Policy Study

Easing California’s Transportation Crisis with Tolls and Public-Private Partnerships

Executive Summary

California’s population is projected to reach 50 million by 2030, an increase of 16 million people. The majority of this growth will occur in the state’s three major urban regions (Los Angeles, San Francisco, and San Diego). Vehicle miles traveled by individuals will increase by 30 to 50 percent in these regions, with truck traffic growing even faster, especially in greater Los Angeles. Yet California’s urban freeway systems are already nearing capacity, with pervasive congestion during ever-lengthening peak periods and little planned expansion of their capacity.

The metropolitan planning organizations (MPOs) in the three largest urban regions forecast transportation spending of nearly $400 billion between now and 2030. Yet most of this money will be used to operate, maintain, and rehabilitate the existing freeways and transit systems. Only a small fraction will be spent to expand the capacity of the highway system that will continue to carry more than 90 percent of all commute trips and the vast majority of freight. Consequently, congestion will still be a major problem in 2030. And this is the best-case projection by the MPOs, assuming that transportation finance in California quickly returns to business-as-usual from its current dire crisis state. Any number of factors could make the outcome significantly worse.

This report suggests that business-as-usual is not sufficient, not if California is to compete with fast-growing states such as Colorado, Florida, Texas, Virginia, and others. Those states have learned two important lessons from abroad as urban regions in Europe and Australia have coped with similar pressures of growth versus limited public finances. First, they found that global capital markets are willing to invest billions of dollars in highway transportation projects, if those projects charge tolls to repay the investment. Second, they have found that long-term public-private partnerships can deliver even large-scale “mega-projects” with less delay and less risk of cost overruns than traditional, public sector methods, such as were used on Boston’s infamous Big Dig tunnel project.

To illustrate the potential of large-scale, toll-funded projects to address real transportation needs in urban California, this report includes four case studies. The first is a $2.3 billion tunnel linking Palmdale with Glendale beneath the Angeles National Forest. With value-priced tolls to keep traffic free-flowing at rush hours, it would cut 45 minutes to an hour off the time between North County and downtown Los Angeles. This would make it far more practical to develop serious airline service at the Palmdale International Airport site (the last remaining alternative to meet the region’s air-service needs).

The second case study is an alternate approach to San Diego’s current plan to add $2 billion worth of “managed lanes” to several major freeways. Our plan would build a more ambitious $8 billion managed lanes network, funding it largely via toll revenue bonds (unlike San Diego’s current plan). For the same investment of taxpayers’ dollars, San Diegans would gain a much larger system of uncongested premium lanes for both commuters and express bus service.

The third and fourth case studies are of toll truckway systems for greater Los Angeles and the East Bay region of greater San Francisco, respectively. Our Los Angeles proposal builds on recent analysis by the Southern California Association of Governments (SCAG), but proposes a longer truckway system, extending all the way from the twin ports to the California-Nevada line. By offering truckers both faster speeds (due to no congestion) and much greater payloads, the $10.4 billion truckway system would be self-supporting from toll revenues. In the Bay Area, our proposed truckway would link both the Port of Oakland and Silicon Valley with I-5, via I-580. At a cost of $9.1 billion, it, too, could be self-supporting from toll revenues.

We modeled all four studies as funded by 40-year, tax-exempt toll revenue bonds. And because of the high risks to taxpayers of cost overruns and revenue shortfalls if procured using conventional methods, we recommend that such mega-projects follow the best practices becoming standard for such projects overseas and in Texas and Virginia-to be developed under long-term public-private partnership arrangements. Wellcrafted build-operate-transfer (BOT) partnerships shift construction risks and traffic/revenue risks to the private sector partners, a feature that is especially important for mega-projects such as our four case study examples.

Nearly two dozen states now have some form of transportation public-private partnership legislation, though only a few of these mirror the best practices of advanced countries in Europe and Australia. Those practices include the ability to enter into long-term partnership agreements under which the private sector can design, finance, build, and operate a transportation facility, making a return on its investment from toll revenues. Such projects could originate from either the public sector (via a request for proposals) or the private sector (via unsolicited proposals).

California’s one previous attempt to engage the private sector to develop toll roads was flawed. The 1989 AB 680 private toll road law required 100 percent private financing, rather than permitting a mix of public and private support that gives both parties a stake in successful outcomes. It applied only to Caltrans, despite the subsequent devolution of significant transportation authority to regional/local levels of government. And it led to overly restrictive non-compete clauses in franchise agreements. Second-generation public-private partnership laws, like those in Texas and Virginia, are far more flexible.

For California today, we recommend that a state-of-the-art tolling and public-private partnership law be enacted. It would authorize both Caltrans and other levels of government (cities, counties, joint powers authorities, etc.) to initiate toll-funded transportation infrastructure projects, and permit them to partner with the private sector to carry out such projects, using both RFPs and procedures for dealing with unsolicited proposals. This would enable California to enter the global capital markets, as well as tap world-class expertise for modernizing its vitally important highway system.