Interstate Tolling: Why and How by Robert W. Poole, Jr. Director of Transportation Policy Reason Foundation

Why the new interest in tolling? Large and growing highway funding shortfall; Vehicle miles traveled increasing at least 10X as fast as highway lane-miles; Little or no political will to increase fuel tax rates; Surveys show people prefer tolling to tax increases, for new roadways.

Interstate funding shortfall Annual totalShortfall Current $16.5B -- Sustain $24.8B$ 8.3B/yr Improve (B/C>1.5) $39.0B$22.5B/yr Source: FHWA 2008 C&P Report, 2006 $

Interstate system investment needs Rebuild 233 interchange bottlenecks: $128B Add HOT networks in 19 most- congested metro areas:$139B Reconstruct and modernize long-haul Interstates, starting with key truck routes: $1-2 trillion?

Advantages of tolls over gas taxes Tailored to the cost of each road Fairness: those who benefit pay Self-limiting: roads only Source for adding capacity when needed Ensures long-term maintenance Can be used to control congestion

Advantages of gas tax Lower cost of collection

21 st -century tolling Permanent funding source No toll booths; all-electronic Variable rates (if congestion) Inflation-adjusted No impact on state bond rating Highways as network utility; tolls as utility bills.

Political feasibility? NCHRP Synthesis 377, public opinion & tolling: Public wants to see value Public prefers tangible rationales Public cares about use of revenues Public learns from experience Public uses knowledge & information Public believes in equity and fairness Public wants simplicity Public favors tolls if the alternative is taxes.

Value-added tolling principle Don’t put tolls on “existing” highways. Do use tolls where you add value for highway customers: New highway Major capacity additions Major reconstruction A reconstructed highway is not “existing capacity.”

Wisconsin Interstates tolling study (value-added tolling) $26B cost to reconstruct and modernize 743- mile system. Assumed baseline toll rates of 5¢/mi. for cars and 20¢/mi. for trucks. Rural Interstates: NPV of revenue =110% of NPV of costs Urban Interstates: NPV of revenue = 71% of NPV of costs.

Urban Typical Sections for Scenario 3 Rural Typical Sections for Scenarios 3 and 4 (Also used for HPV configuration analysis)

Needed expansion of federal tolling pilot programs Remove limits on number of new and reconstructed Interstates with toll finance. Remove limits on number of states or projects in Value Pricing and Express Lanes programs. Retain current limits on use of toll revenues (supported by highway user groups).

Why public-private partnerships (PPPs)? Especially suited to major projects (mega- projects) Significant risk transfer to concession firm: Construction risk Completion risk Traffic & revenue risk Incentive to design to minimize life-cycle cost, not initial cost Proper maintenance assured, long-term Growing U.S. as well as global track record.

Track record of PABs and TIFIA loans on PPP toll projects Four tolled mega-projects financed during credit-crunch years: Capital Beltway (VA):June 2008$1.9 billion I-595 (FL):March 2009 $1.6 billion N. Tarrant Express (TX)Dec. 2009$2.1 billion LBJ I-635 (TX)June 2010$2.8 billion Total:$8.4 billion

Expanded PPP tools for state DOTs TIFIA Large funding increase to $1B/year (budget scoring is only 10% of amount loaned) Remove new “livability” criteria Retain 1/3 maximum and need for investment- grade rating. PABs Remove the $15 billion cap. FHWA Office of Innovative Program Delivery Make it a clearinghouse for best practices for tolling and PPPs.

Conclusions We need a large increase in highway investment to reconstruct the Interstates. Tolling is a better user fee than fuel taxes. Value-added tolling is politically feasible. Reconstruction is not “tolling existing Interstates.” Congress should open the door to expanded tolling, in the reauthorization bill.

Questions? Contact information:

Frequently asked questions 1.Isn’t tolling “paying twice? Not if project can’t be afforded via fuel taxes. 2.Isn’t a toll the same as a tax? Not if it’s a true user fee, used only for the toll project. 3.When do the tolls come off? Never. Will be needed for proper maintenance and eventual reconstruction.