Surface Transportation News: Equity in roadway user charges
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Surface Transportation Innovations Newsletter

Surface Transportation News: Equity in roadway user charges

Plus: A primer on pro-growth, limited-government federal transportation policy and more.

In this issue:

Equity in Roadway User Charges

As California gets ready to launch another pilot project testing road user charges as a replacement for per-gallon fuel taxes, a coalition of environmental and anti-highway groups called the Climate Plan Network, has proposed “Equity Principles for the CA Road Charge.” Their basic idea is, “The creation of a RUC presents a rare opportunity to rebalance our transportation system and help achieve critical environmental and social goals set by the state.”

The coalition’s Feb. 2024 brief includes four policy recommendations, as follows:

  1. Enshrine equity in the fee structure by considering income;
  2. Incentivize cleaner, safer vehicle use within the fee structure;
  3. Prioritize for “core four” priorities with revenues from the fee; and
  4. Support regional efforts to implement the RUC and alleviate congestion.

Let’s take a look at what each of these would entail.

The rationale for making the road user charge proportional to income is that today “low-income drivers bear an unfair burden, paying an inordinate share of their income on gas taxes.” But that is true of everything low-income people need—clothes, food, housing, etc. Americans pay large sums in metro-area transportation sales taxes and federal highway taxes to subsidize extensive mass transit service for those on low incomes. And many low-income people carpool to split the cost of using cars. There is no good reason to distort the replacement roadway funding system as proposed by this group.

The group cites a 50% low-income discount for express lanes on I-880 in the San Francisco Bay Area as a precedent. Yet the rationale for such a discount is undermined by at least three studies of who benefits from express toll lanes. The most recent of these reports, by Stanford University researchers Cody Cook and Pearl Li, finds that drivers in the lowest income quartile gain the most benefits from using express lanes, measured by the value of their time savings compared with the (non-discounted) price they pay. All three of these empirical studies used data from the express toll lanes on I-405 in the Seattle metro area, and all reached essentially the same finding, via somewhat different analytical approaches.

The second recommendation calls for making the road user charge different for (remaining) petroleum-fueled vehicles and electric vehicles, as well as for heavier vehicles. The authors may not be aware that heavy trucks on tolled highways already pay about four times as much per mile as personal vehicles, because of the wear and tear on pavements from high axle weights, and any rational RUC system would do likewise. For personal vehicles, the weight differences are minor and not worth charging more for. The only exception might be the largest electric SUV/pickup trucks, which require enormously heavy batteries.

The third recommendation calls for spending the revenues from RUCs on every form of mobility, including sidewalks, bike paths, transit, and who knows what else. And also devoting portions of the revenue to non-transportation good works, such as “direct, meaningful, and assured benefits for low-income households and disadvantaged communities.” Try selling that to middle-class drivers.

Finally, the coalition’s last recommendation wants RUCs to be implemented by regional transportation planners, rather than the state’s nominal highway agency, Caltrans. The explanatory paragraphs include this:

“A RUC can help accomplish the congestion reduction goals often ascribed to highway widening [such as adding express toll lanes?], while avoiding many of the environmental and social harms of those expansions. The state should design the RUC  to act as a model for regions that are increasingly looking for better ways[?] to reduce traffic congestion.”

If we’ve learned anything from recent state mileage-based user fee/road user charge pilot projects, it’s to keep it simple: a per-mile charge to replace the per-gallon gas tax to pay for our roadways.

The need to replace per-gallon fuel taxes with per-mile charges is a once-in-a-century opportunity to correct the shortcomings of what fuel taxes have become. Instead of the original model as the utility bill for using the highway (a true highway user charge), today’s fuel taxes have gradually become an overall transportation tax, spent on anything legislators decide they want to prioritize or might bring them votes. And, alas, gas taxes are politically difficult to increase to keep pace with the ever-increasing capital and operating costs of U.S. highways.

California counties have long demonstrated that voter-approved transportation sales taxes can be a reliable funding source for transit and other non-highway transportation projects. What our highways need is a dedicated user fee that can keep pace with the capital and operating costs of the roadway system. If our electric and water utilities were funded by user taxes allocated by legislative bodies, our water and electricity services would be far less reliable. Highways need to be funded as highway utilities, with dedicated, bondable revenues. That’s a far wiser version of road user charge for California than what is set forth by these groups.

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A Primer on Pro-Growth, Limited-Government Federal Transportation Policy
By Marc Scribner

The 2016 election of Donald Trump signaled to some on America’s political right that the Reagan-era consensus on free markets needed to be replaced with more-interventionist economic policies. These would be designed to deliver particular outcomes to favored political constituencies. With respect to infrastructure policy, this populism often took the familiar form of confusing project costs with benefits, such as championing the number of temporary construction jobs rather than the productivity improvements enabled by use of the completed project.

One notable group defending market-oriented conservatism is the Club for Growth Foundation, which in May released Freedom Forward, a “a pro-growth, limited government handbook for reigniting America’s economic engine.” They kindly invited me to write a chapter on reforming federal surface transportation policy, in which I argue for:

  • Restoring the users-pay principle and refocusing the federal-aid program on nationally significant projects;
  • Encouraging toll financing and public-private partnerships; and
  • Eliminating federal regulatory barriers that increase costs.

I begin by explaining the virtues of the users-pay/users-benefit principle, which has five main advantages over conventional general fund appropriations: fairness, proportionality, self-limiting funding, predictability, and signaling investment. I then note that while the modern federal-aid highway program was designed around this principle to construct the Interstate Highway System, decades of mission creep have eroded the connection between highway user taxes and the infrastructure these taxes support.

The cracks in users-pay began to appear following enactment of the Federal-Aid Highway Act of 1973, which allowed states to “flex” highway funds to mass transit projects. This transit diversion was made automatic in 1983 when Congress created the Mass Transit Account within the Highway Trust Fund. The transit account now accounts for 16.6% of trust fund outlays. Yet despite steadily increasing subsidies, transit’s national passenger travel market share has fallen from 2.5% of person-trips in 1983 to 1.5% in 2022.

The original Highway Account within the Highway Trust Fund has also suffered from a loss of focus. Since the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991, the first “post-Interstate” highway bill, the share of funding dedicated to traditional highway projects has declined. Route miles eligible for federal aid have increased, which coincided with the rise of “flexible” programs such as the Surface Transportation Block Grant program that have allowed an increasing share of Highway Account dollars to be repurposed to support non-highway projects. As a result, just 60% of Highway Account apportionments were dedicated to core highway performance and safety programs in fiscal year 2024.

Program mission creep isn’t the only problem. On the revenue side, growth in vehicle-miles traveled has slowed from 4.5% per year during the 1950s through the 1970s to just 0.8% over the last two decades. Passenger vehicles today require about half the amount of fuel to drive the same distance as they did in the mid-1970s. Federal per-gallon fuel excise tax rates were last increased in 1993.
Together, these factors have created a large structural deficit in the Highway Trust Fund that has led to $275 billion in general fund bailouts since 2008. This problem is expected to worsen, with the Congressional Budget Office forecasting a cumulative Highway Trust Fund deficit of $280 billion by the end of its baseline budget window in 2034.

This dismal outlook calls for rethinking federal surface transportation policy. If the Highway Trust Fund ceased funding non-Interstate highways, mass transit, highway safety, and similar programs, expected cash flow is likely to be sufficient to cover Interstate Highway System rehabilitation and reconstruction needs over the next two decades.

But this would not include capacity expansions to maintain and improve system performance, let alone broader National Highway System federal-aid funding, safety programs, and transportation research activities that many desire and can be justified under the users-pay principle. At current highway user tax rates, this gap between needs and revenues would be at least $10 billion per year.

Reforms to the federal-aid highway program should be paired with expanded financing options for states, which own and manage the network. To encourage needed investment and reduce risk to taxpayers, I argue that policymakers should remove barriers to road pricing and private-sector infrastructure development. Following the recommendations of a 2013 Reason Foundation study, Congress should eliminate the remaining restrictions on Interstate tolling. Existing financing tools, such as private activity bonds and TIFIA loans, should be modernized to support much greater project volumes.

Finally, regulations that needlessly increase construction costs should be eliminated. One example is Davis-Bacon Act prevailing wage requirements, which limit construction labor competition and are especially costly in states with low union density. Another is Buy America domestic content requirements, which limit competition for construction materials such as steel, iron, and now manufactured products—and explicitly allow for up to 25% cost increases.

As debate begins on the next surface transportation reauthorization due by Sept. 2026, free-market conservatives should embrace reforms that prioritize highway performance above political patronage. That efficiency lodestar should be coupled with a clear connection to the national interest, reorienting federal policy to promote interstate commerce and international trade. This was the topline message of my chapter for the Club for Growth Foundation’s new policy handbook, and I hope lawmakers will consider such an approach.

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California’s Flawed Induced Demand Calculator
By Baruch Feigenbaum

In 2019, the California Department of Transportation contracted with the University of California Davis to create an induced demand calculator. Statewide transportation agencies are now required to use the calculator whenever they plan a roadway widening, to determine the level of “induced” travel. Unfortunately, the calculator has two major problems: it fails to consider any positives of widening highways, and it lumps all highways in the state into a small number of categories and uses elasticities that are inaccurate for most roadways in those categories.

Induced demand has become a very popular—and misunderstood—transportation topic over the past 20 years. Induced demand in transportation occurs when a new transportation improvement causes a traveler to make an additional trip or to switch the time or mode of an existing trip. But induced demand is not limited to highways only. When Amtrak adds track, when the Washington Metropolitan Area Transportation Authority expands a heavy rail line, and when an airport builds a new runway, all of these lead to induced demand. Yet, with the possible exception of the runway, none lead to the same level of hand-wringing as a roadway widening. In fact, the intercity passenger rail and heavy-rail expansions are considered positives, regardless of any other factor.

And that is the first problem with California’s approach to highway widening and induced demand; it’s all about the negatives with no acknowledgment of the positives. New roadway capacity reduces congestion in the short-medium term. It leads to increased economic activity. It allows employees to be better matched with employers. New capacity can improve safety on some corridors. It can reduce greenhouse gas emissions by reducing the amount of stop-and-go traffic. It allows employees to work more convenient hours. It has quality-of-life advantages: parents can more easily pick up their children from daycare, and singles have a wider dating pool.

Yes, new widened roadways can become congested. Yes, these widenings can lead to more greenhouse gas emissions. Yes, they can induce sprawl. But the point is it’s a tradeoff. Any analysis that fails to weigh the positives and the negatives is not presenting an objective assessment.

The second problem is that the induced demand calculator is a blunt tool that greatly oversimplifies calculating a complex assessment. Here are the tool’s three biggest problems:

  • The calculator’s recommendations do not align with the research on which its assessments are based. The de-facto limited access highway elasticity is 1.0, meaning that vehicle miles traveled will increase at the same rate as lane miles. Yet the composite average of elasticity in the authors’ literature review is not close to 1.0. The two studies that had elasticities above 1.0, were not conducted in the U.S., limiting their relevance since the countries studied have very different land use patterns. (Land use and transportation are closely linked). The average elasticity for U.S. roadways studied over 10 years is 0.73. And the paper did not include several studies with a lower elasticity. A study by Mark Hansen showed an elasticity of 0.30 to 0.40 over 10 years. Two Chicago studies found elasticities of 0.07 and 0.11. There is a big difference between 0.73 and 1.0 and bigger difference between 0.11 and 1.0.
  • Using a blanket elasticity of 1.0 for freeways and 0.75 for major arterials is an oversimplification. Highways in exurban areas need to be treated differently from those in urban areas because, typically, more development and growth are occurring nearby. High-occupancy toll lanes and high-occupancy vehicle lanes are likely to have lower induced demand, but the calculator does not give those corridors a separate value. Current construction projects that may re-allocate traffic are not considered. New transit lines are not considered. Changes in demographic data such as more empty-nest households in an area are not considered. Ironically, the arterial elasticity numbers are based partly on work conducted by Prof. Robert Cervero (now retired) from the University of California at Berkeley. Cervero warned researchers not to use blanket numbers when calculating induced demand, which is exactly what this calculator does.
  • The travel shed needs to be more precise. With the calculator, limited-access highways use data from the entire region while primary arterials use data from only a local area. Both should use data from the region with a focus on roadways that feed them. It is vital to determine how much of the increase in traffic in an area is from a new subdivision and how much is induced from existing residents. But if the calculator cannot separate out data from that subdivision from travel of the region as a whole, it may be overemphasizing induced demand.

The authors made a few changes to the calculator in response to early feedback, but they didn’t fix the underlying problem. California should reject this calculator and require project sponsors to conduct a more detailed analysis (likely by hiring an engineering consultant) that conducts a least-squares regression analysis with dummy variables. It should include an endogeneity factor regression as well. The analysis should try to use a very long time series analysis (20-25 years) to better separate induced demand from other factors such as population growth. And most importantly, it should include a robust benefit-cost calculator analysis that looks at the costs and the benefits of widening highways.

The current tool is a gift to not-in-my-back-yard (NIMBY) types who oppose any roadway improvements. If California wants to reduce its population decline, this slanted approach is not going to help.

When I studied induced demand as my master’s project (mini-thesis) as a graduate student at Georgia Tech, my professors would never have let me graduate if I purported to find induced demand using the methods and locations of this tool. I expect PhD researchers’ standards of quality and rigor to be at least as high as those of graduate students.

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Maryland Seeks Proposals for Replacing Key Bridge

On May 31, the Maryland Transportation Authority (MDTA) released a Request for Proposals (RFP) inviting design-build teams to submit proposals to replace the Francis Scott Key Bridge and reconnect it to the I-695 Baltimore Beltway. The request said MDTA is planning on a progressive design-build process, under which the selected team would initially develop the project scope and requirements in collaboration with MDTA and project stakeholders. Thereafter, the private partner would have exclusive negotiating rights for the final design and construction of the new bridge. Progressive design-build is a relatively new approach for large transportation projects, so MDTA is taking on some risk in selecting this approach.

Left unanswered is the environmental process that will apply to the project, since it will not be building a duplicate of the original fracture-critical bridge but an entirely new design. If the project requires a full environmental impact statement (EIS) rather than a less-detailed Environmental Assessment (EA) or a categorical exclusion (CE), MDTA’s goal of the new bridge being completed and open to traffic by Fall 2028 would be a pipe-dream. A study by Michael Bennon and Devon Wilson of Stanford University, published in Environmental Law Reporter (Oct. 2023) found that 33% of the major bridge projects in a database maintained by the White House Council on Environmental Quality (CEQ) experienced litigation about their EIS by opponents, leading to a permit process duration averaging 7.5 years before the construction phase could begin.

Another unanswered question is whether tolls will be charged by MDTA on the replacement bridge, as was done on the original Key Bridge. With cost estimates in the $2 billion range and opposition from some members of Congress to having the federal government pay 100% of the new bridge’s cost, the case for at least partial toll financing of the new bridge should receive serious consideration. After all, Maryland shares some of the responsibility for the bridge’s collapse due to ignoring repeated warnings from the Baltimore Harbor Safety and Coordination Committee about the lack of meaningful protection of the bridge piers.

And if the replacement bridge will be tolled, then going beyond progressive design-build to a design/build/finance/operate/maintain (DBFOM) procurement would be worth considering—and might be proposed by some of the teams that respond to MDTA’s RFP. A long-term public-private partnership (P3) could include an initial progressive phase such as planned by MDTA. But it would also add significant risk transfer to the private partners of potential cost overruns and below-projection traffic and revenue. Plus it would guarantee long-term stewardship of the bridge, enforceable via provisions in the long-term P3 agreement.

It will be interesting to see if any of the responses to the RFP propose such an approach as an alternative to progressive design-build.

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Aftermath of TxDOT SH 288 Termination for Convenience

As discussed in the April issue of this newsletter, on March 28 the Texas Transportation Commission voted to exercise the “termination for convenience” provision in the 52-year public-private partnership concession for the State Highway 288 express toll lanes project. The state’s rationale is that the value of the project is higher than the amount it would have to pay to terminate the agreement, based on the formula in the agreement. Since then, the Texas Department of Transportation (TxDOT) and the company (Abertis) have been negotiating over whether there might be a compromise—but no news on that has been forthcoming.

My only prior knowledge of a U.S. highway P3 project that was terminated for convenience was the process that was followed for the world’s first express toll lanes project, on State Route 91 in Orange County, California. That process involved the selection by both parties of a third-party expert to estimate the net present value of the net toll revenue the P3 company would receive in the remaining years of the 35-year concession. That estimate was accepted as fair by both parties, despite being attacked by critics who seemed outraged because the amount was considerably more than the cost of building the new express toll lanes.

By contrast, the termination for convenience provision in the Texas SH 288 concession agreement calls for the amount to be the lesser of (1) the market value, accounting for project debt or (2) a set amount for each of the first 30 years of the agreement. In year 4 of the SH 288 concession, the lesser amount was $1.73 billion, which is what TxDOT expects to pay.

Michael Bennon, editor of Public Works Financing, the definitive newsletter on P3 infrastructure, provides some background on termination for convenience provisions in PWF’s May issue. It turns out that the SH 288 provision is far from typical. Bennon reports that some transportation concessions do not include such a provision (though I’ve always recommended including termination provisions for cause and also for convenience). The most typical provision Bennon finds is based on the concession’s market value at the time of termination, as estimated by a neutral third-party appraiser (as in the SR 91 example). Bennon cites as examples the I-77 express lanes in North Carolina and the I-495 concession in Virginia, while also noting that some concessions do not include such a provision (e.g., the Indiana Toll Road).

Interestingly, Bennon also finds that the North Tarrant Express concession in Texas “is calculated as the lesser of a fair market valuation and a second calculation based on a nominal post-tax equity return of 23%, along with some additional adjustments and limitations.” So the type of termination for convenience used in the SH 288 concession is not a statewide TxDOT policy; it might be unique to this one project.

Whatever the outcome of negotiations between Abertis and TxDOT over this proposed termination, the lesson for future design-build-finance-operate-maintain (DBFOM) P3 concessions is to avoid fixed dollar amounts in termination for convenience provisions. This is especially important for state transportation departments doing their first revenue-risk concessions, such as Georgia and Tennessee.

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There Is Still a Future for Petroleum

The final communique from the COP28 conference of the United Nations Framework Convention on Climate Change called on the world to contribute to a transition “away from fossil fuels in energy systems…accelerating action in this critical decade, so as to achieve net zero by 2050.” The March 16 issue of The Economist included a 12-page special report on the future of the oil industry, titled “The Long Goodbye.” Though the report projected the demise of the oil industry, one word was conspicuously absent from those 12 pages: petrochemicals.

According to the U.S. Energy Information Administration, petrochemicals account for 27.5% of U.S. petroleum consumption. A report from the International Energy Agency (IEA) explains that “petrochemicals are part of the fabric of our society.” Among the products in this category are fertilizers, clothing, detergents, packaging, digital devices, and many others, including solar panels, wind turbine blades, batteries, building insulation, and electric vehicle parts. Moreover, the IEA report projects surging demand for petrochemicals in the decades ahead, especially as developing countries like China, India, and Turkey continue to modernize. In fact, the IEA report states that “petrochemicals are rapidly becoming the largest driver of global oil demand.”

The IEA report also includes a “Clean Technology Scenario” for petrochemicals, suggesting “opportunities to mitigate air and water pollution, and the water demand associated with primary chemical production.” This would include measures such as carbon capture, utilization, and storage, as well as plastic recycling and reuse. But there is no suggestion that petrochemical production and use won’t continue increasing worldwide. Hence, the eventual phase-out of petroleum-based fuels does not mean the demise of the oil industry, despite The Economist’s misleading report.

A short video by entertainer Remy, titled “All Oil Everything,” illustrates everyday examples of petrochemicals in our lives.

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News Notes

Massive Georgia Express Toll Lanes Project Under Way
In mid-May, the Georgia State Transportation Board approved the use of P3 procurement for the I-285 East and I-285 West express toll lanes (ETL) projects. The two projects, estimated to cost $9.5 billion, will add two ETLs in each direction on the northern half of the I-285 ring road around Atlanta, known locally as the Perimeter. For I-285 East, the next step will be an industry forum, to be followed by a request for qualifications (RFQ). In March, Georgia DOT issued a request for information (RFI) on I-285 East. At least its first phase is planned to be procured as a long-term DBFOM revenue-risk P3.

AAA Finds Decreased Interest in Electric Vehicles
In a June 6 release headlined “Is the EV Hype Over?” AAA reports the result of its latest annual consumer survey on electric vehicles (EVs). Only 18% of U.S. adults said they would be “likely” or “very likely” to buy a new or used EV, down from 23% last year. The main concerns continued to be higher purchase price, high cost of battery repair/replacement, and not enough places to charge an EV. AAA research director Greg Brannon suggested that “a hybrid option may be a way to bridge the gap” between conventional vehicles and EVs.

Tennessee DOT Launches First of Four ETL P3 Projects
Tennessee announced last month that its first express toll lanes project, on I-24 between Nashville and Murfreesboro, will issue its RFQ before the end of the year, with the request for proposals likely in the second quarter of 2025 and the final RFP in the first quarter of 2026. The other three choice lanes projects are planned for I-65 between Nashville and I-840, on Moccasin Bend in Chattanooga, and on I-40 from its junction with I-75 to SR 158 west of downtown Knoxville.

$3.4 Billion P3 Ring Road for Lima, Peru
The April 29 edition of ENR reported the approval of a $3.4 billion design-build-finance-operate-maintain (DBFOM) project for a 22-mile ring road around Lima. It will have three toll lanes each way, with non-tolled Texas-style frontage lanes alongside. The P3 consortium is led by Cintra (35%), with Acciona and Sacyr each holding 32.5%. Construction costs will be shared between the government and the P3 entity, with toll revenues to pay for debt service and operating/maintenance costs. The concession term is for 30 years of operation. The project aims to dramatically reduce travel times between the many Lima suburbs, as well as provide the first limited-access highway between downtown and Lima’s airport and seaport. The ring road’s first section is planned to open in 2028, with final completion in 2034.

California I-80 Express Lanes Approved After All
The project to add express toll lanes to I-80 between Davis and Sacramento that faced cancellation over flawed calculations of “induced demand” (see the May issue of this newsletter) was approved unanimously by the California Transportation Commission (CTC) on May 16. Caltrans and the CTC disputed the findings of the California Air Resources Board, and CARB evidently accepted their arguments. Needless to say, environmental groups attacked CTC’s decision, saying “it will cause tremendous harm for decades to come.” For details on the disputed induced-demand calculator, see Baruch Feigenbaum’s article in this issue.

Public Pension Funds That Own Highways
Two Asia/Pacific governments are considering having public-employee pension funds acquire ownership stakes in existing toll roads. This is a relatively new idea in the Philippines, where the government is considering selling its 50% ownership of the Subic Clark-Tarlac Expressway to state-run pension funds, according to Infralogic (May 20), rather than to a P3 company. In Australia, where large pension funds have long invested in revenue-generating infrastructure, the Future Fund (managed by Queensland Investment Corporation) is expected to close a deal in June for a 19.8% stake in the EastLink motorway in Melbourne. That stake is currently held by the New Zealand Superannuation Fund and Nuveen (an arm of TIAA in the United States).

Tolled Ring Road Extension Under Way in Raleigh, NC
Last month, the North Carolina DOT and its Turnpike Authority broke ground on the final phase of the Complete 540 project, a toll road that will complete the Triangle Expressway as the outer loop for the greater Raleigh area. Phase 1 is nearing completion by this summer. The new Phase 2 will begin construction this spring with a projected opening date in 2028. When finished, Complete 540 will link seven cities along its 28 miles, extending the existing Triangle Expressway toll road.

Florida Toll Road Extension Approved Through Conservation Land
The Central Florida Expressway Authority (CFEA) last month received approval from the Florida Fish and Wildlife Commission to extend the Osceola Parkway toll road through conservation land. CFEA will purchase comparable land for the Commission and provide $43 million in compensation to the agency. The purchase will allow 1.3 miles of the nine-mile $800 million toll road extension to proceed. A similar deal enabled the construction of a segment of the Wekiva Parkway to be built on pylons through a conservation area north of Orlando several years ago.

Colorado ExpressToll Users Gain Interoperability
The transponder system used for electronic toll collection on nearly all tolled lanes in Colorado will soon be usable in neighboring Kansas, Oklahoma, and Texas. The agreement was negotiated by the E-470 toll road with the Central States Interoperability Hub. ExpressToll transponder customers from those states will be able to pay Colorado tolls, as part of the interoperability agreement. The Northwest Parkway toll road uses a different transponder, but plans call for adding it to the interoperability plan.

California High-Speed Rail Project Under New Scrutiny
Politico reported that Senate Commerce Committee ranking member Ted Cruz (R-TX) and House Transportation Committee chair Sam Graves (R-MO) have asked Transportation Secretary Pete Buttigieg for documents and a briefing to explain why federal funding is still being provided to the California high-speed rail project. In March, the California Legislative Analyst’s Office estimated that even after the recent $3 billion federal grant, the project’s unfunded shortfall is $80 billion. Just the first 170-mile leg between Merced and Bakersfield is now estimated to cost $35 billion, much of which has not been raised. And that segment’s completion date is now nine years away. That’s a far cry from the original 520-mile system from Los Angeles to San Francisco that was supposed to cost $33 billion and be operational by 2020.

Georgia DOT Gets Two Proposals for SR 400 Express Toll Lanes
Last month GDOT received proposals from the two pre-qualified P3 teams for the SR 400 Express Lanes project. The plan is to add two ETLs each way on the higher-traffic southern segment and one each way on the northern segment. Georgia Express Link Partners is led by Cintra, Macquarie, and John Laing. SR 400 Peach Partners is led by Acciona, Meridiam, and ACS Infrastructure.

A $3.6 Billion Toll Road P3 in Kenya
In what will be by far the largest toll-financed P3 toll road in Africa, Kenya’s government on May 29 announced a 440 kilometer tolled motorway between its two largest cities—Nairobi and Mombasa. The Usahihi Expressway will reduce the travel time between the two cities from 10 hours to 4.5 hours. Mombasa is Kenya’s largest port. According to news reports in construction media, the Kenya Highway Authority is working with U.S. infrastructure investment company Everstrong Capital. It says funding has been obtained from “international investors, development agencies, pension funds…and Kenyan private investors.” The P3 consortium will design, build, finance, operate, and maintain the toll road under a 30-year concession. The project was announced during a visit to the White House by Kenya President William Ruto on May 29.

New California Road User Charge Pilot Will Charge and Pay Drivers
Volunteers in California’s latest RUC pilot project will be charged actual per-mile tolls each month for the six-month duration of the project. Rather than offering them refunds on the state gasoline tax, they will continue to pay it during those six months, from Aug. 2024 to Jan. 2025. After completing surveys at the end of the project, they will receive payments of up to $400. Caltrans aims to recruit 800 participants for this RUC pilot project. 

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Quotable Quotes

“No government is more profligate than America’s. This year the world’s largest economy is projected to run a [federal] budget deficit (where spending exceeds taxation) of more than 7% of GDP—a level unheard of outside recession and wartime. But it is not the only spendthrift country…The Italian government believes it will soon be reprimanded by the EU for its [budgetary] stance. In Britain the Labour Party, which hopes to take power before long, promises fiscal rectitude. The French government has discussed cuts to health spending and unemployment benefits. America is the outlier. In the world’s leading economy, the conversation still has not turned. Ahead of the election, Donald Trump and Mr. Biden promise tax cuts for millions of voters. But fiscal logic is remorseless. Whether politicians like it or not, the era of free-spending governments will have to come to an end.”
—”Fantasy Economics,” The Economist, April 13, 2024

“University of Virginia economist Eric Leeper highlights three fiscal norms. One, established by Alexander Hamilton’s 1790 reports, is that budget deficits should be followed by budget surpluses (i.e., the government pays off its debts). The second is that ordinary spending should be paid for with taxes, while emergency spending can be paid with borrowed funds to be repaid later. The third is that austerity becomes necessary when interest payments on outstanding debt become a sufficiently large fraction of federal expenditures…While legislators have not abandoned the idea of repaying all debt, they are making decisions that will eventually make it much more difficult… A look at the debt-to-GDP ratio since 2008 shows an upward trajectory with no plans to return to pre-2008 levels…The fear is that eroding fiscal norms will change investors’ expectations about being repaid for government debt, something that comes with just about every bad economic consequence one can imagine. With federal debt equaling 100 percent of gross domestic product, most of it financed through short-term bonds, any interest rate hikes dramatically increase the budget deficit. This could affect the Fed’s ability and willingness to fight inflation with more rate hikes and further debt increases.”
—Veronique de Rugy, “Say No to This: America’s Fiscal Norms Are in Decline,” Creators.Com syndicated column, April 11, 2024  

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