Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Thursday, December 31, 2015

Beginning to develop a framework for understanding the success and failure of toll road projects

The Washington Post reports ("95 Express Lanes mark first anniversary") that the first year of high occupancy toll Express Lanes on I-95 in Northern Virginia have been reasonably successful, with 37% of the users having incomes > $100,000, and 43% with incomes from $50,000 to $100,000.

HOT lanes are specially tolled lanes, usually funded and constructed by the private sector, in contract with those entities that run the freeway system.  Lanes are added but with tolls, with the expectation that the tolls pay for the road construction and operation of the new roadway, but the added capacity also facilitates throughput on the non-tolled lanes.

The HOV lanes on I-395, which continue northward from I-95 at the Springfield interchange are going to be converted to HOT lanes now as well ("Virginia to extend I-95/395 HOT lanes north to D.C. line," Washington Post).

Opponents who argue for untolled expansion, often pejoratively refer to HOT lanes as "Lexus Lanes," or roads for the rich.  (Note that the I-95 project was particularly controversial because lanes were added, but at the same time, the High Occupancy Vehicle lanes--which require that cars have three occupants--were converted into HOT lanes, although qualified HOVs can still use the lanes for no additional charge.)

But the Inter County Connector in Montgomery and Prince George's County, Maryland hasn't been particularly successful, and there are plenty of other "public-private partnership" ventures with other toll roads in the region and nationally which have, over the years, been in bankruptcy and changed operators as a result ("Are private toll roads a losing idea?," Reuters; "Pocahontas 895 toll road under a new operator," Richmond Times-Dispatch; "Dulles Greenway: Deal or no deal? As tolls keep rising...," Washington Business Journal; "State launches review of toll-road finances," Orange County Register).  Plus the I-95 HOT lane project north of Baltimore doesn't seem to be particularly successful either.

The bankruptcy of the Indiana Toll Road in particular got a lot of attention ("Australian company buys bankrupt Indiana Toll Road vendor," Chicago Tribune).

Tolls are always controversial because drivers believe they are already paying the full cost of roads. Toll proposals are always going to be controversial, as has been proven with the move to toll inbound I-66 in Northern Virginia ("State Approves I-66 Inside the Beltway Plan: Tolls Begin in 2017," Fairfax County) as well as in the Hampton Roads area and the expansion of the Midtown Tunnels there ("Virginia is getting soaked on Midtown Tunnel deal," Washington Post) because it contravenes the "spirit" of the "open road" and the fervent but incorrect (and vehement) belief that gasoline taxes fully cover the costs of road maintenance and expansion.

Even so, planning for more tolling, justified by the need to address demand expansion, limited funds and an unwillingness to raise gasoline taxes, continues apace (e.g., "Six new toll scenarios being considered for Hampton Roads," Norfolk Virginian-Pilot ) especially because Congress is unwilling to increase the federal gasoline excise tax even as revenues are eroded by inflation and improvements in vehicle efficiency.

The recent passage of the federal transportation bill is noteworthy for not raising the tax, which has remained the same for 23 years.

The Reuters piece ends with this paragraph:
The call for a national infrastructure bank must be balanced with an accounting of the successes and failures of this model of public asset control. America desperately needs infrastructure funding, but passing assets into private hands has produced many failures. That must be taken into account.
Thinking about all I've read on toll road projects, I'd argue that there are four types of road projects that tend to be built and only 1.5 of the types are likely to be financially successful in the short to intermediate term. That means a lot of projects will fail.

Partly the failures are a function of the political process (and the Growth Machine demand for access) when economic projections are "shaped" in order to support political-ideological positions, but aren't likely to be met in terms of financial success.

The four types of toll roads:

1.  Adding capacity to highly congested roadways serving large employment centers with highly paid jobs (I-95/I-395/I-66 in Northern Virginia).

2.  Adding more capacity to minimally congested roadways serving deconcentrated employment centers without a preponderance of high paying jobs (I-95 north of Baltimore).

3.  Building new roads to provide better connections or access  in areas that are developing when other sources of funding do not exist (Dulles Toll Road) with a great degree of latent demand and a set of concentrated origins and destinations.

4.  Building new roads to provide better connections or access to "new" areas for development when other sources of funding do not exist (Dulles Greenway, Inter County Connector, Pocahantas Parkway, Richmond) with limited latent demand and critical mass.  Usage may be seemingly large, such as in the case of the Dulles Greenway, with more than 45,000 daily users, but it isn't enough to pay off the financing.

A sign announces that the 73 toll road no longer take cash payments, but it doesn't say how much the toll is for drivers. Sam Gangwer, Orange County Register.

Category 1 projects tend to be successful, although often still experience financial difficulties because of the high upfront costs. Category 2 projects tend to fail.

In addition to vagaries in the cost of financing, the success of Category 3 projects over Category 4 projects is dependent on the relative population density of the area, a concentrated set of origins and destinations, and higher vs. lower income populations.  Mostly, Category 4 roads are built in advance of demand and when built by the private sector, can fall into bankruptcy, which contributes to escalating toll rates.

Dulles Toll Road is reasonably successful--it has funded, with a great deal of animus and a recognition of unfairness, a goodly amount of the Silver Line Metrorail project in Fairfax and Loudoun Counties in Virginia ("Washington Airports Authority control of Dulles Toll Road looking shaky over $325m misspend," TollRoads News).

The Dulles Greenway went into bankruptcy because it was built before there was much demand for its use.  Similarly, the Inter County Connector provides an alternative to I-495 and I-95, but has configuration issues and the area it serves isn't particularly dense.  Had it been funded and operated by the private sector, it may have gone into bankruptcy.

Category 4 projects are likely to fail, in that they enter bankruptcy.  Although this may be a feature, not a bug, in that it allows local governments then to buy the road at a price lower than it cost to construct the road in the first place.  When the roads are locally funded, they don't go into bankruptcy but do absorb larger shares of the highway budget than can be justified on the basis of use.

Not paying tolls as a form of resistance.  The Washington media was full of reports about the I-95 Express Lanes and their "going after" persistent nonpayers.
While some of the large bills due were in fact the result of system problems, according to the operator of the roads, Trans Urban, the vast majority of the people in Court over nonpayment persistently don't pay and have received many notices of this fact.  I wonder if their nonpayment is a form of "resistance," just like a demonstration. Also see "Since nixing booths, toll roads continue to struggle with unpaid tolls, deliberate violators," Orange County Register.

Privately operated toll roads tend to be operated better than non-toll freeways
. As discussed in the past blog entry "Town-city management: 'We are all asset managers now'," because privately operated toll roads are fee for service and governed by detailed contractual requirements, the roads tend to be managed and operated to higher standards than typical roadways.

Partly this is the result of managing the roadways in terms of maximum uptime, which means that the toll roads tend to have a much more robust approach to "incident management." Rather than letting traffic accidents fester, with incident management the aim is to clear the roadway as soon as possible, to facilitate throughput. Typically this is not a priority on freeways run by local and state departments of transportation.

History.  Before the 20th Century, most long distance roads were privately constructed and tolls were the way the builders got paid.

Turnpikes run by governmental authorities, such as the Ohio Turnpike, the Pennsylvania Turnpike, the Indiana Toll Road, the Garden State Parkway, New York Thruway, Massachusetts Turnpike and others, were the successors to these roads.  Tolls were justified because much of the traffic was "through traffic" not originating in the state, and people believed that the users should justifiably be charged for creating and operating the roadway.

When the Interstate Highway system was created, it was legislated to be "free," although pre-existing toll roads were included in the system without having to end their tolling programs.

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At 9:14 PM, Anonymous Alex B. said...

Don't conflate the deal structure for many of these projects with the actual tolling itself. They are often related, but still different concepts. There's a big difference between a toll road that fails and a toll road financing deal that fails.

And you've completely missed a big toll category: adding a toll to an existing road that is currently toll-free, using that toll to either manage demand or simply to raise revenue.

At 9:36 PM, Blogger Richard Layman said...

Good points. But financing deals usually fail because the demand didn't pan out. Isn't that by definition a failure of the road?

Although it is important that you point out that sometimes the financing is faulty independent of the projections and actual results of the road. E.g., even the I-95 project in NoVA had to be recapitalized, which TransUrban decided to do, whereas they walked about from the Pocahantas Parkway project when faced with similar circumstances.

2. Thank you for the fifth category. What examples come to mind from the US? I am not familiar with any. But I wouldn't claim that my knowledge base is a comprehensive as I'd like.

At 9:41 PM, Blogger Richard Layman said...

I guess with my question in point #2, I know of proposals to toll roads and bridges that are already existing, such as most of the ones in the cited Norfolk Virginian-Pilot article.

I guess we can add bridges to this category of course. I think there are examples of tolls being added ex post facto to bridges. But I am not familiar with tolls being added to US roads ex post facto/not planned for originally, specifically to raise revenue or manage demand.

any examples you have are eagerly appreciated.

At 6:17 AM, Blogger Richard Layman said...

in that moment of clarity in early morning wakefulness, I realized that:

1. You need to classify by type of facility: road; bridge/tunnel; and parking. (The previous entry didn't include parking, because it was focused on roads.)

2. Purpose of charge (revenue generation vs. demand management)

3. whether you are adding capacity to an existing facility or creating an entirely new facility.

4. reason for financing (to raise funds for construction of a specific facility, to use revenues for other purposes).

5. demographic and development conditions (e.g., new road for developing area vs. added capacity in developed area; low/medium/high income; concentration of destinations/employment centers).

At 6:57 AM, Anonymous Alex B. said...

"But financing deals usually fail because the demand didn't pan out. Isn't that by definition a failure of the road?"

Not really. Private investors have different expectations for a return on their investment than public sector 'investors' do.

The same road, with the same revenue, might be a 'failure' with private financing, but 'successful' with government financing (lower cost debt, lower expectation for a return, etc)

"But I am not familiar with tolls being added to US roads ex post facto/not planned for originally, specifically to raise revenue or manage demand.

any examples you have are eagerly appreciated."

Well, we have one right in our backyard - I-66 inside the beltway.

If it weren't illegal for interstates (HOV excepted), I think we'd see more of it.

At 7:12 AM, Blogger Richard Layman said...

Good points (as always), I mentioned I-66 in the post but seemed to have forgotten it in response.

more examples would be appreciated.

If we look at "tolling" as opposed to financing, then a "congestion zone" needs to be added as a fourth "facility", such as in Stockholm, Singapore, or London.

2 I don't imagine we'll see Congress change the rules on Interstates much, just as we aren't seeing a gas tax increase. But I believe you are right that we'd see more congestion based tolling systems on portions of Interstates in urban areas as a congestion management device.

I was in Orange County over the holidays and of course, SoCal is known "for traffic." There the main highways tend to have HOV-2 lanes. We were using such lanes. On one trip in particular it allowed us to avoid a lot of congestion.

But I couldn't help but be amazed how much traffic could be "eliminated" if only 1/5 or 1/4 or 1/3 of the cars had two occupants instead of one.

These are 4-6 lane roads in each direction.

3. since you have MN-WI connections, through some weird searches I did, I came across some interesting nuggets on "the Hearst Newspapers campaign to promote the creation of the Interstate Highway system," which predated Eisenhower becoming president (and the urban myth around Eisenhower and "why" the system was created; as you likely know, the system was approved in the mid-1940s but it was not until the Eisenhower presidency that it was funded).

On the day after the bill was signed, the Milwaukee Sentinel ran a bunch of articles and an editorial.,4050302&hl=en

At 9:05 AM, Anonymous charlie said...

In terms of finance , one of the peculiar features of toll roads in the US is their relation to muni bonds.

We've got a bit of problem is that the market for US mini bonds advantages is diminishing -- the number of people who would invest in a tax free bond is shrinking and better options exist if you have in money in a tax free pension account.

So the toll roads are a play to take advantage of a larger international market and also play to longer terms (100 year) than you can access via the muni market.

I'm thinking this is a real artifact of the zero bound, and probably won't last. IN 10 years not sure financing such projects will be worth the risk as you can see a lot of projects go bankrupt.

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