Tuesday 21 January 2014

Do Washington State's proposed I-405 HOT lanes make sense?

The Herald Net reports that the State of Washington is planning to have HOT lanes either way on the entire length of I-405 between Lynnwood and the I-5, effectively meaning that Seattle's major western bypass will have an express lane capability.  All the details are in this report on the WSDOT website.

The northern portion is already under construction from Lynnwood to Bellevue, with US$334 million being spent converting existing "car pool" lanes (HOV lanes) into HOT lanes, with that project expected to be completed in 2015.  However, funding is yet to be approved from Bellevue to SR-167 (which already has dynamically priced HOT lanes), as this would require new lanes and would cost US$1.1 billion.

I-405 Washington HOT lanes
In the map image above, green depicts the lanes already under construction between Lynnwood and Bellevue, blue being the proposed new lanes, and yellow the SR-167 lanes.

There are several interesting dimensions to the report.  It recommends that the conventional two-person HOV requirement only entitle motorists to free access during off peak times, with a minimum three-person HOV during peaks.  That's an interesting, albeit complex for enforcement, way of rationing road space for the HOV component of users.

Pricing will be dependent on how many sectors are used, with an initial price of US$0.50 for each sector (Lynnwood to Bellevue being one, Bellevue to Renton being the next, followed by Renton-Pacific.  The expectation is that dynamic pricing would be introduced as well.

The automatic question is surely, why can't the lanes pay for themselves?  The report claims that only US$215 million of the US$1.1 billion capital cost can come from tolls, with the rest sought from the "gas tax".   

Unless the remainder was a calculation of savings made by other users of the road network (which I doubt), the justification for such a high subsidy for a tolled facility seems questionable.  About the only way it might be approached is if the widening had a positive benefit/cost ratio all up, and making it a HOT lane was about making the increased capacity sustainable - yet typically restricting such capacity to paying users takes away much of the net benefit by requiring users to pay.

In other words, you can either cleanly take a market approach (so those benefiting from the faster trip pay for it) or a public sector spending comparisor approach (so that all money collected from road users is spent on the most efficient transport projects, which can include additional lanes on a highway).   However, given that:
- Restricting a new lane to HOVs reduces those benefiting from the new capacity substantially;
- Charging for other users means that the net benefit for users who pay is much lower because they have to pay the toll;
- The net benefit to everyone else comes from the lanes removing some marginal users from existing traffic.

Yet it is far from clear that this sort of assessment has been made in a way that fairly takes into account several factors:

1.  All users of the HOT lanes are paying gas tax whilst on them.  It would be fair to treat the revenue generated whilst using the lanes as being a contribution to their capital and operating costs.   However, that is unlikely to add more than a few percentage points on top of what the toll can contribute.
2.  It is unclear how the capital in roads is accounted for, as there appears to be few attempts to treat them as capital assets to be depreciated or which should earn a rate of return.   It may be that the lanes can pay for themselves if you depreciate the lanes over 40 years, treat land as an investment (and so expect a return on capital) and depreciate some of the costs (earthworks, planning costs) over 99 years.

In the 1990s, the New Zealand Government did a lot of work on commercialising highways, including how to treat roads like any other capital asset.  Some of that thinking is now reflecting in calculations used to set tolls for trucks in Germany (as I did work analysing how those costs had been applied  for those tolls).

Whilst there may be public policy reasons for all other road users to subsidise those using HOT lanes (after all, road users all pay for a network through gas tax), it would be better if they were self funding.

In this case, it seems doubtful that the lanes could be self-financing, but it would be highly desirable if the basis to determine the financing of such lanes fairly reflected the assets themselves.  

After all, if Americans wonder why HOT lanes are so few and far between elsewhere in the world, it should be no surprise.  There are few cases where new lanes on a highway that are tolled can generate enough revenue from their users to pay for their construction costs.

All papers on I-405 tolling from Washington State DOT

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