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95 a 0.1% to 1.1% and 0.1% to 1.3% reduction in demand, for electric vehicles with switchable batteries of 64% to 85% respectively. The demand for peak-period travel is even by 2030. less sensitive to price, with a 1% increase in price gener- ating a 0.1% to 0.7% reduction in demand for both Evasion and Enforcement modes. However, one study found that price sensitivity with respect to mode choice was higher for automobiles, Evidence suggests that motor fuel taxes suffer from a per- indicating that some motorists forgo highway travel in sistent problem with evasion. Historic changes in administra- favor of public transport when user costs are exceedingly tive and enforcement practices designed to address the evasion high. issue (e.g., fuel dyeing, taxation of kerosene and other alterna- Freight transport is not very sensitive to price, with the excep- tive fuels, enhanced auditing practices, moving the point of tion of markets that are subject to intermodal competition taxation up the distribution chain) have increased revenues (e.g., assembled automobiles, corn, wheat, primary metals, deposited in highway funds across the nation. However, the paper products) (Oum, Waters, and Yong, 1990). results of joint audits performed under the FHWA's Joint Federal/State Motor Fuel Tax Compliance Project suggest that Evidence suggests that in recent years, the sharp increases while evasion levels have been reduced through enhanced in motor fuel prices caused a slight reduction in passenger compliance and enforcement practices, evasion continues to demand and a minor shift toward public transit. For the first persist (Balducci et al., 2006). time since 1980, the average number of miles traveled by In 1992, FHWA estimated motor fuel tax evasion at $1.0 bil- motorists declined in 2005 (FHWA, 2006). In 2008, total VMT lion annually, which translates into evasion rates of 3% to in the United States fell by 1.9% (FHWA, 2009b). Further, fol- 7% for gasoline taxes and 15% to 25% for diesel taxes (FHWA, lowing a 2-year decline in ridership, the number of passengers 1992). In the past 15 years, numerous states have studied motor reported by the nation's transit agencies in 2004 through 2006 fuel tax evasion (e.g., Montana, New York, Oregon, Washing- grew by 7.1%. Between 1995 and 2008, public transit ridership ton) with estimates ranging from $600 million to $2 billion for grew by 36% (American Public Transportation Association, all states. The findings of several motor fuel tax evasion studies 2008). Evidence also suggests that higher fuel prices may pro- are summarized in Table 38. vide more incentive to buy fuel-efficient cars without reducing The costs associated with enhanced motor fuel tax auditing VMT. In 2005 and 2006, the new purchase of light trucks and enforcement operations can serve to discourage evasion in declined for the first time since the 1980s. states addressing budget shortfalls and uncertain financial In addition to price sensitivity, other factors such as infla- outlooks. The literature suggests that while it is expensive to tion, market penetration of alternative fuels, and increased effectively audit and enforce motor fuel tax codes, enhanced motor fuel efficiency hold the potential to significantly erode compliance activities yield positive returns on investment. the motor fuel tax. In recent years, inflation has had a signifi- From October 1992 through 1993, gasoline tax revenues cant impact on motor fuel tax receipts. From 1993 to 2008, reported in 38 states averaged $443 per auditor staff hour. Over the purchasing power of the federal gasoline tax, which has the same time period, diesel tax revenues were enhanced at the remained at the fixed rate of 18.4 cents per gallon, has declined rate of $321 per auditing hour (CSG & CGPA, 1996). Finally, by 33% (National Surface Transportation Infrastructure FHWA reports that it receives $10 to $20 for each dollar spent Financing Commission, 2009). on audits and criminal prosecutions (FHWA, 1999). While declines in revenues tied to enhanced motor fuel economies in the light-duty vehicle fleet have not yet materi- Implementation, Privacy, and Security alized, several market penetration forecasts of hybrid and elec- tric vehicles suggest that erosion of the motor fuel tax base is Oregon implemented the first state motor fuel tax in 1919. inevitable. While some forecasts estimate ultimate hybrid The federal government implemented a motor fuel tax in electric and EV penetration of the light-duty vehicle market 1932. The motor fuel tax system is, therefore, mature. Pay- in the 8% to 16% range (Greene, Duleep, and McManus, ments are collected from businesses engaged in the distri- 2004), the Electric Power Research Institute (EPRI) and Nat- bution and selling of motor fuels. Thus, there are limited ural Resources Defense Council (NRDC) were more aggres- implementation or privacy and security issues with this tested sive, estimating PHEV market penetration rates under three tax mechanism. scenarios, ranging from 20% to 80% (medium PHEV sce- nario estimate of 62%) in 2050 (EPRI and NRDC, 2007). In 5.4.2 Tolling another study prepared for the University of California, Berkeley's Center for Entrepreneurship and Technology, This section examines the relative sensitivity of the factors Becker and Sidhu (2009) estimated market penetration rates that can have an impact on revenue and operating costs

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96 Table 38. Summary of fuel tax evasion studies. Author(s) Date Tax Evasion Estimate Method Balducci et al. 2006 Gasoline and diesel $2.8 million (gasoline) Econometric method, audit review taxes in Montana and $12.0 million (diesel) method, inspections data analysis annually Eger 2001 Wisconsin gasoline Upwards of $4 million Econometric method, comparison taxes due to falsified annually of predicted and actual agricultural refund agricultural refund requests requests KPMG 2001 Federal diesel taxed due $1.7$9.2 billion over 10 Comparison of fuel supplied to to jet fuel diversion years taxed gallons Denison and 1996 Kentucky fuel taxes $26$34 million Survey of tax administrators, Hackbart econometric analysis Council of State 1996 All state fuel taxes $952 million$1.5 billion Literature review, survey of state Governments, tax administrators, econometric Council of analysis Governors' Policy Advisors WSLTC 1996 Washington fuel taxes $15$30 million Literature review, border interdiction, random audits Revenue Canada 1996 Canadian fuel taxes $55$110 million Comparison of monthly motor fuel sales volumes with gallons taxed Mingo et al. 1996 All state diesel taxes 21% Comparison of fuel consumption to taxed gallons Federal Highway 1994a Federal and state fuel $1 billion (fed. fuel Literature review, analysis of Administration taxes taxes), $3 billion auditing data (fed./state fuel taxes) Federal Highway 1992 Federal gasoline and $466.1 million (gasoline Literature/testimony review, Administration diesel tax tax), $1,087.5 million analysis of auditing data (diesel tax) Mitstifer, National 1992 Federal diesel tax $3 billion Comparison of diesel fuel Association of Truck consumed (based on reports from Stop Operators truck stops) to taxed gallons Addanki et al. 1987 Federal gasoline taxes More than $500 million Econometric analysis, comparison of fuel consumption with taxed gallons Addanki et al. 1987 NY gasoline taxes $168.4$254.5 million Econometric analysis Source: Modified from Weimar et al., 2008 for tolling systems. The revenue portion of the sensitivity main categories and the specific factors within each category analysis examines, in general terms, the effects of price, scale, in the sensitivity analysis for tolling systems. economic conditions, and competing facilities. Additionally, the sensitivity analysis also examines the impact on costs Tolling Revenues and Rates related to broad changes in scale, implementation, technol- ogy, enforcement strategies, and security that can be imple- Revenues and operating costs of tolling systems are subject mented for tolling and related systems. Scale affects both to both internal and external factors. Internal factors, which revenue-generation and cost structures. Table 39 lists the are defined as controllable by the operating entity through Table 39. Factors analyzed for tolling systems. Category Factor Revenue Rates, charges, and fees Economic conditions Facility length and system capacity Geographic area Alternate routes Implementation Collection costs Market size Technology Equipment purchases and upgrades Evasion and enforcement Increased enforcement Privacy and security Confidentiality of customer accounts and transponder data

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97 policy, include enforcement, tolling, facility infrastructure, The severity of the decrease in traffic is a function of how and technology. External factors are defined as being outside much motorists value their trip, the travel time, and the relative the control of the operating entity and include economic con- attractiveness of the alternate routes or modes. Figure 44 illus- ditions, alternative routes, and motorist preferences. This trates two levels of demand elasticity for a generic toll facility. section will discuss these factors in greater detail. The dashed lines represent traffic levels, and the solid lines Toll revenues are a function of toll rates, economic condi- represent toll revenues. The blue lines (solid and dashed) tions, facility length, and the roadway network. In this sec- represent motorists with higher elasticity, and the green tion, some of these factors will be analyzed qualitatively as to lines represent motorists with lower elasticity. As the cost of their respective impact on toll revenues. travel increases, motorists with a high elasticity of demand decrease their road usage more precipitously than motorists Toll Rates. A key factor in revenue generation is toll with low elasticity. While the total number of motorists in both rates (price), which includes the initial toll rate, toll escala- groups decreases as the toll is increased (as a percentage across tion, and the implementation of variable pricing schedules. the x-axis), toll revenues increase for both motorist groups Typical toll rates range from a few cents per mile on older when modest increases in price are introduced. This is because regional turnpikes to over $1 per mile for managed lanes in the increase in tolls is greater than the decrease in traffic. At highly congested urban corridors. While toll agencies can some point, toll rates eventually reach a maximization point typically obtain higher revenues through an increase in toll at which toll revenues begin to decrease. This is because the rates, there is a point where increases in tolls can no longer increase in toll rates cannot keep pace with the negative impact provide additional revenues. In this manner, toll roads are on traffic. The optimum point will differ for different facilities similar to other commodities--when tolls (prices) increase, and different price (toll) levels. demand (traffic) decreases. The quantification of this rela- Once the optimum point has been reached, toll agencies tionship is called the price elasticity of demand. When faced are unable to generate more revenues through increases in with a price increase, motorists have the following poten- toll rates. Furthermore, this optimum point is a function of a tial options: myriad of variables, such as how much a toll facility is permit- ted to increase tolls or the setting of the initial toll rate for a Continue using the toll facility at normal usage levels; new facility. The magnitude and timing of the toll increase Use the toll facility at a suppressed rate by consolidating that optimizes revenues is also unique to each toll facility. trips; Variable pricing schedules may cause motorists to travel Divert to a less expensive, alternate route; before or after peak periods to avoid the temporarily higher Use another transportation mode (e.g., transit, bicycle, or toll rates charged during peak periods. This change in driver walking, if available); or behavior has an impact on total revenue collected. Table 40 Avoid taking the trip altogether. summarizes estimates of demand elasticity for selected toll Source: Jacobs Engineering (2010) Note: E = elasticity. Figure 44. Low and high elasticity impacts on traffic and toll revenue.

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98 Table 40. Demand elasticities for selected toll roads. Toll Facility Estimated Elasticity Sources California SR 91 -0.90 to -1.00 Sullivan (2000) California I-15 -0.02 to -0.42 SANDAG (1999) New Jersey Turnpike -0.06 to -0.18 Ozbay et al. (2005) OOCEA -0.45 Tollroadsnews (2003) 407 ETR -0.30 Mekky (1999) Metropolitan Transportation -0.06 to -0.22 URS (2010) Authority (MTA) roads and lists the study and publication dates for these esti- can attract greater traffic volumes, especially if the extended mates. As shown in the table, demand elasticity estimates are facility improves access to/from underserved origin and des- unique for each facility. For instance, the demand elasticity of tination points. Moreover, additional capacity provided from SR-91 is estimated to be -0.9 to -1.0. This estimate is based on a road widening project can potentially result in higher traf- the ability of drivers to use the non-toll, general-purposes lanes fic volumes and increased revenue generation along the same or travel during off-peak periods to avoid paying the higher toll number of centerline miles. charges. In contrast, the 407 ETR around Toronto is estimated to have a demand elasticity of -0.30. This estimate may be based Feeder and Competing Routes. Changes to a roadway on the perceived lack of free, alternative routes to the 407 ETR. network that feeds or competes with the tolled facility can help Notwithstanding, the methodology for calculating demand or hinder toll revenue performance, respectively. Improve- elasticity can differ depending on the analytical approach ments to feeder roads can make the toll facility a more attrac- employed and the relative weights of the key parameters. tive route for motorists, whereas improvements to competing In addition to changes in price, traffic and revenue fore- facilities will likely have the opposite effect. While long-range casts also take into account a number of factors that can have transportation plans that estimate future transportation an impact on traffic and revenue levels. These parameters can infrastructure for a 30-year period are available in most areas, include the length, condition, and capacity of the facility and there is always a possibility of future widening, expansions, parallel alternative routes; connections to and from feeder and the development of competing roadways that can affect roads; travel times; economic conditions; income levels; gaso- toll revenue. line price trends; vehicle operating costs; origin and destina- Revenue per Transaction Impact. An additional approach tion points; payment options; and demographic trends. that can be used to assess and compare the sensitivity of toll Economic Conditions. Because of the impact on employ- revenues across facilities is to normalize toll revenues using ment and income, economic conditions have a direct impact on a per-transaction or a per-centerline-mile metric for existing the ability of toll facilities to generate revenues. During the most toll systems. For the toll systems included in this study, the aver- recent recession, employment levels decreased, as did VMT and age revenue generated per transaction was $1.81. The lowest toll revenues. Since a significant number of trips on toll roads amount of revenue generated per transaction was $0.53 (San are work related, decreased employment levels will generally Diego I-15), and the maximum was $4.32 (SR-91). Figure 45 depress traffic and revenue on tolled facilities. Other trips, such summarizes revenue per transaction for 15 toll-road agen- as shopping and recreational trips, are often curtailed during a cies in 2007. These benchmarks are a function of facility recession due to a general decrease in the disposable incomes of type, toll-collection scheme, pricing schedule, and location, motorists. During periods of economic prosperity, increased but have been normalized to allow for comparisons among employment, residential development, commercial develop- facilities. ment, and entertainment facilities are trip attractors and gener- ators for the roadway network. Increased levels of disposable Toll Systems Costs income may result in additional trips to shopping areas, resorts, or amusement parks. Additionally, motorists value their time The factors that affect revenue generation work in concert slightly more during periods of economic growth, which can with the cost structures of toll systems. As noted previously, make toll roads more attractive in relation to congested, non- toll system costs are directly related to the potential system tolled alternatives. or facility improvements that a toll agency can elect to undertake with respect to collection and enforcement activ- Facility Length. For tolling systems, a change in scale can ities. Potential improvements or modifications can include lead to an increase in revenue generation since a longer road the following:

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99 $5.00 $4.32 $3.89 $3.86 $4.00 $3.00 $2.77 $2.63 $2.11 $2.00 $1.74 $1.81 $1.19 $0.99 $1.00 $0.77 $0.61 $0.58 $0.66 $0.53 $0.53 $0.00 DRPA DRJTBC DTR E-470 FTE Greenway ISTHA NJTA NTTA NYSTA OOCEA OTC SD I-15 SR 91 407 ETR Average Source: Jacobs Engineering Group, 2010 Figure 45. Average revenue per transaction (2007). Implementation (administrative costs) Evasion and enforcement (enforcement costs) Changes in marketing costs Installation and maintenance of additional barriers Changes in the number of supervisory and administra- Additional signage tive staff Increased police enforcement Changes in wage and benefit policies Increased prosecutions Implementation (collection costs) Change from civil to criminal enforcement Changes in the barrier system in place (open, closed, or Scale (administrative, collection, and enforcement costs) hybrid) Extension of an existing facility necessitating the construc- Updated approaches for storing, maintaining, and secur- tion of additional toll gantries, the purchase and installa- ing customer account information tion of toll equipment, and additional signage Installation of and improvements to an electronic tolling Expansion of customer base system Additional information storage hardware and software Changes in technology to manage customer accounts Changes in the payment methods offered Additional customer service center staff Changes in customer billing systems and the mainte- Additional rent and utilities related to a new or expanded nance of customer accounts customer service center Changes in account reconciliation practices, cash trans- Purchase of additional transponders portation services, or lockbox service providers Political, legal, and regulatory (administrative and collection The intent of this sensitivity analysis is to measure the costs) potential cost impact of these proposed changes in general Changes in accounting standards terms. The sensitivity analysis is not intended to evaluate the Changes in toll rates and/or the introduction of vari- potential impact of each of these improvements in isolation. able tolling schedules resulting in additional marketing, billing, and signage costs Scale Changes in customer privacy standards and reporting requirements A change in scale can involve expanding the core market, Changes in governance structure which could increase or decrease costs. For most toll systems,

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100 frequent users (defined as making at least one trip per week) equipment over time depending on functionality, obsolescence account for the majority of trips but make up a small percent- rates, and the emergence of newer, more efficient technologies. age of total users. This leads to a situation in which frequent users account for the bulk of the revenues generated. Con- Evasion and Enforcement versely, occasional users (defined as less than one trip per week) account for a lesser number of trips but make up the majority An area where technology can have an impact on toll system of roadway users. This can result in additional costs related to costs is evasion and enforcement. As noted previously, toll-road the establishment and ongoing maintenance of mostly dormant agencies are increasing the use of video tolling and OCR sys- customer accounts. tems, which capture license plate images of vehicles as they Table 41 is a composite of several surveys of 1,500 toll-road pass through toll gantries. Transponder holders are then users conducted by Jacobs Engineering Group. While it does charged against their respective account balances, while non- not represent a particular facility, it illustrates the relationships transponder holders receive a bill by mail for toll charges between the total number of users, trip frequency, and the incurred. Enforcement strategies relating to the placement and potential impact on costs. Frequent customers account for coverage area of this equipment as well as the ability and eager- 11% of all customers but make 60% of total trips. At the same ness to prosecute identified violations will affect enforcement time, the toll agency absorbs the operational costs related to costs. Enforcement costs are listed as a range--from $0.04 to the 57% of customers who make 7% of total trips. For each toll $0.09 per transaction--depending on whether a small number facility, the per-transaction costs can vary depending on this of outliers are included or excluded in the analysis. The esti- frequency relationship. mated standard deviation that was generated from the risk analysis was $0.06 per transaction, which was relatively high in Technology relation to the mean value. Notwithstanding, this value is consistent with the practical experience of toll agencies with As noted in Chapter 2, toll agencies are moving toward the respect to enforcement activities. In addition to improving implementation of electronic tolling systems, with some toll technology, toll agencies have also attempted to decrease eva- agencies further along the conversion process. At present, there sion by expanding police enforcement, increasing the number are a number of facilities that have implemented AETC systems, of court cases, and/or implementing more severe penalties including the 183A (Austin, Texas), the 407 ETR, and the for frequent violators. This strategy may have a short-term recently converted E-470 (Denver) and President George Bush demonstration effect in which potential violators are dissuaded Turnpike (Dallas). Having recently incurred the costs of these from nonpayment and some outstanding tolls and fees are paid systems, it is unlikely that these agencies will opt to invest in a off in a timely manner. However, the additional costs related new system in the near term. In contrast, other toll agencies are to more vigilant police enforcement and additional court pros- still transitioning from cash collection to electronic tolling. For ecution may exceed the amount of revenues generated from these agencies, technology costs are a function of the implemen- stepped up enforcement, especially over time. tation rate, the use of off-the-shelf technologies versus cus- tomized products, and the amount of time the technology being Privacy and Security implemented has been on the market. Increased customization or newer technologies will likely result in increased costs. Addi- Toll agencies may be required to increase expenditures to tionally, toll agencies will have to replace some or all of their toll meet payment card industry (PCI) standards related to data Table 41. Example of the user/trip relationship for a toll facility. Customers Number of Frequency of Trips on an Percent of per Trip in 1 Customers in Percent of Use Average Day Trips Year 1 Year Customers Daily 500 33% 1 500 2% 1/week 400 27% 7 2,800 9% 2/month 300 20% 15 4,500 14% 1/month 200 13% 30 6,000 19% 2/year 100 7% 182 18,200 57% Total 1,500 100% N/A 32,000 100% Source: Jacobs Engineering Group, 2010 Note: Because of rounding, percentages may not add up to 100%.