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International Perspectives on Road Pricing (2005)

Chapter: Special Topics

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Suggested Citation:"Special Topics." National Academies of Sciences, Engineering, and Medicine. 2005. International Perspectives on Road Pricing. Washington, DC: The National Academies Press. doi: 10.17226/13667.
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Special Topics

2 1 Ah, the Politics of Pricing Eric Schreffler, ESTC, San Diego, California John Albion, Lee County, Florida Jan A. Martinsen, Norwegian Public Roads Administration HOW POLITICS AFFECTS EVEN GOOD PROJECTS Eric Schreffler As part of the federally sponsored evaluation of the Interstate 15 Value Pricing Demonstration Project, ESTC prepared the institutional assessment, which involved interviews with some 40 stakeholders over the 3-year pilot project. Among other lessons learned, this review provides an interesting insight into how politi- cally driven decisions concerning the use of revenue can lead to reasonably good but less than optimal results. Jan Goldsmith, Mayor of the city of Poway, Califor- nia, and the political champion behind the project, enabled the San Diego Association of Governments to move the dynamic pricing concept from idea to reality. His support for pricing grew out of his support for a monorail or other high-capacity transit service to solve traffic congestion problems on the main arterial in Poway as well as for expansion of the light rail system into the I-15 corridor. When planners told him that the demand did not exist for this type of service, he embraced the pricing concept as a way to pay for new transit service in the corridor. After moving on to become a state assemblyman, he sponsored the enabling legislation to allow tolls in the I-15 high- occupancy vehicle (HOV) lanes, which were effectively turned into into high-occupancy toll (HOT) lanes. To ensure that the funds would support the new bus ser- vice along the corridor, the legislation limited the use of the revenue to transit capital and operating and HOV facility improvements. The evaluation of the pricing project showed that it improved the efficiency of the facility, did not seem to hurt carpooling, and cross-subsidized new transit ser- vice. However, the I-15 corridor bus service that pro- vided much of the political support for the HOT lane approach did not necessarily fulfill expectations. The intent was to attract new bus riders in the corridor in order to remove cars from I-15. Instead, the new bus service attracted reverse commuters and riders who did not switch from driving alone. The service was split into two routes, one a new commuter express service that now attracts about 130,000 annual boardings. How could the revenue have been spent to better fit the project goals and address congestion in the corri- dor? One promising alternative to subsidizing the oper- ation of new bus service would be to provide a direct subsidy to the users of any alternative mode, including carpooling, vanpooling, bus, and teleworking. This would increase occupancy in the HOV lanes, which is still the primary purpose of the facility. The revenue could be used for general HOV marketing and to sup- port commute alternatives, such as the county com- muter express services. Use of the revenue solely for new transit service may have been a case where opportunity became expectation. I-15 is widely accepted as a U.S. pricing success story, and properly so. The success is clearly due in part to the presence of a champion in Jan Goldsmith. However, could the project have been even more successful? Per- haps, had the revenue been used to subsidize all alterna- tive modes rather than just a new service that did not meet many of its expectations.

THE BRIDGES OF LEE COUNTY, FLORIDA John Albion Lee County is one of Florida’s most populous counties and home to several fine examples of value pricing. Several bridges in the county have had tolls in place for years, but gradually we have been developing policies under which the county uses targeted discounts to achieve demand management objectives. Two bridges are in play—the Cape Coral Bridge and the Midpoint Memorial Bridge. One of the key objectives was to encourage greater use of electronic tolling, and thus at nonpeak times drivers get a 50% discount if they use a transponder and pass. Upcoming changes include a 50% discount for vehicles with three or more axles, improved interoperability for the Sunpass and other automatic vehicle identification systems, and an expansion of the express lanes on the Cape Coral Bridge. As part of this effort, public officials recognized sev- eral features that would be critical to successful imple- mentation of the value pricing systems. Development of interoperable electronic tolling systems has been essen- tial. A political champion is essential as well, but it is also important to create a cadre of “citizen politicians” to help spread the word in an enthusiastic fashion. In Lee County, one of our major efforts was to educate and garner support from community leaders before approaching the general public, and to do so in a straightforward manner that addresses basic questions, such as “What’s a transponder?” before launching into the demand management philosophy underlying the proposal. Business advisory committees, driver surveys, stake- holder task forces, and advisory groups were helpful in flushing out and addressing major areas of concern. Such concerns typically related to a full understanding of how electronic tolling works, how privacy considera- tions would be addressed, and whether value pricing would be effective in reducing traffic. We also benefited by building creative and fun elements into our public involvement strategy. These elements included naming contests and the use of lotteries and other incentives to encourage participation in surveys. We have found a strong correlation between knowl- edge and acceptance, and today the system in place has a 70% approval rating. The other numbers generated from Lee County’s experiments with value pricing are impressive as well, with estimated annual travel time savings totaling about 30,000 hours and associated financial savings to drivers of about $2.6 million. WHAT DO POLITICIANS REALLY NEED TO KNOW? Jan A. Martinsen For more than 50 years, Norway has successfully employed user charges to supplement regular govern- ment funding of road projects. In the past 20 years the use of toll road projects has increased considerably. Today, a good 35% of the total annual budget for road construction comes from more than 40 toll road proj- ects scattered throughout the country. So far, about 100 toll road projects have been successfully realized, and only one has been declared bankrupt. User charges for road infrastructure funding in Norway are therefore considered a true success story. Tolls are used to finance both urban and interurban road projects. In the three largest cities—Oslo, Bergen, and Trondheim—cordon tolls are the main source of funding for road and to a lesser extent public transport investment programs. In nonurban areas, toll financing is used only for road infrastructure investments. The Norwegian government recently passed legisla- tion to make congestion pricing possible, but so far it has not been implemented. The main road user charge issue in Norway today is whether cordon toll rings in the main cities can be transformed into congestion pricing schemes. Congestion and delays are well-known prob- lems in some of these cities and represent a significant concern for professional advisors as well as politicians. The crucial question is whether the delays are big enough to be successfully managed through congestion charging. The average delay on selected routes in Oslo during peak hours is less than 10 minutes, with a maximum of more than 20 minutes for the most congested road. The trans- port professionals are convinced that congestion pricing should be part of future transport policy, at least in Oslo. The task is for these professionals to convince the politi- cal decision makers that congestion charging is a good policy. The experiences in Norway so far offer some lessons for others wishing to implement road use charges. One of the crucial issues in considering the implementation of road user charges is the amount and detail of infor- mation that politicians need for their decision making. Of course, what they need to know and what they want to know might not be the same. Our findings indicate that what the politicians need to know depends on the political level at which the changes are being considered (i.e., whether it is at the local or national level). While local politicians are more concerned with the use of collected funds to finance 2 2 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

infrastructure within their localities, national politicians are more concerned with the total government budget and ensuring that only financially sound projects are approved. In Norway, each user charging scheme is approved by the national parliament on the basis of local recommen- dations. Therefore, what the local politicians need to know is crucial, and our experiences show the following: • Local politicians need to know how road user charges will affect the local community, local business, land use, the environment, and so forth. • They must gain something (e.g., more local trans- port improvements) from making unpopular decisions. Thus they need to know how revenue collected will be dis- tributed in their local communities, including what per- centage should return to road users and what percentage should be used for public transport. • They need to know the costs of not implementing road user charges. For example, they should be apprised of how long they would have to wait for central government funds for the proposed improvements and what mobility consequences would be likely if nothing were done. • They must be able and willing to deal with nega- tive public reaction and to argue convincingly for the benefits from road pricing. • They need to be shown examples of successful road user charging projects. • They need a better understanding of how to interpret advice from transport professionals. At the same time, their advisors should make an effort to translate the economic theory underlying much of road user charges into simple language that everybody can understand. Our experiences in Norway show that the implemen- tation of user chargers is more likely to succeed when the factors described above are considered. Taken together, these principles can create a more productive and coop- erative relationship between politicians and advisors that is based largely on a common understanding of the objectives of road user charges. 2 3AH, THE POLITICS OF PRICING

2 4 A Closer Look Pricing Across the States Mark Muriello, Port Authority of New York and New Jersey Jim Ely, Florida’s Turnpike Enterprise Jeff Buxbaum, Cambridge Systematics, Inc. Ellen Burton, Orange County Transportation Authority TOLL ROAD APPLICATIONS: PERSPECTIVES FROM THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY Mark Muriello The Port Authority of New York and New Jersey oper- ates and maintains six interstate vehicular crossings, three bus terminals, the Port Authority Trans-Hudson (PATH) rapid transit system, the New York and New Jersey airports, and major marine terminals in New York and New Jersey. The authority is financially self- sustaining. It covers the operations, maintenance, and capital investment needs of its facilities through user fees, including tolls at the vehicular crossings. On March 25, 2001, the authority introduced the Value Toll Pricing Program at the six tunnels and bridges that connect New Jersey with New York City. Since that time, the program has generated incremental revenue to support an aggressive intermodal capital investment pro- gram and has produced traffic management benefits to address congestion. The authority’s Value Toll Pricing Program represents one of the most aggressive applica- tions of value pricing on existing toll facilities in the United States. The program has generated meaningful steps in addressing traffic congestion through market incentives. The overall goal of the program was to generate rev- enue to support a 5-year capital investment program composed of projects totaling $14 billion through a pack- age of interstate tolls and fares sufficient to cover the deficits produced by the PATH transit system and the bus terminals. Five underlying policy objectives were estab- lished: (a) encourage traffic shifts to off-peak periods, (b) encourage use of mass transit and higher vehicle occu- pancy, (c) increase the number of E-ZPass electronic toll transactions, (d) create commercial traffic management incentives, and (e) eliminate frequency-based commuter discount programs. Toll rates (in dollars) were set as shown in the fol- lowing table. E-ZPass Peak (Weekdays 6–9 a.m. E-ZPass and 4–7 p.m.; Weeknight Weekends E-ZPass (Midnight– Cash Noon–8 p.m.) Nonpeak 6 a.m.) Auto- mobile (east- bound only) 6.00 5.00 4.00 3.50 Truck (east- bound per axle) 6.00 6.00 5.00 3.50 An effective stakeholder outreach and public com- munications plan was essential in advancing the pro- gram. In particular, we found that outreach to newspaper editorial boards paid tremendous benefits in educating the public and shaping opinion.

The program has met its revenue goals through its first 2 years despite the revenue forecast’s overpredic- tion of E-ZPass participation. To help refine the projec- tions further, the authority has developed a new toll plaza–specific toll forecasting model to account for dif- ferences in markets, vehicle mixes, E-ZPass use, and temporal traffic distribution. The project also has had some success in meeting its demand management objectives. The hourly percentage distribution of weekday traffic between 5 and 10 a.m. showed as much as a 2.6% increase (2,400 vehicles) in the first hour of the time period, just before the peak toll rates go into effect. There is less evidence that the off- peak discount has been effective in shifting demand to the hour following the 6 to 9 a.m. peak toll period. While similar results are evident during the weekday evenings, the effect is not as strong, which suggests somewhat less willingness to travel off-peak or flexibility in evening schedules. Also, there is little evidence that the off-peak discounts have been effective in influencing weekend travel patterns or overnight commercial movements. In general, the sluggish New York City economy has dampened travel demand in 2003 in all time periods, and this year we have seen evidence of a shift back to the now less congested peak hours by early-hour off- peak motorists. This suggests that while the $1.00 dis- count has had some meaningful and sustainable ability to shift travel demand, its effectiveness in shifting demand to off-peak hours is highly correlated to contin- ued levels of peak-period congestion. Future toll rate adjustments are likely to seek smaller changes targeted by time of day, travel corridor, vehicle type, and managed roadway application. These may be less complicated to advance and provide an opportunity for smoother revenue infusion to sustain future finan- cial needs. Another area for continued refinement lies in interagency coordination, especially given the large number of toll agencies in the New York–New Jersey region. Synchronized peak hours, jointly targeted mar- ket segments (autos, trucks), and coordinated E-ZPass customer statements could encourage continued behav- ioral change and maximize the pricing system’s demand management benefits. In closing, I offer a few observations on the future role for road pricing in the United States: • New pricing projects will embrace a broader transportation improvement agenda, including transit, to create more travel options and customer choice. • More time and resources are needed to help local initiatives take hold. In particular, local agencies will require resources to conduct continued outreach programs, educate the public, and manage opinion. • Technical resources to establish and integrate tolling and charging systems are essential to advance value pricing today and prepare for future national transportation financing systems that are less dependent on the motor fuel tax. • The federal Value Pricing Pilot Program remains critical to pricing’s success, and upcoming federal high- way and transit legislation should preserve it. The abil- ity to price portions of the Interstate highway system under the pilot program should be maintained. PLANS FOR VARIABLE PRICING BY FLORIDA’S TURNPIKE ENTERPRISE Jim Ely Florida’s Turnpike Enterprise, a largely privatized pro- gram of the Florida Department of Transportation, operates a 449-mile statewide system of toll roads. One of the enterprise’s most ambitious initiatives has been the development, distribution, and popularization of an electronic toll collection system; this technology is now recognized as a clear prerequisite for effective value pric- ing. It is also key to the turnpike’s goal of broadly deployed “open road tolling,” under which charges can be levied without impeding free and full-speed traffic flow. The turnpike’s electronic toll collection system is called SunPass. It is compatible with other electronic toll collection systems across the state. SunPass was recently opened to retail sales at certain drugstores and supermarkets statewide, and the sale of the millionth transponder was recorded in November 2003, just 4 years after the SunPass program’s deployment. A key milestone was the achievement of statewide inter- operability (E-Pass, O-Pass, SunPass), which occurred in 2001. We believe that by 2004 more than 50% of system revenues will be collected electronically and that by 2008 participation will grow to 75%. We also antici- pate that the turnpike will deploy an open road tolling system by 2008. Another key part the turnpike’s plans is the development of a system of “Xpress lanes.” These lanes are a new product for us, and the first of the Xpress lanes will be in the Orlando area on I-4. The turnpike is investing $250 million in the I-4 improve- ments, which will involve four priced lanes in the median. The project is the product of a partnership between the local Florida Department of Transporta- tion office, the Federal Highway Administration, and the turnpike. An opening date is anticipated for roughly 2015. Relying exclusively on electronic toll collection, the Xpress lanes will require a transponder and be value priced. Toll rates will be reasonable, between $0.06 and $0.20 per mile, and will be set by time of day to main- tain Level of Service (LOS) C. Reasonable rates would 2 5A CLOSER LOOK: PRICING ACROSS THE STATES

allow for affordability so the Xpress lanes can be “Tau- rus lanes” rather than “Lexus lanes.” The decision to pursue value pricing was prompted by the recognition that future traffic demand in Orlando will be so great that general use lanes would fail even with the four- lane widening project. In contrast, value-priced Xpress lanes can guarantee LOS C by treating variable tolls as a congestion management tool. The turnpike is simultaneously conducting a feder- ally funded value pricing study for another project: the Sawgrass Expressway in South Florida. Of special note is that the Sawgrass project will involve a first-time con- version of an existing toll facility to open road tolling. The turnpike also recently completed a value pricing study on the Homestead extension of Florida’s turnpike; this study concluded that the public’s reaction to value pricing can be favorable if the proposed facility provides new capacity, as is the case with the Xpress lanes. As we look at the full range of activities under way at Florida’s Turnpike Enterprise, it is evident that value pricing holds significant promise as a congestion man- agement tool suited to relieve some of the state’s busiest highways. MILEAGE-BASED APPLICATIONS: MINNEAPOLIS, MINNESOTA Jeff Buxbaum The objective of this current research project in Min- neapolis is to investigate whether the way we acquire access to a car can influence our driving behavior. Cur- rently, people either own or lease cars and make other significant fixed payments, which encourage them to drive more to get the most from their investment. This project simulates the replacement of some of the fixed costs of ownership/leasing and operation with fees or charges based on mileage and perhaps time-of-day travel, to determine whether this influences their driving behavior. The consultant team and the Minnesota Department of Transportation investigated the attitudes of the pub- lic toward mileage-based leasing products through focus groups. The focus groups indicated a segment of the population that would be interested in mileage-based leases. However, many people had a poor understand- ing of the cost to them of having and driving a car. Some people also had “big brother” concerns, although many others had no problem with that. The original scope of work called for a hands-on test case under which a private business partner might be willing to test a new vehicle leasing product that included a mileage component. Ultimately, this approach was not feasible. The targeted partner decided that it did not want to pursue mileage-based leasing at the time, pri- marily because of concerns over cannibalization of exist- ing lease markets and perceived customer acceptance issues. The new work plan will take two tracks. The first will build on the work done in the focus groups and involve a comprehensive market research effort to understand who would voluntarily opt for mileage- based leasing or insurance. The goal is to understand the opportunities and constraints for real leasing or insurance products that might be offered by the private sector. In the second track, the team will recruit a small sam- ple of people who are willing to participate in a real- world experiment. They will simulate buying out the focus group participants’ leases and insurance, convert- ing their payments to a fixed component and a variable component, setting up a “budget” that participants can draw down, and paying them the difference between budgeted miles and actual miles. Participants in the field experiment will be tracked for 10 months. Part of that time will be treated as a con- trol period, during which the participants will receive no feedback on miles driven. An experimental period will follow, during which participants will be provided price signals on a semimonthly basis. The experimental period will test participants’ responses to several vari- ables, including total number of household vehicles, the number of vehicles included in the experiment, and vari- able pricing by time of day. Participants will be surveyed at various intervals in the project to identify shifts in their attitudes toward mileage-based pricing concepts. This study design will serve two purposes. First, we will be able to compare the behavior of each partici- pant’s own control period with that participant’s exper- imental period. Second, the control participants also will serve as a separate control group to those that are in the experiment period in order to identify any general changes in regional driving behavior that occur during the experimental phase. The project is scheduled to end in September 2005. NEW LANE APPLICATIONS: CALIFORNIA STATE ROUTE 91 Ellen Burton The Riverside State Route (SR) 91 freeway is considered a land bridge between Orange County and the “Inland Empire” counties to the east. It is the only primary east–west corridor linking Orange County with the Inland Empire. The freeway carries more than 250,000 average daily vehicles, and during peak hours general- purpose lanes are highly congested. The current situa- 2 6 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

tion reflects a limited availability of affordable housing in Orange County but a strong job market. Orange County attracts daily work trips. Projections about future housing growth in the Inland Empire, coupled with a continued robust job market in Orange County, indicate that the existing jobs–housing imbalance and resulting transportation patterns will continue into the future. In 1989, at a time when there was a scarcity of Cali- fornia highway construction, Assembly Bill 680 (AB680) authorized four public–private toll road partnerships. The 91 Express Lanes franchise was initially granted to the California Private Transportation Company (CPTC), and it became the first AB680 project built. The fran- chise extended from the Los Angeles–Orange County line on the west to Interstate 15 on the east. The fran- chise agreement included a noncompete provision, which was designed to protect bondholders. The provision con- strained the construction of parallel roadway capacity for the 30-year life of the franchise agreement. In 1995, CPTC opened the 91 Express Lanes in the center median of the SR-91 freeway. Since that time, traffic has contin- ued to grow in the express lanes and on the mainline freeway. The 91 Express Lanes, which drivers may use for a fee, are separated from the general lanes by channeliz- ers. The facility uses electronic tolling and has no inter- mediate access points. The purpose is to offer customers a choice for a safe, reliable, free-flowing trip. The facil- ity uses variable pricing, which is set by direction, day of week, and hour. The 91 Express Lanes extend 10 miles from SR-55 on the west and the Orange–Riverside County line on the east. The Orange County Transportation Authority (OCTA), as a county transportation commission, is responsible for planning and funding highway, street, and road projects, as well as delivering bus and rail tran- sit services. In 2001 OCTA identified intercounty travel as one of the most pressing issues. One of the major cor- ridors needing attention was SR-91; however, the non- compete provision that attached to the facility’s financing was a significant limitation on any plans to increase capacity. OCTA’s board of directors thus decided to pursue the acquisition of the 91 Express Lanes franchise to eliminate the noncompete provision. In January 2003 OCTA bought the 91 Express Lanes franchise for $207.5 million. The transaction included the assumption of $135 million in taxable debt and the advancement of $72.5 million from internal borrowing. The first public policy change was to allow carpools with three or more persons (HOV3+) to ride free during all but “super peak” hours, Monday through Friday, 4 to 6 p.m. eastbound. During these times, HOV3+ riders pay 50% of the posted toll. Since the implementation of this policy in May 2003, HOV3+ use has grown 40% over the same period last year. Peak average vehicle occu- pancy has also increased from 1.38 before the policy to 1.48 in August 2003. However, HOV3+ revenue is down an average of $27,000 per week, and it is estimated that the policy will result in a decline of $1.4 million to $1.6 million in toll revenues annually. OCTA next sought to refinance its taxable debt. To do so, OCTA needed to adopt a toll policy. Working with its legislatively created advisory committee, which is made up of public officials from both Orange County and the Inland Empire, a toll policy based on the con- cept of congestion pricing was developed. The policy used trigger points to manage peak-hour congestion to keep lanes operating at free-flow speeds. The goals were to optimize throughput while ensuring the financial via- bility of the facility. Tolls now are adjusted automati- cally on the basis of volume in the lanes. Since July 2003, tolls in four super peak hours have increased from $4.75 to $5.50 (eastbound Thrusdays and Fridays from 4 to 6 p.m.). Overall, year-to-date revenue has declined from about $2.70 per trip in Fiscal Year 2002–2003 to $2.40 per trip in Fiscal Year 2003–2004 because of the impact of the HOV3+ policy change. In November 2003 OCTA refinanced its taxable debt and reduced the interest rate from 7.63% to 4.43%. This is expected to result in a present value savings of about $24 million over the life of the obligation. This is impor- tant because under state legislation passed at the time of OCTA’s purchase of the 91 Express Lanes franchise, any excess revenues after debt service, operating costs, and capital costs are to be used on SR-91 improvements. 2 7A CLOSER LOOK: PRICING ACROSS THE STATES

2 8 Calculating Costs and Measuring Benefits of Pricing Schemes Erna Schol, AVV Transport Research Center, Netherlands Christopher Nash, Institute for Transport Studies, University of Leeds Jeffrey Zupan and Alexis Perrotta, Regional Plan Association Andrea Ricci, ISIS, Italy COSTS AND BENEFITS OF PRICING SCHEMES FOR THE NETHERLANDS Erna Schol The Netherlands is currently dealing with the problem of growing traffic congestion. Economic growth, an increase in the number of smaller households, increased participation in the labor market, and limits on funding and physical space for new infrastructure all contribute to the growth of traffic congestion. While we have not yet implemented road pricing largely because of lack of public acceptance, road pricing is back on the national discussion agenda. In my view, it is all but inevitable that by 2010 the Netherlands will have some form of road pricing in effect. As we renew our investigation into the long-term advisability of various road pricing schemes, a close look at pricing’s benefits and costs is interesting. The benefits to be examined include direct benefits for road users, avoidance of external costs, and indirect benefits. Direct benefits include travel time savings due to reduced con- gestion, less welfare due to reduction of car mobility for system dropouts, and a shift of motorists to urban public transport. External benefits are realized through the avoidance of various external costs, including those imposed by emissions, noise, and traffic accidents and other threats to safety. Indirect benefits can be realized through impacts on the labor, housing, and automobile markets. Costs of a pricing system include the capital cost of the initial investment as well as ongoing operating and maintenance expense. In a 1997 study the Economic Institute of the Netherlands applied cost–benefit analysis to two vari- ants of road pricing: cordon-based area fees and fees levied on highways anticipated to be congested by 2001. Regardless of the variant, it was assumed that the tariff would be €2.25 and levied on both passenger and freight transport. The study concluded that given the assumptions, the cordon-based approach would yield greater net benefits. In a Central Planning Bureau cost–benefit analysis conducted in 2001, two other scenarios were identified: (a) a variabilization of fixed costs through a per kilome- ter charge—essentially a flat rate based on the “pay as you drive” principle; and (b) a flat rate that included a congestion component—a surcharge of €0.10 per kilo- meter at times and locations of congestion. Both scenar- ios make use of an onboard unit and global positioning, so no toll collection points are needed. The total effect of the flat rate scenario is around zero, meaning that the costs are comparable with the benefits. The total effect of the congestion charge is positive and comes to about €10 billion by 2020, on the assumption of nationwide implementation of road charges for both passenger and freight traffic. This provides strong evidence that a con- gestion charge is effective in lowering transport demand and thus congestion. However, even the flat rate can decrease congestion (though to a lesser extent) if simpler, less expensive technology is used. The broader lessons learned were that costs inevitably increase during the course of a project and that benefits can vary markedly depending on the struc- ture of the pricing scheme, including the tariff level, the

potential to vary the charge in response to congestion levels, and the application of the scheme to an urban area generally or to highway travel. Thus, cost–benefit analysis can be a powerful tool for gaining insight into not only the advisability of a stated project but also the impacts of various refinements of a proposal. WHY REFORM TRANSPORT PRICING? AN OVERVIEW OF EUROPEAN TRANSPORT INFRASTRUCTURE CHARGING POLICY AND RESEARCH Christopher Nash In its 1998 White Paper on Fair Payment for Infrastruc- ture Use, the European Commission adopted a clear policy calling for the phased introduction of marginal social cost pricing for infrastructure use. It proposed legislation to implement this for commercial transport of all modes; the policy is confined to encouragement rather than legislation for private vehicles. For rail, the policy was implemented under Directive 2001/14, but for roads, the current proposal to revise the Eurovi- gnette Directive on heavy goods vehicle charging falls short of this principle. It requires differentiation by con- gestion and environmental costs but ties the average level of charge to average infrastructure and external accident cost only. It is not clear whether this is to be seen as a step on the way to full marginal social cost pricing or as a change in policy. Implementation of marginal social cost pricing requires that we be able to measure and value its three components: • Marginal cost of infrastructure maintenance and operations imposed on the infrastructure manager; • Marginal cost imposed on other infrastructure users in the form of congestion and accidents; and • Marginal cost imposed on the rest of society, pre- dominantly in the form of environmental costs but also some elements of accident costs. Among the many criticisms of this approach is the complexity of measurements. A second major criticism is the view that charges should be tied to total costs rather than marginal costs, either for reasons of equity or dynamic efficiency. Several research projects have addressed measurement challenges and sought to clarify the impact of marginal cost pricing on different classes of vehicles and uses. Participants in the Unification of Accounts and Mar- ginal Costs for Transport Efficiency (UNITE) project esti- mated the total social cost of road transport for most of Europe and found that costs of congestion, pollution, and external accident costs totaled nearly 3% of gross domes- tic product, or double the level of infrastructure costs. Thus, charging solely to recover infrastructure costs is likely to lead to charges that are too low. But a further major issue is the inadequate differentiation of charges by vehicle type, location, and time of day; UNITE also undertook case studies to see how marginal social cost could be measured to identify those differences. A number of projects (including Pricing European Transport Systems and Models for Transport Environ- ment and Energy) have undertaken case studies that have predicted the results of marginal social cost pricing for all modes of transport. As would be expected, these typ- ically show higher charges for the use of roads in urban areas, particularly in the peak period, with a fall in road traffic in the range of 5% to 20%, as well as changes in time and route of travel where pricing systems are suffi- ciently sophisticated to reflect these factors. For interur- ban traffic the outcome is more variable and reflects major differences in current charges and levels of con- gestion. Typically, cars are overcharged and heavy goods vehicles undercharged, but there are similar discrepan- cies in other modes so that the outcome of transport pric- ing reform is relatively limited in terms of changes in traffic volume and mode split. Transport pricing reform may thus be more important for interurban traffic due to its impact on vehicle type, time, and route of travel than for its effect on the overall volume of traffic. AN EXPLORATION OF MOTOR VEHICLE CONGESTION CHARGES IN NEW YORK Jeffrey Zupan and Alexis Perrotta Currently 830,000 vehicles enter Manhattan’s central business district (CBD) each day, and 78% do so for free. Of the 19 entry points to the CBD, four are tolled tunnels, four are free bridges, and 11 are free city streets and highways. The tolled tunnels are operated by two distinct authorities; both use electronic toll collection and one varies the charges by time of day. The free facil- ities are operated by the city of New York. Our organization identified and assessed four pricing scenarios to highlight distinctions between flat and vari- able pricing, daytime and 24-hour pricing, and pricing at some or all of the entry points to Manhattan’s CBD. The scenarios use the sensitivities of drivers who may respond to an added charge by not making the trip at all or by changing destination, mode, route of travel, or the trip’s time of day. All four scenarios assume a cashless toll system and one-way inbound tolls: • Toll East River bridges as does the Metropolitan Transportation Authority (MTA): a flat fee on East 2 9CALCULATING COSTS AND MEASURING BENEFITS OF PRICING SCHEMES

River bridges set at the level of current tolls of the two parallel MTA tunnels; • Variable pricing on East River bridges, MTA to match: variable time-of-day tolls on East River bridges with MTA tolls modified to match them; • Like London: a pricing system at 60th Street for 13 daytime hours on weekdays with flat East River tolls during the same time period; and • Full variable pricing: variable time-of-day pricing at all entries, including the East River bridges, MTA crossings, and 60th Street. As modeled, these scenarios produce traffic reduc- tions of 5% to 13%, with an even greater reduction dur- ing the peak period in the second and fourth scenarios. Drops in traffic would be higher at the East River entry points, which would likely lead to the virtual elimina- tion of congestion at those crossings and relief on local streets in Brooklyn and Queens. However, such traffic reductions would result in only 0.3% to 1.0% fewer trips into the CBD and 100,000 to 270,000 more daily transit trips. All scenarios would generate substantial revenues in excess of $700 million, which could capital- ize anywhere from $7 billion to $19 billion of new con- struction. Along with overall traffic volume reduction, pricing would provide benefits such as more reliable, stress-free driving; elimination of gridlock on local streets near crossings; faster speeds for necessary vehi- cles such as buses, taxis, and delivery vans; more space for amenities such as pedestrian boulevards; and funds for the next generation of transportation expansion. Despite its benefits, pricing’s opponents can be expected to raise concerns about economic impacts, geo- graphic and income equity, and fairness to those with poor alternatives to driving. Many will claim that city streets and bridges simply should not be tolled. Pricing is especially politically difficult in New York, since 58% of the city council is from Brooklyn and Queens. Given these dynamics, four mayoral administrations have failed to win over opposition in the past. We suggest that next steps for New York should include agreement on objec- tives, a concerted effort to obtain support from the Bloomberg administration, further research, involvement from the business and media communities, and the devel- opment of a package of short- and long-term transit improvements that focus on Brooklyn and Queens. RELEVANCE OF PRICING TO EXTERNAL COST CALCULATION: RECENT RESULTS Andrea Ricci Externalities are changes of welfare caused by economic activities that are not reflected in market prices. Exter- nal costs are those borne by those individuals who have not induced them. They remain such until they are incorporated, or internalized, in prices levied on those whose activities produced the externalities. The European Union takes the view that transport pricing reforms should be based on the “users pay” principle, which would require full internalization of marginal external costs to arrive at the right price. Two recently commissioned studies are helping policy makers zero in on ways to capture marginal external costs in transport pricing. The Real Cost Reduction of Door-to-Door Intermodal Transport (RECORDIT) proj- ect, funded by the European Union, has calculated the external costs of freight transport over more than 9,000 kilometers of network for both road and intermodal ser- vices. The UNITE project, also funded by the European Union, has carried out more than 30 case studies cover- ing all modes and situations (urban and interurban freight and passenger travel). Both projects address the most relevant categories of external costs: air pollution, noise, congestion, acci- dents, and global warming. RECORDIT has also devel- oped rough estimates of life-cycle costs (e.g., production and disposal of vehicles, containers, and fuels). In addi- tion, both projects address infrastructure costs, or the costs arising from wear and tear of the infrastructure itself, since these are a further component of the social costs to be passed on to the user. The evidence produced by RECORDIT and UNITE shows the following: • The methodologies currently used to calculate external costs are robust, especially for air pollution and congestion and, to a lesser extent, noise and accidents. Costs associated with global warming still suffer from large uncertainties. • All categories of external costs are highly sensitive to situational factors (e.g., geographic position, meteo- rology, population density, and time of day). Particu- larly for congestion, this makes it difficult to transfer values from one context to another. • RECORDIT has produced estimates of the aver- age value of external costs for each European Union member state that take account of the specific charac- teristics of the national networks, vehicle fleets, and so forth. It has then derived the value of the internalization charge, as discussed below. For the 16 European Union nations, RECORDIT identified external costs per kilometer imposed by a 40- tonne articulated truck. These external costs ranged from €0.24 (Sweden) to €0.54 (Slovenia), with an aver- age of €0.32. The study further identified the extra charge per kilometer (compared with current taxes) that would be necessary to internalize external costs. These 3 0 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

ranged from a low of €0.17 (France) to a high of €0.35 (Switzerland), with an average extra charge of €0.21. It can thus be concluded that the taxation and charg- ing systems currently in place in the European Union do not cover the full social costs of transport infrastructure use, with shortfalls in the range of €0.20 to €0.40 per kilometer. Correcting current distortions in pricing prac- tice requires the introduction of a variable per kilometer charge that could capture all important cost drivers, including vehicle technology and situational factors. 3 1CALCULATING COSTS AND MEASURING BENEFITS OF PRICING SCHEMES

3 2 Role of Pricing Revenue in Financing Projects and Services Erik Amdal, Norwegian Public Roads Administration Robert Poole, Reason Foundation Dario D’Annunzio, Cofiroute LORD OF THE RINGS, TRONDHEIM, NORWAY Erik Amdal Cities all over the world struggle with the same traffic problems: congestion, traffic accidents, and air pollu- tion. This was the situation in Trondheim, Norway’s third-largest city, with a population of 140,000. The main traffic problem in Trondheim was the lack of a road system with sufficient capacity to handle traffic demand. This caused traffic problems in the city center and the nearby residential areas. As much as 50% of the traffic in the city center was just going through the cen- ter without stopping. Between 1983 and 1987, traffic growth of 25% was registered, and it was easy to pre- dict a total collapse in the near future if nothing was done to reduce the growth and improve the transport system. In an effort to reduce these problems, in 1987 the city council decided to implement a road pricing or tolling system as one part of a new transport plan for the city. The transport plan covers all types of city transport. After extensive discussions with both local and central authorities, the national parliament approved a plan for extending the present main road system, building new roads around the city center, enhancing the road system for pedestrians and cyclists, and giving priority to pub- lic transport. It was agreed that the new investments should be financed partly by implementing a toll ring system around the city. With an eye to the toll ring, policy makers emphasized the following goals: • The toll or road pricing system should have low operating costs. • The system should be used as a traffic regulation tool, with inbound traffic paying a higher rate during peak hours to distribute the traffic over time. • The system should be based on a no-stop electronic payment system. • The necessary toll equipment should be com- pressed to be suitable for all types of locations, even in the streets of the city center. The following were key elements of the implemented system: • Provision of free electronic tags to all car users in the Trondheim area, • Operation of 10 unattended toll plazas and one attended plaza, • Weekday operation of the toll ring system from 6 a.m. to 5 p.m., and • Higher charges during morning peak hours. The system opened on October 14, 1991. The Trond- heim Toll Ring Project was well marketed before the opening, and today 95% of the motorists entering the city center use the electronic payment system. The rev- enues, today around 150 million NKr per year, are being used to finance new road infrastructure, improved pub- lic transit, and new facilities for pedestrians and cyclists in Trondheim. The first year after opening, inbound traffic during toll hours declined by 10% and weekday bus travel increased by 7%. In 1998 the system was

reworked to cover more traffic in the urban area. The city is now divided into six sectors, and vehicles crossing the sectors have to pay toll. Today, the main traffic problems are nearly solved, and the traffic situation in the city center is significantly better now than 10 years ago. More recently, in part because of a funding shortfall resulting from a cost overrun on the last city bypass, we expanded the toll ring again. Key elements of the revi- sion included six new charging points and an increase in the base price. The new system is estimated to produce toll revenue of 200 million NKr per year, operating costs of 17 million NKr per year (representing less than 10% in operating costs), enough toll money to finance the latest round of investments in Trondheim’s surface transportation infrastructure in 2005, and, most impor- tant, a solution to the city’s current traffic problems. BUS RAPID TRANSIT/HIGH-OCCUPANCY TOLL NETWORKS Robert Poole Many high-occupancy vehicle (HOV) lanes lanes through- out the United States are seriously underused; at most times of day, excess capacity exists on these lanes, which are dedicated to the use of vehicles carrying two or more (or three or more) passengers. The Reason Foundation has recently published a report on bus rapid transit sys- tems and the utilization of high-occupancy toll (HOT) networks to reduce congestion and improve urban transit. Such lanes would continue to serve very high-occupancy vehicles, such as buses and vanpools, but would be avail- able to lower-occupancy vehicle drivers who wished to pay a fee for access to these free-flowing lanes. The report examines eight of the most congested U.S. cities to determine what infrastructure would be neces- sary to complete a cost-effective HOT network. Pricing on the HOT lanes would be variable, such that the price charged to paying vehicles would be high enough to limit traffic in the HOT lanes to a volume consistent with free-flow conditions. On highly congested free- ways, this would produce peak-period, peak-direction toll rates in the range of 30 to 40 cents per mile. Buses and vanpools, as well as emergency vehicles, would use the lanes at no charge. An analysis of potential revenues that would be gener- ated and the debt that could be supported was conducted for each of the eight potential metropolitan area net- works. In addition, the cost of building out the network was estimated by drawing on the long-range transporta- tion plans of the respective metropolitan planning orga- nizations (MPOs), supplemented by the authors. While some long-range plans omit high-cost HOV lane addi- tions, many omit flyover connectors at freeway inter- changes because of their high cost. With the availability of a new revenue source, these missing pieces were added to the plans proposed by the MPOs. The analysis showed that bonds backed by the HOT lane revenue alone could cover an average of 67% of the capital cost of construct- ing the new HOT lanes and interchange connectors needed to create a seamless network. Put into practice, the concept could offer numerous benefits, including “congestion insurance” available to all motorists; reduced congestion in the general-purpose lanes; and facilitation of speedy, regionwide express bus service (bus rapid transit), all within the context of an infrastructure expansion that could be largely self- financing. TOLLING THE A-86 TUNNEL IN VERSAILLES, FRANCE Dario D’Annunzio The A-86 is a ring road around Paris, the final link of which has yet to be built. Its intended length is 1,100 kilometers, of which about 900 kilometers has been completed. Traffic levels on the road have been rising, meaning that Paris is in much the same situation as most other major cities in developed countries. The final link of the A-86 is expected to cost about €1.8 billion to complete. It will include two double-decked tun- nels, with each level including two traffic lanes and one emergency lane. Charges levied on road users will repay capital costs as well as operations and maintenance expense. The fee structure is consistent with the facility’s development and operation by a concessionaire. Total annual revenue is expected to reach €110 million by 2020. This projection is based on an optimal toll schedule that sets separate rates by time of day and day of week and that differentiates between single motorists and subscription motorists. An opinion poll that surveyed 3,000 people gathered information on perceptions of factors that contribute to well-being and those that cause concern. On the basis of this information, we have developed communication tools that speak directly to the issues that are most important to those in the A-86 community. One of our most successful communication tools has been an A-86 West exhibition; we also publish and mail out an A-86 West newsletter. In summary, through its development under a conces- sion arrangement, the A86 West project brings to Paris a project that costs nothing to the national or regional government since it is financed wholly by Cofiroute. A flexible toll rate policy will encourage frequency of use and automated toll collection. 3 3ROLE OF PRICING REVENUE IN FINANCING PROJECTS AND SERVICES

3 4 Pricing Goes Global David LeCoffre, Embassy of France, Washington, D.C. Marcel Rommerts, European Commission Gopinath Menon, MSI Global Pte. Ltd., Singapore Imad Nassereddine, 407 ETR Concession Company Ltd. VARIABLE ROAD PRICING IN FRANCE David LeCoffre France has more than 50 years of toll road experience. Of the 5,000 miles of toll roads in operation, 4,500 miles are publicly owned and 500 miles are privatized. Tolling has always been viewed as a means to pay for construction, maintenance, and operation. The French government is now starting to look at methods for con- verting traditional tolls into variable charges that could not only cover the cost of infrastructure but also aid in traffic management and cover the external costs (e.g., environmental impacts) imposed by road use. We define variable tolls as fees that are modified according to any number of parameters, including vehicle type, time of day, itinerary, environmental conditions, and the like. These parameters give rise to three special applications that may be useful under special circum- stances. They comprise (a) time-variable tolls, which are based on the trip’s time of day; (b) itinerary-variable tolls, which vary with the route traveled; and (c) environment- variable tolls, which are based on vehicle emissions levels. The French government views variable tolls favor- ably. Several principles help guide the approach that the government is considering: • Two users may pay two different toll rates if and only if they are in a significantly different situation; • No revenue increase: any toll rate increases during a time of the day must be balanced by a comparable decrease during another time of day; • Clarity and simplicity: the user must easily under- stand the implemented system; and • Protection of the public interest: variable tolls may be used to enhance road safety. Within the context of these principles, France is pur- suing a pragmatic, step-by-step approach that is devel- oping and will continue to develop on the basis of lessons learned from individual case studies. The experi- ence of six such case studies, focusing on roads around Paris as well as some alpine tunnels, have resulted in peak-to-nonpeak traffic shifts of as much as 12%. Lessons generated from these and other case studies will prove invaluable as France moves forward with its European partners in forging new public policy by redefining tolls and determining the extent to which variable tolls should be used. TESTING THE REAL-WORLD ACCEPTANCE AND EFFECTIVENESS OF URBAN PRICING Marcel Rommerts The European Commission is the administrative body of the European Union. The European Union has 15 member states and will be enlarged with an additional 10 member states in May 2004. Among its activities are setting common policy frameworks, harmonizing stan- dards, and supporting information exchange and the management of a multiannual research, technological development, and demonstration activities program.

In the field of transport pricing, the European Trans- port White Paper, published in 2001, defines the follow- ing long-term policy objective: “gradually . . . replace existing transport system taxes with more effective instru- ments for integrating infrastructure costs and external costs.” It goes on to identify charges for infrastructure use and the fuel tax as two such instruments. In recent months, the European Commission has presented pro- posals for directives on the charging of heavy goods vehi- cles on the trans-European transport network and on electronic charging systems. The last directive intends to move Europe toward satellite-based road user charging. Over the past 10 years the European Commission has cofinanced a substantial body of research and demon- stration projects in the field of urban pricing. The latest of these is the Pricing Road Use for Greater Responsibil- ity, Efficiency, and Sustainability in Cities (PROGRESS) project, which is producing interesting results based on practical experiences. The majority of European cities testing road pricing thus far have not yet fully imple- mented their pricing schemes, but data are gradually becoming available. The following table shows the Euro- pean cities that are starting to produce data; participants in the PROGRESS project appear in bold. Development Full Pilot/ of Full Pricing Demonstration Scheme Scheme Scheme Trondheim Rome Bristol Oslo London Edinburgh Bergen Durham Genoa Stockholm Copenhagen Gothenburg These cities’ approaches vary both conceptually and in the technologies applied. Some existing pricing pro- grams (Trondheim, Rome) will be expanded on a trial basis during 2004. The plan in Stockholm is for a full- scale cordon pricing scheme that will be launched early in 2005. The Stockholm population will be able to give its views on the scheme in a referendum in 2006. The experiences and conclusions of the different urban road pricing research and demonstration projects in Europe thus far can be summarized as follows: • Urban pricing is possible with the use of existing and emerging technology. However, challenges persist. For example, further development of satellite-based technology is needed. In urban areas other technological or nontechnological solutions will need to be part of such systems. The European Galileo satellite network will improve satellite reception. The installation of the onboard equipment is complex, and retrofitting can cause problems. • Pricing measures are effective in changing people’s behavior and travel patterns. Experiences with the lim- ited traffic zone in Rome show a 10% reduction of the daily traffic. A test in Bristol showed reductions of 15% to 20% in daily car travel during periods of poor air quality, mainly caused by car drivers switching to public transport. Car users change timing, route, or destination more easily than mode. • By making pricing part of a package of measures, it can be made acceptable. Intelligent marketing and clear political leadership are essential. A lengthy and complex process can be necessary to gain support, and the media play a key role. Proposed approaches should have a clear purpose and well-defined objectives. Exemptions to the scheme are needed for equity reasons, and the manage- ment of exemptions can require significant organizational effort. EVALUATION OF SINGAPORE’S ELECTRONIC ROAD PRICING SYSTEM Gopinath Menon In 1975, Singapore introduced a manual (i.e., nonelec- tronic) cordon-based road pricing system that used area licenses to control congestion in the city area. In 1998, this was converted to a fully automated electronic road pricing system (ERP) that uses a dedicated short-range radio communication system in the 2.40-GHz band. The ERP is in operation at 28 entry points into the city on weekdays from 7:30 a.m. to 7:00 p.m. and at 17 points along congested stretches of expressways and major roads on weekdays from 7:30 to 9:30 a.m. Given the ERP’s intent to charge vehicles for road use when and where they cause congestion, the system functions as a pure demand management measure. Entry points have overhead gantry signs. All vehicles have fitted an in-vehicle unit, which is a pocket-sized transponder. Payment occurs via a smart card, which is issued by a consortium of banks. It is an active system in that deductions are made instantaneously from the smart card when the vehicle goes under the ERP gantry. The details of the last 25 ERP transactions are held in the smart card. Photographs of rear license plates ensure that drivers of violating vehicles have to pay a fine. The capital cost of the ERP was S$197 million (US$1 = S$1.76). Annual operating costs are S$16 million, and annual revenue is S$80 million. The system has proved to be reliable over the past 5 years. Different classes of vehicles pay different charges on the basis of passenger car unit equivalents. ERP rates are reviewed at 3-month intervals and are based purely on prevailing traffic speeds along the roads. The ERP aims to maintain a speed range of 20 to 30 kilometers 3 5PRICING GOES GLOBAL

per hour on city roads and 45 to 65 kilometers per hour on expressways. Rates are increased or decreased when the average speeds for the 3-month period are outside the ranges. We have found that the ERP has helped to spread traf- fic flow evenly over the working day and eliminate short, sharp peak periods—though some localized congestion for short periods remains along alternative routes and along the priced route immediately after the ERP stops operations. We have also found that the ERP has encour- aged many drivers to consider public transport as a viable alternative. In closing, I would like to indicate some prerequisites for a successful pricing program: • Development and marketing of congestion pric- ing and demand management as part of an overall transportation strategy; • Use of reliable and proven technology; • A system that is easy to understand and use; • Wide publicity for the system; • Provision of acceptable alternatives, such as good public transport; and • Special provisions or exemptions for foreign vehicles. E-407 PROJECT IN TORONTO, ONTARIO, CANADA Imad Nassereddine The $4 billion (Canadian) E-407 concession toll road is 108 kilometers (67 miles) long with 39 interchanges. It is located just north of Toronto, Ontario, Canada. The road has open access. No transponders or tags are required except for heavy vehicles (more than 5,000 kilograms), which must have a transponder. If a vehicle does not have a transponder, a video camera records a picture of the license plate and a bill is sent to the registered owner. This is true for all vehicles— even those registered in the United States. The transponders both read and write, which allows for multiple entry and exit points. The tolls vary with type of vehicle, time of day, and day of the week. They start at C$0.1295 per kilometer for light vehicles. They double for heavy single vehicles and triple for heavy double vehicles. The E-407 concession agreement allows for rates to be changed with 1 month’s notice, but a fixed traffic flow must be maintained. Usage of E-407 has increased steadily from 180,000 vehicles per day in 1999 to 300,000 vehicles per day in 2003. 3 6 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

3 7 “CarTrek” Integrating Technology with Pricing Schemes Harold Worrall, Orlando–Orange County Expressway Authority Kuniaki Nakamura and Nihon Doro Kodan, Japan Highway Public Corporation TECHNOLOGY AND PRICING: CAUSE OR EFFECT? Harold Worrall Are technology and pricing the cause or the effect? The answer is yes! An example of policy affecting technolog- ical development is the challenge that President John F. Kennedy made to America to “put a man on the moon and safely return him to earth before the end of the decade.” In that instance policy served as a catalyst to a broad range of technologies, including transistors and integrated circuits. In contrast, the technology of radio frequency identification and its practical translation into electronic toll collection (ETC) strategies have served as a catalyst for road pricing in all its forms. As facets of policy and technology interact, new variants of policy and technology are created. The process is iterative. A policy pyramid was presented that graphically identified the relationship of policy, funding, demand, and supply. Each face of the policy pyramid is interac- tive with the others, and the results of that interaction may catalyze yet other interactions. Funding policies may include tolling that affects demand and generates revenue, which may affect supply. Congestion pricing to affect behavior may also generate revenue for additional capacity—and not necessarily on behalf of the mode that generated the revenue. Pricing’s economic implications are broad. The long- held belief that public goods should be provided by pub- lic agencies may now come into question. The definition of public goods now becomes a question itself. A possible outcome of the new questioning process is the construc- tion of transportation facilities through concession arrangements, much like those that have taken hold in many parts of the world since World War II. Who should pay for technological advances: government, the automo- bile industry, the insurance industry, or the consumer? Must technology have value for it to become ubiquitous in a free market environment? Information is itself valu- able, and those who own the information may generate revenue for either the public or the private sector. What about liability? To what extent should government absorb liability through sovereign immunity? Social equity is also a consideration in the application of technology. Critical to the success of new applications is the protection of private information in a free democ- ratic society. The perceived threat of “big brother” is a chilling factor to many and can cause the rejection of otherwise reasonable public policy. Should technology be available to all or just those who are able to pay for it? Rawls’s theory of justice would say that the protec- tion of the minimum position could be violated by pric- ing concepts. This leads to the question of whether the disadvantaged, the elderly, and other population groups will benefit from pricing scenarios or be disenfranchised from transportation facilities because of it. Finally, technological advances may “leapfrog” poli- cies that are based on today’s technology. Many lessons have been learned on how to implement technology. Clearly, the business strategy should lead the technologi- cal applications rather than the reverse. Politics and juris- diction are externalities that frequently control the realization of the application of technology and should

therefore be considered initially rather than at the end of a project. The implementation of one application, ETC, has resulted in a paradigm shift in the toll industry. Standards and regulations can also significantly affect the implementation of technology. Standards may also interact with jurisdiction, since the jurisdictional preference is dependent on each area’s historical level and nature of investment. ELECTRONIC TOLL COLLECTION IN JAPAN: A WIDE VARIETY OF TOLLING APPLICATIONS Kuniaki Nakamura and Nihon Doro Kodan Expressways extend throughout Japan, and all are tolled. While the tolls have been helpful in generating revenue, Japan’s ongoing problems with traffic conges- tion and environmental degradation have prompted greater attention to the technologies that can help turn simple tolls into tools for demand management. ETC is a key factor in making congestion-based road pricing feasible. The ETC system in Japan uses an onboard unit (OBU) and an integrated circuit card. Although Japan’s express- ways are operated by many public organizations, the same OBU can be used on all the expressways in the coun- try. Our ETC system uses an active dedicated short-range communications (DSRC) system to carry out each trans- action. We have found DSRC to be well suited to our needs given its expandability, high reliability, wide com- munication area, and efficient use of limited frequency resources. ETC can be used at approximately 1,200 toll plazas throughout Japan. The number of installed OBUs exceeded 1.6 million by the end of October 2003, and 700,000 vehicles use ETC each day. ETC users account for approximately 11% of the total traffic volume. ETC service is scheduled to be available on almost all expressways by the end of this fiscal year. Thanks to the capability provided by ETC, Japan is in the midst of experimenting with a variety of road pricing schemes, including environmental road pricing, special pricing for long-distance use, and special pricing for spe- cific sections. Peak-period pricing and continuous-use discounts are under consideration. These road pricing schemes are expected to ease traffic congestion on expressways as well as ordinary highways and to pro- mote the use of expressways. We expect that with further popularization and widespread use of ETC in Japan, increasingly effective road pricing strategies will be developed and tested in the coming years and that road pricing will become more prevalent throughout the country. 3 8 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

3 9 Evaluation of Active Pricing Schemes Expectations, Revelations, and Illuminations Donald Shoup, University of California, Los Angeles Edward Sullivan, California Polytechnic State University, San Luis Obispo Kristian Wærsted, Norwegian Public Roads Administration LESSONS LEARNED FROM PAYING FOR PARKING Donald Shoup Employer-paid parking is the most common fringe ben- efit offered to workers in the United States, and 95% of American automobile commuters park free at work. Free parking at work amounts to a matching grant for commuting by car: employers pay the cost of parking at work only if commuters are willing to pay the cost of driving to work. Commuters who do not drive to work do not receive an equivalent subsidy. This matching- grant feature of employer-paid parking helps to explain why 91% of commuters drive to work and why 91% of their cars have only one occupant. A few employers offer commuters the option to take the cash equivalent of any parking subsidy offered. Offering commuters the choice between a parking sub- sidy and its cash equivalent emphasizes that even free parking has an opportunity cost—the forgone cash. The option to “cash out” a parking subsidy raises the effec- tive price of commuter parking without charging for it. Commuters can continue to park free at work, but the cash option also rewards commuters who carpool, ride public transit, walk, or bike to work. California law requires many employers to offer parking cash-out if they subsidize commuter parking in spaces rented from a third party. The evidence suggests that parking cash-out produces significant benefits. Case studies in Southern California found that the solo- driver share fell from 76% before the offer of a parking cash-out to 63% afterward. For every 100 commuters, parking cash-out induced 13 solo drivers to shift to another mode. In another study, of the 13 former solo drivers, nine joined carpools, three began to ride public transit, and one began to walk or bike to work. With three times as many commuters switching to carpools as to public transit, we see that parking cash-out can reduce solo driving to work even in cases where public transit is not available. Parking cash-out increased the employers’ costs by only $2 per employee per month, because they saved almost as much on provision of parking spaces as they paid in cash to commuters. In addition, federal and state income tax revenues rose by $65 per employee per year because many commuters voluntarily traded their tax- exempt parking subsidies for taxable cash. And from a human resources perspective, employers praised park- ing cash-out for its simplicity, fairness, and role in help- ing to recruit and retain employees. In summary, parking cash-out provides benefits for commuters, employers, taxpayers, and the environment. The cash-out provisions in California are unique among the states, however. Federal policy actually subsi- dizes solo commuting because federal tax law treats employer-paid parking as a tax-exempt fringe benefit. To solve this problem, I suggest one simple amendment to the tax code: condition the tax exemption for employer- paid parking on that employer’s offering commuters the option to cash out. The nonitalic text quoted below is the Internal Revenue Code’s existing definition of employer- paid parking that qualifies for a tax exemption; the italic text is the proposed amendment.

Section 132(f)(5)(C): QUALIFIED PARKING—The term “qualified parking” means parking provided to an employee on or near the business premises of the employer . . . if the employer offers the employee the option to receive, in lieu of the parking, the fair mar- ket value of the parking. Commuters who voluntarily choose taxable cash in lieu of tax-exempt parking subsidies will reduce traffic congestion, air pollution, and energy consumption—and will increase income tax revenues. Requiring employers to offer commuters the option to cash out their tax- exempt parking subsidies will reduce traffic congestion, conserve gasoline, improve air quality, increase tax rev- enues without increasing tax rates, and increase employee benefits without increasing employers’ costs. A minor tax reform can provide all these economic and environmental benefits simply by shifting from a policy of subsidizing parking to a policy of subsidizing people. A LOOK BACK: CALIFORNIA STATE ROUTE 91 Edward Sullivan The California State Route 91 Value-Priced Express Lane facility (91 Express Lanes) is a four-lane toll high- way constructed in the median of an eight-lane urban freeway. The 16-kilometer express facility has no inter- mediate access and permits no heavy vehicles. Tolls are time dependent and reflect demand, with electronic toll collection only (no cash). The 91 Express Lanes were originally constructed and operated by a private company under a franchise agreement with the state. The project came about because of legislation (California Assembly Bill 680) passed in 1989 by the California legislature to attract alternative funding sources to meet state transporta- tion needs, gain private-sector efficiencies, and reduce congestion. An impact assessment study took place from mid- 1994 (about 1 year before opening) through 1999 to measure reactions to variable toll pricing and the other innovative features of the facility. Measured impacts included highway traffic changes; effects on corridor bus, rail, and park-and-ride usage; effects on accidents and significant incidents; origin–destination (revealed preference) surveys; opinion surveys; emissions model- ing; and behavioral choice modeling. It was found that 91 Express Lane use strongly reflects hourly travel time savings, and peak flattening is only weakly responsive to tolls. Driving comfort and safety are often cited to justify paying tolls when time savings are minimal. Income cor- relates positively with use frequency; being female, middle-aged, and highly educated also correlates with greater use. Nevertheless, many frequent users are low- income, and many high-income commuters are infre- quent users or nonusers. Toll incentives were associated with a long-term increase in 3+ ridesharing on the facil- ity, and high-occupancy vehicle users appear generally more likely to use the 91 Express Lanes. Benefit–cost analysis shows that large travel time savings lead to a strong surplus of benefits relative to costs, which causes the 91 Express Lanes to compare favorably with other corridor improvement options. In spring 2002, after some controversy related to ownership and severe parallel freeway congestion, the public Orange County Transportation Authority (OCTA) agreed to purchase the 91 franchise for $207.5 million. State enabling legislation allowed the OCTA takeover to become final in January 2003. In November of the preceding year, voters also approved Measure A to provide nearly $500 million in road improvements in the SR-91 corridor; these improvements had previously been blocked by the noncompete clause. Despite its recent deprivatization, the SR-91 project has been and remains successful in many dimensions. It was an innovative model that helped establish an open mind toward market-based road pricing in the United States. It also proved that public–private highway part- nerships can be financially successful. In my opinion, the Achilles’ heel of the private project turned out to be the noncompete clause included in the franchise agreement. The 91 Express Lanes have shown that innovative road pricing can be economically attractive, win public approval, and influence travel behavior. Increasing travel options is a subtle yet powerful outcome from such projects. One-size-fits-all approaches in road pric- ing have demonstrably failed. In contrast, increasing transportation choices through pricing has clearly suc- ceeded and should regularly be considered in future facility planning. URBAN TOLLS IN OSLO, NORWAY: EXPERIENCES AND CONDITIONS FOR IMPLEMENTATION Kristian Wærsted The “Oslo Package 1,” a user-fee-based array of proj- ects comprising several urban main road tunnels, was developed as a means to build 50 projects over a 10- year period. Fifty-five percent of the financing comes from user fees, and the remaining 45% is composed of state grants. Had the system been funded entirely by the state, the same projects would have taken 35 years to complete. The Oslo Package 1 is a joint venture between Oslo (60%) and the neighboring county of Akershus (40%). 4 0 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

The toll ring covers all roads in three corridors that lead into the central part of the capital. The location of the cor- dons is a compromise balancing the highest possible income and a low number of plazas placed in areas where land could be acquired most inexpensively. The following are a few statistics. Fifty percent of Oslo’s population live outside the toll ring. Average daily trips in the payment direction total approximately 250,000 vehicles. Annual toll revenues come to approximately 1 billion NKr; oper- ating costs consume about 10% of the gross revenue. Eleven of 19 toll plazas are minor, meaning that they com- prise just one lane for subscription members and one attended lane, while the other plazas have automatic coin machines to increase the capacity for manual payment. Lane capacity is approximately 1,600 vehicles per hour for electronic fee collection lanes and 300 vehicles per hour for the automatic coin machine and attended lanes. The largest toll plaza has three dedicated electronic fee collection lanes, three lanes with automatic coin machines, and one attended lane. Average daily traffic at this plaza numbers approximately 50,000 vehicles. When the Oslo Package 1 was first proposed, trans- portation officials faced significant public opposition; opinion polls indicated that 70% of respondents opposed the toll scheme. Many visitors ask us how we were able to implement the package in the face of such opposition. We believe that the following are among the most important reasons: • Bergen had already implemented a successful toll ring in 1986. • Road traffic conditions had become congested to a choke point. • The major political parties agreed to support the proposal. • The proposal involved a limited collection period of just 15 years. • Additional funding from the state was included as part of the plan. • The plan involved relatively low toll rates. • Eighty percent of all toll income is dedicated to investment in road infrastructure; the remaining 20% is earmarked for public transport infrastructure. • Opponents of road construction and automobile use appreciated that the user-pays principle was being applied to motorists. • The opening of the Castle Tunnel, the major tun- nel in the Oslo Package 1, 2 weeks before toll collection began provided a positive signal to opinion. This six- lane tunnel removed Oslo’s most severe bottleneck in front of the Oslo city hall and demonstrated to drivers that they would get something back from the package. • None of the toll stations was expected to create bottlenecks, since their capacity was calculated to be higher than that of the adjacent road network. This proved to be true after the opening of the toll ring. Toll collection in the Oslo Toll Ring expires in 2007, and the big issue now is whether it will be removed, extended (as happened in Bergen), modified to accom- modate time-differentiated congestion pricing, or replaced by another type of road pricing scheme. A project group is now working on an Oslo Package 3, so time will tell. New electronic fee collection technology (AutoPASS) is being introduced, and contractual and operational interoperability for all electronic fee collec- tion lanes in Norway will be implemented in February 2004. At that time fully automatic toll plazas enabling free flow through the plazas will be introduced in Bergen and Tønsberg. In this new concept, drivers without an AutoPASS will be videoed and billed monthly for the exact fee. If the approach turns out to be successful, it may form the basis for the future of toll roads in Norway. 4 1EVALUATION OF ACTIVE PRICING SCHEMES

4 2 A Closer Look at the Real World Derek Turner, Derek Turner Consulting Stephen Ison, Loughborough University, United Kingdom MANAGING THE STREETS OF LONDON Derek Turner The use of congestion charging as an effective tool for the management of urban traffic flows has been demonstrated by the ground-breaking scheme introduced in London in February 2003. Many world cities that have already implemented new interurban toll routes are considering such a congestion charge as a method of extending road user charging to an existing urban road environment. Congestion charging is particularly relevant to the city’s environment because, correctly managed, it initiates a self- perpetuating cycle that encourages a shift from private to public transport within the charging zone. This method of charging is not a tax; rather, the charges are part of an integrated approach that incor- porates improvements in public transport and highway facilities. The reduction in traffic allows buses to move more freely, and the significant portion of net revenue spent on buses provides increased capacity and fre- quency of service. The enhanced service is vital to ensure that former car users remain loyal to public transport in the long term. The central London congestion charge scheme requires purchase of a virtual area license to drive within a 21-square-kilometer area of inner London. Cameras linked to automatic number plate technology capture vehicle registration plates on entry into the zone and store details in a database until matched to a payment. The payment is applicable during weekdays from 7 a.m. to 6:30 p.m. Strict enforcement and a thorough monitoring strategy have enabled a successful launch and efficient ongoing performance. The world’s largest congestion scheme has prompted favorable comments, such as the following by Susan Kramer, a board member of Transport for Lon- don and a previous mayoral candidate: “We always thought we had to live with congestion in our city centers. London has shown this is no longer true.” Results after 6 months of performance have shown a multitude of improvements for London’s transport: a 25% decrease in time spent stationary; a 30% reduction in traffic delays; and a 14% reduction in journey times to, from, and across the charging zone. Reduction in inbound traffic flow has been most evident in peak peri- ods, with weekday speeds in and around the zone increased by 10% to 20%. London’s buses have seen a 33% decrease in excess waiting times for bus routes serving the congestion charge zone. Bus delays due to traffic disruption have been halved both inside the zone and on the ring road that forms the zone boundary but does not incur a charge. A reduction in road accidents has also been mea- sured, though a longer period is required to determine its significance. The net revenues (i.e., revenues after deduction of operating and enforcement costs and debt payments) of the scheme are expected to be £68 million for 2003–2004 and are expected to rise to between £80 million and £100 million in future years. The annual net benefits, exclusive of these revenues, are forecast to be £50 million. They include considerations such as time savings, fuel savings, and reliability benefits.

FAILED SCHEMES IN PRICING Stephen Ison While London’s experience with congestion pricing is typically viewed as a success story, it is important to pay equal attention to pricing schemes that have not made it to implementation. Experiences in Hong Kong and Cambridge, United Kingdom, provide two prime examples. Public perceptions of the depth of the problem and the costs of addressing it played an important role in both instances. While people frequently complain about traffic, often the public as a whole does not think con- gestion levels bad enough to warrant major policy ini- tiatives, particularly when they perceive that the costs of the initiative will be too high. In addition, many people suspect that congestion pric- ing is aimed at not only financing infrastructure but also paying for general policy objectives. For this reason, sur- veys frequently find that if the respondents are confident that revenue will be used for a specific transportation- related purpose, such as public transport, they are more likely to support a congestion pricing initiative. Mistrust of government, and particularly suspicions that a com- mitment to use revenue for a particular purpose will be overturned in the future, can easily undermine support for any pricing program. In terms of congestion pricing in central London, the revenue generated is earmarked for transport-related projects. This is also the case for any other authority considering the implementation of a congestion pricing scheme in England and Wales in line with the Transport Act (2000). Other public concerns, which often extend to political leaders as well, revolve around privacy and the reliability of the technology on which the pricing system relies. An examination of London’s experience helps illustrate conditions that may be necessary, though not sufficient, to move from a proposed system to implementation. Among the essential ingredients are the following: • Severity of congestion. In London, speeds had been declining since the 1970s, and in an amount sufficient to make the magnitude of the traffic problem obvious to all road users. (Interestingly, this suggests pricing’s greater potential as part of a solution to address existing congestion than as a preventive measure.) • Strategic exemptions. To underscore the program’s policy objectives and address equity concerns, London’s pricing policy excuses certain residents, alternative fuel vehicles, emergency vehicles, vehicles with nine or more seats, emergency vehicles, and vehicles driven by disabled people from the fee. • Clarity of objectives, with an explicit line drawn to transport demand management. • Proper hypothecation, or earmarking, of revenues. A pledge to dedicate revenues to public transport was a popular choice given the public’s widespread perception of its current financial needs outstripping available resources. • Easily understood technologies. While it may be necessary to refine the fee collection system at a later date, a pricing system is more likely to be adopted if the initial system is simple and can be explained quickly and clearly to the public at large. • Single implementing agency. • Charismatic advocate. Obviously, the presence of a leader such as London’s Mayor Ken Livingstone can be key to successful implementation. The case of London is especially interesting, since congestion pricing provided the opportunity for a left-of-center politician to seize on a market-based proposal early in his term and stake his reputation on the proposal’s success. • Strong presentation. London’s pricing advocates did an excellent job of engendering trust through open communications, a clear and well-composed presenta- tion of the problem and the proposal, and the develop- ment of first-rate communication tools, including a highly effective website. • Weak opposition. A final factor working in Lon- don’s favor was the relative absence of any sustained organized opposition to the proposal. Some of these conditions are within policy makers’ and program managers’ control, while others cannot be manufactured. Without a clear understanding of those factors within and beyond their control and how those factors will bear on ease of implementation, the possibil- ity of replicating London’s experience through fortunate circumstances and lucky breaks will be remote indeed. 4 3A CLOSER LOOK AT THE REAL WORLD

4 4 Impacts of Pricing on Interurban Freight Transportation Robert Poole, Reason Foundation Tony Wilson, National Transport Commission, Australia Darrin Roth, American Trucking Associations Andreas Kossak, High Commission Financing the Federal Transportation Infrastructure, Germany TOLL TRUCKWAYS: USING PRICING TO FINANCE NEW GOODS-MOVEMENT INFRASTRUCTURE Robert Poole The United States faces a serious shortfall in highway investment as fuel taxes fail to keep pace with inflation, increased fuel economy, and use of alternative fuels. Trucks deliver 90% of the value of U.S. freight, and there is little likelihood of a significant mode shift to rail for a variety of reasons. The problem addressed in this presentation is how to expand long-haul highway capacity to meet the needs of goods movement. Historically, the trucking industry has opposed any expansion in the scope of tolling on the grounds that paying both tolls and fuel taxes on the same highway constitutes double taxation. Whether fuel taxes paid by heavy trucks fully cover their fair share of highway costs can be debated, but the fact is that political opposition to tolls by the trucking industry has been a significant obstacle to wider use of tolls to fund improved highways. Recent work at the Reason Foundation has posited a new approach to tolls and trucking. The basic concept is to provide significantly more valuable highway services to heavy-duty long-haul trucks to make it worth their while to pay tolls. The key insight underlying this approach is that double- and triple-trailer rigs make possible major increases in trucking productivity. But these longer combination vehicles (LCVs) are banned by federal law from most parts of the National Highway System. The federal “LCV freeze” permits LCV opera- tions only on routes that were available to these trucks under state laws as of 1991. Thus, higher-productivity LCVs operate only on selected western Interstates and a few eastern turnpikes and toll roads. The Reason Foundation’s researchers propose that LCVs be allowed to operate on new, barrier-separated heavy truck lanes that would be added to selected Interstate routes, gen- erally to fill in missing links in the fragmentary LCV net- work or to extend that network to new destinations. Trucks would be charged tolls to use these new truckways and would be allowed to operate as LCVs only on these special lanes (in states covered by the LCV freeze). Simulation modeling was carried out on the basis of a heavy-duty pavement design, a model of pavement wear and maintenance, and a variety of scenarios, including both standard 18-wheel single-trailer rigs and long turn- pike doubles. It was assumed that trucking firms would pay a toll of as much as 50% of the cost savings that would result from higher-capacity rigs. The resulting analysis found that, over a wide range of scenarios, toll truckways would be economically and financially feasible. The idea is now being considered by Congress as part of reauthorization of the federal surface transportation program. OVERVIEW OF STUDIES ON HEAVY VEHICLE CHARGES Tony Wilson Road use, like many other activities, has traditionally been regulated on the basis of a set of prescriptive rules.

For example, a particular type of axle might be limited to carrying a set mass. This type of rule provides a blunt, indirect means of limiting the amount of pavement wear a vehicle can produce and may also be used as an indirect means of ensuring that the vehicle is stable and safe. As a result of these blunt rules, the approach in Aus- tralia, as in other countries, to pricing road wear has been to rely on aggregate systems rather than to measure the vehicle’s use and resulting road wear directly and price it accordingly. The Australian road pricing system for heavy vehicles aims to fully recover their share of road construction and maintenance costs through a two- part pricing system comprising a fuel charge and fixed annual registration charges that vary by vehicle type and size. The prices are based on average utilization for each class of vehicle—average mass, average distance trav- eled, and average fuel consumption rates. Consequently, we, like others, have not had to develop a good understanding of the relationships between road use and infrastructure costs. More research in this area would be useful, but for the time being we in Australia have relied on the original American Association of State Highway and Transportation Officials tests of the fourth- power law to estimate the pavement wear contribution of different axles and loads, with load equivalencies derived from a system of measurement different from that used in pavement design. However, this approach provides little understanding of the variations that can result from dif- ferent pavement designs, traffic levels, and environmental conditions. The European National Highway Research Laboratories COST 334 project has advanced under- standing of a number of issues, but many questions remain. While the long-standing blunt, prescriptive approach to regulating road use creates little incentive to shift away from a broad, aggregated approach to pricing, Australia is gradually making this shift. There are three main planks to this new, less prescriptive approach: 1. Development of a performance-based approach to regulating safety and infrastructure outcomes of heavy vehicles. The new approach will operate as an optional alternative to prescriptive mass, dimension, and config- uration rules for the time being. It directly specifies the safety and infrastructure outcomes that vehicles are required to achieve. 2. A broad range of compliance and enforcement reforms that attempt to put in place an enforcement strat- egy that aims to promote compliance. The reforms sepa- rate offenses into risk bands depending on the potential negative impacts of noncompliance and make available a commensurate range of penalties. These provisions have no precedent in Australia or overseas and will oblige all parties in the supply chain to take steps to prevent a breach of the road transport mass and loading laws. 3. The Intelligent Access Program, which is developing ways of using vehicle-tracking technologies to monitor the route compliance of heavy vehicles on Australian roads. This approach provides greater confidence that vehicles use the roads they are meant to use. It provides a mechanism to allow more extensive access for vehicles operating outside the norms of the vehicle fleet, such as mobile cranes, vehi- cles operating under mass concessions, dangerous goods vehicles, or other specialized or innovative vehicles. As a result, we are now in a position to start examining more flexible approaches to regulating road use, but they will be acceptable to infrastructure managers and the com- munity only if they are accompanied by variable pricing arrangements. By the same token, other interest groups will seek and accept variable pricing systems of this type only if there is a change to more flexible regulatory approaches. The following are examples of more flexible regula- tory arrangements: • Allowing heavy vehicles to choose what mass to operate at, within safety limits; • Allowing heavy vehicles broader access to a range of roads or routes from which they are presently restricted; • An improved method for managing the impacts of land use changes that could necessitate additional heavy vehicle road use and create consequent impacts on the transport infrastructure; and • Applying pricing to allow optimum use of multi- ple transport modes in the total supply chain from ori- gin to destination by accurately charging for the road link in the transport chain. The mechanisms to allow this type of incremental pricing system in Australia are currently being developed and analyzed. The appropriate design is expected to be chosen over the coming 12 months, with work following to put the new system in place by around 2006. With these developments, Australia will be in a posi- tion to consider whether broader social costs of road use should be incorporated in the pricing arrangements. Inclusion of these other costs in the calculation would represent a significant shift in the objectives of a pricing approach, which would need to be carefully considered to ensure that the resulting pricing system is best suited to the objectives to be achieved. EFFECTS OF PRICING ON TRUCKS IN THE UNITED STATES Darrin Roth The American Trucking Associations is a national fed- eration representing the trucking industry. Its views on 4 5IMPACTS OF PRICING ON INTERURBAN FREIGHT TRANSPORTATION

road pricing center on a key distinction: mandatory ver- sus voluntary systems. It supports the concept of volun- tary tolls but is leery of the slippery slope whereby voluntary systems gradually morph into mandatory sys- tems. Without adequate assurance that voluntary really does mean voluntary, the industry would look at most pricing proposals with a good degree of skepticism. Incentives that permit the industry to improve its productivity—for example, through adjustments to size and weight limits—can help mitigate industry doubts about the extent to which pricing will benefit truckers rather than simply raise revenues. Indeed, recent history has witnessed a large number of unacceptable policy decisions, including an 82% rate increase on the Ohio Turnpike and a 300% increase on seven toll bridges crossing the Delaware River. We have ample evidence that revenue generation, rather than productivity improvements and other benefits to road users, underlie many pricing ventures. Another of the industry’s concerns is double taxation. Without a doubt, truckers already bear a sizable tax bur- den. A true user fee should be based on the true cost of the vehicle’s use of the facility, with revenue funneling straight back into the facility. This principle is utterly overturned when a user fee is imposed over and above an existing tax system. Similarly, the industry’s support for any pricing project is also predicated on the appropriate use of revenues generated by the project. In our view, revenues are legitimately directed to the service of debt and the expense of operating the facility; tolls should be removed once bonds are paid off. Certainly, revenues generated by a given facility’s users should not be directed to any unrelated facility or purpose. And what is pricing’s true effectiveness in modifying behavior and managing demand for a limited resource? Given shippers’ expectations for pickup and delivery times, truckers have little control over their travel times; as it stands, truckers seek to avoid peak times anyway, even without price signals to force the issue. Also, traffic diversion can quickly undermine the true goals of any pricing project. One recent study predicts that with a toll increase of $0.20 per mile, up to 50% of truck traffic can be expected to divert to alternate routes. Another study, performed by Fluor-Daniel, demonstrated that under a new pricing project under which trucks and cars would face tolls of $0.17 and $0.05 per mile, respectively, 35% to 85% of vehicles would divert. And that 82% toll increase on the Ohio Turnpike underscores the diversion concern as well; following the increase, local roads sud- denly experienced a 30% to 50% increase in truck traf- fic. Such diversion can obviously impose significant safety, environmental, and infrastructure costs. Finally, electronic tolling imposes significant costs on truckers; if the German road pricing proposal were applied to the United States, we estimate that it would cost $200 million per year to place onboard units into new vehicles and $1.5 billion to convert existing vehi- cles. The fuel tax, in contrast, imposes much lower ancillary costs. While the American Trucking Associations is open to proposals such as the truck tollways currently proposed by the Reason Foundation and the conversion of high- occupancy vehicle lanes to high-occupancy toll lanes, our support is wholly dependent on assurances that the proposed pricing will be voluntary rather than manda- tory and make provision for alternate routes for truckers who are unable to pay any newly imposed fee. TOLLING HEAVY GOODS VEHICLES ON GERMANY’S AUTOBAHNEN Andreas Kossak In 1999 the German government decided to introduce distance-related charges for heavy goods vehicles (HGVs) starting in 2003. This decision stemmed from at least three goals: to raise additional money for financ- ing the federal transportation infrastructure, to shift freight transportation from road to rail and inland waterways, and to improve the competitiveness of the German logistics industry. A High Commission on Financing the Federal Trans- portation Infrastructure was appointed and given full discretion to develop recommendations on financing strategies. The commission’s central recommendation was to convert “the financing of the Federal Transporta- tion Infrastructure . . . step by step from financing on the basis of the Federal Budget and federal taxes respectively to financing by the user—as far as possible under the dif- ferent boundary conditions.” With regard to the techni- cal system for charging the toll and the amount of toll, respectively, the commission recommended that “the sys- tem should ensure upward-compatibility and interoper- ability” and that “HGVs should be charged an average toll of 25 Pfg. per vehicle kilometer on Autobahnen.” By the end of September 2002, the national govern- ment had made a final decision for the operator of the tolling system and had decided to allocate 50% of the net toll revenue to the railways and the inland water- ways. At present, we expect the tolling system to take effect in spring or summer 2004. Throughout this process, the logistics industry has not registered significant opposition to tolling HGVs using Autobahnen on the basis of internal costs. In fact, many in the industry hold that the introduction of the tolling system will be beneficial, since it will improve the competitiveness of the German logistics industry com- pared with that of the foreign truckers using Germany’s Autobahnen, which are exempt from the relatively high 4 6 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

German traffic-related taxes. The industry, however, has called for the exclusive dedication of the total net rev- enues for improvements to the federal roads system. In addition, it emphasizes that any additional financial burden must be passed on to the clients. We expect that qualified logistics enterprises will increase their productivity, though simple freelance truckers may suffer some setbacks. We also expect that an increase in transportation fees will raise consumer prices. And finally, we expect almost no shift of freight from road to rail, though a substantial shift from Auto- bahnen to toll-free “Bundesstraßen” is possible. This phenomenon could lead to pressure to expand the tolling to other types of roads. 4 7IMPACTS OF PRICING ON INTERURBAN FREIGHT TRANSPORTATION

4 8 Winners, Losers, or a Zero-Sum Game? The Distributional Impacts of Pricing Schemes Peter Nelson, Resources for the Future Farideh Ramjerdi, Norwegian Institute of Transport Economics Douglass Lee, Volpe National Transportation Systems Center WELFARE AND DISTRIBUTIONAL EFFECTS OF ALTERNATIVE ROAD PRICING POLICIES FOR METROPOLITAN WASHINGTON, D.C. Peter Nelson Like many metropolitan areas in the United States, the Washington, D.C., region has recently experienced rapidly worsening traffic congestion as well as difficul- ties in finding revenue to finance improvements to the transportation network. As a consequence, local policy makers have directed their attention to high-occupancy toll (HOT) lanes as a cost-effective way to provide addi- tional capacity. Currently the governments of both Maryland and Virginia are examining the viability of implementing HOT lanes on a variety of local facilities. Concerns about so-called Lexus lanes have arisen in the Washington area in the past. In 2001, Maryland Governor Parris Glendening killed a HOT lane project because of concerns that it would be unfair to lower- and middle-income drivers. To test this assertion, we at Resources for the Future modeled two scenarios by using the Washington START model, which is based on the START modeling suite developed MVA Consultancy. START is a “strategic” model and is characterized by an aggregated treatment of the transportation network and a highly detailed characterization of transportation demand. Its flexibility, quick run times, and consistency with household optimization theory make it useful for policy research. One of its attractions is that it can account for policies’ “adjustment costs” (e.g., the cost of switching from on-peak to off-peak travel to avoid paying a toll). Two scenarios were modeled: a HOT lane policy and a more comprehensive road pricing policy. Under the HOT lane policy, all of the region’s high-occupancy vehicle (HOV) lanes were converted to HOT lanes that solo drivers could use for a 25-cent-per-mile toll. The comprehensive road pricing policy tolled all of the area’s roadways at 7 cents per mile on general lanes and 22 cents per mile on premium lanes. The HOT lane policy produced substantial net benefits—more than $170 million per year. Travelers gained $105 million in benefits, even after netting out their toll payments, through improved travel times. Gains were both direct (for those who used the HOT lanes) and indirect (for those who benefited from the spillover effects of opening up spare road capacity). All income groups experienced positive welfare changes. The only identifiable losers were previous users of the HOV lanes, who now experienced somewhat longer travel times, and travelers along “non-HOT” corridors. These travelers experienced losses because the policy increased vehicle trips and therefore produced slightly more congestion in the core. Losses were trivial for both of these groups. In addition, the policy raised $65 million annually. One implication of the research is that compensation of travelers is a much less important issue in a HOT lane context than it is for more global road pricing schemes. In addition, because HOT lanes do not appear to inflict large welfare losses on any identifiable group of travel- ers (including low-income travelers), HOT lanes appear to be a promising avenue for promoting acceptance of road pricing.

ROAD PRICING AND EQUITY IN NORWAY Farideh Ramjerdi Equity concerns are high on the list of reasons for oppo- sition to road pricing. While some of the popular argu- ments against road pricing can be dismissed out of hand, equity concerns merit close attention—not just to facili- tate implementation of a measure that can improve the efficiency of the transport system but also because equity objectives are important in their own right. A reconciliation of the potential conflict between equity and efficiency can be brought about through the use of at least two policy instruments. First, the recycling of revenues back into the transportation system should be an integral part of the road pricing scheme. Second, an understanding of the valuation of externalities by vari- ous socioeconomic groups and regions is essential for evaluating alternative pricing programs. In forging transport policy, governments ideally have three objectives: raising revenue to provide public goods and services, achieving a desirable income distribution, and controlling externalities. In a perfect world a govern- ment has perfect information, can use nondistortionary taxes for revenue-raising and distributive purposes, and has perfect instruments to deal with the transport exter- nalities. In the real world, the evaluation of transport instruments should take into account not only the trans- port sector but also the rest of the economy and the general tax system. Norway’s urban toll systems have been introduced as financing schemes intended to deal with funding short- falls that are unfortunately accompanying an increase in road traffic. In 2000 toll revenues contributed about 35% of total funding for transport infrastructure. Since 1986, with the introduction of toll ring schemes in Bergen, Oslo, and Trondheim, and more recently in Stavanger and Kris- tiansand, there has been a dramatic shift toward toll- financed facilities in urban areas. With low elasticities coupled with a focus on revenue gains, the designs of these systems have exhibited a minor concern for equity and produced limited impacts on congestion levels. Since the mid-1990s amendments to the national road laws have made it possible to allocate some of the revenues from a toll scheme to public transport invest- ments. A new amendment, approved in June 2002, sanc- tions the use of a toll scheme for demand management and has opened the door to congestion pricing. Under this amendment the proceeds from a scheme must be used for local road and public transport purposes. Where are we now in Norway with respect to road pricing? Since the introduction of the toll ring schemes, support for road pricing as part of an integrated package of policy instruments for urban areas has increased. Legal barriers to pricing have diminished. And almost all larger urban areas in Norway now have urban toll rings in place that could be modified to address congestion. Modifica- tions to support congestion pricing might include increases in toll levels, differentiated tolls by time of day, and changes in the location of toll stations. While true conges- tion pricing will improve efficiency, such improvements may well be accompanied by negative distributive im- pacts. Revenue recycling can help, but its positive impacts on public opinion will be minimized if there is a lack of transparency in the process of allocating the revenues. Under these conditions, public opinion and political sup- port for the continuation of urban toll and congestion pricing schemes will erode even further. We therefore argue that policies should be evaluated on both efficiency and equity grounds. Congestion pric- ing, by its nature, has negative distributive impacts that must be addressed. The design of the integrated policy instruments should take account of the negative distrib- utive impacts by providing the necessary compensation to the losers. Since this alone might not create a political consensus for congestion pricing, further incentives to overcome inequities might be both politically necessary and good public policy. IMPACTS OF PRICING ON INCOME CLASSES Douglass Lee Vertical equity—the impact of a policy on the distribution of income among income classes—is one of several major components of policy evaluation and a subject that receives a great deal of popular and political attention. Popular comments about vertical equity, however, are often based on a weak understanding of theory and little or no empiri- cal evidence. This is unfortunate, because useful theory and some data are available and allow conclusions to be reached that can improve public decisions. Though vertical equity is a matter of concern with most policy initiatives, it comes up especially often in discussions of congestion pricing. While existing data do not permit precise conclusions, a close investigation of findings to date and the application of some judgment produce several generalizable results. First, the distributional impact of peak congestion pricing appears to be mildly regressive, measured against household income, but not regressive enough to stand as an obstacle to peak pricing. Those traveling on urban highways at the peak period in the peak direction are substantially more affluent than the population as a whole, and those who choose to pay the toll are more affluent still. Second, alternative (existing) financing mechanisms such as fuel excise taxes, sales taxes, and local property taxes are also mildly regressive under typical conditions, so 4 9WINNERS, LOSERS, OR A ZERO-SUM GAME?

there is no great urgency to shift away from them on verti- cal equity grounds. (There are, however, good efficiency and horizontal equity reasons for doing so.) Third, using toll revenues to reduce general taxes or to provide income transfers based on need is probably the safest way to recycle the revenues generated through pricing schemes. Earmarking revenues for specific pur- poses can be desirable in closing the loop between pay- ers and beneficiaries but can be dangerous economically and misleading politically. Spending toll revenues to increase highway capacity, subsidize transit, or support the freight rail system may be inefficient if those sectors receive more funds than they can use efficiently—that is, apply in ways that generate positive net benefits. More- over, since public revenues tend to be fungible, ear- marking revenues may simply replace other revenue sources, in whole or in part. With reasonable care, though, recycling the toll revenues should result in a net favorable vertical redistribution. In short, congestion pricing is probably a progressive policy from the standpoint of redistributional equity, and no worse than mildly regressive. 5 0 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

5 1 Urban Freight Transportation Mark Griffin, Southern California Association of Governments David Levinson, University of Minnesota Martin Ruesch, Rapp Trans AG, Switzerland MOVING THE GOODS IN LOS ANGELES Mark Griffin The six-county region of Southern California represented by the Southern California Association of Governments (SCAG) serves as a crucial node of international and national commercial flows. Commercial movements in and through the region contribute a significant amount of economic activity across the nation. For example, the Southeast region of the United States, inclusive of Miami, recorded slightly more than $87 billion worth of commer- cial movements with the SCAG region in 2000. The SCAG region connects with the rest of the nation via a freight infrastructure system that reaches by rail and road to every part of the contiguous states. This connectivity sustains certain levels of economic value nationwide, and the level of activity indicates the mag- nitude of “value added” attributable to the goods move- ment infrastructure in Southern California and the nation. In return for accommodating these international and national commercial flows on its regional freight infra- structure system, the SCAG region receives (and distrib- utes) a lot of freight. This load negatively affects air quality and transportation congestion in the SCAG region and thus diminishes the region’s quality of life. The volumes of freight handled by the region are forecast to double or triple by 2030, depending on the mode of transportation considered. In addition to a local population of 17 million and a regional economic product in excess of $600 billion, several trends in the international logistics industry are working to increase the region’s share of freight movements. For example, the effect of “load centering” can be discerned in the increasing market share of Asia-related trade being cap- tured by the ports of Los Angeles and Long Beach rela- tive to other West Coast ports, as well as by the greater proportion (more than double) of Asia trade handled by West Coast ports as a group relative to what would oth- erwise be expected given their local populations and lev- els of economic activity. In addition, the practice of “transloading,” whereby international goods are repackaged from 40-foot international marine contain- ers into 53-foot domestic containers and trailers, has been identified as a key characteristic in the shaping of regional commercial flows. The combined effects of load centering and transloading are expected to impose significant new demands on the goods movement infrastructure of Southern California. In light of these developments, SCAG is targeting pricing schemes that are consistent with the development of greater goods movement capacity in the region. To build needed new capacity, new sources of revenue must be found, and pricing mechanisms of one sort or another are the most likely candidate. The updated 2004 Regional Transportation Plan for the SCAG region, presently out in draft for public comment, identifies user- fee supported revenue bonds as the primary financial strategy for developing greater goods movement capacity. Revenues raised from commercial flows in the region would be used to create new, special-purpose infrastruc- ture capacities. Examples of special-purpose facilities

under consideration include a regional dedicated truck- way system and enhanced regional rail capacity. Prelimi- nary financial analyses show that each of these capacity options would be essentially self-supporting with reason- able tolls or other movement charges given certain public debt issuance arrangements, such as tax-exempt revenue bonds, loans made available under the Transportation Infrastructure Finance and Innovation Act federal credit program, and, potentially, tax credit bonds. With these investments in new goods movement infrastructure facilities, the anticipated increase in aver- age truck delay on the region’s transportation system through 2030 could be averted, with future delays held to a reasonable level. Furthermore, the economic effects of these infrastructure investments would benefit the region in terms of employment and revenues. TRUCKS’ VALUE OF TIME: IMPLICATIONS FOR CONGESTION AND WEIGHT LIMITS David Levinson Minnesota’s spring load restriction policy, which places strict limitations on commercial vehicle weights during the spring thaw, has been in effect for more than 50 years. Throughout this time, almost no consideration has been given to the cost that the policy imposes on the freight industry. However, the state has now commis- sioned a cost–benefit study to examine the policy’s necessity. The cost–benefit analysis includes estimates of freight demand and user costs, which are calculated as the difference between total travel time and vehicle miles traveled with and without the policy in effect, with this difference then multiplied by the value of time for com- mercial vehicle operators in Minnesota. The users’ value of time is an essential component, since the policy has numerous impacts that can make freight movement much more time consuming. For example, vehicles com- plying with the policy must shift seasonal timing of ship- ments, reduce load size per vehicle, change vehicle types, or change routes, all of which can impose additional costs on commercial vehicle operators. Researchers have studied the value of time for more than 40 years. Four methods to discern users’ value of time are in common use. Estimates of net operating profit fix vehicle and labor costs so that with improved speeds, a vehicle will be able to travel farther in the same span of time and contribute more profit to the company. Cost savings models are based on a reduction of those costs that do not vary with miles of operation. Cost-of-time estimates determine the cost of providing time savings. And finally, the willingness-to-pay approach considers individual choices when respondents are faced with a decision between time savings and other benefits. Given our specific research question, no estimates, regardless of these approaches, were available from pre- vious studies or data. Absent the necessary revealed preference information, a sample was constructed from several trucking industry sources to conduct a survey. Interviews were conducted by using an adaptive stated preference survey to derive an estimate of the value of time to the nearest dollar. A tobit model was fit to the data from the interviews to derive the estimate for value of time. A mean of $49.42 was found, with a 95% confidence interval from $40.45 to $58.39. Variation in the distribution of values is largely undetermined with the exception of fleet operation, whether it is a for-hire truck fleet or a private truck fleet. In addition to deriving estimates for commercial vehi- cle operators’ value of time, which can now inform pol- icy decisions concerning the spring load restriction policy, the analysis helped illuminate the advantages of an adaptive stated preference study in comparison with traditional stated preference studies. The current state of the art in using stated preference methods to evaluate the value of time uses a fee structure in exchange for time savings, in most cases a toll. It has been shown that stated preference methods typically underestimate the true value of time, since the use of a fee structure fails to account for subjects who avoid paying additional fees for a public good that they may believe they pay for in the form of taxes. The fine structure included in the adaptive stated preference study we used for this analy- sis helped account for these otherwise “missing” sub- jects and provides a greater estimate for value of time than do previous studies. ROAD PRICING AND URBAN FREIGHT IN EUROPE: PRACTICES AND DEVELOPMENTS FROM THE BESTUFS PROJECT Martin Ruesch The BestUFS project (Best Urban Freight Solutions) has run for 4 years, from 2000 through 2003. Besides addressing other urban freight issues, it examines devel- opments in pricing freight movements specific to urban areas throughout Europe over the years. Extensive information on the BestUFS project can be found at www.bestufs.net. A few of the lessons learned to date are as follows: • Freight transport’s share of the overall transporta- tion sector will increase in the coming years, and this will be true both for urban areas and for interurban trips. Therefore, an understanding of the structure of the freight transport industry, travel patterns, the local framework, the structure of the urban area, and existing access regu- 5 2 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

lations is critical for proper design and implementation of a road pricing scheme. • The value of time in freight transport is 5 to 10 times higher than for passenger transport. Moreover, the price elasticity for freight movement is low in urban areas; the possibilities for altering transport patterns are limited because of access regulations, shippers’ demands, and limited modal alternatives. • European approaches to road pricing for urban freight are heterogeneous. The United Kingdom, Nor- way, and Italy lead the field in applying road pricing to freight vehicles. Switzerland (2001), Germany (2004), and Austria (2004) have introduced or are planning distance-based heavy vehicle fees. • The range of approaches includes single road pric- ing (e.g., Norway, France), cordon pricing (e.g., Norway, Italy), network pricing (e.g., Germany), and area pricing (e.g., United Kingdom, Switzerland). While each approach has advantages and disadvantages, they tend to be selected on the basis of local conditions and political reality rather than economic theories. • Financing of infrastructure (e.g., Norway, France, Germany) and demand management (e.g., United King- dom, Switzerland) are the main objectives. • Despite urban freight’s increasing share of the transportation sector and its importance for the regional economy, road pricing projects continue to focus on passenger transport. • The London congestion charging project, in place since February 2003, provides an interesting illustration of the impact of political realities on system design. Orig- inal plans called for a freight vehicle charge of £15, com- pared with £5 for cars, which was estimated to represent about 3% to 5% of the daily costs of truck operations. During the consultation process the transport lobby reached a reduction from £15 to £5. Since implementa- tion, the reduction of travel times (by 14%) and the improved reliability (by 30%) are important benefits for urban freight transport. Before implementation the trans- port sector had great doubts, but since implementation acceptance has improved remarkably. • The Swiss Heavy Vehicle Fee, in place since Janu- ary 2001, provides a fine example of successful intro- duction of distance-based heavy vehicle pricing. Though focused on interurban freight movement, the approach could be adapted to urban areas. The main objectives have been the internalization of external costs and demand management. The fee depends on the distance driven, the vehicle’s maximum gross weight, and its emission category. For a 40-ton truck the fee is about €0.40 per kilometer (2001–2004) and will be €0.65 per kilometer (after 2005)—about four to six times higher than the planned fee in Germany. About 70,000 vehicles are affected by the fee daily, and about 57,000 vehicles are equipped with an onboard unit to permit electronic collections. With relatively low capital and operations costs, collection costs are about 4% to 6% of the rev- enues. Two-thirds of the net revenues are used for financing large-scale public transportation projects, and one-third are directed to the cantons to cover road transport costs. Positive effects identified during the first 2 years of operation include beneficial fleet adaptation, organizational changes, and alternative route and mode choices. The following is a summary of the main findings: • Suitable pricing schemes for urban freight trans- port yield reliability and travel time benefits that exceed the costs. • Road pricing can improve the efficiency of urban freight movement and foster more sustainable logistics and distribution strategies. • A demand management approach can generate more benefits for urban freight transport than a financing approach. • Urban transport policy, not only for passenger but also for freight, ought to address road pricing. • Urban freight issues should receive greater attention during the development of road pricing strategies and should acknowledge access regulations, emissions cate- gories, vehicle sizes and types, and ultimately differentiated load factors depending on a vehicle’s configuration. • Charges for freight vehicles should be higher than for private cars. • Early attention to interoperability of selected pric- ing systems is critical for preventing later discoveries of incompatible approaches. 5 3URBAN FREIGHT TRANSPORTATION

5 4 The Price Is “Right” Perspectives on Finding It Genevieve Giuliano, University of Southern California Ed Regan, Wilbur Smith and Associates Jim Bourgart, Parsons Brinckerhoff Mark Burris, Texas A&M University INNOVATIVE FINANCING’S ROLE IN PRICING PROJECTS Genevieve Giuliano Since the passage of the 1956 Interstate Highway Act, highway infrastructure in the United States has been funded, built, and operated almost entirely within the public sector. Infrastructure was funded primarily by fuel and other user fees, and projects were built on a pay-as-you-go basis. This traditional model of highway finance is losing its relevance. Over little more than a decade, an entire array of new funding strategies have emerged. Termed “innovative finance,” these strategies seek to leverage public funds by accelerating project construction, facilitating issuance of bonds and other debt instruments, tapping into new sources of revenue (including user charges), or attracting private invest- ment. Perhaps the most extreme form of innovative finance is partial or full private funding and ownership of highway facilities. This presentation investigates the emergence of innovative finance, offers some explana- tions for its rapid proliferation, and discusses the shifts in risk that innovative finance implies. By using exam- ples of toll road projects drawn mainly from California, I examine various aspects of risk to understand why projects succeed or fail and the lessons that can be drawn for future projects. The erosion of highway system funding capacity is well recognized. The conventional explanation identifies the declining productivity of the fuel tax, rising costs of construction and of maintaining an aging system, devo- lution of financial responsibilities to lower levels of gov- ernment, and general public resistance to tax increases. I argue that there is more to the story: a more general shift in perceptions of the role of government, changes in our understanding of transportation industry structure, mixed evidence of broad economic benefits of highways, increased concern with environmental costs, and lack of consensus on how transportation problems should be addressed. There are many arguments for innovative finance: projects can be built sooner, public dollars are lever- aged, private-sector costs are lower, public–private ven- tures spread risk, and technology now makes possible user charges and complex revenue-sharing agreements. Despite these advantages, most innovative finance proj- ects to date have been various forms of fund advance- ments and more flexible financing arrangements. Relatively few new highway projects include significant private-sector participation. My assessment of two groups of projects—the Assembly Bill 680 toll road projects in California and four new suburban toll roads—focuses on the various types of risk such projects face. I conclude that success- ful projects require uniquely favorable conditions; polit- ical acceptance and the sustained support of public partners are critical. Fully private facilities are generally not economically viable because of very long payback periods and uncertain user revenue streams. Moreover, the public sector retains the residual risk, even in the case of fully private projects.

EXPERIENCES WITH ACTIVE PROJECTS: INTERSTATE 10 Ed Regan As congestion pricing moves from theory to practice, new opportunities for providing higher-quality trans- portation through the use of managed lanes and, potentially, bus rapid transit are emerging. Two prime examples of managed lane facilities are (a) the new Interstate 10 managed lanes project in Houston, which is being implemented as part of a major Katy Freeway improvement program and which provides an excel- lent illustration of the opportunities offered by blend- ing the high-occupancy toll (HOT) lane concept with bus rapid transit, and (b) the existing Interstate 15 managed lanes project in San Diego, soon to be more than doubled in size. The Interstate 10 expansion program involves expan- sion of an existing seven-lane highway [six general- purpose and one high-occupancy vehicle (HOV) lane] to eight general-purpose and four value-priced managed lanes. The managed lanes are being financed by the Harris County Toll Road Authority. Under a multiagency agree- ment, transit buses will be able to use the managed lanes toll free, and the toll agency has committed to charge suf- ficiently high prices to ensure free-flowing operations in the managed lanes even during peak periods. As a result, the Interstate 10 managed lane solution essentially creates a two-directional, free-flowing “vir- tual” busway, shared with (and paid for by) passenger car motorists willing to pay a toll to obtain the same time savings advantages afforded to the buses. In this way, HOT lanes and bus rapid transit will be able to work better together, a “win-win” scenario for both the high- way side and the transit side. Twinning these features has the potential to result in an integrated high-quality trans- portation solution that can manage demand while gener- ating revenue and providing a built-in incentive for increased use of transit. Another managed lane application meriting attention is the successful Interstate 15 project in San Diego, which stands as the world’s first and only use of fully dynamic variable pricing. Single-occupant vehicles are allowed to “buy in” to previously constructed HOV lanes, and one noteworthy feature of this project is the extremely posi- tive results generated from extensive public opinion polling. The surveys have shown strong support for the variable pricing approach, with overwhelming approval registered by both users and nonusers of lanes as well as carpoolers and transit patrons. In fact, the most frequent response to a question about the single most effective way to reduce congestion on other portions of Interstate 15 was to extend the tolled express lanes, which showed consistently more support than simply adding toll-free regular lanes. INTERSTATE 680 AND OTHER CALIFORNIA PROJECTS Jim Bourgart By charging single-occupant vehicles for the opportu- nity to use freer-flowing HOV lanes, HOT lanes offer a number of benefits: more efficient use of HOV lane and freeway capacity, revenue generation to support trans- portation improvements, and the opportunity to sustain public support for existence of HOV lanes at all. A prime example of the HOT lane concept is the planned 14-mile Interstate 680, which emerged as a strong candidate because of the following characteris- tics: (a) sufficient distance with heavy congestion and strongly directional commute traffic, (b) relatively few interim on/off users given the concentration of Silicon Valley jobs at the south end and residences at the north end, (c) sufficient right-of-way and the preexisting plan to include HOV lanes on the facility, and (d) real finan- cial needs. The anticipated alignment will include three general-purpose lanes in each direction and an HOV- HOT lane in each direction as well. The tolls will be adjusted up or down periodically on the basis of demand, which will ensure that the com- bined HOV-HOT lane does not become congested. The specific approach for the fee structure is being devel- oped through use of an optimization model that inter- acts with the regional transportation model and solves for prices that meet efficiency, revenue maximization, throughput, and other desired goals. Because the key to value pricing is motorists’ desire to trade off time versus cost, one of the keys to making an accurate variable pricing forecast is the distribution of users’ value of time. At first, we anticipate a peak toll rate of between $3 and $4 for the full 14-mile distance. There will also be an off-peak price and a “shoulder” period price. At this level, tolls in both directions would generate between $6.3 million and $14.7 million in revenues in 2006 and between $12.3 million and $31.9 million in 2025. Revenues will be used to pay for HOT lane oper- ations, improved bus service on the I-680 corridor, and capital improvements to the I-680 corridor. One of the most interesting parts of the analysis was the impact of the definition of “HOV” (two versus three or more vehicle occupants) and the availability of inter- mediate access into the HOT lane. Not surprisingly, an HOV-3 policy generated significantly more revenue. The following table shows the anticipated 20-year net present value of operating incomes at a 4% discount 5 5THE PRICE IS “RIGHT”: PERSPECTIVES ON FINDING IT

rate under various scenarios in 2002 (U.S. dollars in millions): HOV2+ HOV3+ No intermediate access 142 207 With intermediate access 83 228 Consistent with its design as a demonstration proj- ect, the I-680 HOT lane approach has the capacity to offer answers to some of the questions that continue to accompany the value pricing concept. Will drivers see the HOT lane as worthwhile? How much will they be willing to pay? How many vehicles and people can move through this corridor, and at what speeds? Can smooth traffic flow be maintained? How much revenue will be generated? And perhaps most difficult, will the system be perceived as fair? The project also presents its designers with some real operational challenges and the opportunity to investigate such things as the effectiveness of enforcement policies, the impacts on HOVs, and the impact of constraining or increasing access to the HOV-HOT lane. Other pricing studies in the Bay Area have generated some helpful lessons; those studies include the I-880 commercial vehi- cle initiative, the Sonoma–Marin US-101 HOT Lanes, Santa Cruz Highway 1, and the Bay Bridge Congestion Pricing Project. PRICE DEMAND ELASTICITIES AND USAGE OF HOUSTON’S HOT LANES Mark Burris The HOV lanes in Houston were highly successful—so successful, in fact, that two of them (Katy and North- west) exceeded capacity during the morning peak period when they were open to all vehicles with two or more occupants. However, after raising the occupancy restric- tions to three or more persons during the peak periods, there was significant excess capacity. Therefore, to bet- ter utilize the lanes, Houston METRO and the Texas Department of Transportation implemented a value pricing project named QuickRide. QuickRide is an innovative project designed to use the capacity of the HOV lanes on the Katy and North- west freeways more effectively. Under this project, two- person carpools can pay $2.00 to use the HOV lanes during the peak period, even though the lanes are nor- mally restricted to vehicles with three or more occu- pants. This form of HOV lane is typically termed a HOT lane and can be an effective travel demand man- agement and congestion mitigation tool. This method of managing demand has worked well since its implementation in 1998, with steady increases in usage and enrollment. However, with reconstruc- tion of the Katy Freeway corridor under way, the Katy HOV lane could be an even more valuable asset in managing traffic, both peak and off peak. In addition, more HOV lanes in the Houston area are nearing capacity during peak periods. Therefore, additional efforts are under way to increase the QuickRide proj- ect’s effectiveness in utilizing the HOT lanes. This could include increasing the hours of QuickRide oper- ation, dynamic pricing of the HOT lanes on the basis of congestion, variable pricing of the lanes on the basis of time of day, and even allowing single-occupant vehi- cles on the lanes for a higher toll than those paid by two-person HOVs. One important tool for use in predicting driver response to these potential toll changes is the price elasticity of demand for the HOV lane. For 1 month, April 2003, the price of QuickRide was reduced to $1 per trip. The resulting price elasticities of demand ranged from –0.11 to –0.26, with an average of –0.19. These results indicated an inelastic response to changes in the toll. A survey of QuickRide enrollees and former enrollees was also conducted in spring 2003. The survey results supported the previous elasticity results. The primary issue limiting QuickRide use appears to be one of conve- nience rather than cost. Both current and former partici- pants cited the inconveniences of carpooling as the greatest deterrent to QuickRide use, while 73.4% of par- ticipants reported that the toll had little or no impact on their decision to use QuickRide. A survey of corridor travelers who do not use QuickRide is scheduled for fall 2003; we anticipate that this survey will provide addi- tional insight into driver behavior to optimize the pricing structure for the HOT lanes. 5 6 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

5 7 Factoring Pricing into the Planning Process Yvonne Need, AVV Transport Research Center, Netherlands Robert Dunphy, Urban Land Institute PUBLIC ACCEPTANCE OF PRICING SCHEMES FOR THE NETHERLANDS Yvonne Need The Netherlands’ experience with road pricing dates back to 1995, when a coalition of political leaders for- mally accepted pricing as a means to manage traffic and finance infrastructure. However, in the following years the policy received significant scrutiny from Parliament and opposition from the Dutch motoring lobby. By 2001, transportation officials were focusing on a simple charge-per-kilometer approach, because they had found that actual congestion-based charges suffered from a troubling lack of public acceptance. Surveys found little public acceptance for pricing, or feigned acceptance. The surveys also identified a signif- icant distrust of government, which primarily took the form of suspicion that road pricing is meant not to pre- vent congestion but rather to collect more money for the state. A companion concern was that prices would go up any time the government felt the need for more revenue. The surveys also revealed a remarkable lack of awareness of the nature of congestion. Most respon- dents said that the biggest problem on the roads was the behavior of other road users; only 32% of respondents named congestion itself as a problem. Congestion was also seen as a simple fact of life and as something that would be impervious to any policy initiatives seeking to influence it. Understandably, most respondents viewed congestion as a societal problem produced by others, with individuals stating that they themselves do not drive more than necessary. The public also expressed concerns about fairness, and particularly the fear that pricing will lead to a system in which the rich will be able to drive as much as they please while the poor won’t be able to afford to drive anymore. Concerns about fairness also centered on a fear of fraud, such that honest people would end up shouldering most of the financial burden. Finally, a small but passionate majority voiced anxiety about pricing’s implications for personal privacy. Given the public’s concerns about congestion pricing, I would like to put forward a series of recommendations for advancing the political viability of congestion pric- ing. The recommendations include a commitment to use strong communications as the pillar of the introduction strategy, an effort to discuss and demonstrate antici- pated effects at the individual and societal levels, and assurance that all claims can be substantiated. It is also important to develop a good marketing strategy and state the program’s goals clearly. From a technical per- spective, planners should avoid starting with a low price that is sure to be raised later, and they should avoid funding systems that force citizens to pay for the costs of introducing the program. It is also worthwhile to identify groups that will gain and groups that will lose out so that any equity implications of the pricing pro- gram can be directly addressed. Finally, in recognition of the concerns raised by the small but vocal minority who are especially concerned about privacy, it is impor- tant for the program design to include safeguards that guarantee the privacy of system users.

PRICING TRAFFIC, PACING GROWTH Robert Dunphy New developments in transportation pricing and contin- ued shortfalls in public coffers indicate that the time is right for a different approach to funding transportation. Significantly, expanded use of road pricing promises also to help pull new housing inward, in contrast to the cur- rent system under which people often accept longer com- muting distances in an attempt to find lower-priced housing. Several new pricing strategies have the poten- tial to exert an especially powerful influence on land use patterns. The first is a street service fee, which would shift the lion’s share of highway finance from the gasoline tax to a street service fee paid by the month, similar to fees for cable TV or the Internet. This approach would result in an immediate drop in the price of gasoline, simplify the adjustment of user charges, and protect transit revenues. A monthly utility or telecommunica- tions fee is already familiar to most Americans and thus would not represent a wholly foreign concept. It could also make car taxes more palatable by spreading them over a year rather than imposing them in one or two payments per year, as is typical for most car licens- ing fees. A simple fee would be based on annual mileage estimates adjusted regularly for actual use. Technology could allow the charging of higher rates on congested facilities. The second is an honest pricing approach. The grow- ing acceptance of charging solo drivers for an uncon- gested commute in HOT lanes creates a new opportunity to fund radial highways needed to accom- modate suburban growth. New radial roads needed to serve suburban expansion would all be priced. Rather than choosing the largest house for which a buyer qual- ifies and worrying about the traffic later, a “drive to qualify” decision would require weighing the savings in house payments against potentially significant marginal driving costs. Asking home buyers to pay the cost of sprawl could help reverse the middle-age spread of most regions and create a sizable new funding source. It would also protect residents of new developments from a future of being stuck in traffic. Four recent experiences in pricing demonstrate the growing acceptance of a price-based approach to financ- ing infrastructure and managing demand; they also pro- vide good test cases to help us understand the land use implications of various pricing approaches. Land use results from the following experiments can be expected to generate informative results in the coming years. At one end of the spectrum, HOT lane demonstration proj- ects are the “light beer” of pricing even though they require considerable efforts for successful implementa- tion. At the other end, London’s congestion charging scheme represents a “deep pricing” approach and offers a new model for many cities struggling to deal with the effects of car traffic. • Unprecedented improvements in London’s traffic brought about by London’s program have rewarded Mayor Ken Livingstone with strong public support. • A “London-like” proposal for New York could result in similar levels of congestion relief, as well as an infusion of between $7 billion and $19 billion for badly needed transportation investments. • In Minnesota, which has studied pricing since 1994, the stars are aligned to create the state’s first HOT lane conversion on Interstate 394, reinforced by the need for money. • The Seattle, Washington, region, whose 205-mile network of carpool lanes is one of the nation’s largest, is about to proceed with its first HOT lane and has stud- ied an extensive pricing system for a regional network of 131 miles on seven major highways. 5 8 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

5 9 Responses to Findings The Future of Pricing Steve Heminger, Metropolitan Transportation Commission and Conference Chair, Facilitator Emil Frankel, U.S. Department of Transportation Marcel Rommerts, European Commission Anne Canby, Surface Transportation Policy Project Dan Beal, Automobile Club of Southern California The symposium closed with a roundtable discus-sion facilitated by Steve Heminger, conferencechair. In response to a question on the toll and pricing provi- sions included in the U.S. administration’s proposed bill to reauthorize the federal highway and transit programs, Emil Frankel noted that two factors—the difficulty of expanding capacity through new infrastructure and a shortage of capital—have coalesced to create sustained interest in road pricing. As a result, the administration’s bill calls for a gradual “mainstreaming” of the prior toll provisions. Mr. Frankel also noted that the legislation is permissive, not directive, in allowing states and local gov- ernments the flexibility to pursue pricing as standard prac- tice rather than through a pilot project. The bill stopped short of repealing the ban on tolls on the Interstate system, however, in recognition that the nation has not fully entered the road pricing era, though it is close to doing so. The administration joins with others in the trans- portation community in its concern for the fuel tax’s long-term sustainability as the principal revenue source for funding the nation’s surface transportation system. While the administration chose not to include a direc- tive for a blue ribbon commission to examine alterna- tives to the fuel tax in its bill, research into user-based mechanisms is well under way; the administration expects that the nation will be in a good position to vet a range of alternatives by the time of the next surface transportation reauthorization. Mr. Frankel added that technological advances are key to broadening the range of available policy choices and indicating which policies are most feasible and desirable. Audience members posed several questions to Mr. Frankel. A speaker from Minnesota noted the criticality of the federal value pricing pilot to that state’s decision to undertake a pricing experiment and expressed con- cern that “mainstreaming” value pricing through elimi- nation of the value pricing pilot program could halt further progress in the area. Another speaker questioned the administration’s decision to delete the directive for a blue ribbon commission to consider alternatives to the fuel tax. Mr. Frankel noted that this is a pivotal time, in that the “push” of resource constraints is coinciding with the “pull” of new technologies to spur greater attention to pricing systems. He expressed confidence that pricing, if properly explained to the public, would garner widespread support. To provide a European perspective, Marcel Rom- merts explained that while Europe already has many interurban toll roads, ample opportunity exists for refinements, especially in the area of truck-borne freight. Mr. Rommerts indicated that the increased use of pricing for trucks is expected to level the playing field among the various transport modes and classes of vehi- cles and, of course, to raise revenue. Another key lesson to date is that in contrast to the interurban point-to- point model, the cordon-based approach that London has successfully implemented is emerging as a promising strategy. He noted that more experiments in European cities are likely in the coming years but that a political champion for the strategy is essential; in London, Ken Livingstone’s persistence and enthusiasm for the cordon system were critical to the ultimate implementation of the pricing program.

Mr. Heminger asked Anne Canby whether a consen- sus was starting to emerge among those who have regis- tered concern over pricing’s potential implications for equity and those who have favored pricing for its envi- ronmental benefits. Ms. Canby said that the tensions surrounding road pricing underscore the need for a broad tent. She added, however, that different groups’ objectives may be more consistent than might first appear; for example, the environmental community’s support will depend, in large part, on the dedication of revenues to strategies designed to broaden and improve the public’s travel choices. Groups such as the Surface Transportation Policy Project also call for full consider- ation of pricing’s widespread impacts; for example, she added, officials in Delaware fully integrate the state transportation funding and investment system into an overall transportation strategy. Both of these conditions are clearly consistent, with close attention to the equity implications of any pricing project. Ms. Canby went on to say that equity remains a pressing issue, and given that the cost of transportation is a proportionally greater burden on those with lower incomes, any pricing scheme ought to include strategies for offsetting the economic impacts on poorer travelers. Political support can be mustered only through absolute transparency in the decision-making process and early involvement of the grassroots community. In general, decisions should be made at the level of government closest to the impacts of the scheme itself; in urban areas, for example, the focus probably should be on the metropolitan planning organization rather than the state department of transportation. Finally, representing the automobile users of the United States, Dan Beal stated that the American Auto- mobile Associaton is well informed by its more than 40 million members and its own research of the many transportation challenges facing mobility in the United States. The association is well aware that the current system for funding U.S. highways will face severe chal- lenges in the years ahead. Citing a distinction made in the past by Ken Orski of the Urban Mobility Corpora- tion, Mr. Beal explained that while “value pricing,” which offers drivers an option to pay for a superior level of service, may be acceptable to the association, more skepticism surrounds full-fledged congestion pricing, in which pricing is used to manage demand even in the absence of any benefit to those who pay. Mr. Beal added that the association’s support of the State Route 91 and Interstate 15 express lanes underscored this perspective. One remarkable outcome of the SR-91 experiment, he added, is that the original allegation that the express lanes would turn into “Lexus lanes” was disproved; in fact, the benefits have been widely distributed. He reit- erated that this outcome—the creation of an improved level of service for a large number of drivers—was essen- tial to the association’s support of any pricing project. Mr. Beal also noted that proponents of pricing must make a convincing case of its merits and not simply seek to impose it on the public through an assumption of what is best for American drivers. 6 0 INTERNATIONAL PERSPECTIVES ON ROAD PRICING

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TRB Conference Proceedings 34: International Perspectives on Road Pricing is the proceedings of the International Symposium on Road Pricing held on November 19-22, 2003, in Key Biscayne, Florida. The event was a collaborative effort of TRB, the Florida Department of Transportation, the Organization for Economic Cooperation and Development, and the federal Highway Administration. The report includes two commissioned resource papers that examine the evolution of congestion pricing and the state of the practice in road pricing outside the United States. The proceedings also explore pricing successes and the challenges that have accompanied specific projects’ implementation, as well as the potential evolution of road pricing in the future.

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