Surface Transportation Innovations #77

Tolling Interstates? Greenhouse gas reduction and transportation, highway bottlenecks

In this issue:

  • Tolling Interstates: Yes and No
  • EPA and Greenhouse Gas Reduction
  • CRS's Report to Congress on PPPs
  • Fixing Highway Bottlenecks: Benefits vs. Costs
  •  New Reports on Transition to VMT Charging
  • Upcoming Conferences
  • News Notes
  • Quotable Quotes

Tolling Interstates: Yes and No

Legislators and transportation officials are on tenterhooks awaiting the U.S. DOT's decision on Pennsylvania's proposal to put tolls on I-80. The state got turned down two years ago by the Mary Peters DOT, on grounds that its plan did not meet the requirements Congress laid down in the TEA-21 pilot program that lets up to three states rebuild an Interstate with toll financing. What Pennsylvania (still) proposes doing is to make I-80 tolls a major funding source for transit and highways statewide, not just for rebuilding and modernizing I-80 (which is what the pilot program allows). The trucking industry rightly opposes Pennsylvania's plan as both contrary to law and as a terrible precedent that would convert a toll into a tax.

That has not stopped other states from considering doing something similar. Connecticut legislators have been debating for the past year the idea of putting tolls back on I-95 (which used to be called the Connecticut Turnpike in the days when it was tolled) for "improving traffic flow on I-95, maintaining and reconstructing state bridges, and expanding mass transit," according to the co-chair of the legislature's transportation committee. In New Jersey, the transition team for Gov. Chris Christie proposed putting tolls on I-78, I-80, and I-287 so as to bail out the state's ailing Transportation Trust Fund. Wyoming's state senate in February approved a study that would lay the basis for applying to the feds for permission to toll I-80 in that state, but the measure failed in the other house after heavy opposition from the trucking industry.

An idea frequently mentioned in most of these proposals is putting the toll collection points at the state borders. The idea is to tax those out-of-staters who don't vote in the state, while de-facto exempting most state residents who do vote there. That almost certainly would not survive legal challenges under the interstate commerce clause of the Constitution. (Even cutting existing turnpike tolls in half for local residents, as some West Virginia legislators recently proposed, was judged likely to be ruled unconstitutional.) And this kind of thing serves to further stoke trucking industry opposition, reinforcing the view that what those legislators are proposing is a tax rather than a toll levied in order to provide Interstate users with much-improved mobility.

One state that seems to be getting it right is North Carolina, which has applied to the feds for permission to rebuild I-95 in that state, using toll finance. That key north-south artery does not have enough lanes for current and future traffic, it has a number of low-clearance overpasses, and much of its pavement is in poor condition. Yet state law divvies up highway money into so many political jurisdictions that it's been impossible to allocate the large sums (estimated at $5 billion) needed to rebuild I-95. And even in this state, the chairman of the 21st Century Transportation Committee, insurance executive Brad Wilson, keeps talking about tolling I-95 and other Interstates "at the borders."

We need to figure out how to make rebuilding key Interstates via toll financing a win-win proposition. Proposals for turning Interstate tolls into all-purpose transportation taxes and proposing to toll only at state borders are deal-killers for trucking companies and associations, understandably so. Yet it is manifestly in the trucking industry's interest that these critical corridors for commerce be rebuilt and modernized. Over the next few decades, most Interstate routes will reach the end of their original 50-year design lives and will need to be reconstructed. It makes sense, at that point, to redesign them for the 21st century, perhaps with heavy-duty truck-only lanes as well as state-of-the-art interchanges (see nearby article). Short of a major change in federal and state funding priorities, fuel tax monies will not be adequate for these projects. Hence, toll finance will be needed in many cases.

The current federal Pilot Program strikes a pretty good balance, clearly authorizing tolling for reconstruction and modernization of the Interstate itself, not as a general statewide transportation funding source. Congress would do us a great service by mainstreaming this Pilot Program, so that all 50 states can make use of it.

The EPA and Greenhouse Gas Reduction

With proposed cap-and-trade legislation apparently stalled in Congress, the Administration last winter rolled out its Plan B. The Environmental Protection Agency made a formal finding that greenhouse gas (GHG) emissions endanger Americans' health, and therefore it will regulate them under the Clean Air Act (CAA). The "endangerment" filing has triggered a firestorm of protests, partly based on the premise that the CAA does not allow EPA to do what it intends to do regarding stationary sources. For mobile sources, such as motor vehicles, the EPA plans tailpipe emission limits similar to what it has long enforced for conventional pollutants.

Opposition to EPA's plans has taken three forms thus far. Democratic senators from coal states are promoting legislation that would put a two-year hold on EPA's plans to regulate GHG emissions from stationary sources. Resolutions in both houses seek to overturn EPA's endangerment finding altogether, and so far have mostly Republican support. And several state governments and non-governmental organizations have filed federal lawsuits challenging EPA's regulatory plans under the CAA.


With all that as background, two alternative proposals have emerged in Congress. Sen. Maria Cantwell (D, WA) has proposed a "cap-and-dividend" measure, under which the government would impose an annual ceiling on carbon emissions, and all fossil fuel producers and importers would have to buy permits at auctions. The proceeds would be rebated to all US households; thus, while carbon-based energy costs would increase, households would be shielded from major impact (while still having incentives to choose lower-carbon alternatives). In contrast to the massive Waxman-Markey cap-and-trade bill (a monument to central planning and special-interest favoring), Cantwell's bill is a mere 40 pages long. By simply changing the price of petroleum-based fuels, it would avoid vast amounts of proposed social engineering of surface transportation.

The other bill comes from Sens. Lindsey Graham (R, SC), John Kerry (D, MA), and Joe Lieberman (I, CT). Instead of cap-and-trade, it would take different approaches to three major sectors: electricity, industries, and transportation. The first two sectors would face increasingly stringent caps on GHG emissions over time. In transportation, petroleum-based fuels would incur an additional tax, the proceeds of which would be added to the Highway Trust Fund. I think that's a bad move, because it would not provide a sustainable funding source for highways. To the extent that the new tax succeeds in reducing fuel use over time, it will reduce the revenues that state DOTs will be depending on for needed projects and programs. It is also likely to be staunchly opposed by environmental groups, who want less-not more-spent on highways.

A uniform tax on carbon, such as Cantwell has proposed, is the least-bad way to address GHG reduction. It would provide incentives to develop and use lower-carbon sources of energy without forcing individuals and companies to change their behavior. And by rebating the revenues to households, it would avoid huge amounts of lobbying and favoritism over dividing up the spoils.

The CRS Report on Public-Private Partnerships for Transportation Infrastructure

Given the increasing use by state DOTs of PPPs for large transportation infrastructure projects, and the concerns expressed by some federal and state legislators, it is appropriate that the Congressional Research Service has weighed in with a report for Congress on this subject. (The report is "Public-Private Partnerships (PPPs) in Highway and Transit Infrastructure Provision," by William J. Mallett, CRS Report 7-5700, Feb. 22, 2010.)

Overall, it is generally even-handed, as CRS reports tend to be. It provides some context about the eroding real value of fuel taxes and follows that with profiles of five PPP projects: Chicago Skyway, Indiana Toll Road, I-495 (Beltway) HOT lanes, Las Vegas Monorail, and Missouri DOT Safe and Sound Program (bridge repair). That selection itself is somewhat skewed, in that two of the three toll projects are leases of existing toll roads (uncommon) and only one is a "green-field" new toll project (the most common kind). But the descriptions of each are factual and fair. Next, the report reviews the last three decades of federal liberalization of laws regarding tolling on the federal-aid system, which has created the space into which states have brought the private sector.

The real meat of the report begins on p. 15, in the section titled "Issues for Congress." In a thoughtful discussion of the role of toll finance in providing additional resources for transportation investment, the report notes that sensible tolling of the congestion pricing kind can reduce the extent of new-capacity requirements, citing scenarios from the newly released FHWA Conditions and Performance report. But when it comes to the discussion of contentious issues, the report leaves a few things to be desired.

For example, its discussion of "diversion of resources from the transportation sector" focuses on the Chicago Skyway lease (where this did occur) but fails to point out that in the other major lease of an existing toll facility (Indiana Toll Road), no such diversion took place. This creates the misleading impression that such diversion is typical in so-called "brownfield" leases. In a discussion of risk transfer via PPPs, the report notes that detractors argue that "this transfer of risk may prove illusory as major miscalculations may force the public sector to assume project ownership." Yet the report fails to report on the evidence to date, in which none of the toll concession projects that have failed (two in Australia, one in Texas, one in South Carolina, one in Colorado, and one in Virginia) has had to be taken over by the state. Apart from South Carolina (which is still being worked out), all the others were taken over by private buyers and remain in operation. Only the original investors lost money-in other words, the toll-revenue risk was indeed transferred. A little bit of research could have found this out and included it. Also, in the paragraph on non-compete provisions, the report makes the error of treating this as a phenomenon solely of PPP toll roads, rather than being fairly common in toll road financing agreements generally.

The report's final section offers three policy options for Congress. First, it could stick with the status quo of incremental changes and experimentation. Second, it could more aggressively promote PPPs but with a new set of regulations designed to protect the public interest. On this score, it cites a useful GAO report and another (by Jeff Buxbaum) from the Keston Institute. Those are fine, but the more comprehensive Buxbaum report came out soon after the Keston version from the better-known National Cooperative Highway Research Program and would have been a better citation. The third option would be to encourage states to do more by generally deregulating the use of tolling and PPPs by the states, which it notes is generally the position of AASHTO, representing the state DOTs. In this approach, the federal role would be "mostly limited to providing guidance about instituting good practices and avoiding common pitfalls."

I'm pleased to see that none of these options resembles the hugely centralizing approach to tolling and PPPs proposed in the House reauthorization bill, which would roll back all the liberalization of the past 30 years and give a new federal "Office of Public Benefit" veto power over all tolling and PPP projects on the entire federal-aid systems.

Fixing Bottlenecks: Benefits vs. Costs

Back in 2004 the American Highway Users Alliance commissioned Cambridge Systematics to do a study of the major bottlenecks in the U.S. highway network. A year or two later, the Federal Highway Administration commissioned CS to do a similar study focused on freight bottlenecks. I revisited the 2004 study as part of the research for a forthcoming Reason Foundation policy study. What I was looking for was the estimated cost of rebuilding all 233 (24 major and 209 other) bottlenecks, which are most often obsolete freeway interchanges. Alas, the study included no such estimate.

What it did include, however, were calculations of the likely reductions in vehicle delay which the authors estimated would come about were these interchanges rebuilt to today's standards and with increased capacity. As is fairly standard in benefit/cost analyses, the savings were then converted into 20-year totals. The total result of fixing all 233 bottlenecks was 48 billion hours of delay reduction and 40 billion gallons of fuel saved, plus about 450,000 crashes eliminated, saving 1,787 lives and avoiding nearly 221,000 injuries. With those numbers for the benefit side, I then made some rough estimates of the cost.

A small number of major interchanges have been completely redesigned and reconstructed in recent years, including the Marquette interchange in Milwaukee and the Springfield interchange in northern Virginia. These are major projects, so a ballpark cost number of $750 million apiece seems reasonable. I used that number for the 24 major interchanges in the CS study. For the other 209, I used $350 million apiece; while that's more than many would require, it's probably low for some of those that rank just below the 24 major ones. Simple math then gives an estimate of $91 billion for all 233 interchanges.

Now for the benefits. For the accident reductions, I used the following values:

Type of reduction       Number           Unit cost saved           Total savings ($B)

Crashes eliminated      449,606           $1,000                         $0.449B

Injuries reduced          220,760           $5,000                           1.104

Fatalities eliminated        1,787           $3 million                      5.361

Total:                                                                                       $6.9 billion

Next we quantify the time and fuel savings, using CS's estimates. Forty billion gallons at $3/gallon yields $120 billion. And 48 billion hours of time saved at $26.50 per vehicle hour (as used by DRCOG in recent analyses of Denver congestion) yields $1,272 billion. So time and fuel savings over 20 years total $1,392 billion. Adding the accident-reduction savings boosts the total to $1,399 billion. Dividing that by the estimated $91 billion cost yields a benefit/cost ratio of 15.4. Even if we increase the estimated costs to $1 billion per major interchange and $500 million for minor ones (total: $128 billion), the B/C ratio would still be a hefty 10.9.

Econometric studies in recent years have shown lower and lower rates of return on highway investment, leading some to conclude that America has little to gain from large-scale investments in this infrastructure. My assessment is that those studies reflect the kinds of politically directed highway spending that we've experienced during the last two decades. But a policy targeted to investments with high B/C ratios like eliminating large interchange bottlenecks appears to be a whole different story.

New Reports on VMT Charging from TTI

Early this year the Texas Transportation Institute released two new reports on issues involved with implementing charges based on vehicle miles traveled (VMT), rather than fuel use, to pay for highways. The Part 1 report deals with technology issues, while the Part 2 report covers institutional issues. Both are well worth reading.

As Peter Samuel noted in TollRoadsNews.com, the technology report is necessarily somewhat inconclusive, since the kind of technology needed will depend on policy decisions about what the system is required to do, and with what level of precision and privacy protection. Unlike some reports on the subject, this one does not presume the use satellite-based (GPS) location determination, noting that data from the existing vehicle onboard databus can provide accurate mileage readings that could be combined with transponders and cell-phone towers to identify (in particular) travel on particular roads for which specifically tailored charges would apply. They also note several options for privacy protection, whether or not GPS is part of the system. (http://utcm/tamu.edu/publications/final_reports/Goodin_tech_09-39-07.pdf)

I found the institutional issues report to be even more interesting. One of its virtues is to challenge the common assumption that a transition from fuel taxes to mileage charges must be a top-down process, mandated and micromanaged by the federal government. An interesting section likens this approach to the federal Real ID Act, which has been stoutly resisted by state governments. By contrast, the bottoms-up approach under which the states and Canada worked out a consensus among themselves on how to share diesel fuel revenues from trucks (creating the International Fuel Tax Agreement) provides a useful counter-example.

There is a thoughtful section on policy goals of mileage-based user fee systems, which concentrates primarily on the need for a robust, sustainable source of funding for the transportation system-a refreshing change from some of the lists of social-engineering goals I've seen in some other recent reports on VMT charging. My advice to those working to develop politically feasible VMT charging systems is to avoid gumming them up with behavior modification objectives.

It's going to be hard enough to persuade the driving public that we need to replace the fuel tax, and to overcome their privacy concerns, without imposing on them different rates for different numbers of vehicle occupants, different engine sizes, etc. Obviously, heavy trucks should continue to pay more than light vehicles, based on their much greater impact on pavement wear. Obviously, costly urban expressways should charge more than two-lane country roads, based on large differences in life-cycle costs. And equally obviously, rates should be higher during high-demand periods. But all of those features are analogous to how we pay for other network utilities (e.g., electricity). They are payments made to the utility operator for the services it provides.

There is a lot more to this thoughtful report than I can cover here, including its longest section on implementation considerations. There will be many policy decisions to be made, including what roles the federal government, the states, and the private sector should play, and how the system(s) should be administered. Among the interesting topics in this section are trade-offs among privacy and auditability, whether participation can be voluntary or mandatory, whether phase-in should be a big-bang or incremental over many years, etc. (http://utcm.tamu.edu/publications/final_reports/Goodin_inst_09-39-07.pdf)

We aren't ready to start implementing VMT charges, but reports like these can help us think through the key decisions.

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.

Infrastructure Investment World Americas, April 26-29, New York, NY, Bridgewaters. Details at: www.terrapin.com/2010/IIWA.

Innovations in Pricing of Transportation Systems: Workshop and Conference, May 13-14, Orlando, FL, Royal Plaza Hotel in Walt Disney World Resort. Details at: http://conferences.dce.ufl.edu/pricing.

Fourth International Conference on Financing Surface Transportation, May 19-21, New Orleans, LA, Roosevelt Hotel. Details at:

http://onlinepubs.trb.org/onlinepubs/dva/ConferenceFinance2010Call.pdf.

National Road Pricing Conference, June 2-4, Houston, TX, Westin Galleria Hotel. Details at: http://tti.tamu.edu/conferences/nrp10/.

News Notes

Two Florida P3 Projects Win Awards

Project Finance magazine has honored Florida's first two long-term concession projects. The I-595 Corridor Roadway Improvements Project, which is adding reversible express toll lanes to a major commuter corridor, was named 2009 North American Transport Deal of the Year. And the Port of Miami Tunnel was named the 2009 Global Deal of the Year. Congratulations to Florida DOT and its private-sector partners.

Capsule Updates on Alternative Energy

In a special section on Feb. 22, 2010, the Wall Street Journal provided useful summaries of six energy sources intended to reduce America's carbon footprint: electric cars, solar, nuclear, algal biofuels, wind, and carbon capture and storage. Each includes a very brief description of the technology, its current status, and a sobering discussion of "why it's going to take so long."

Correction re Signage Standards for Managed Lanes

A reader wrote in response to my article last month on signage standards for Managed Lanes in the new edition of the Manual on Uniform Traffic Control Devices (MUTCD). He tells me that the color purple is to be used for lanes that have pre-paid tolls only (i.e., transponder accounts); his toll agency has been directed not to use purple if they offer post-paid video tolling.

Good Reading on Freeway History

How did America get the kind of freeway system we have today? You will find some fascinating answers in "Paved with Good Intentions: Fiscal Politics, Freeways, and the 20th Century American City," by Jeffrey Brown, Eric Morris, and Brian Taylor, in the Fall 2009 issue of Access, from the University of California Transportation Center. Example: why do we have relatively few but very wide freeways? Answer: The feds capped the number of centerline miles each state could build, but not the lane-miles. (http://www.uctc.net/access/35/access35_Paved_with_Good_Intentions_Fiscal_Policies_.pdf)

Conference Board of Canada on P3 Success

In "Dispelling the Myths: A Pan-Canadian Assessment of Public-Private Infrastructure," the Canadian Conference Board assessed a number of "second-wave" public-private partnership projects in four provinces, finding that they saved time and money compared with conventional government procurement methods. The largest efficiency gains were due to risk transfer, but other efficiency drivers included output-based rather than input-based specifications and the integration of design, construction, operations, and maintenance. (http://www.conferenceboard.ca/documents.aspx?DID=3431)

Innovations for Tomorrow's Transportation Report Published

Last year I was one of several dozen invited participants in a workshop convened by the Federal Highway Administration to discuss six existing and emerging surface transportation topics-including public-private partnerships, alternative fuels, greenhouse gas reduction, and intermodal freight movements. A summary of the workshop was released recently as Issue 1 of a planned series on "Innovations for Tomorrow's Transportation." (www.fhwa.dot.gov/policy/otps/innovations/issue1/innovations.pdf)

Two New Reports from Deloitte

Deloitte Research has produced two reports relevant for those of us dealing with surface transportation infrastructure. "The Changing Landscape for Infrastructure Funding and Finance" is a good primer on what has changed due to the credit crunch. And "Partnering for Value: Structuring Effective Public-Private Partnerships for Infrastructure" is a more detailed overview of relevant issues, including value-for-money analysis. (http://www.deloitte.com/partneringforvalue)

2008 Conditions & Performance Report Issued

It's somewhat late, but the biennial report to Congress from FHWA on the conditions and performance of the nation's highways and transit systems was issued last month. 2008 Status of the Nation's Highways, Bridges, and Transit: Conditions & Performance uses 2006 as its analysis year, so it's a bit dated. On the other hand, this edition of the report is considerably more sophisticated in its analysis, offering a number of possible scenarios for future investment, assuming different benefit/cost ratio screens for new investment and some that analyze the impact of congestion pricing. (www.fhwa.dot.gov/2008cpr/index.htm)

Quotable Quotes

"There is a tendency to treat [road-pricing] privacy issues by technical means. . . . Such privacy-protecting concepts usually imply some costs and a certain inconvenience in system design. The solutions are fine in principle and are normally sufficient to fulfill the legal requirements. [People's] perception is not influenced by design, though. It is probably better to look into the institutional arrangements. I have, e.g., no problems with the fact that my mobile phone provider knows every movement I make, or that my bank knows a lot about my financial capabilities. People like to have a choice regarding whom to give their data, and they are more relaxed about it if they receive a clear benefit. I would like to be able to pay my road user charge to somebody unsuspicious, such as my automobile club, the supermarket, or my mobile phone company."

--Bernhard Oehry, "Critical Success Factors for Implementing Road Charging Systems," Discussion Paper No. 2010-3, OECD/ITF Joint Transport Research Centre, January 2010.

"It's the best deal since Manhattan for beads, except this time the natives won. I get asked at every governors' meeting, 'How can I possibly do something like this?' There are wrong ways to do it, absolutely, and we tried to be careful not to. If we'd spent any of the money on current operations, that [would be] taking money from the future. We laid it down as a cardinal rule we are not going to burn the furniture to keep the lights on. We said every single penny must be reinvested for the long-term of the state. Once in a while somebody will say, 'Well, in X years the money will be gone.' I go 'No it won't. You'll be riding on it. And your kids will have a job in a business that is located by it.' Our position is that government should be limited. But within those limits investments in infrastructure absolutely fit. They are enablers of a strong private economy."

--Gov. Mitch Daniels, interview with Lisa Caruso on the long-term lease of the Indiana Toll Road, Feb. 22, 2010 (http://transportation.nationaljournal.com)

"In the area of intended responses to GHG emissions reductions there is an equity/efficiency trade-off argument. In this case 'equity' is portrayed as each sector of the economy being responsible for reducing, on an equivalent basis, that share of emissions that it produces: transportation is roughly responsible for 28% of U.S. man-made emissions and therefore should be responsible for about the same share of reductions. This is a very short-sighted sense of equity. Based on efficiency grounds, those areas that lend themselves best to improvements in GHG emissions, such as electricity generation, should be the focus of our research and policies-the so-called low-hanging fruit approach. To the extent that the issue is petroleum, it must be recognized that in the last energy crises of the early eighties, every sector of the economy that could get out of oil did. Only transportation, heavily dependent on a portable, high energy per cubic foot fuel, such as petroleum provides, stayed with it. . . . [I]t is reckless to insist on, and invest in, emission reductions that cost thousands of dollars per ton removed when reductions can be obtained more readily and more immediately at $50 per ton. . . . The question 'Where will a billion dollars spent buy us the most GHG reductions?' should guide the research and the policies."

--Alan S. Pisarski, testimony before the House Committee on Science and Technology, Subcommittee on Technology and Innovation, Nov. 19, 2009.

"The means by which revenues are distributed under a mileage-based fee system could potentially have very profound effects on the fundamental relationship between the federal government and the states with regard to transportation [funding]. The federal government's role as 'redistributor' of transportation funding can be justified by the notion that the national provision of transportation 'goods' should be handled in a centralized manner so as to ensure equal 'consumption' of those goods for all users. However, it may also be argued that the provision of transportation goods and services may best be delivered at the state and local levels because these services can be differentiated based on local demands. Mileage-based fee systems can be structured to allow for the retention of regionally generated funds, which would bypass the traditional federally orientated (and in many cases state-level) apportionment processes. If such a system can be developed and implemented nationwide, where revenue generation can be tied to specific areas and/or facilities, then what are the implications for the role of the federal government in allocating revenues?"

--Ginger Goodin, et al., "Mileage-Based User Fees: Defining a Path Toward Implementation Phase 2: An Assessment of Institutional Issues," Texas Transportation Institute, UTCM Project #09-39-07, November 2009.

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





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