume (plus Executive Summary) final report, and I've now had a chance to go through it.

It looks as if my initial critique was too mild. In these times of massive shortfalls in highway funding and the need to expand the capacity of major freeways and other Interstates, what can you say about a report that identifies a pair of transportation mega-projects with benefit/cost ratios of 4.9 and 5.4, never even considers financing them via toll revenues, and concludes that the whole concept is not worth pursuing?

As I read through the detailed technical material, I was impressed by the rigor and thoroughness of the work done by HNTB and Cambridge Systematics, two firms I know and respect. Their analysis makes a strong case that either of the two truck-lane systems they analyze in detail (after reviewing about a dozen candidates) would offer numerous benefits. System 1 would add two truck-only lanes (TOLs) in each direction to I-75 from the southern fringe of the metro area to the I-285 beltway, from there around the western portion of I-285, and northward again on I-75 to the northwestern edge of metro Atlanta. System 2 would be System 1 plus the rest of the I-285 beltway and I-85 from there to the northeastern fringe. The capital cost of System 1 is $7.5 billion, whereas System 2 is $13.2 billion. For simplicity, I will just discuss data for System 1 (but the effects of System 2 are similar).

Adding this capacity to these very congested Interstates would yield many benefits. Those freeways would recapture traffic now forced to use parallel arterials, resulting in 25% more traffic on the Interstate itself, but at higher speeds. However, within a 4-mile buffer zone, total vehicle miles traveled (VMT) would increase only 3-4% (and would hardly increase at all within a 12-mile buffer zone). But vehicle hours of travel would decrease by 19% on the Interstate, demonstrating the "broad congestion-relief benefits of TOL facilities." The average daily speed in the general purpose lanes would increase 51%, while TOL speeds would be 84% better than what trucks would do without the project. And in the PM peak, GP lane speed would be increased 57% and TOL speed would increase 125% (from 20 mph to 44 mph). There would also be greatly increased reliability of travel times a nd a 40% reduction in fatal crashes. And due to reduced congestion and higher speeds, "regional emissions would be reduced as a result of the TOL system investment."

Then comes the detailed benefit/cost analysis. First, benefits to users in 2035 (for System 1) were estimated at $2.4 billion: $1.1 billion to trucks, $228 million to autos used for business, and $1.1 billion for personal-use autos. Second, macro-economic benefits to the greater Atlanta economy were estimated at $2.4 billion in 2035. The benefits and costs were projected over a 25-year period, and the net present value of benefits was compared with the NPV of costs to build, operate, and maintain the TOL system. That led to the 4.9 benefit/cost ratio for System 1.

Where things get weird is in the Executive Summary. It sets forth the initial ground rules: that TOLs should judged by whether or not they reduce peak-period congestion corridor-wide, that usage of the TOLs is to be voluntary on the part of truckers, and that tolling is not to be considered. It then goes on to seriously misrepresent the study's actual findings. For example, it throws out the old chestnut that "latent demand" would quickly fill up space vacated by trucks shifting to the TOLs. Yet that is decidedly not what the study's analysis found. It belittles the speed increases in the GP lanes as being "less than 10 mph" in 2035 (actually 11 mph in the PM peak and 13 mph in average daily speed), while completely ignoring the huge savings in vehicle hours of travel. And then it downplays the hugely positive benefit/cost ratios, by saying that "overall transportation u ser benefits were significant, exceeding forecasted costs . . . by a factor of two or more." That conveniently leaves out the equally large regional productivity gains, resulting in a total B/C ratio of 4.9, as noted above. And it misrepresents the transportation benefits by saying "the primary benefit is to the 6 percent of heavy truck traffic traveling during peak periods." In fact, of the total benefits entering into the B/C calculation, only 22% accrue to trucks. Over half benefits go to the regional economy overall, with another quarter benefiting motorists.

With benefits nearly five times costs, you would think that a project like TOL System 1 would rank very high on GDOT's priority list. And you would also think it would be a good candidate for at least partial funding by tolls. How the study's excellent work and very positive findings got twisted around to reject the TOL concept is a subject I will leave to others to investigate.

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How Risky Are Start-Up Toll Roads?

One factor that is not fully appreciated in the debates over the private sector's role in developing new ("greenfield") toll roads is risk transfer. In a well-structured long-term concession agreement, the toll road company takes on not only completion risks (cost to construct, keeping to the schedule) but also traffic and revenue risk. Thanks to a couple of recent procurements in Texas, both of them new urban toll roads in relatively affluent Dallas suburbs, the impression exists among many pundits, reporters, and public officials that a start-up toll road is a pot of gold. I was reminded of that when I read a relatively recent report on the state-of-the-practice in toll road traffic and revenue forecasting.

The report is another in the series of synthesis reports from the National Cooperative Highway Research Program of the Transportation Research Board. This one is titled, "Estimating Toll Road Demand and Revenue," 2006, and you can download it from the TRB website (or just google "NCHRP Synthesis 364"). While much of it is fairly dry and technical, Tables 1 and 2 tell a striking story. Most U.S. start-up toll roads in the past 20 years have been financial duds.

The report's Table 1 lists data comparing actual and forecast toll revenue for 26 such toll roads, for each of their first five years of operation. As an example, here are some figures for second-year results, for the 25 toll roads with Year 2 data. Only two of these 25 exceeded 100% of forecast revenue by the end of their second year. Another four exceeded 90%, one exceeded 80%, and another two exceeded 70%. Thus, only about one-third achieved better than 70% of projected revenues by the end of their second year. The average for all 25 start-up toll roads was just 62.8% of projected revenue.

That is pretty dismal, but it's consistent with other recent studies, including ones discussed in NCHRP 364 that were carried out by bond rating agencies Standard & Poor's and Fitch Ratings. A 2002 J. P. Morgan study parsed the data a different way, looking for patterns as to which types of toll road did better or worse at matching actual with forecast traffic and revenue in their first five years. The analysts grouped them into four categories, in order of best performance:

  • Toll roads in high-congestion suburban areas (e.g., Georgia 400 [GA] and George Bush Expressway [TX]);
  • Toll roads in outlying portions of metro areas (Veteran's Parkway [FL] and Creek Turnpike [OK]);
  • Toll roads in developed corridors with many alternatives (Hardy [TX] and San Joaquin Hills [CA]);
  • Toll roads in least-developed areas (Pocahontas Parkway [SC] and Greenville Connector [SC]).

These groupings are based only on the first five years of operation, and some of these toll roads have done much better in later years. But some have not, and some of the worst performers have been rescued by toll road companies, under very long-term (75 to 99-year) concession deals.

The point I want to leave with you is that the pot-of-gold start-up toll road is the rare exception, not the general rule. In general, greenfield toll roads are high-risk propositions, especially in their early years. That is why the traditional municipal (tax-exempt) toll revenue bond market has been so conservative in how much it will finance, based on what is called an "investment-grade" traffic and revenue forecast. Experienced global toll road companies, global capital markets, and the new breed of infrastructure investment funds are willing to take on greater risk, in exchange for a longer-term deal and the possibility of double-digit returns. That prospect should be welcomed by those seeking to expand the funding available to build much-needed highway capacity.

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What Impacts from $4 Gasoline?

Several months ago, in issue No. 54, I reported the results of a Congressional Budget Office study on the impacts on motorist behavior from increasing gasoline prices between 2003 and 2006. In brief, the study found almost no change in trips taken or vehicle speed, but they did find a significant shift in vehicle purchases, from light trucks (SUVs, pickups, minivans) to cars. During that period, gas prices doubled from $1.50 to $3.00. Since then, of course, they have continued rising and are now at or near $4.00 per gallon in many parts of the United States. In inflation-adjusted terms, we are now in new territory, and it will be interesting to see how behavior changes if this kind of price level turns out to be long-lived.

Recent figures suggest that today's higher price are having a larger effect. Vehicle miles traveled went down by 0.4% last year, the first annual decline since this figure began to be reported by FHWA in 1982. And in the first quarter of 2008, VMT declined by an even larger 2.3%. I'm not that surprised by these changes; after all, as a fan of pricing and markets, I expect higher prices to reduce usage at some point.

What are these people doing who are driving less? Well, some are switching to transit, for at least some of their trips. The American Public Transportation Association's June 2 news release reported that transit ridership (boardings) was up 3.3% for the first quarter, compared with last year. APTA contrasted this with the quarter's 2.3% decrease in VMT, but of course that's comparing apples and oranges. Let's try to compare apples with apples. According to the National Transit Database, the average transit trip (per boarding) is 5.3 miles; hence the 2.6 billion first-quarter transit trips represent 13.8 billion passenger-miles, and the 3.3% increase represents about 450 million passenger-miles. By contrast, the 2.3% decrease in vehicle miles traveled is about 31 billion passenger-miles, assuming 1.1 persons per car. So it looks as if transit absorbed about 1.4 percent of the travel people didn't do in their cars. Presumably, they car-pooled, trip-chained, or eliminated marginal trips to come up with most of the VMT reduction.

The other big change from the CBO data (2003-2006) is a more dramatic impact on people's choice of vehicle. The higher gas prices go, the more people are opting to buy a car, especially a fuel-efficient car, rather than a gas-guzzling SUV or pickup truck. Last week General Motors announced plans to cease production at four plants that make such vehicles. The Wall Street Journal (June 4) reported that while sales of cars were up 2.4% in May, sales of light trucks had plunged 24% from the previous year. Those are much bigger changes than we saw as gas prices went from $1.50 to $3.00 over a three-year period.

Where these trends will go remains to be seen. Many (including me) think the oil price is something of a bubble and that $4 gasoline will not be with us by year-end. In previous episodes, both driving and vehicle choice reverted to historical patterns when gas prices fell back significantly. I don't have a clue how much gas prices might drop, but I'd be surprised if we saw anything like $3 again, at least for the next few years. So we may well see VMT level off and car-buying shift fairly significantly to more fuel-efficient vehicles, as people reason "We won't be fooled again" by yet another rising price trend.

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Should We Break Down the Silos?

"Transportation Silo Busting Is the Hope for the Future." That was the headline of the editorial in the January 28, 2008 issue of Engineering News-Record. It was commending the report of the National Transportation Policy & Revenue Commission, which called for making federal highway fuel taxes the "mode-neutral" funding source for a whole array of surface transportation programs (including inter-city high-speed rail). That policy change was endorsed by the National Transportation Policy Project of the Bipartisan Policy Center, whose Feb. 26th report said that "mode neutrality is essential for an agency, DOT, and an industry that for far too long have been locked in battles between highways and transit." Even the generally sensible Infrastructure Finance Commission, in its interim report, "The Path Forward," criticized the idea of "funding the transportation modes separately," thereby missing opportunities for system-wide solutions such as intermodal connections.

While this call for mode neutrality and silo-busting is superficially appealing, I think it's the wrong way to go. Given that highway users (operators of cars and trucks) would end up providing 90% or more of the funding, giving all other modes a legal claim on using the revenues would put the needs of highway users at great risk. It's kind of like convening the wolves and the rabbits to decide what the dinner menu should be.

More seriously, though, mode-neutrality would mean discarding the user-pays principle that has been the bedrock of U.S. highway financing for nearly a hundred years. The rationale for the fuel tax was that it was really a user fee, with all the revenues safeguarded to be used for improved highways. In that sense, paying gas taxes was supposed to be like paying your electric bill or water bill. Over the last several decades, Congress has gradually chipped away at that principle, creating more and more legal uses for monies from what is still called the Highway Trust Fund, to the point where up to one-third of those funds can legally be used (i.e., diverted) for non-highway purposes. That set of changes is gradually turning the Trust Fund into a giant public works program, and the fuel "user fee" into a multi-purpose tax. One of the reasons I'm so bullish on t oday's trend toward increased use of tolling is that it strengthens the user-pays principle. Advocates of mode-neutrality are aware of this, so their more recent proposals seek to divert portions of toll revenue to non-highway uses, as well.

The underlying reality in this debate is that highways can easily be self-supporting from user fees (fuel taxes or tolls), but the other modes cannot. That's why mode-neutrality has long been the goal of advocates of urban transit, high-speed rail, waterway dams and locks, short-sea shipping, and anything else you can think of. Freight railroads, which historically have fully funded their own infrastructure, are being wooed to the mode-neutrality paradigm, too, with the idea that this would give them access to tax money for grade separations, tunnel height increases (to allow double-stack containers), and rerouting tracks away from high-value urban areas. But as I see it, the most likely outcome of such a shift would be far less money for highways-just when we urgently need more, to rebuild and modernize much of the Interstate system and add express toll lanes to con gested urban expressways. I hope highway user groups will really think through the implications of mode-neutrality before the reauthorization debates begin in earnest next year.

To be sure, there are intermodal facilities that need to be created, both for goods movement and for transferring people between modes. But creative ad-hoc solutions can be and are being crafted, piecing together funding from various existing "silos." The Alameda Corridor in Los Angeles is an excellent example. Many others are profiled in the case study section of FHWA's January 2007 Financing Freight Improvements report.

Let me also call your attention to one indication that not everyone is on board with the shift to mode neutrality. In her February state of the state address, Connecticut Gov. Jodi Rell proposed splitting the state DOT into two separate agencies-a Department of Highways and a Department of Public Transportation, Aviation, and Ports. Although the plan is now on hold due to budget pressures, that such a proposal could be seriously considered-and in a generally liberal, progressive state-is worth pondering.

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Limiting GHGs by Forbidding "Urban Sprawl"

We are hearing increasing calls from environmental groups and urban planners that this country needs compact development in order to reduce greenhouse gas (GHG) emissions. This is relevant to transportation because the premise is that if people live in compact developments, they will drive less, and less driving equals less GHG emissions. Since this is a transportation newsletter, I don't want to go too far afield, but it's vital that those of us in transportation understand what's valid and what's not valid about this prescription.

First, let me call your attention to a study done last year in Australia, where the same prescription is being advocated. It was done by the Centre for Integrated Sustainability Analysis at Sydney University, and it's called Consuming Australia (and is available at: http://acfonline.org.au:80/uploads/res/res_atlas_main_findings.pdf). By using input-output models and household expenditure data for the entire Australian economy, the researchers were able to create household profiles of GHG emissions. For the typical Australian household, the results showed that 29.4% resulted from goods and services consumed, 28.3% from food, 20% from household uses (mainly electricity), 11.8% from construction and renovations, and just 10.5% from transport, mostly petrol (gasoline). When they loo ked at these profiles for different locations-downtown, high-density inner suburb, suburban, or urban fringe-they found that place doesn't matter. The major carbon variable was household income. Those with the highest household carbon footprints were those with high incomes living in "vibrant downtown communities."

I'm not aware of any similar analysis for the United States, but it's likely it would produce similar results. And that ought to at least raise a caution flag for legislators, MPO staff, and commentators who "just know" that compact development is essential to reducing our carbon footprint.

Getting this right is really important, because attempts to mandate high-density development-such as urban growth boundaries, upzoning to higher densities, etc.-have major consequences for housing affordability. Two recent studies provide a wealth of data on this point. One is the fourth annual Demographia International Housing Affordability Survey (www.demographiaa.com/dhi.pdf). Wendell Cox and Hugh Pavletich crunched the numbers for 227 housing markets in six countries: Australia, Canada, Ireland, New Zealand, the United Kingdom, and the United States. Their basic measure was the housing affordability index-the ratio of the median house price to the median household income. On a country basis, you don't want to live in Australia or New Zealand, where the ratio is 6.3, and probably not in the UK (5.5) or Ireland (4.7 ). The U.S. average is 3.6.

But that national average includes a huge range. Our least affordable markets are in California, Hawaii, and the East Coast. The most costly of all is Los Angeles, at 11.5. Of the 59 markets in the six countries considered "affordable," 46 are in the United States, including Atlanta, Dallas-Ft. Worth, Houston, Austin, Pittsburgh, Kansas City, and Indianapolis.

Does U.S. housing affordability really stem from land-use restrictions? That is the focus of the other study, published last December by the Cato Institute. In "The Planning Tax: The Case Against Regional Growth-Management Planning," Randal O'Toole reviews data on housing affordability by state and city, and shows that locations with strong growth-management laws have among the least affordable housing. He notes that "the most expensive housing markets in the U.S. have plenty of private land that is physically suitable for development; it has just been closed to development by urban-growth boundaries or other government restrictions."

O'Toole goes on to calculate the "planning tax" for urban areas in states and/or cities with growth management plans. This number is the difference between actual 2006 median house prices and what they would be if the housing affordability index were 3.0. Admittedly, those numbers are higher than they would be today, after the recent housing bubble burst, but they are still illustrative of the point. In Phoenix, the planning tax as of 2006 was $109,000 per house. It was $150K in Miami, $215K in Boston, $180K in Seattle, $378K in Los Angeles, and a whopping $718K in San Francisco. You can download the report from www.cato.org/pub_display.php?pub_id=8811.

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News Notes

Global Warming Book. One of the best things I've read on this subject is Cool It, by Bjorn Lomborg, originator of the Copenhagen Consensus process-a serious attempt to prioritize global problems. Lomborg is not a "global warming denier." Rather, his message is that we need to look hard at specific impacts the ongoing warming is likely to produce and figure out whether mitigation makes better sense than very costly attempts to prevent the warming from taking place. I don't consider this the last word on the subject. But it's a refreshing attempt to think clearly about the costs and benefits of alternative approaches. (Cool It: The Skeptical Environmentalist's Guide to Global Warming, Knopf, 2008, available from Amazon.com and other booksellers)

World Bank on PPP Toll Roads. A rather nice overview of the global trend toward private-sector participation in toll roads was recently released by the Public-Private Infrastructure Advisory Facility of the World Bank. "Worldwide Trends in Private Participation in Roads" is the May 2008 of their publication Gridlines. Go to www.ppiaf.org.

Correction to Last Issue. In the May issue of this newsletter, I discussed recent work on alternative concession agreement structures by Eduardo Engel of Yale. One of these was "present value of revenue" contracts. I suggested that this type of approach would be difficult to apply to HOT lanes, where it's very difficult to predict the revenue in advance. But Prof. Engel points out that it doesn't matter when the revenue is realized: "tolls may vary substantially without affecting the franchise-holder's present value of toll income," and that, accordingly, "charging congestion tolls in a HOT franchise is easily done" in the PVR type of contract. I should have figured this out, and appreciate the opportunity to set the record straight.

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Quotable Quote

"I like museums; I like lighthouses; I like historic covered bridges. But I do not believe that American people who are putting gas in their car today know that they are paying for that type of expense."
--DOT Secretary Mary Peters, addressing the National Governors Association, February 2008.

"I would seriously redefine what the federal role in transportation is. I believe that the Interstate highway system and the national highway system, and the conditions of those systems, are in the federal interest. I believe that interstate freight transportation is in the federal interest."
--DOT Secretary Mary Peters, testifying before the Senate Environment and Public Works Committee, February 2008.

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





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