Testimony prepared for the Joint Hearing of House Appropriations Transportation Subcommittee and Senate Budget and Taxation Public Safety, June 29th, 2021.
Chairman Korman, Chairman McCray, and Vice Chair Krimm, and fellow Members:
My name is Baruch Feigenbaum and I am the Senior Managing Director for Transportation Policy at Reason Foundation, a nonprofit think tank with offices in Los Angeles and Washington, D.C. I currently serve on two committees of the Transportation Research Board of the National Academies: Bus Transit Systems, where I serve as Secretary and Conference Planning Chair, and Intelligent Transportation Systems.
During my time at Reason, I have worked with the states of California, Colorado, Georgia, Michigan, New Jersey, North Carolina, and Pennsylvania to implement transportation policy and funding reform. Reason Foundation has recognized expertise on managed lanes and public-private partnerships. The first variably priced toll lanes in the country, on SR-91 in Orange County, California, were the result of a Reason policy paper written by co-founder Robert Poole proposing privately financed infrastructure. For more than four decades, Reason’s transportation experts have been advising federal, state, and local policymakers on market-based approaches to transportation.
Overview of Environment
Montgomery County, Maryland, is suffering from the twin crises of severe traffic congestion (up to 12 hours on weekdays and 10 hours on weekends) and a lack of high-quality, reliable transit service. According to Reason Foundation’s Annual Highway Report, Maryland ranks among the worst of the states in traffic congestion. The Maryland suburbs of the Washington, D.C. region have the 2nd worst traffic congestion in the country after metro Los Angeles. There is also a complete lack of mass transit service between Montgomery County, Maryland, and Fairfax County, Virginia, the two most populous jurisdictions in the Washington, D.C. region.
For more than 20 years, state, county, and city leaders have been studying how to address these twin problems. But the high overall costs prevented any action. Adding capacity would require 100% of the state transportation revenue for multiple years. A major increase in taxes seemed like the only solution.
In 2017, Maryland Governor Larry Hogan announced plans to add two variably priced express toll lanes to I-270, I-495, and the Baltimore-Washington Parkway. In the revised plan, the Maryland Department of Transportation plans to build variably priced express toll lanes on the American Legion Bridge, on I-270 from I-495 to I-370, and on I-495 from the American Legion Bridge to I-270. The department plans to build these lanes as a public-private partnership in which private equity combined with the toll revenue paid by the users of the lanes will finance 100% of the construction, operations, and maintenance costs.
Adding variably priced toll lanes via a toll-financed public-private partnership has three advantages. First, tolling combined with private equity provides all of the financing needed to build this major project. As a result, gas tax revenue that would otherwise have been spent on this project can be used on other roads in the region and in other areas of the state.
Second, tolling reduces a phenomenon many project opponents have labeled “induced demand.” Induced demand occurs when an existing highway is built or a new highway is widened. Travelers who would not have made a trip on that highway because of congestion decide to make that trip. But variable tolling limits induced demand by charging users the full cost of the trip.
Third, variably-priced tolling provides a congestion-free travel option during peak periods. If a driver needs to get somewhere on time such as to a place of employment or to pick up a child from daycare, the managed lanes provide a reliable travel option. With the current congestion, there is no way to reliably make that trip, and even emergency vehicles are delayed.
While the traffic relief portions of this project are significant, the most important aspect may be the semi-dedicated running way for transit. Montgomery County Ride On, Maryland Transit Administration (MTA), Fairfax County Connector, and/or Washington Metro Area Transportation Authority (WMATA) could all operate service between the region’s two most populous jurisdictions. New routes could operate between Tysons Corner and North Bethesda, between Rockville and Vienna, and between Gaithersburg and Falls Church, among others.
Some in the General Assembly have expressed frustration that Maryland DOT is not considering rail for this corridor. But rail is the wrong solution for several reasons. First, it is cost-prohibitive. The light rail Purple Line will cost taxpayers more than $2 billion. The heavy rail Silver Line phase 2 in Virginia will cost almost $3 billion. With costs like these, the state would not have the revenue to build and maintain its existing roadways and transit systems. Second, rail does not serve the corridor’s commute patterns. Commuters traveling between Montgomery County and Fairfax County have multiple origins and destinations. With rail, they would have to connect to at least one bus line. The transit system would cost more, and ridership would be reduced because travelers are less likely to take transit if they have to switch vehicles.
Let me take this opportunity to answer several of the questions raised in this hearing. Delegate Korman has cited a Reason Foundation study that found 17 of 19 managed lane projects needed a public subsidy. Our 2021 transportation finance report found that 12 of 18 toll concession public-private partnerships (P3s), which is the structure of this project, did include a modest subsidy. A higher percentage of availability payment P3s, which is the structure of the Purple Line, needed a (larger) subsidy. It is important to separate toll concession P3s from availability payment P3s to allow an apples-to-apples comparison. Of the six toll concession P3 projects that did not need a subsidy, three are in the Washington, D.C. region. The reason why Maryland DOT can say that this project will not need a subsidy is the combination of severe congestion and high traveler value of time. Simply put, suburban Maryland has enough commuters who would be willing to pay the tolls for enough hours a day to fully finance the highway reconstruction.
Several delegates also suggested that P3 projects are more expensive to finance the publicly procured infrastructure. Municipal bonds do receive favorable tax treatment. However, since 2005, project sponsors have had access to private activity bonds (PABs), where interest income is tax-exempt just like municipal bonds. PABs have proven very popular, and there is an emerging bipartisan consensus to significantly increase the PAB cap.
Much of the opposition has focused on the environmental impacts of this project. While no infrastructure project has zero impacts, the state of Maryland has worked to reduce impacts, including those on parkland and open space. The Purple Line had environmental impacts as well, but Maryland leaders decided that the light-rail line’s benefits outweighed the environmental costs. The same is true for this project.
Finally, as Delegate Krimm and Maryland Secretary of Transportation Slater, noted via innovation and private equity, the P3 concessionaire brings additional resources to the table. Without the P3 partner, Maryland would have to cancel some other planned projects throughout the state. Much of Maryland’s infrastructure is more than 50 years old and needs to be modernized. Some areas of the state are growing and need additional transportation capacity. Solving those challenges would only grow if those needed projects could not be funded.
Thank you for the opportunity to submit testimony. I am happy to answer any and all questions and can be reached at Baruch.Feigenbaum@reason.org.