Surface Transportation Innovations Newsletter

Surface Transportation Innovations #9

Topics include: the social welfare impact of HOT lanes, the emerging consensus for priced lanes in reauthorization, Battelle on innovative contracting, and a new approach for toll-road financing.

In this issue:

HOT Lanes Are a Good Deal, Concludes Resources for the Future

Who would win and who would lose if the existing HOV lanes on a metro area’s freeway system were converted to HOT lanes? This question has been much debated, but because there have been so few real HOT lanes, and each is a single facility, there has been more heat than light in this debate. But now Elena Safirova and colleagues at RFF have advanced the debate considerably. They modeled the conversion of all the existing HOV facilities in the Washington, DC metro area to HOT lanes, using the Washington-START model, which simulates travel on the region’s entire roadway network. Their transportation findings were hardly surprising: significant numbers of SOV drivers opt to pay the 20-cent/mile toll to use the HOT lanes, reducing congestion in the general-purpose lanes even though some drivers return to the freeways from side roads.

But the really interesting findings are the estimated social welfare changes. Overall, they estimate net welfare gains to society from this policy change (from HOV to HOT) of $86 million/year; that’s the sum of $40 million in new toll revenues plus $46 million in time savings for travelers. When they break this down by income quartile, they find that every group has net welfare gains-i.e., the benefits to each quartile exceed what that quartile pays in tolls. The researchers conclude that even if the toll revenue were not spent on transportation or on redistribution (for equity purposes), “this HOT lane policy would still provide a welfare improvement for all income groups, so there are no losers when the welfare effects of the policy are disaggregated by income groups.” [Elena Safirova, Kenneth Gillingham, Winston Harrington, and Peter Nelson, “Are HOT Lanes a hot deal? Analyzing the potential of HOV to HOT Lanes conversion in Northern Virginia,” Resources for the Future, Issue Brief, March 2003.]

Note: In a longer and not yet published report on this modeling exercise, the same team (plus David Mason) also model two variants of converting all freeway lanes to priced lanes. But here they find that the non-HOT lane pricing strategies actually make many travelers worse off-i.e., what they pay is greater than the value of the benefits they receive. Hence, they conclude, “[O]ur results suggest a potentially strong case on the grounds of efficiency, equity, and political feasibility for converting existing HOV lanes into HOT lanes . . . .An initial jump towards more comprehensive pricing raises some troublesome issues on equity and practical grounds.” Thus, it would appear that the much-maligned “Lexus Lanes” are actually a more equitable approach than generalized congestion pricing.

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Broad Support Building Up for Priced Lanes

FAST Lanes, HOT Lanes, and Toll Truckways are all examples of the same general principle: specialized lanes, aimed at better service for a particular subset of highway users, who pay a toll to gain access to that better service. And the last few months have seen growing support for these ideas, as Congress begins consideration of the specifics of reauthorizing the federal surface transportation program.

That was certainly the theme of a May 6 hearing of the Joint Economic Committee. Rep. Mark Kennedy presented his FAST Lanes proposal (HR.1767, and a companion Senate bill introduced by Sen. Wayne Allard), and I explained Reason Foundation’s proposal for HOT Networks. Other presenters included Rob Atkinson of the Progressive Policy Institute (who endorsed both HOT lanes and Toll Truckways), Bill Buechner of the American Road & Transportation Builders Association (who supported tolled truck lanes), and Michael Replogle of Environmental Defense (who supported HOT lanes, with some conditions).

HOT lanes received another round of support at a June 4 conference on value pricing for the metropolitan Washington, DC region. Over 200 transportation experts took part, with HOT lanes becoming the major theme. HOT lanes have recently picked up support from the American Highway Users Alliance, whose reauthorization issue brief, “Keeping the Trust in the Highway Trust Fund,” endorses the concept, as long as use of the lanes is voluntary and toll revenues are used to finance additional highway capacity. HOT lanes have also been endorsed by Sen. James Inhofe, chairman of the Senate Environment & Public Works Committee.

Toll truck lanes have won the support not only of ARTBA but also of the Transportation Construction Coalition, representing 28 trade associations and construction unions, and co-chaired by ARTBA and the Associated General Contractors. And FAST Lanes-toll-funded lanes added to congested Interstate routes (which could include both HOT lanes and toll truck lanes) have recently been endorsed by both AHUA and the 350,000-member National Taxpayers Union.

The latter suggests a possible compromise on the thorny issue of a major increase in federal fuel taxes. The two extremes have been staked out by the Bush Administration and taxpayer groups (no increase) and the highway groups (major increase, based on several studies showing unmet highway investment needs). A compromise position that acknowledges the investment need but does not break faith with no-tax-increase pledges would be to index the fuel tax for inflation (not an increase, just holding constant in real terms) plus provide maximum scope for tolls and public-private partnerships to close the funding gap. While there is no organized effort to forge such a position as yet, all the pieces are in place for this to be a plausible outcome.

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Battelle Report Backs Contracting Innovations

Traditional highway construction contracts are awarded in a two-step process. First, either the state DOT or an outside firm does the design. Then, a competition is held for a construction contractor, who is selected on the basis of the lowest price to get the project built. There are two serious problems with this process. First, by completely separating design from construction, the project may end up with a design that is not easy to build, resulting in numerous costly and time-consuming change-orders during construction. Second, by focusing solely on initial cost, the DOT may end up with a highway that costs a fortune to maintain-which could have been avoided by paying somewhat more up-front for a more durable design.

Innovative contracting is the general term for non-traditional ways of getting highways (and other public works) built without these problems. Because techniques like design-build and pavement warranties are new and different, they have encountered a lot of resistance, both within DOTs and in parts of the construction industry. But now comes a new report from well-respected Battelle that seeks to provide policy-makers with useful information on how these techniques are working out in practice. Performance Contracting for the Highway Construction Industry was issued in February 2003 by Battelle. You can find it on-line at The researchers combed the country (and the world) for data on real-world experience with warranties, design-build, cost-plus-time bidding, and lane rental in highway construction (as well as some examples in non-highway construction). The results are quite positive for all the innovative techniques.

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HOT Networks Speaking Engagements

The requests keep coming in for presentations on HOT Networks. On May 29 and 30 I made two such presentations in Atlanta, the first for ITS-Georgia and the second for the Georgia Public Policy Foundation. Both were well-attended, with people from the Atlanta Regional Commission, the Georgia Regional Transportation Authority, MARTA, the State Road & Tollway Authority, and the business community. Judging by the Q&A periods, the concept seemed to be striking a responsive chord.

Next week, in addition to taking part in a panel on the future of toll technology at the International Bridge, Tunnel & Turnpike Association’s technology conference, I will be one of the presenters at a value-pricing luncheon briefing for congressional staff, in the Rayburn House Office Building. And at the end of the week, I’ll be presenting HOT Networks before about 500 people assembled by the Metropolitan Transportation Commission of the San Francisco Bay Area to discuss the revision of their long-range transportation plan. HOT Networks will also be part of my presentation on road pricing at an invitation-only conference on traffic congestion issues in Washington, DC, organized by UCLA Extension’s Public Policy Program and co-sponsored by about a dozen organizations, June 26-27. And I’m also on the agenda for the pricing workshop taking place in Portland July 14-15 as part of the TRB Joint Subcommittee on Pricing’s summer meeting. So the idea is definitely getting exposure.

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New Approach for Toll Road Financing

As one of those who helped introduce the European model of build-operate-transfer (BOT) franchises to American highways, I’ve been troubled by the slow uptake of the idea in this country, while it is flourishing in Europe, Latin America, and Australia. I’ve summarized my thoughts on why things are so different here-and what policy changes would make this model more viable in America. Those thoughts were published as my April column in Public Works Financing, and are attached to this newsletter. (If the attachment somehow did not make it, email me and I’ll send you a copy.) I’d be interested in your feedback on my suggested changes.

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