International Perspectives on Road Pricing (2005)

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Setting the Stage

9Welcoming Remarks and Charge to the Conference Bob Oldakowski, Mayor of Key Biscayne Lowell Clary, Florida Department of Transportation Sherri Alston, Federal Highway Administration Robert E. Skinner, Jr., Transportation Research Board Martine Micozzi, Organisation for Economic Co-operation and Development Steve Heminger, Metropolitan Transportation Commission Participants were welcomed to Key Biscayne bythe Honorable Bob Oldakowski, Mayor of KeyBiscayne. He noted that the incorporation of Key Biscayne 12 years ago initiated a trend toward incor- poration throughout Dade County and created a greater sense of autonomy and accountability for local decisions and recognition of their impacts. In keeping with the principle of responsible and beneficial policy choices, he wished the symposium’s organizers and participants a successful conference. Lowell Clary, Assistant Secretary of the Florida Department of Transportation, placed the charge to the conference attendees in the context of Florida’s experi- ence. The state has an extensive network of toll roads. More recently it has been examining pricing not only as a means of raising needed revenue but also as a tool for meeting other policy objectives, including managing congestion, optimizing the network, and addressing an array of concerns regarding the distribution of costs and benefits of the transportation system. He indicated that the state and the nation would need to undertake an extensive study of the gasoline tax within the coming decade to examine whether it ought to remain the back- bone of the system for funding surface transportation investment or be supplanted by another mechanism for raising revenue. Given pricing’s capacity not only to raise revenue but also to address other policy objectives, he said he thought it likely that pricing already has and will retain an important place in the overall system for funding and managing the transportation network. Representing the Federal Highway Administration (FHWA), Sherri Alston described the congestion pric- ing pilot program established under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and continued as the value pricing pilot program under the Transportation Equity Act for the 21st Century. She noted that the pilot has brought pricing experi- ments to 36 projects in 15 states and is thus providing a wealth of information to help guide future policy decisions. She acknowledged several FHWA staff who had been particular leaders in the field, including Patrick DeCorla-Souza, and thanked them for their efforts in this area. Robert E. Skinner, Jr., Executive Director of the Trans- portation Research Board (TRB), referred conference attendees to a 2003 publication on megaprojects (Mega- Projects: The Changing Politics of Urban Public Invest- ment, Alan A. Altshuler and David Luberoff) and noted that one of the greatest challenges for jurisdictions under- taking these projects is to bring together diverse interests and develop a consensus concerning a common set of objectives and a plan for implementation. He noted that successful implementation of congestion pricing requires a similar harmonization of diverse interests and objectives, a short list of which includes the creation of new capacity, revenue generation, traffic calming, and environmental improvements. He said that he was pleased that TRB was revisiting the seminal Curbing Gridlock study and noted that the time is ripe for a fresh look at pricing. Finally, Martine Micozzi, representing the Organisa- tion for Economic Co-operation and Development, wel- comed the many participants who had traveled from overseas to attend this symposium. She noted that this conference had an especially high level of international

participation, with overseas participants representing 15 countries from Finland to Australia. She noted that broad participation and the resulting cross-fertilization between various nations’ experts on pricing would result in a much richer conference. Following these welcoming remarks, Steve Heminger, Executive Director, Metropolitan Transportation Com- mission, Oakland, California, and conference chair, pro- vided a brief overview of developments in road pricing since 1991. Starting with the U.S. experience, he noted that while ISTEA provided the first opportunity in the United States for limited experimentation with Interstate tolling and congestion pricing, most pricing successes have been in the area of high-occupancy toll (HOT) lanes, with projects under way in two California coun- ties and Houston, Texas. While the San Francisco area was one of the early entrants into the federal congestion pricing pilot program with a proposal to institute peak pricing on the San Francisco–Oakland Bay Bridge, that project stalled for political reasons by 1994. Today, New York City has been able to do what San Francisco could not, with higher peak-hour tolls in place on the Hudson River tunnels and bridges into Manhattan. The pricing provisions appearing in the Bush admin- istration’s proposal for reauthorizing the nation’s high- way and transit programs make incremental progress in a national policy that supports pricing, since they would allow local officials to institute HOT lanes anywhere on the Interstate highway system provided that the level of service is maintained for carpools and vanpools. Even in San Francisco, where officials have studied pricing without a single success, a HOT lane proposal for Inter- state 680 may finally prove to be a winner. These trends largely bear out the findings and recommendations of TRB’s Curbing Gridlock report, published in 1994, which concluded that road pricing was technically feasi- ble and would produce a net benefit to society but had uncertain political viability. Pricing seems to have fared better abroad, said Mr. Heminger. He named Singapore, Canada, France, the Netherlands, Norway, and England, with its exciting central London pricing project. It is also noteworthy that these applications generally involve “pure pricing,” under which every motorist pays a fee, as opposed to the “choice pricing” of U.S.-style HOT lanes or express lanes, under which motorists can avoid the fee if they choose the free, slower lanes. Providing the charge to the conference, Mr. Heminger called for a healthy exchange of ideas on all facets of road pricing, including technical feasibility, economic and social equity, and political viability. He concluded that the symposium provides an excellent opportunity for U.S. and international experts to learn from one another. He added, however, that in the area of pricing, the United States likely has far more to learn from abroad than vice versa. 1 0 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

1 1 Road Pricing in Context The Efficient Allocation of a Limited Resource Martin Wachs, Institute of Transportation Studies, University of California, Berkeley Anthony May, Institute for Transport Studies, University of Leeds The symposium began with two stage-setting pre-sentations on the past, present, and anticipatedfuture of road pricing. THEN AND NOW: THE EVOLUTION OF TRANSPORT PRICING AND WHERE WE ARE TODAY Martin Wachs Obviously road pricing is nothing new—it has been around for at least 80 years. But has it yet entered the mainstream? Not quite, but pricing is at a critical junc- ture in North America and the United States. In the United States, the first motor fuel tax was insti- tuted in 1918, in the state of Oregon. The legislature had preferred a toll-based system of finance, but at the time it was rejected because of the cost of constructing booths and collecting the tolls. So a practical limitation, rather than a policy-based one, dictated the starting point for our system of paying for road infrastructure. This prac- tical limitation has now been largely obviated by the advent of electronic tolling, which is one of several rea- sons for this being a watershed moment for congestion pricing. Another factor contributing to the current state of affairs concerns the long-term viability of the fuel tax as a means of financing transportation. Road pricing was first suggested by the economist A. C. Pigou in 1920 and was expanded on by Frank Knight in 1924. In the 1960s and 1970s, the economist William Vickrey built on Pigou’s and Knight’s work and became an advocate of applied congestion pricing. However, the proposal could gather no momentum because the need for a stable funding base was already answered by the existence of the fuel tax. This condition may be changing, however, as the fuel tax’s capacity to generate revenues gradually erodes because of climbing fuel efficiency and the reluctance of public offi- cials at all levels of government to raise fuel or other taxes. Another key factor that may support greater use of pricing as a tool for managing demand rather than expan- sion of road supply is the frequent and potent opposition to plans for increasing road capacity through new con- struction. Environmental concerns and sticker shock from the high cost of new construction are forcing a more serious look at strategies for wringing the most mobility from the road infrastructure already in place. In a way, the United States and Europe find them- selves in a sort of “back to the future” situation, with revenue shortages and a view of user fees as a reason- able and appropriate pricing system hearkening back to the 1920s. The salient difference is the availability of technology today to make the pricing system almost invisible to motorists. The ability to charge for road use without cumbersome toll plazas and attendant traffic slowdowns and, more important, to vary charges on the basis of congestion levels has finally made true demand- responsive variable pricing a practical possibility. Since the publication of Curbing Gridlock almost a decade ago, the United States and Europe have both pur- sued greater use of road pricing, but in quite different ways. In the United States facility pricing is most com- mon, and we see it in the congestion pricing applications

on California’s State Route 91 and Interstate 15. Some argue that many U.S. initiatives fall short of “true” con- gestion pricing in that they primarily add new options for motorists who choose to pay for premium service in lieu of establishing a consistent pricing system for all users. This approach, however, is consistent with and probably makes sense in the context of the decentralized trans- portation system in the United States. With the exception of older cities like New York and Boston, the United States does not have the same center city densities or geo- graphic limitations that make cordon-style area pricing feasible in Europe. While Europe’s experiments have included a few facility-based applications, it is more com- mon to find area pricing applications that target center city areas. These differing approaches in the United States and Europe will probably carry forward into the future. While we in the United States may well be on the brink of value pricing’s entry into the mainstream, we should continue to heed lessons learned to date on conditions for successful implementation. The presence of widespread benefits and narrowly defined costs is one important fac- tor for success. The proper use of revenue is essential to the public’s understanding of a pricing project’s impacts on equity, and dedication of at least a share of the revenue to public transport can counter the impact of road pricing on those with lower incomes. Finally, successful imple- mentation of pricing programs almost always depends on the assembly and mobilization of diverse groups with shared interests to join public officials in championing the approach. ONE STEP FORWARD, TWO STEPS BACK? AN OVERVIEW OF ROAD PRICING APPLICATIONS AND RESEARCH OUTSIDE THE UNITED STATES Anthony May Road pricing is indeed coming into its own, and as Marty Wachs says, we are at a key juncture in its evolu- tion. This is illustrated, in part, by evidence of more road pricing activity taking place in the past 10 years than altogether in the three decades before that. Thus, today, just 10 years after the Curbing Gridlock confer- ence, we are in a position to structure a symposium around not only theory but also practice. A review of European and Asian developments in road pricing since 1975, when Singapore established the world’s first area pricing system, reveals three major approaches: (a) urban applications through area pricing in center cities, (b) priced toll rings surrounding urban areas, and (c) distance-based pricing on intercity roads. A look at the projects that have been proposed and implemented in the past 10 years in each of these three categories can be instructive for where we are now and where we are going. • Area pricing. Singapore and London provide the oldest and newest examples of pricing entry into center cities. Despite London’s system being new, it has been in the making for decades. Indeed, the Smeed report, pub- lished in 1964, set forth many of the criteria for success that still hold true. Subsequent phases in the evolution of London’s consideration of road pricing included a “supplementary licensing” proposal in 1974; publica- tion in 1988 of a congestion pricing strategy; a govern- ment-commissioned study from 1992 through 1995 of various charging schemes; and, ultimately, in 1999, the act that gave London’s mayor the authority to establish a road charging system. • Toll rings. In contrast to the cordon-based sys- tems that charge fees for passage into a city center, tolls (to cross cordon) that encircle an urban center have taken hold in Norway. Tolls were introduced for the sole purpose of raising revenue and, as such, do not represent congestion pricing schemes but simply tolls. Norway is unique in that its system includes existing roads and charges at all entry points. While Norwegian officials are considering whether to con- vert to congestion pricing, it is doubtful that the cur- rent design can be adapted to demand management purposes. • Distance-based charging. Seeking to combat con- gestion on intercity routes, Austria, Germany, and Switzerland are developing and implementing pricing systems that address the number of kilometers logged on major motorways. To date, these systems focus on heavy goods vehicles, partly in response to the continu- ing growth in freight traffic following the development of the single European market. Thanks to technological developments, Germany’s system is currently shifting from a point-to-point assessment to a true distance- based pricing system. By the end of this year, the system will likely evolve from simple window stickers to the use of automatic vehicle identification through onboard units that will transmit the position of the vehicle, company and vehicle data, and the distance traveled on charged roads. Despite, or perhaps because of, the tremendous progress of the past decade, several areas are ripe for further research. I’d like to suggest four in particular. • Public acceptability, particularly with respect to the impact of the design of the particular pricing scheme on public opinion. One study found, for instance, that acceptance ratings for a proposed pricing scheme rose from 35% to 55% once the scheme included a commit- ment to dedicate the revenues to stated transportation uses rather than the general public coffer. • Continued examination of various road pricing schemes’ impacts on “vertical equity,” which refers to 1 2 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

impacts stratified by income group, and “horizontal equity,” which refers to impacts by geographic area and type of activity. • Pricing’s impacts on local economic conditions and land use patterns, for which there is little empirical evidence to date, in part due to measurement difficul- ties. While businesses tend to warn that pricing will pro- duce job and income losses, the limited evidence we have to date suggests only minor impacts. Further evi- dence to refute or corroborate businesses’ fears about road pricing would be most useful. • The role of certain design features in different types of pricing programs. For example, when point- based pricing is considered, it could be useful to exam- ine design features that may minimize diversion to alternative routes. Recent research in Edinburgh has shown a strong correlation between the benefits derived from pricing and the placement of charging points. 1 3ROAD PRICING IN CONTEXT