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INTRODUCTION
The purpose of this report is to explore the policy implications to states of financing highway construction and maintenance using "shadow tolls." Shadow tolls are per vehicle amounts paid to a facility operator by a third party such as a sponsoring governmental entity and not by facility users. Shadow toll amounts paid to a facility operator would be based upon the type of vehicle and distance traveled.
Shadow tolls can be an element of a highway finance approach whereby a public or private sector developer/operator accepts certain obligations and risks — such as construction, opera tions and most specifically traffic — and receives periodic shadow toll payments in place of, or in addition to, real or explicit tolls paid by users. Funds for shadow tolls can come from diverse (and multiple) government and/or private sector sources, including State Highway Funds, special assessments on nearby properties and regional dedicated tax streams.
Shadow tolls automatically spread periodic or annual payments to a facility operator over a concession or franchise period; this can place the initial financing responsibility on the devel oper/operator rather than placing this burden on the public sector agency sponsoring the project. The reasons that shadow tolls may appeal to governmental units are that:
- Traffic risk can be transferred to a developer/operator;
- Traffic levels are not impaired by real tolls or toll increases;
- Multiple sources of revenues can be drawn upon to contribute to a shadow toll fund; and
- Project cost obligations to the public sector sponsor (capital, maintenance and operations) can be reasonably known in advance and guaranteed for a particular traffic level.
The traffic risk given to a developer/operator need not be an all-or-nothing proposition. There are several methods by which traffic risk may be dampened by thresholds or guarantees. For example, if traffic is significantly greater than specified, a portion of the additional shadow toll revenues resulting therefrom could be withheld or shared with the government sponsoring entity. Conversely, if the traffic is less than specified in the concession agreement, a portion of the revenue shortfall could be made up by the Government.
Shadow tolls are not a financing source in themselves, but rather a payment approach which can employ a range of financing methods, innovative or traditional, and can permit a viable financing structure that fits the characteristics and needs of certain projects. The concept of shadow tolls is, therefore, particularly applicable to public/private partnerships.
A project is typically defined as a public/private partnership or venture when two or more phases of the overall project development/operations process are the responsibility of the private sector. These phases of a typical process are: identification/initiation; planning; financing; design; construction; operation; ownership; and program management. If only one phase or element is the responsibility of the private sector, then it is often termed "privatization" or "outsourcing."
Recent years have seen growing federal support for public/private partnerships ranging from the landmark 1991 Intermodal Transportation Efficiency Act (ISTEA) legislation to the 1995 National Highway System Act and the current re-authorization discussions. This support has led to the expansion of the State Infrastructure Bank Program and to various other innovative financing initiatives. Shadow tolling can be an integral part of this trend.
Preliminary research in the area of shadow tolls was conducted in 1995 by URS Greiner. The report presenting this work was entitled "The Applicability of Shadow Toll Concepts in the United States" (FHWA P.O. No. DTFH61-95-P-00499). This follow-up study to that work includes capital markets analysis as well as transportation policy analysis. URS Greiner Consul tants, Inc., in association with Public Financial Management, Inc., is carrying out the following scope of services for FHWA:
- Overview of Shadow Tolling Project Experiences Abroad. Section II summarizes experience to date outside the U.S., primarily in Great Britain. Included are discussions of procurements, concessions and finances and the rationale for their structure and operating procedures.
- Comparison of Shadow Tolls to Other Highway Financing Methods. Section III of this report examines forms of privatized capital, alternative financing techniques and perspectives of various "deal" participants; it also identifies specific advan tages and disadvantages of shadow tolls versus other innovative methods of financing highway projects, including design-build turnkeys for conventionally funded projects and explicit toll facilities. Typical costs and benefits associated with debt secured by shadow tolls versus traditional funding mechanisms are compared.
- Assessment of Shadow Toll Applicability in the United States. Building upon the foregoing sections, descriptions of how shadow tolls could be applied to existing or proposed toll projects in the United States are presented in Section IV. In addition to a generalized treatment of this subject, methods by which shadow toll concepts could help achieve social objectives — such as expanded high-occupancy vehicle usage — are outlined together with a consideration of how shadow tolls could be applied to projects deemed of national interest.
Sections addressing these subjects follow, together with a summary of significant conclusions (Section V).
