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Commuters in the D.C. metro area waste, on average, more than $1,500 a year in time and fuel due to congestion. The overall metro-area congestion cost in 2009 was $4 billion, eight times as high as the corresponding cost in 1984 when adjusted for inflation. So it’s a promising sign that the Metropolitan Washington Council of Governments is refining plans for a region-wide network of congestion-priced lanes that could become an official part of the region’s long-range transportation plan within the next year or so.
Dallas and Fort Worth Join the Parade
Although policy makers in Texas have been more inclined to add highway capacity than their counterparts in many other parts of the country, the state has grown so much during the last 25 years that its highway fuel-tax funds have not kept pace. Consequently, the Dallas/Ft. Worth metro area ranks fifth in the nation in congestion cost, at $3.7 billion per year, with 66 percent of rush-hour travel occurring in congested conditions. Early last decade the Texas legislature passed a sweeping transportation public-private partnership act, aiming to tap into toll-based private capital to add needed capacity, especially on urban freeways.
The most congested part of Dallas has long been the LBJ Freeway (I-635). It constitutes the northern and eastern portions of an inner beltway (or “loop,” in local lingo) around the city. When the LBJ was last expanded, the project was controversial due to the high-value properties along much of the corridor. In response, the Texas Department of Transportation (TxDOT) promised this would be the last widening of the freeway’s footprint. But with continued growth in the metro area, the LBJ quickly ran out of capacity.
Because of its commitment not to expand the freeway’s footprint, TxDOT approved a plan to add LBJ HOT lanes—up to three in each direction—by building tunnels beneath the existing freeway. When the agency issued a request for proposals, however, it took the open-minded approach of allowing bidders to propose alternatives. Of the two finalists, one went with the tunnels idea, at an estimated cost of $3.3 billion. But the winning bid, from Cintra/Meridiam, proposed an alternative that would cost only $2.6 billion. Via very creative engineering, the consortium proposed building most of the new toll lanes below the level of the main freeway lanes, with the main lanes cantilevered over the depressed express lanes. While in some ways more complicated to build, this approach produced significantly more roadway per dollar.
As with the Beltway project in Northern Virginia, what TxDOT required—including full reconstruction of existing lanes and maintenance of the whole project for 52 years—proved more costly than the projected toll revenues could finance. The department therefore offered up to $700 million in state highway funds up front. But the winning bidder requested only $496 million, so TxDOT got the lanes it wanted while saving more than $200 million for other projects. And since Cintra/Meridiam had to finance only $2.6 billion, what the consortium needs to recover in toll revenues is significantly less than what tunnels would have cost.
This project also was financed during the credit market crunch, in June 2008. The tax-exempt private activity bonds received an investment-grade rating. Cintra, Meridiam, and the local fire and police pension fund together invested $665 million in private equity—an indication of investor confidence in the robustness of projected toll revenues over the 52-year concession period. The project is now under construction and expected to open to traffic in 2015.
Only six months earlier, the same Cintra/Meridiam team reached financial close on a slightly less ambitious toll-lanes project on the other side of the metro area: the $2.1 billion North Tarrant Express. This project will double the capacity of a 13-mile stretch of I-820 and SH 121/183 on the northeast side of Fort Worth, providing access from there to the huge DFW Airport. On I-820, the four new toll lanes can fit into the median, between the existing regular lanes. But on SH 183, some of the new lanes will be elevated, due to much less available right of way.
Are We There Yet?
We are on the verge of a paradigm shift in transportation. The ultimate manifestation of this re-think might be that investor-owned limited-access highways become a new category of utility, analogous to America’s largely investor-owned electricity, natural gas, and telecommunications sectors, and the partially investor-owned water utility sector.
Steve Lockwood, a senior policy official at the Federal Highway Administration during the George H.W. Bush administration, helped build the case for loosening federal restrictions on tolling and pricing in the 1991 reauthorization of the federal highway and transit program. In a series of talks over several years, Lockwood made the analogy between highways and other network utilities, and even suggested that in the 21st century state transportation departments might evolve into public/private “transcorps” that would operate as businesses, more like state turnpike agencies than typical departments. The concept of investor-owned highways was independently fleshed out by former World Bank transport economist Gabriel Roth in his 1996 book Roads in a Market Economy.
Despite America’s 19th-century history of privately franchised toll roads, most people have trouble seeing highways as businesses. If they have been exposed to economics, they think of roads as classic examples of “public goods,” which must be provided by government because there’s no way to exclude those who won’t pay for them. While that might be mostly true for city streets and boulevards, it is not a problem for limited-access highways, where entry can only occur at certain points and charging for use is easy thanks to 21st-century electronic tolling, which is eliminating toll booths altogether. Just as electric utilities can charge variable rates to encourage customers to not use power-hungry appliances during periods of peak demand, expressway companies can charge more during rush hour to encourage motorists to shift nonessential trips to off-peak times.
In light of ever-worsening congestion, America’s urban freeways constitute a massive case of government failure. They do not give their customers reliable mobility, and their method of financing (via flat-rate fuel taxes) vastly undercharges urban users (especially during rush hours) and generally overcharges rural highway users, whose roads cost far less to build. And without market pricing, we don’t know how much urban expressway capacity people would be willing to pay for.
The private sector is capable of taking on the challenge of reinventing America’s freeways. In recent years, several hundred global infrastructure investment funds have been created by investment banks, fund managers, and pension funds. As of 2011, Infrastructure Investor reported, the 30 largest such funds had raised $183 billion during the previous six years. The financial firm Probitas Partners estimated that all such funds had raised $200 billion by then. That kind of money is intended as equity investment, covering perhaps 25 percent of a project’s cost, with the balance financed through bonds and other forms of debt. Thus, if these funds reach a total of $250 billion, that should make possible $1 trillion of infrastructure project investment, which could help expand and modernize a whole lot of congested, aging freeways.
Another factor supporting a paradigm shift is the increasing obsolescence of the fuel tax as America’s primary highway funding source. The rising price of oil has motivated both business and government to seek alternatives to gasoline- and diesel-powered vehicles. Government-mandated increases in fuel economy have already reduced the yield of per gallon fuel taxes, since people today can drive twice as far on a gallon of gas as they did 25 years ago. By 2025 average fuel economy is mandated to double again, which will produce gaping shortfalls in highway-dedicated revenue (even if politicians were to stop siphoning off highway money to pay for bike paths and streetcars).