US House of Representatives rejects funding Vehicle Mileage Tax studies

The US Congress is currently in the process of seeking agreement for a new Bill to authorise transportation funding for the next six years.  It has been a fraught process, and not one I will discuss in detail here.  

The big news from a road pricing perspective is that the House of Representatives, which is Republican dominated, has agreed to an amendment that effectively ceases Federal funding into studies into Vehicle Mileage Tax (VMT) according to The Hill.

Now the issue isn't completely closed as a Bill needs to pass the Senate as well, but the likelihood is that the Democrats wont push it that much.  So what does it mean and what was the reason for the amendment?

What it means, if it passes like this, is that there will be no Federal funding from programmes to investigate new sources of revenue such as the Value Pricing Pilot Program from the Office of Innovative Program Delivery, in respect of VMT itself.  Presumably studies can continue on tolling, including HOT lanes, congestion pricing and even network wide tolling that isn't about VMT strictly speaking.   This will no doubt hinder progress in some states, but would mean a few years of investigating options to raise revenue that can't be efficiently implemented across entire road networks.   Information about some of the studies carried out so far is on the Federal DoT website here.

It may mean that states themselves take the initiative (much like Oregon has for some time) to do the hard work themselves to consider how to shift to alternatives to the "gas tax".  

However, it is worth considering why this amendment was put forward.

The blocking of further funding for this was proposed by Rep. Chip Cravaack (R-Minn.). He argued that it would “would hurt rural drivers, cost a lot to implement, since it would require devices in each car to track how many miles have been driven, and could impinge on privacy rights.”

Now I’m not one to argue whether or not the Federal Government ought to be responsible for funding such studies, as it really depends on whether it wants to supplement or replace its own Federal gas tax. However, I can question the view of Rep. Cravaack, which contains a range of misconceptions. 

I'll go through them point by point:

“Hurts rural drivers”: This is a question of equity, and whilst the issue of equity raises claims of winners and losers, the only sure way to ensure equity is to charge according to a fair allocation of costs. Charging by distance on the face of it, means you use the road network more so you pay more. However, does that mean rural users are likely to be overcharged? There is a paucity of accessible research on the revenue generated by different roads by location. However, what I have seen over the years indicates that rural roads get heavily cross subsidised simply because the fixed costs of those roads can’t be recovered easily from the very low volumes of traffic on them. So the question comes as to who should subsidise them or if there is a better way to take this into account. One way is to ask whether the access value of a road to a property might better be recovered from charging the property itself as well as the motorist. That could mean not charging rural trips as much, because property owners value others being able to get to their properties. My counter-argument to this one, is that vehicles visiting rural areas should also pay.  Besides, fuel taxes hurt people who can’t afford new fuel efficient vehicles.  There is a concern that is worthy of debate, but rural roads will equally benefit if heavy trucks pay for the long mileage they undertake on them.  My point is that what is charged (and how it is charged) should reflect cost.

“Cost a lot to implement”: Well I am sure if the US Federal Government was to implement it, it would do so. However, that argument is being eroded by the successful implementation of such systems in other countries and the work underway today in Oregon. Fuel taxes are always cheaper, but then it would probably be argued as being cheaper to collect money for food through an income tax and to have the government buy everyone rations, rather than have thousands of shops and businesses do it. It doesn’t mean it is better or results in more economically efficient outcomes.  Costs are relative to the benefits that are generated for them.  For now one of the big issues is how to efficiently minimise costs to unlock the benefits of VMT, especially over the longer term.   More studies could help better inform this debate.

“it would require devices in each car to track how many miles have been driven”: Maybe, maybe not. Many people carry devices that aren’t too far removed from that now. Cars are capable of having such equipment pre-installed anyway. The word “track” can be replaced with “record”, since there is no need to know every road everyone has gone down to charge distance.  Indeed, you can use more conventional tolling technology involving tags and beacons (DSRC) to do VMT on major highways, as is done today in Austria, the Czech Republic and Poland.  However, the presence of equipment to do more shouldn't be seen as necessarily an insurmountable or expensive problem.  In New Zealand, which has a nationwide VMT system for all heavy vehicles on all roads, commercial vehicle owners are choosing to pay for devices that measure distance more reliably than their hubodometers and provide other services. 

“Could impinge on privacy rights”: well yes it could, but it need not do so. Oregon is specifically including an option that is designed to do that. However, there are plenty of ways to protect privacy. The bogey that the government is tracking every movement is often cited, and it is encumbent upon those of us advocating VMT systems to explain why these fears can be easily addressed, plus pointing out that mobile phone companies can already effectively track people’s movements now. If road utility service providers offered the charging service, the effect on privacy would be no different.  After all, what matters is that people pay for what they use, and it is possible to separate the calculation of what to pay from the collection of payment (and the data needed to determine what to pay - e.g. roads could be classified by tariff categories A, B, C in a system, not with the names of the roads).

The Federal Government has a problem, its budget for expenditure on surface transportation is higher than the revenue it gets from road users. It can either cut the budget to match this or raise the existing taxes, or find a new source of revenue.

If it wishes to cut the budget, either because it wants to leave it to the states or there are sound reasons to presume there are significant efficiencies that can be extracted from current activities, then fine.

However, if it does want to address the issue of subsidising the Interstate highway network, it has to confront the declining yields of the “gas tax” either by raising it or replacing it.

By deciding explicitly to not investigate replacing it with the most economically efficient alternative, then it looks like the future involves more subsidies of highways or increases in gas tax. In an age when many people want better value for money, and there is a trend towards more user pays and more business-like ways of managing infrastructure, it seems strange to ignore one way forward in delivering that.

Meanwhile, I am sure the states will push forward, just more slowly this time.

News briefs - Colorado, Indonesia, Missouri, Norway, Russia

I-25 HOT lanes Denver

The Denver Channel.com reports that Colorado has received US$15 million from the US Federal Government as seed funding to enable the start of the new I-25 HOT lane project.  The total cost of the project is US$44 million, with the state, regional and local authorities providing the rest.  It comprises additional lanes between route U.S. 36 and 120^th Avenue in Denver.   The project is intended to relieve this very heavily congested stretch of highway by narrowing hard shoulders in favour of creating a new HOT lane in both directions.

What’s worth noting is that this project isn’t getting funded because of the toll, but the toll is being used to manage demand on the road.  Certainly, the marginal revenue on the lanes will be helpful,  but the bottom line is better use of the existing corridor through pricing.   Vehicles with two or more occupants, including buses, will not be charged.

 Bali toll road

Jakarta Globe reports that the 11-kilometre toll road linking Nusa Dua to Bali’s Ngurah Rai international airport is expected to be open for traffic in July 2013.  The project is expected to cost US$244 million.  The concession is held by Jasa Marga Bali Toll for 45 years with tolls expected to range from RP4,000 (US$0.42) - RP10,000 (US$1.06) per vehicle. 

University of Missouri study

A study from the University of Missouri suggests tolling would more equitably allocate costs of road capital and maintenance among road users compared to fuel taxes according to a report fromForConstructionPros.com . The report indicates the key equity benefits being that those who use the road the most pay the most, and that it would far more effectively reflect the wear and tear the heaviest vehicles impose on the network.  Further evidence that relegates fuel taxes to being an inferior option if charging road users is meant to reflect equity.

St. Petersburg toll road

Construction Europe reports that finance has been obtained for the 1.5 billion Euro (US$1.87 billion) next stage of the St Petersburg Western High Speed Diameter project.  The new segment, which will be tolled, is expected to carry 140,000 vehicles a day.

Norway peak pricing of public transport

OK so it's not road pricing per se, but the Nordic Page is reporting that Ruter - the public transport authority of Oslo and Akershus, is planning to introduce congestion pricing on public transport.   The intention is to charge much higher at peak times, where capacity is scarcest relative to demand, but discount during off peak periods when much capacity lies idle.

Given Oslo has had road pricing for some years now, it makes some sense to start applying rational economic principles to public transport pricing, as the key problem with urban transport pricing is that peak demand is typically underpriced on both roads AND public transport.  If only a few more cities recognised this, and saw road pricing as a opportunity to think holistically about transport pricing across the board.

Does the New York State Thruway Authority need reform?

A curious difference in public policy between the United States and other developed countries is the preponderance of elected quangoes in the US and almost complete absence of autonomous commercial government companies.   I raised this issue with some American friends in the past and it came down to the core point that if government is ever to be involved in anything in the US, then people want their politicians to be able to interfere in the operations, planning and funding of government owned entities.  As a result, the model of government owned company "as if it were privately owned" which has been seen in countries in Europe, Australia and New Zealand is rare.  In the field of highways, ASFINAG, the company responsible for Austria's motorway network, is one of the better known examples.  All of its shares are owned by the Federal Government, but it acts effectively as a private company.

I raise this because many of the concerns raised in this article by Alan Bedenko in ArtVoice about the New York State Thruway Authority (NYSTA) would be better able to be addressed if the "state owned enterprise" model could be applied in the United States.   Such an approach would see the State appoint board members, but as it would be a limited liability company, the board members would have to act in the fiduciary duty of the interests of the shareholder - the state, which would mean operating efficiently, focusing on customers and being as profitable as it could be.  Concerns about excessive profits could then be addressed independently by regulation, which would have to be applied consistently across similar bodies - or it could be privatised and regulated.  However, I've noticed regularly that it takes a bit of effort for politicians and officials in the US to notice governance models applied in other countries, I suspect because when you live and work in the world's biggest economy, which itself consists of 50 different states, it is less of a priority to know what other models might work and how to address concerns about them.

What's wrong with the New York State Thruway Authority?

Well first, let's establish what it is and what it does.

New York State Thruways are a network of 917km of highways that connect the state with Connecticut, Massachusetts, Pennysylvania and New Jersey, primarily a backbone connecting New York City with Buffalo.  98.4% of the network is part of the Interstate network.  It comprises six main highways with a number of smaller links.  Tolls are charged on the network including both open barrier based tolls (with both manual and EZPass options) and closed ticket based tolls (you pick up a ticket when you enter and give it over when you reach a barrier at the end to determine the price).   Tolls were originally intended to be removed once bonds used to finance construction were repaid, but this did not occur.   Tolls are complex because of the multiple entry and exit points, but the Authority has a toll calculator on its website here.

So it is a state agency responsible for a state highway backbone, which is tolled and carries 8 billion vehicle miles of traffic a year.   Its board is chaired by the Governor of the State, so it is politically controlled.  Its annual budget is around US$1 billion, but it gets half its revenue from tolls. 

It has been criticised because its revenue, according to the 2011 annual report, declined by 1.1% but costs increased by 3.9%.  The big underlying question is whether it manages its costs well and whether the tolls it sets are reflective of costs imposed and the relative values different vehicles extract from the network.

Bedenko says that Moodys and Standard & Poors changed their rating of the Authority to "negative", because it said tolls needed to increase by 45% to adequately service debt, without taking into account the need for new capital.  That looks bleak and the Authority would appear to be crying out for a detailed assessment, not just of its asset inventory (highway engineers are usually quite good at that), but its overall business, the allocation of costs among road users including demand elasticities and the long term outlook for capital investment.

If the concerns are true it will show what goes wrong when a network of high volume highways, with the direct means to recover costs through tolls, gets mismanaged by a public agency that cannot bring together the political will to charge market efficient pricing. 

Bedenko points out that if tolls suddenly increased 45% there would be some considerable diversion of traffic onto parallel roads, which makes sense.  However, what that means is a proper demand study to determine the extent to which toll revenue can be optimised without causing such a heavy distortion.  Yet the bottom line should be:

- What are the long run capital costs of the network;

-  How should these be allocated across road users efficiently;

-  What programme should be in place to increase the efficiency of the operation.

He suggests two ideas.  One being a shift to fully electronic free flow tolls, which I support.  This is moving beyond the EZPass into full highway speed free flow tolls that are seen with SR91 Orange County, 407 ETR Toronto and the like, without barriers.   In this context, it should save considerable expenses and reduce congestion.  I don't believe it is so costly as to not be worthwhile, and the Authority ought to be pursuing it.

The second is the European style vignette stickers, where access is bought in advance on a per day basis.  He doesn't know that the newest of these, in Hungary and Romania, are electronic too, with number plate recognition used to enforce (with cameras checking vehicles against databases of those who have paid).  I don't believe this would help with revenue, as it wont respond so effectively to increases in demand.

A tollway agency in a heavily populated state with substantial transit traffic shouldn't be in financial difficulty.  That is plain.  One option would be to privatise the lot, but it would be an expensive set of assets to sale (and the new owner would have to raise tolls, but would also extract a lot of efficiencies from the operation), but another is to commercialise it.   

The NYSTA should be restructured, with an independent board, clear financial goals and a target for efficiency savings, operational performance and profitability.  Its core functions should be clearly defined and one should not be to soak up unemployment.

Frankly if the State cannot adequately address this, then there is little hope of it confronting the need for reform of tolling around New York City, considering how to address the declining yields of fuel tax or reforming its dated but still relevant heavy vehicle weight-distance tax.

Paying people not to drive... again

Regular readers will be familiar with my coverage of the Spitscoren and Spitsvrij experiments in the Netherlands, which basically reward regular motorists for avoiding driving in the peaks.  They essentially get paid for regularly NOT driving at peak times.

Transportation Nation reports on an experiment in the US, at Stanford University, called Stanford CAPRI - basically it involves earning credits by using the roads entering the university at off peak times rather than the peaks. A mini version of the Dutch concepts, but already with over 1,800 users. Transportation Nation quotes a number of people who are less flattering of the extension of the idea beyond the Campus, which indicates a lack of awareness of the Dutch concepts.   The system at Stanford was designed by Dr. Balaji Prabhakar, a professor of computer science at Stanford University, so is technically driven, although it has some clear economic impacts.   It now applies to parking and road use at the Campus.   He notes that the best aspect is that only the behaviour of a small number needs to change to create a positive overall impact.

The New York Times reports further on this, with a series of quotes from some advocates of road pricing in New York and elsewhere with some mixed views.  

National Geographic does a wider assessment, noting a similar experiment now in operation in Singapore. Bear in mind Singapore is the grandfather of all congestion pricing systems, being the first city ever to introduce it. Singapore’s trial involves over 17,500 users and ends in July 2012.  It will be particularly interesting to see how Singapore's positive incentives work in with its existing road pricing system which is itself designed to be a deterrent to using the roads that are busiest at specific times.

In conclusion, it is good to see such ideas being tested and considered.  For cities or even businesses where congestion is a chronic problem, then being able to incentivise through credits of some sort the type of behaviour change that would be apparent with congestion pricing, is interesting.  It comes up against critics who say people who don't drive much don't get rewarded for that, but for now it is about innovation.  The key is who pays, and how to make something like this affordable.   In cities which are flush with money, it can be done, but without potentially recycling funds collected from motorists in the first place, it may be challenging for cities in North America and Europe at the moment.

Utah's private toll road

The Standard-Examiner (Utah) reports on a relatively small fully private toll road in the state called the Adams Avenue Parkway in South Ogden. It is a mile long, costs US$1 for a car, US$2 for a truck and was built following the State’s decision that the only way the project would proceed would be for the private sector to build and toll it.

Its own website indicates it is a small business operation, that is quite entrepreneurial and community oriented. It was financed by a state loan, but the private owners are earning just enough money to pay for the debt and operate the road, after which it will remain their road to own and operate. Tolls are mostly manually collected, although there is an “express card” which isn’t fully explained, along with stickers (which may be bar code read).

The article indicates it has only 1,800 vehicles a day, and notes a few unique features of the road:

1. “Pay it forward”. A trend, most frequently at Christmas, for people to gift toll passage to people behind them. So many do this, that it can mean many cars pass without having to pay, as some people insist on paying. Charity at a toll road.

2. All vehicles pay, as it is a truly private road. The Police pay, as do ambulances.

In a world where tolling is controversial in many countries, and privately owned roads also raise spectres of owners seeking to extract rents from users, this small private toll road is happily carrying low volumes of traffic providing motorists with a choice.

Australia - New South Wales toll expansion - Federal heavy vehicle fees to rise - UPDATED

The Sydney Morning Herald reports that the New South Wales (NSW) Government appears to be encouraging a new debate about road pricing in the state, with the report that Roads Minister, Duncan Gay saying there will now be debate about “tolling some parts of the motorway network that are currently not tolled”.   That report talks of tolls on the M4 East project, but also introducing them on the untolled M5 East Tunnel to help finance a widening of that corridor.  Motorist lobby group the NRMA is opposed because “It's hard to justify new tolls on roads that have already been paid for by the community”.  However, roads are never “paid for”, since they regularly need new capital for replacement, as they are depreciating assets.   Although, given the presence of existing taxes covers such capital on the rest of the network, such a view regarding tolls paying the initial capital costs is commonplace and understandable.

The same report talks of a A$20- A$30 billion backlog of capital works on NSW roads, which could be funded with more tolls.  Tolls already raise A$800 million a year, mostly to pay the capital costs of the projects they are levied on.  

The big question must surely be to what extent it is palatable to use revenue from tolls on motorways to pay for non-motorway projects, and whether NSW should be looking to make the next logical step – a shift towards wider network tolls of some kind.  Replacing existing ownership taxes, particularly for heavy vehicles, with a distance based charge would be the start of making a big difference to this.

Meanwhile, the (Australian) Daily Telegraph reports that Duncan Gay has denied that tolls will be reinstated on Sydney’s M4 – the motorway towards the Blue Mountains across its western suburbs (tolls were removed from the motorway in 2010).  He also rejected “congestion pricing”, yet supports “distance based tolling” describing it as “fairer tolling” for new roads.  What this does it make things unclear.  It could be that the extension to the M4 towards the city (M4 East) will be tolled, but the remainder of the motorway wouldn’t be.  It could be that tolls “as they once were” wouldn’t be introduced, but a distance based toll would be, which in this context means gantries and charging points past each interchange (so vehicles are charged a proxy for distance).   It could be that he’s thinking about a bigger shift towards charging vehicles on multiple roads to replace other taxes, but I am sceptical that he is pushing such a big move.

The conclusion is that there will be more tolls in New South Wales, but how far this can go without tackling existing taxes and charging existing roads is clear.  Not very far at all.  The current steps towards “normalising” tolls and shifting towards toll charges that resemble distance are sensible and fairly low risk, but there needs to be a deeper look at how to reform further and talk about changing motoring taxes, not just adding to them.  It appears the Minister is sending contradictory signals, when clarity is needed.  

I’d have thought the appropriate strategy is:

1.       Use tolls where feasible for any new roads or capacity;

2.       Reform tolls to reflect distance travelled and peak/off peak charging;

3.       Investigate the best steps to expand tolls beyond new roads and existing tolled capacity.

Heavy vehicles

Meanwhile, Beef Central (the magazine of the Australian Beef and Cattle Industry) reports that the Australian Federal Government has decided to increase the “Road User Charge” that applies to heavy vehicles, which is a hybrid of ownership taxes and the fuel duty on diesel from 1 July 2012.  The increase is 10.4% and has upset the road freight lobby.  The increase follows exactly recommendations from the National Transport Commission – an independent government body assigned responsibility for determining, among other things, the level at which such charges should be set.   The combination of ownership charges and fuel tax is meant to enable recovery of such costs from heavy vehicles, although inevitably it means that the heaviest vehicles that travel the furthest tend to be undercharged, given the importance of the ownership tax component to addressing the shortfall fuel excise presents for vehicles above a certain weight.  This issue can really only be addressed by a shift to a weight-distance charge as is seen in neighbouring New Zealand.

The Opposition Coalition (Liberal and National Parties) is calling on the increase to be halved to relieve pressure on the road freight industry, and has supported calls for a review of the calculation model used to determine the charges.

UPDATE: The North Queensland Register reports on the criticism by Federal Transport Minister Anthony Albanese of the critics of the proposed increase.  He says:

Supported by all Coalition State governments, the latest annual adjustment simply reflects the fact that this Labor Government has more than doubled the federal roads budget".

"It's astonishing that we've now reached the absurd situation whereby the federal coalition is criticising us for having done nothing more than retaining and implementing their policy.


Survey

The Sydney Morning Herald reports that a survey conducted by the University of Sydney Institute of Transport and Logistics Studies indicated majority support for a cordon based congestion charge for Sydney IF it results in removal of existing tolls on major highways and all revenue is used to support public transport.  However, such support did not translate into support for a wider distance based road pricing scheme.   The survey was of 200 Sydney residents, so take from that as you wish (when one person = 0.5% of the opinion).

3M expands presence in toll equipment and systems supply market

The marketplace for manufacturing, installing and operating electronic tolling systems worldwide is quite fractionated.  This is due to the relatively isolated nature of electronic tolling systems as they have evolved in different markets.  Canada, Australia, Singapore, Japan, South Korea, Europe and the United States have all gone down various paths, some compatible, some not.  

As a result, the key players in that market vary according to where you are.  In Europe, companies such as Kapsch and Siemens are leaders.  In the US, Transcore is a key player.  So the news that 3M is to acquire Federal Signal Technologies Group (which focuses on electronic toll collection and parking management hardware and software services) indicates some confidence by a larger player in the potential for this market.  There being a reasonable likelihood that over the medium term, electronic toll conversions will keep this sector busy, certainly in developed countries, for the next decade or so, along with the likely growth of tolling being used to finance improvements to networks.

The toll system supply market still has some way to go to be completely mature (although in Europe it has consolidated considerably), and is dependent on larger players wanting to get into global markets (Kapsch has been notable in doing this with some alacrity).

Toll Roads News has a good article about the deal with links to the press releases from the two respective companies.

News shorts from Florida, London, Portugal and Virginia

Florida

According to Miami New Times, tolls on all state toll roads in central Florida are rising by 25% on average, an increase intended to match inflation over several years. This has provoked considerable outrage by motorists. Ire seems to be focused particularly on the Miami-Dade Expressway Authority which is using the toll revenue to build more roads. It is responsible for five toll roads, three of which have been converted to fully electronic free flow operations. A group called RollBackTolls has set up a website opposing the strategy of the Authority. The organisation doesn’t seem to oppose tolls per se, but is more of a group supporting directing some of that revenue towards public transport subsidies. That’s an interesting variation on those who oppose tolls elsewhere, who tend to want them abolished and don’t have any interest in tolls paying for other modes of transport. However, I suspect the group will use its name to generate support from those simply opposing toll increases.

If the increase is still linked to expenditure on the tolled network it is difficult to argue against, especially if it clear that the additional capacity is economically justifiable.  Given the state tolling authorities are bound to reinvest revenue in new roads, the risk is that this continues in perpetuity, rather than generating a reasonable rate of return for the owners as an investment, because at some point it wont be worth it to make major investments in new capital.

London

Fleetnews reports that Transport for London is consulting on amending its current 100% discount for environmentally friendly vehicles, by lowering the threshold for low emission vehicles from those which emit less than 100g/km to 80g/km. The current standard is 100g/km and meeting the Euro 5 standard. There is pressure to reduce this further, in part to increase revenues, but also to keep incentives for more environmentally friendly vehicles at the cutting edge of low emission vehicles.

This discount replaced the Alternative Fuels discount in 2010, which had been criticised for not being based on objective environmental criteria. The latest ultra-fuel efficient petrol and diesel cars having lower CO2 emissions than some older hybrids. Of course an obvious solution, and complication, would be to apply a lesser discount to the vehicles above 80g/m. At the moment it is all or nothing, and if the congestion charge is to maintain this secondary environmental objective, would it not make sense to offer perhaps a 50% discount for those currently eligible that will no longer be so? Or are the administrative costs of this confusion such that it is simply not worth it?

Portugal

Now I’m an advocate, in principle, although not evangelical about, the switch of toll roads to fully electronic free flow tolls. It saves time, fuel and makes a toll road trip akin to an untolled trip, with the minimum fuss involved in payment. However, what happens when motorists are in a foreign country and face trying to find out how to pay for such a road when signage and information is not readily available. This is the situation in Portugal according to the Daily Mail.

The road in question is the A22 from Castro Marim (near the Spanish border) to Lagos on Portugal’s southern coast. The scenario is that rental car firms do not advise of the toll roads, how to pay or a facility for motorists to pay unless you leave credit card details (in which case the rental car company will pass on the tolls plus administrative charges – which risks being potentially high). However, it is clear once on the roads that there is a toll – just no obvious means to pay. Rental cars and tolls are a perennial problem. Ideally, rental car firms in locations with regular toll use should simply have accounts with tags for the toll roads, and when finally billing the customer the toll transactions can be calculated and added onto the trip. Otherwise, there needs to be clear information in advance of toll roads of ways of paying by phone, for example. No doubt incentives to do this are mixed. Toll roads may make more money from chasing up violators than spending money on information so tourists know how to pay, but I suspect in the long run it is far superior to have a relationship with rental car companies that means motorists find it easiest to use the toll roads. 

Virginia

Location of Pocahontas Parkway

The West Australian reports that Australian toll road concessionaire, Transurban, has written down its investment in the Pocahontas Parkway in Virginia, USA, by A$138.1 million (US$140.7 million).   It has a 75% shareholding in the road.   The reason being that forecast growth in traffic is not expected to eventuate, as it was predicated on substantial property development that has now been shelved due to the state of the property market.   This concession lasts till 2105 (yes that is a year) and the Sydney Morning Herald claims it originally cost $US611 million ($A815 million) in 2006 values.

It reported that the original deal was that Transurban contributed $US191 ($A255 million) in equity and gained 100 per cent control of the Pocahontas Parkway.  Of the $US611 million of funds for the acquisition, $US487 million was used to pay Pocahontas debt.

In effect, the equity stake is now substantively written off.

Curiously, the Sydney Morning Herald also has a tongue in cheekreference to a claim by some that the road is “haunted”.

UK government announces feasibility study into highway privatisation options

In March 2012, British Prime Minister David Cameron announced that the Government is interested in greater private investment in England's national highway network.  Arising from that more recently has been an announcement by the Secretary of State for Transport, Justine Greening on both the Government's response to an earlier review it commissioned about the Highways Agency and the commissioning of a feasibility study into options for attracting greater private sector participation in the highways sector.

Bear in mind all of this is for England, not the United Kingdom as a whole, as responsibility for highways in Wales, Scotland and Northern Ireland was transferred to the devolved governments in those "countries" (as they are called, although there are not sovereign states).

So what bearing does this have on road pricing?

For now, not much.

The Cook Review of the Highways Agency, commissioned in late 2010 as part of the drive for greater cost efficiency by the Government, recommended a series of measures to improve the performance, efficiency, strategic direction and accountability of the organisation, including steps to commercialise its operations.

The Government response to the Cook Review of the Highways Agency is here and largely embraces measures that can be implemented in the shorter term, including having a strategic view of the future of the network, such as considering how tolling may be a viable option to help fund some improvements.

However, the more significant governance reform options proposed by Cook have been deferred in favour of the wider scoped review that is now underway.  This feasibility study on road reform is focused on how the highway network should be governed, the role of the private sector and new sources of finance, and whether it can more resemble a regulated utility, such as water, electricity or gas (not the railways!).  The terms of reference are here.

Of interest to those in the road pricing field, it makes it clear that government policy is not to allow tolls to be introduced on existing roads that are part of the strategic network (the Highways Agency network).   However, tolls can be introduced on new capacity.  New capacity can mean both new roads, and new lanes (which can mean a new crossing parallel to an existing bridge or tunnel, or new lanes on a highway).  

This would appear to limit scope somewhat, but the Government is interested in options for how it treats existing motoring taxation and how that can be leveraged to encourage private investment.  In short, if the private sector is to buy, lease or otherwise invest in England's highways, and cannot toll existing capacity, it would need to be assured of payments from the state in the form of shadow tolls, availability payments and the like.

It is thought that instead of relying on government budgeting processes and conventional contracts, that perhaps some ringfencing or hypothecation of a proportion of existing motoring taxes would provide a more direct link between use of the road network and payment for the capital consumed in using the road network.  In the UK, motor vehicles currently pay two main taxes - Vehicle Excise Duty (effectively an ownership tax, levied according to both vehicle size and emission class) and fuel excise duty.   Taxation receipts from both are several times in excess of the total expenditure on roads, so to apportion a set proportion of revenue from either or both sources to such payments would largely be an accounting exercise.  The proposed future heavy vehicle vignette could be included in the mix. 

The UK Treasury vehemently opposes any form of hypothecation of any taxes, in part because it restricts the flexibility of government to do as it wishes with future revenues, in part because of fear it will generate an avalanche of claims for new hypothecated taxes, but also because of experience in the 1930s when a motor tax fund became awash with revenues the government was unwilling to spend on roads (suggesting that either the money should have been spent on roads, or the tax was too high).   Overseas examples of hypothecation range from the highly successful (New Zealand) to the questionable (Japan).

The debate on this needs to be had, because the primary reason there are motoring taxes is to serve as a proxy for direct charging of road users.  If highways were privately owned or even publicly owned utilities operating like electricity, telecommunications or water companies, they would charge their customers directly.   Taxing ownership of vehicles and fuel could then only be justified to account for environmental externalities, which would increase transparency around justification for the levels of such taxes.

I see this as being a precursor to the inevitable debate in the medium term about the sustainability of fuel tax when up against ever increasing fuel efficiency of vehicles and those vehicles not powered by petrol or diesel.  Ultimately, revenue levels and equity issues will dictate the need to consider a shift to road pricing in some form.

What does this all mean?

1.   In the short term, not much.  The Highways Agency will be undertaking some minor reforms and scoping out where it thinks tolls could be used to fund new capacity.  Forthcoming route strategies should help inform where the Government sees the need for new roads, new lanes and other improvements.

2.   The feasibility study into road reform is being undertaken by the Treasury and Department for Transport.  Hopefully it will look into models introduced in other countries, such as Austria, South Africa and advanced in New Zealand (but thwarted by politics).  I expect it to support a commercialised Highways Agency with more autonomy, but it would take considerable bureaucratic altruism to wish to relinquish Departmental oversight of the Highways Agency or Treasury's rock solid opposition to hypothecated motoring taxes.

3.   Some major new highway projects are likely to be offered to the private sector as finance-build-own-operate schemes, a few with a toll component to it (obvious examples are the A14 upgrades and the next crossing parallel to the Dartford Crossings). 

4.   Some existing stretches of motorway may be leased to the private sector to have long term responsibility for, primarily focusing on maintenance and relatively minor upgrades.

5.    Vehicle Excise Duty may be partly hypothecated, but only if the Prime Minister and Chancellor of the Exchequer have the courage to reject Treasury's opposition and take advice on how to make it work.

6.    There may be one or two new toll roads on the English highway network in the next few years, but pressure will come from private investors to consider ways to swap existing motoring taxes for tolls.

This also leaves open the theoretical possibility of toll lanes/HOT lanes that are for new capacity, although my view is that the scope for this is almost zero, because for toll lanes to be viable, existing capacity has to be regularly and heavily congested.

Of course, none of this affects the rights of local authorities to introduce congestion charging schemes on their own networks, as they are permitted to do so by legislation that was enabled a decade or so ago by the previous government.   I see there being a similar scope to get local authorities to commercialise their highway networks and do very much the same thing, particularly in major urban conurbations such as London and Manchester.

Budapest Mayor confirms congestion pricing to come

Portfolio.hu reports that Budapest mayor István Tarlós confirmed last week that Budapest is to get a congestion charge and it will be in the form of a single or double cordon with pricing of HUF400-500 (US$1.73-2.16). 

 The necessity is due to central government abolishing subsidies for the Budapest Transport Company (the municipal company responsible for the metro, tram and bus networks), and the condition attached to the loan for funding of the number 4 metro line. 

 The report indicated a number of dimensions of the proposed charge:

- Residents within the charging zones would be exempt; 

- Operating hours are not determined, but it has not been ruled out as being applicable 24 hours a day; - Motorcycles and scooters might be exempt;

- The charge will not be a single access pass, but will charge according to the number of cordon crossings undertaken in a day.

Apparently the exact location of the charging cordon, as well as the range of exemptions and discounts (and products) are yet to be determined.  

For a "summer 2013" introduction, it means Budapest has a lot to do to ensure a successful introduction.  Very courageous (or foolhardy). Furthermore, if it turns out to be a 24/7 charge, there it wont be earning the "congestion charge" moniker, as it will clearly not be about congestion, but revenue.

Problems with congestion pricing for Delhi

In his blog on the Wall Street Journal site, Raka Choudhary talks about whether congestion pricing may come to Delhi. He notes that a Delhi High Court order in early 2010 resulted in a Special Task Force being set up to study traffic congestion. It recommended congestion charging for heavy vehicles entering Delhi, and for all vehicles entering “certain congested parts of the city’s center and old quarter”.

All well and good you may see, especially since in December 2011 the local authority – the Municipal Corporation of Delhi – announced that it would charge private cars 150 rupees (US$2.70) and motorcycles 50 rupees (US$0.90) to enter the city (residents would be exempt). Translating that intention into reality is another story.

The Guardian reported on some of the problems in potential implementation.

“one serious problem is a lack of proper licensing or law enforcement in Delhi. Driving permits can be bought illegally and laws that should ensure safe driving and a smoother traffic flow are routinely ignored. Fines for traffic violations can usually be avoided by paying a small bribe to police officers.”

In short, the key problem for Delhi is the practicality of enforcement in a city where there remains enormous bureaucratic and legal difficulties in tracking down owners of errant vehicles. If this can be tackled, then the other issues would be far simpler to address.

The concept is sound, the devil as always, is in the detail. Detail around how people may pay, how to enforce against those who do not, and options for what sort of congestion pricing scheme may be implemented. Options for this were floated (as briefly discussed in my previous article on this), but would require far more detailed traffic modelling, but in particular surveys of likely behaviour.

As a result, it may make more sense to reform parking in the interim, as a way of helping stem demand for road space, albeit recognising that parking charges and regulation of behaviour will not be enough to manage congestion, but that the systems for this could provide some functions of a road pricing system.

This suggests a strategy for congestion that focuses on parking supply and pricing, traffic law enforcement and ultimately pricing of road use (as well as a need for corridor strategies to determine short, medium and long term approaches to capacity on major roads). This could provide the administrative infrastructure necessary to make pricing as effective as it should be, by laying the groundwork for evolutionary change in motoring behaviour.

Removing drivers without genuine licences and removing unsafe vehicles from the roads would buy time through reducing congestion. Changing traffic enforcement in a way that bypasses the possibility of corruption (e.g. through use of CCTV and ANPR cameras) could facilitate behavioural change so that motorists do not park or drive in ways that inefficiently hinder traffic flow. Parking reform would go a long way towards doing this as well.

Congestion charging will have its place, and could be a catalyst for doing much more in the way of improving enforcement and parking policies, but it needs to be part of a complete strategy that currently is not as well formed as it should be. That includes traffic enforcement and facilitating public transport, cycling and walking.

It will include completing roads, for Delhi does not have a high quality orbital highway completed as of yet.

Indian toll road profitability declines and Ontario floats more tolls

India

A lot of new highways in India are invariably being toll funded, albeit with manual tolling systems. A recent report has noted that returns on such projects have been declining in recent years.

My Iris reports that Build Operate Transfer (BOT) projects (also known as BOOT) before 2009, could earn an average equity return of 22%. In most of the 23 projects surveyed, the reason for this is put down to the relatively low cost of bidding (related to the lack of bidders, an average of five) and higher than expected traffic growth boosting toll revenue (10-12% over two years). The lack of bidders was put down to property developers being unsure about land being available for construction on time, and contractual provisions that made it complicated for developers to sell their full equity stake in the project concessions. 

This environment appears to have changed, with land acquisition being accelerated by government offering an option for developers to exit, and more lucrative projects being pursued. As a result, the number of bidders is now averaging 25-30. Conversely, traffic forecasts are no longer being met by some projects. Fitch Ratings reports that actual traffic may be as low as 45% of the estimates for the first year. 

Optimism bias in such forecasts is driven by construction companies in consortia keen to capture the lucrative contracts for building the roads (and to be paid for them), which means they are keen to support forecasts that are more likely to mean their consortium wins the concession. In addition, poor reliability of traffic statistics (and lack of robust research into preferences of users) makes such forecasting particularly prone to error. 

The key point for investors is to have some decent expert scrutiny of the projects they are being asked to invest in, and base forecasts on a range of plausible scenarios. 

Ontario

Ontario Premier Dalton McGuinty has announced that the tolled Highway 407 will be extended, first from Pickering to Oshawa, with the province owning the 22-kilometre link but charging a fee to use it.  This has been described by theLF Press as crossing  “a Rubicon city and provincial politicians have been loathe to dip their toes into”.

Ontario's last civic toll road was scrapped in 1926, and of course the 407 toll road remains the only exception to date which is also privately owned.  Building the extension as a private road is also an option under consideration, which is likely to be controversial.   To privatise and allow tolls for a new link is an obvious option for administrations lacking finance and options to fund such improvements.  No doubt the debate in the province will be vigorous on this one, although given the success of the 407, I would have thought it should not be as controversial as it is made out to be.

Congestion pricing beats higher public transport subsidies in achieving mode shift

So says an article in the Atlantic Cities about "what really matters for increasing transit ridership".

It cites an upcoming article reporting research that ranks measures to increase the cost of car use well above capital expenditure on improving rail transit and reducing rail fares as a way to achieve mode shift.

In an upcoming issue of Transport Policy, a group of Chilean researchers led by Louis de Grange of Diego Portales University investigated these three ideas to see which emerged as most effective. Using data from 41 major cities around the world, de Grange and company ran a total of 16 econometric models comparing these methods. After controlling for key demographics the researchers found a consistent pattern: System expansion increases transit ridership a little. Car regulation increases it a lot. And fare subsidies have no effect at all.

Now I will wait  until I read the article in detail to see if the statistics used are comparable.  For a start, I don't think there is much evidence to demonstrate meaningful increases in rail usage in London and Stockholm from congestion charging, but rather meaningful reductions in car use.  The key mode shift appears to be increases in bus use.  However, it is entirely plausible that 10% expansion of rail system capacity may only increase usage by 3-4%, and the more damning view that increased public transport subsidies may simply reduce productivity and increase costs with little effect on patronage is worth consideration, against those who advocate higher fare subsidies as a way of achieving mode shift.

The implied lesson is that people are more likely to be dissuaded from cars to public transport by being priced out of driving, rather than being lured by cheap fares.  Free public transport wouldn't have a significant impact, compared with charging road space more efficiently.

So if the policy goal is mode shift, it may be time for cities to think more about pricing roads and targeted improvements in networks and services, rather than reducing fares, suggesting that pricing scarce road space more to match demand with supply makes more sense than underpricing public transport to attract more demand.

Congestion pricing floated for Sri Lanka

Following on from a similar reference in Bangladesh, the Daily News of Sri Lanka reports that Private Transport Services Minister C B Ratnayake advocates congestion charging as part of an overall integrated transport strategy. 

He said: "In general, Sri Lankan cities have not made much progress in implementing the demand side transport management measures, such as congestion pricing, restraints on parking etc. Although policy measures that involve restraining the use of private cars and two-wheelers are likely to be unpopular, a gradualist approach of progressively introducing restraints on road use, while at the same time improving public transport, is more likely to lead to greater acceptance. It is believed that improved public transport and more efficient management of demand would help to combat the trend away from public transport vehicles towards greater use of personalized modes.” 

 In other words, congestion pricing can be part of the toolbox of a developing country as car ownership increases, to ensure the inevitable drift from public to private transport is constrained efficiently in ways that manage congestion and help maintain the relative competitiveness of public transport, particularly where road space is scarce. 

Of course, the challenges to introduce this in Sri Lanka are enormous. Some basic infrastructure to identify vehicles reliably, and pursue and penalise non-payment is the biggest issue. However, it is heartening to see such a positive view being taken in Sri Lanka on this. Mr Ratnayake appears to have fairly sound economics behind many of his views, including the need to have strict appraisal procedures for large capital projects, so that scarce resources are spent on the highest value projects first (avoiding politically driven projects with poor returns). If he can institute reforms that can lead to more tolls and eventually congestion charging in Sri Lanka, then he will be a leader in development of such systems in South Asia.

News shorts - Australia, Canada, USA

Australia

The New South Wales Government is facing continued pressure on budgets, like many governments, and so according to the Daily Telegraph (Australia) appears to be pushing for another PPP toll road in the form of the F3-M2 motorway.  It is expected the new highway will be tolled and entirely privately financed and owned.   The F3 is the Sydney to Newcastle freeway that currently ends in the northern suburbs, the M2 is a private toll road (managed by TransUrban) that forms the northwest to north-central connection of the “Sydney orbital” motorway network connecting the M7 toll road (which effectively forms the western leg of a “Sydney bypass”) to the freeways at the northern end of the Sydney Harbour Crossings.   The M2 is a fully electronic free flow toll road as of January 2012.  The F3 to M2 link would complete the Sydney bypass by providing a full motorway standard ring route from the north to the south, and so is considered to be a strategically critical link in Sydney’s motorway network.  The Government is apparently having talks with TransUrban about the project, although   Other projects under consideration include widening the M5 motorway (the toll road running south-west from the airport to the southern outskirts of Sydney) and the M4 east (an expensive extension from the major western motorway to bypass inner city suburbs to connect to the downtown Western distributor freeway).

Calgary

The Calgary Herald reports that the University of Calgary School of Public Policy has published a paper advocating that users be charged directly to fund infrastructure including roads.  Although it will be “phenomenally difficult” politically, it needs to be undertaken in an open and transparent way, with acknowledgement that existing taxes are incapable of stretching to pay for maintenance and renewal of networks.

The newspaper reports:

Although tolls exist throughout the United States, on Toronto’s 407 Highway and the Vancouver area’s Golden Ears Bridge, it’s a no-go issue in much of Canadian politics. It’s so hot that when a Transport Canada call for proposals for a study on road pricing made headlines on the eve of the 2008 election, the Harper government’s transportation minister swiftly quashed that idea.

Similarly there is little enthusiasm with the current Alberta Provincial Government for tolls:

Transportation Minister Ric McIver said he won’t go near the idea of user fees on the big-city ring roads. He’ll entertain the possibility of tolls for the fast-tracked twinning of Highway 63, but only as part of his promise to “look at all the options,”

The Calgary Mayor, Naheed Nenshi also ruled out congestion pricing on existing roads.  Brian Flemming, from the School of Public Policy says the reasons to consider user pays are:

•  The need to find a gap in funding following the end of “stimulus spending”, which can also leverage private capital;
•  Increased fuel efficiency and alternative fuels diminishing revenues from fuel tax.

 However, this doesn’t mean just a few toll roads, he is pushing for proper network road pricing, and that is a debate that Canada hasn’t started to have yet.

“This means something far beyond mere traditional tolling of roads and bridges. It means creating a system whereby those who use infrastructure will electronically have to pay small and sophisticated fees or this use.”

That means a debate about replacing existing taxes, the debate that has started to emerge in the US and Australia, and one that could well do with being catalysed in Canada.

Florida

What about rental cars? An article by Larry Elkin, President of the Palisades Hudson Financial Group, sings the praises of a Florida state policy to convert all toll roads into fully electronic free flow operations. I can agree with all that.  However, his concern is how to deal with rental cars when those hiring fail to pay for a toll road.   He wants regulations for rental car companies to stop them charging high surcharges for passing on toll fees.   I disagree.   Experience elsewhere suggests a range of alternative options.  For a start, toll roads are usually well signposted, so it shouldn't be a surprise to motorists.  In Australia, rental car hirers in Sydney (which has many such toll roads) receive a leaflet explaining how to pay electronic free flow tolls online or by phone.   In addition, it is perfectly feasible for rental car firms to install tags in vehicles so that tolls can be charged to a vehicle, and then charged to the hirer at the end of the hire, or to have accounts based on number plates which also enable the same thing.   Given the rental car industry is competitive, with low barriers to entry, it seems more likely that suitable solutions will be developed by providers working with toll operators than some sort of government regulation.

Indiana

Debate over the privatisation of the Indiana Toll Road continues.  This time in the Evansville Courier and Press (Indiana), the Press Secretary of Indiana's Governor, Mitch Daniels, counters an article by a journalism lecturer.   She claims the sale helped fix the state's finances and provided a structure within which tolls could be increased to allow the road to be upgraded.  The view she is countering is that the lease meant revenue that would have come to the state would be going to a foreign private company.   Interesting the debates in a country sometimes held up to be the bastion of free market capitalism.