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March 15, 2013

Congestion Pricing and the Proposed Elgin O’Hare Western Access Project

The Elgin O'Hare Western Access (EOWA) project is on a short list of fiscally-constrained major capital projects identified in GO TO 2040. It includes three main components:

  1. Reconstructing the existing Elgin O'Hare Expressway and adding an additional lane in each direction.
  2. Extending the Elgin O'Hare Expressway from I-290/IL 53 along Thorndale Avenue to the western edge of O'Hare International Airport.
  3. Adding an expressway around the western side of O'Hare.

The U.S. Department of Transportation gave its final approval for the Elgin O'Hare Western Access project on January 24, 2013, allowing the project to proceed to construction. Construction on the first two components is expected to begin this year. The project will improve travel times for drivers in a large swath of the Chicago region and provide a link to O'Hare from the west.

As part of the Illinois Tollway's current capital program, Move Illinois, $3.1 billion of the total $3.4 billion cost of the EOWA will be covered by toll revenues, leaving a $300 million funding gap. Local officials have been exploring ways to close this gap through other revenue sources. One means is "congestion pricing," in which toll rates rise at times when demand is high and fall when demand is low. CMAP advocates congestion pricing to manage traffic, giving drivers travel times that are quicker and more reliable than with flat tolling. While the main purpose is to ease traffic flow, congestion pricing would generate some additional revenue.

Additional Revenues from Congestion Pricing
The Tollway has planned for a flat toll rate of approximately 20 cents per mile for passenger cars. While appropriate for recovering the costs of building the road, from a broader perspective this flat toll undercharges drivers during peak periods and overcharges them during off-peak periods. In a recent study, CMAP estimated that an average toll rate of about 25 cents per mile would be needed to keep traffic flowing freely on the EOWA during the morning peak period, although rates on specific segments could be higher or lower. While tolls would decrease during off-peak periods, CMAP estimated that allowing tolls to vary on all lanes could yield an additional $16 million in gross annual revenues (in 2012 dollars) while keeping traffic flowing freely. Using different assumptions, the Elgin-O'Hare West Bypass Advisory Council also investigated congestion pricing, finding that it could generate an additional $5 million in the first year and $23 million by 2030 (in 2010 dollars).

Examples Elsewhere in the United States
The Intercounty Connector in Maryland is a recently built road that uses variable tolling on all lanes. A published toll schedule shows toll rates by time of day, and rates are higher during morning and evening rush hours, lower in the middle of the day, and much lower overnight. A simpler system is used by the Dulles Greenway in Virginia, a privately operated 14-mile toll road with of a base toll plus a congestion management charge during peak periods. The New Jersey Turnpike, by contrast, has a discount for off-peak travel, not a higher price during congested periods. Although the distinction is mostly semantic, it does call attention to an important point: To assure high travel speeds, the toll rate during peak periods has to be high enough that drivers respond to it. In other words, the off-peak toll would need to be discounted from a toll that is effective at managing traffic during the peak.

The additional revenues from congestion pricing could play an important role in filling the $300 million funding gap for the Elgin O'Hare Western Access project. Bonding off the congestion pricing revenues could cover approximately one-third of the construction funding gap, assuming an interest rate of 6 percent, a 25-year bond term, and a debt coverage ratio of 2.0. The Blue Ribbon Advisory Council for the Illinois 53/120 project similarly recommended using congestion pricing revenues to support the construction of that road. Furthermore, the Northwest Municipal Conference recently passed a resolution supporting the use of congestion pricing on the EOWA.

Because the funding gap on the EOWA is mostly for improvements to the approach roads and interchanges, the Tollway would need to agree to devote the revenues from congestion pricing for those purposes. Using congestion pricing revenues for such projects within the corridor is a typical practice in other metro regions, as discussed in a separate Policy Update.

Finally, CMAP's analysis suggests that, to manage congestion, the toll rate during the peaks needs to be higher than 20 cents per mile on the EOWA. The toll rate could then be decreased during off-peak periods. Variable tolling can readily be done according to a published schedule, and there are many examples of toll roads operated like this in the U.S.