In this issue:
- Fitch proposes toll roads mutual fund
- Could London pricing work in Manhattan?
- Transit’s impact on congestion, revisited
- Another look at STPP’s transportation costs study
- HOT lanes in high gear
- Transportation finance conference
Fitch Suggests New Approach to Toll Road Financing
I recently came across a very interesting report from Fitch Ratings, one of the global firms that rate the credit quality of bond issues, including toll revenue bonds. Titled “Redefining Toll Roads: An American Challenge,” it came out back in March 2003 (www.fitchratings.com/corporate/reports/report.cfm?rpt_id=167828). After giving updates on a number of toll agency refinancings and restructurings, the report’s really interesting stuff begins on page 8, where the authors discuss “redefining the toll road financial toolbox.” Here they draw an important distinction between mature toll road systems (both urban and inter-urban), which can cross-subsidize new projects with revenues from well-established ones, and stand-alone, greenfield projects. Accurately projecting toll revenues during a toll road’s first 5 to 10 years is always difficult, however rosy its long-term prospects. So financing a stand-alone project is much riskier, as witness the troubled San Joaquin Hills Toll Road in California and the Santa Rosa Bridge in Florida.
This is one reason there is concern about one aspect of the proposed FAST lanes bill in Congress: the provision that calls for tolls to be removed at a future point in time. That would greatly reduce the ability to finance a system of FAST lanes, using revenues from older ones to jump-start new ones. If each FAST lane were a stand-alone, Greenfield project, many would be hard to finance, at least using the standard US-type toll revenue bond approach.
But here is where the Fitch report breaks some new ground. It highlights the quite different financing model used for the SR 125 toll road project, now under construction in San Diego. Instead of using 100% debt-with payments that must be made like clockwork, regardless of how early-years toll revenue is doing-its initial financing is a combination of bank loans and equity. That’s right: equity, as in ownership shares. Owner/developer Macquarie Infrastructure Group is essentially a global mutual fund that invests in toll roads in OECD countries. MIG shareholders expect a return on their investment, of course, but because MIG holds a portfolio of projects, some brand new, others relatively well-established, there is no pressure for immediate returns from start-ups like SR 125. That, plus bank loans that can be refinanced or repaid rather flexibly, gives this financing structure a very different nature than the typical 100%-bonds model, as Fitch notes.
The report goes on from there to suggest the advantages of a U.S. toll road infrastructure fund, aimed primarily at pension funds and insurance companies. Because Fitch expects that “the need for independently financed toll road projects will increase,” new financial tools such as this could be very valuable.
Could London’s Pricing Approach Work in Manhattan?
Just about everyone I know in transportation is impressed by London’s experiment with congestion pricing. Since last February, it has cost motorists the equivalent of $8 to enter an eight square mile zone in Central London that has been horribly congested. Traffic volumes within the zone have decreased by 16 percent, and travel times have noticeably increased. Most of those who formerly drove have shifted to mass transit.
The London results have been the topic of the year at transportation conferences, and mayors and city councils in a number of U.S. cities have expressed interest in whether an approach like this would work in their congested downtowns. When reporters have asked me this question, my general response has been: maybe in Manhattan, but probably not elsewhere. The reason is that only Manhattan has the density sufficient to justify the level of mass transit necessary to provide a viable alternative to driving. You can see how much of an outlier New York is compared with other cities by observing the 2000 commuting mode-share figures from the Census Bureau. In the overall NYC metro area, transit accounts for a whopping 25% of all commute trips – compared with just 9.5% in the San Francisco Bay Area, 9.4% in metro Washington, DC, 4.7% in greater Los Angeles, and 3.3% in greater Houston.
But when you look at the central business district figures that the relevance of London to Manhattan becomes even more striking. The Regional Plan Association last month published a study in which they assessed a congestion pricing system for Manhattan below 60th Street (see www.rpa.org/pdf/RPA_Congestion_Pricing_NY.pdf ). Their comparison of this area with the Central London pricing zone shows that both are about the same size, while the Manhattan zone has 70% more people. But the most striking figure is that 78% of commuters to this zone arrive by transit, not that different from the 85% who commute that way into the London zone (prior to pricing). Furthermore, because Manhattan is an island, RPA figures it would take only 19 entry points to charge all entering vehicles, compared with 174 such entry points in the London zone.
RPA modeled four scenarios:
1) Flat tolls added to the East River bridges, at the same rates as the currently tolled tunnels (but no tolls on crossing 60th Street);
2) Variable tolls on all bridges and tunnels (but no tolls to cross 60th St.);
3) Flat-rate entry tolls at all 19 entry points, like London.
4) Variable entry tolls at all 19 entry points.
These scenarios reduced AM peak traffic into the zone by 5%, 8%, 13%, and 17% respectively, leading to modest (1.5% to 4%) increases in the already high transit mode share. Interestingly, the first three scenarios all produced revenues in the $700-760 million per year range. But the fourth scenario produced a whopping $1.7 billion per year. As in London, the net revenues would be earmarked for transportation system improvements, RPA recommends. We could have many interesting debates on the best use of those revenues. But that’s a topic for another time.
How Much Impact Does Transit Have on Congestion?
Speaking of mass transit, several readers took issue with my critique, last issue, of the way the Texas Transportation Institute’s 2003 Urban Mobility Report estimated the reduction in traffic congestion due to the existence of mass transit systems. I noted that TTI’s methodology implicitly assumed that if the transit system did not exist, every one of those now riding transit would be on the road in an automobile. And to show the unreasonableness of this assumption, I cited a graph in the public transit chapter of the U.S. DOT’s 2002 Conditions & Performance Report showing that 68 percent of transit users did not have access to a car at the time the trip was made.
I plead guilty to missing a couple of key qualifiers in the DOT report. First, as I should have noticed, the data in the graph come from aggregating the results of case studies of 19 transit agencies, from small, medium, and large cities (and three large suburban areas) but “were not designed to be statistically representative of national transit use or trends.” Second, even if the 68% figure were nationally representative, that still represents a snapshot view; if transit systems were shut down, some fraction of those who currently choose not to own a car (perhaps because of nearby transit) would acquire one.
Another reader provided alternative figures on transit users without cars. The 2000 National Household Travel Survey (which is statistically representative) found that 44.6% of transit trips were taken by individuals whose household auto ownership is zero. And the latest Bureau of Transportation Statistics Omnibus survey (2003) found that 37% of transit users cited lack of an available car as their reason for using transit.
So I will concede that my commentary overstated the extent that TTI’s methodology exaggerated the effect that mass transit has on reducing congestion. But it’s still the case that it did overstate that impact. TTI has promised further work on its methodology, and that should be welcomed by everyone interested in urban transportation policy.
A Second Look at STPP’s Transportation Costs Study
I’m glad to see that I wasn’t the only one who was puzzled by a widely publicized report from the Surface Transportation Policy Project (STPP) last July. Titled “Transportation Costs and the American Dream,” it used Bureau of Labor Statistics figures on household expenditures to show how spending on transportation varied among 28 metro areas (www.stpp.org/report.asp?id=224). The results showed that households spent the most (both in dollars and as a percentage of their budgets) in places like Tampa, Phoenix, and Dallas and the least in places like Portland, Washington, DC, and New York, leading STPP to conclude (no surprise) that urban sprawl is a costly way to live.
Randal O’Toole quickly pointed out one problem with this conclusion. The cities where people spent less out of pocket are mostly ones with a higher transit mode share. But since the cost of mass transit is highly subsidized, what shows up in people’s out-of-pocket spending is a small fraction of the true cost borne by the area’s taxpayers. So the rankings are misleading on that score.
But leaving that aside, another critique came a bit later from Steve Polzin, director of the Center for Urban Transportation at the University of South Florida. In an article in the Sept. 5, 2003 issue of The Urban Transportation Monitor, Polzin noted that a household’s cost of transportation includes not just what it spends in dollars but also what it spends in travel time. You may only spend a dollar to ride the light rail, but if it takes you twice as long to get there, that’s a real cost, too. So he obtained data on annual hours spent in local transportation, valued them at one-half the hourly wage rate, and added them to the out-of-pocket spending figures (link here). As he notes in the article, the rankings shift dramatically after this adjustment. Although Dallas remains high on the list, now San Francisco, New York, Los Angeles, and Chicago all move into the top five most expensive, with places like Tampa and Kansas City now near the bottom.
The point is not that one type of urban form is “better” than another; it’s just that one can have a lot of “fun with numbers,” as Polzin puts it. “Perhaps,” he adds, “it is time for rigorous statistical analysis” on these types of issues.
This past year seems to have been when everything started to gell for HOT lanes. As I told a reporter earlier this week, it seems to be the combination of the impressive results from the I-15 and SR 91 projects in California becoming far more widely known and the severe shortage of funds for highway infrastructure improvements. The net result is that more and more HOT lanes projects are moving from being just ideas into serious feasibility studies, unsolicited private-sector proposals, and decisions to go forward with implementation. My colleague and co-author Ken Orski recently published an excellent round-up of HOT lanes developments and you can find it at his Innovation Briefs website: www.innobriefs.com/editor/20031222newshotlane.html.
In addition, Ken and I have been doing our part in the form of presentations. In the past few months Ken has made presentations before the Greater Washington (DC) Board of Trade, Maryland Gov. Ehrlich’s Transportation Task Force, the Montgomery County Council, and the Fairfax County Chamber of Commerce. I presented HOT Networks at the TRB/OECD International Road Pricing Conference in Key Biscayne and again at a one-day Discovery Institute conference on Tolls, Technology, and Transportation in Seattle.
Transportation Finance Summit in March
Mark your calendar for March 4-6 and Washington, DC. That’s when and where the International Bridge, Tunnel and Turnpike Association is presenting its Transportation Finance Summit at the Grant Hyatt Washington. An impressive array of speakers, both domestic and from overseas, will discuss an array of highway financing tools. I’m one of the speakers, but I’d be there in any case, given the great line-up of talent and expertise that IBTTA has assembled. Reason Foundation is one of the co-sponsors, along with the American Public Works Association, American Road & Transportation Builders Association, the Eno Transportation Foundation, and others. For more information, and to register on-line, go to: http://ibtta.techriver.net/website/article.asp?id=247#.