March 7, 2013
With congestion pricing, toll rates in express lanes rise at times when more drivers want to use the highway, then tolls fall when demand is low. The simple logic of supply and demand can help to manage highway resources more effectively: Drivers will choose to enter or leave the express toll lanes based on the variable cost. As described in CMAP's congestion pricing campaign, a growing number of metropolitan areas across the country have implemented this strategy. In addition to managing traffic, it often generates at least some additional revenue, and a basic question is how that revenue should be invested.
After assessing how other regions use congestion pricing revenues, this Policy Update concludes with guidance on how the Chicago region should approach the issue. It is important to underscore that these findings reinforce why the primary aim of congestion pricing is to manage traffic, not raise revenues. Nevertheless, such projects generally pay for their own operations, and net revenues can help support transit, carpool, and sometimes help pay for roadway construction.
Basic uses of revenue
All operating facilities in the U.S. devote the first portion of their revenues to the maintenance and operations of the priced lanes. The traffic monitoring, tolling, enforcement, incident management, administration, and routine maintenance costs can be significant, for example reaching $8.2 million in FY 2011 for the I-95 Express Lanes facility in Miami. Some facilities, such as those in Houston, Salt Lake City, and Seattle, only devote their revenues to covering operations and maintenance costs.
Other facilities also devote toll revenues to repay upfront construction costs or to provide debt service payments (e.g., SR 91 in Orange County). Some of these facilities were originally developed as public-private partnerships (PPPs), and the excess revenues are used to help recoup initial capital costs for the private concessionaire. Examples of PPPs include the recently opened I-495 Express Lanes in the Virginia, as well as several facilities under construction in Florida (e.g., I-595 Express) and Texas (e.g., North Tarrant Express and I-635 Managed HOV Lanes).
The role of legislation
In several states, the legislation that authorizes congestion pricing also defines how "excess" revenues -- those above and beyond the construction, operations, and maintenance costs -- can be used. These laws typically require net revenues to be spent in the same corridor in which they were collected, usually on highway, carpool, and transit improvements.
In Minnesota, state law requires half of excess revenues to support capital improvements and another half to support improved bus service. In California, state law authorizing projects in Alameda County, San Diego, and Santa Clara County requires net toll revenues to be spent on carpool facilities and improved transit service; also, net revenues on SR 91 can be applied to various highway and transit improvements in a statutorily-defined corridor as planned by county transportation agencies. The I-15 FasTrak lanes in San Diego help fund the Inland Breeze bus service, totaling $500,000 in FY 2012.
Even if congestion pricing does not provide direct funding for transit service, express toll lanes can still support transit service by providing bus access to an uncongested lane. This allows transit users to also benefit from the travel time savings offered by express toll lanes. A recent study (see Table 3, page 18) demonstrates the scores of bus routes that take advantage of congestion-priced lanes across the country, as well as ridership and subsidy data.
Funding gaps exist for several of the GO TO 2040 projects for which CMAP studied the benefits of congestion pricing. Net revenues from congestion pricing on each of these projects, even if small, would need to be put toward that project's construction costs. On the Elgin-O'Hare Western Access (the subject of an upcoming Policy Update) and the north extension of Illinois Route 53, these revenues could make meaningful contributions to closing the funding gaps. If all lanes on these two highways were congestion-priced rather than just one lane, the costs of separating the lanes and additional enforcement would be minimized, improving the bottom line.
On projects where sufficient funding has been identified, congestion pricing has a double benefit. First, it directly helps manage traffic by smoothing out travel demand during peak periods. Second, net revenues could be invested in other ways to manage traffic in the corridor, like transit improvements. Legislation could be enacted to specify how net revenues would be used, but revenue sharing could potentially be done by board resolution (e.g., the Illinois Tollway) or simply by interagency agreements (e.g., between highway and transit operators).