Defending the Equity Implications of Priced Managed Lanes


Defending the Equity Implications of Priced Managed Lanes

There is new empirical evidence that low-income users benefit significantly from priced managed lanes.

Priced managed lanes are a uniquely American success story. According to the summary of a recent Organisation for Economic Cooperation and Development International Transport Workshop (in which I took part), the United States, as of last autumn, had 52 priced managed lane facilities in operation in 15 states, totaling 1,842 lane-miles. About half of these are simple conversions of high-occupancy vehicle (HOV) lanes to high-occupancy toll (HOT) lanes, involving no capacity additions. But most of those that have added new lanes have been financed by toll revenue bonds.

Nearly all of the revenue-financed projects are structured as long-term design-build-finance-operate-maintain public-private partnerships (P3s). My own running tally shows that 12 of the 17 U.S. highway revenue-risk projects are express toll lanes. And three of the 10 highway availability payment projects are availability-payment (AP)-financed managed lanes. Government transportation agencies in California, Colorado, and Texas have financed four such projects themselves via toll revenue bonds.

So the P3 community needs to be aware of growing concerns about the equity of priced managed lanes. The earliest objection of this sort was the claim that these are “Lexus Lanes,” used only by the rich. This charge has been levied by populist conservatives in Texas and elsewhere (including a scathing cover story in the now-defunct conservative magazine, The Weekly Standard, attacking the successful Virginia-managed lanes).

State transportation departments and academic researchers have accumulated considerable evidence showing that the distribution of vehicles using priced managed lanes is very similar to the vehicles using general-purpose lanes. Every single state DOT or transportation agency with priced managed lanes should collect and publish this kind of data, in answer to these critics.

More recently, advocates of transportation equity have begun discussing “means-based” tolling for these projects. It was a topic of discussion at several of the sessions during the Transportation Research Board’s 2021 Annual Meeting. The idea is that it is unfair for lower-income people to pay the sometimes high prices to use managed lanes during peak times when rates on some facilities can exceed a dollar per mile. Hence, they argue, operators of these lanes should charge lower rates to people in the lower parts of the income distribution (though exactly how this would work has not been spelled out).

There are two obvious problems with means-based tolling, were it to be implemented. First, it would undercut the effectiveness of variable pricing. The essential function of this pricing is to limit the number of vehicles that attempt to use the lanes, to keep traffic flowing smoothly and at reasonable speed during periods of highest demand. Charging zero to “clean” vehicles or half-price to carpools or an even lower price to low-income drivers would each lead to more vehicles crowding into those lanes, congesting them precisely when high prices are essential to delivering the benefits users are promised. (We already see this happening on several priced managed lanes in both the San Francisco Bay Area and Los Angeles regions, when so many exempted vehicles enter the lanes during peaks that the pricing is turned off and the lanes operate as HOV lanes.)

The second problem with freebies and means-based tolling is that it can significantly reduce the revenue needed to provide debt service on the bonds used to finance the managed lane (ML) project and, if it’s a public-private partnership, the hoped-for return on equity to the investors. I’d wager that a new-capacity ML project with means-based tolling and clean-vehicle exemptions would be un-financeable.

The good news in response to this prospect is that there is new empirical evidence that low-income users benefit significantly from priced managed lanes. This comes from a detailed University of Washington (UW) study of the I-405 express lanes in the Seattle metro area. The researchers had access to every toll transaction in the lanes for an entire year. They were also able to use the zip code of each account-holder to estimate the income group involved with every toll transaction. The study validated the general 90/10 rule of thumb for MLs: that 90 percent of the revenue comes from the 10 percent of people who use the lanes regularly, who tend to be middle- to upper-income. 

But the UW researchers did not stop there. They found that users in the bottom 20 percent of the income distribution, as expected, used the lanes less often than wealthier groups. But two surprises emerged from the data.

First, when the bottom quintile people used the lanes, they tended to travel at peak times and therefore paid higher tolls than even the top quintile. The latter, who used the lanes the most frequently, often avoided peak periods and paid somewhat lower tolls on average.

Second, the researchers did something I’d not seen in any previous managed lane studies. They calculated the average net benefit for each of the five income quintiles. They did this by comparing the value of time saved with the amount of the toll paid. The largest net benefit accrued to the lowest-income quintile and the smallest net benefit was received by those in the highest income quintile. Thus, far from being unfair to the lower-income people, the MLs are a great benefit. They enabled these customers to avoid having their pay docked for arriving at work late or enabled them to pick up their kids from daycare without having to pay a late fee that would be far more than the toll.

I summarized the implications of this study in a Transportation Research Board’s Annual Meeting session on future possibilities for priced managed lanes, one of which was the California idea of means-based tolling. In a follow-up email exchange, the Caltrans presenter of the means-based tolling idea asked me to clarify the implications. Do you mean, she asked, that we should not give discounts to low-income people and don’t need means-based tolling? Well, yes, I replied. 

One other point to keep in mind when transportation equity is raised as an objection to priced managed lanes: Compared to what? It is widely acknowledged that gas taxes are regressive because even though wealthier people drive a lot more than low-income people, gas taxes consume a larger share of their income. The same applies even more to transportation sales taxes, of which most people pay a lot more per year than gas taxes.

Everyone involved with priced managed lanes should obtain and read the Hallenbeck study on the equity implications of the I-405 express lanes. 

A version of this column appeared in Public Works Financing.