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Given the long history of tolling transportation facilities in the country, and the fact that tolls are collected in a majority of states, tolling is not viewed as an especially new or innovative financing approach. However, during the 1990s changes to Federal law provided states with greater flexibility than ever before to levy tolls on highway segments that have also received Federal highway funds. In addition, new Federal funding opportunities are now available for sponsors of highway projects that seek to reduce traffic congestion through the use of road pricing strategies.
While often controversial, tolls offer the opportunity to expand investment in the transportation system by introducing a new source of revenue into the transportation system. Finally, toll finance adheres to a "user pays" principle in which revenues derive from the individuals who most directly benefit from the facility.
Highway law now permits tolling on most non-Interstate highway projects and some Interstate projects so long as the sponsor of the toll facility commits to spending the resulting toll revenues first and foremost on debt service and operations and maintenance of the tolled facility. In addition, TEA-21 established a new pilot program permitting tolling of up to three reconstructed or rehabilitated Interstate highway segments. And another pilot program is available to provide special funding to states that seek to test "value pricing." This pilot program is designed to encourage research on the capacity of various toll and parking fee strategies to reduce traffic congestion.
| Technique | What Does It Do? |
|---|---|
| Tolling Federal-Aid Highways | Provides states the discretion to levy tolls on most non-Interstate Federal-aid highways. |
| Interstate Reconstruction and Rehabilitation Pilot Program | Allows up to three pilot projects to convert reconstructed or rehabilitated free Inter-state highway segments into tollways. |
| Value Pricing Pilot Program | Sponsors the testing and evaluation of road and parking pricing concepts designed to achieve reductions in highway congestion. |
Toll provisions allow states to consider a tolling option for certain permitted types of Federal-aid projects on the projects' own merits without the penalty of a reduced Federal share.
ISTEA and the NHS Act significantly modified Section 129 of Title 23, which governs the use of tolls on Federal-aid highways. Among the changes were new opportunities to levy tolls on Federally-supported highways, and, with the NHS Act in 1995, an increase in the Federal matching share to 80 percent of total eligible costs.
The Surface Transportation and Uniform Relocation Assistance Act of 1987 provided a toll road pilot program in which nine states were given the authority to pursue development and construction of toll roads with up to 35 percent Federal-aid funds. Ultimately, three projects were constructed, and sufficient progress was demonstrated that Congress expanded the toll provisions under amendments to 23 U.S.C. 129. Section 1012 of ISTEA, now incorporated in Section 129 of Title 23, was designed to provide state and local governments with more flexibility in generating new capital for needed highway investments.
The amended 23 U.S.C. 129(a)(1) established five broad categories of toll activities eligible for Federal-aid highway funding and the amended 23 U.S.C. 129(a)(3) covers the use of toll revenues. If Federal-aid funds are used to construct a toll facility or approach to a toll facility or if a state plans to reconstruct and convert a free highway, bridge, or tunnel previously constructed with Federal-aid highway funds to a toll facility, an agreement under Section 129(a)(3) must be executed. The agreement requires that all toll revenues are used first for debt service, reasonable return on private investment, and operation and maintenance, including 4R work. At the option of the state, the agreement could also include a provision regarding toll revenues in excess of those needed for the required uses. This provision would entitle the state to use the excess revenues for purposes authorized under Title 23. Toll agreements executed prior to December 18, 1991, required the facility to become free when debt is retired. The new Section 129 toll agreement allows the state to determine whether a toll facility is to become free when debt is retired, or at some future point in time or whether tolls are to continue indefinitely.
The opportunity for states, toll authorities, and their private partners to levy tolls on Federal-aid highways came at an opportune time in the mid and late 1990s when Congress approved and FHWA implemented several programs that provide Federal capital assistance for projects with the capacity to generate revenues (such as toll receipts). These programs include the Federally capitalized, state administered SIB program and several direct Federal loan programs, including the TIFIA Federal credit program. These programs are described in Chapter 4.
A Federal-aid highway project's eligibility for toll finance depends both on the type of facility and the nature of the project. Five categories of projects are eligible for Federal funds:
Eligible expenditures include debt service, operations and maintenance, establishment of necessary reserve funds, and a reasonable return on private investment for projects that include private participation.
If a state or toll authority wishes to use Federal-aid funds for construction or improvements to a toll facility or to convert an existing Federally funded free facility to a toll facility, the first step is to execute a toll agreement with FHWA. No agreement is necessary for preliminary studies.
The toll agreement must include five items:
No model agreement has been developed, but samples of past agreements are available from FHWA.
The Federal matching share for all expenditures on tolled facilities is up to 80 percent - an increase from the 50 percent share originally authorized under ISTEA. In the case of privately owned facilities it is acceptable for the private owner to take responsibility for the non-Federal share of eligible project costs.
This pilot program allows up to three projects to convert reconstructed or rehabilitated free Interstate segments into tollways.
Since the inception of the Interstate system in 1956, Federal law has generally prohibited new tolls on Interstate highways. Section 1216(b) of TEA-21 authorized a partial departure from this prohibition by establishing the Interstate Reconstruction and Rehabilitation Pilot Program. The purpose of the program is to provide for the reconstruction or rehabilitation of Interstate highway corridors where estimated improvement costs exceed available funding sources, and work cannot be advanced without the collection of tolls. This means that the candidate project must be for the conversion of a free Interstate highway to a toll facility in conjunction with needed reconstruction or rehabilitation. An analysis is needed to demonstrate that the facility could not be maintained or improved to meet current or future needs within the limits of the state's apportionments and allocations.
The program is to provide a construction revenue source and is not to be used as a traffic management tool.
Under this program the U.S. Secretary of Transportation has authority to select up to three pilot projects in which states will convert reconstructed or rehabilitated free Interstate segments into tollways. No more than one project may be undertaken in any one state. No new Federal funding is available for projects approved under this program. The tolled facility will be evaluated for a period of no less than 10 years.
Any Interstate highway segment is a candidate for this program so long as the project involves rehabilitation or reconstruction of a free facility and its conversion to a toll facility. Bridges or tunnels may be included in the segment, but are not specifically sought out under this program as Federal law already allows states to convert reconstructed or replaced free bridges and tunnels to tolled facilities.
A project's eligibility for the program also depends on the state demonstration that it has satisfied the following conditions:
Also, the state sponsoring the project must commit to using toll revenues for eligible uses, which comprise costs necessary to improve, operate, and maintain the facility; debt service; and a reasonable return on investment for any private party financing the project. Once renovation to the facility is complete, tolls must be collected for at least 10 years.
Since no additional Federal funding is authorized for this program, any project sponsor wishing to supplement toll revenues with Federal funds must use regular Federal-aid highway funding - except for funds from the Interstate Maintenance program category. By law, Interstate Maintenance funds cannot be used on any road approved under this pilot project.
A Federal Register notice published on February 10, 1999 (Vol. 64, No. 27) provides detailed guidance on how to apply for the pilot program. Officials from any state interested in participating in this pilot program should contact the appropriate FHWA Division Office.
The intent of the Value Pricing Pilot Program is to evaluate the capacity of road and parking pricing concepts to achieve significant reductions in highway congestion.
Section 1216(a) of TEA-21 authorized the Value Pricing Pilot Program. This program is an outgrowth of the congestion pricing pilot program established under ISTEA legislation. As with the congestion pricing pilot program, funds are available to help cover costs associated with pre-implementation activities for up to three years prior to a given project's implementation. These activities might include, for example, project design and planning and public information and outreach. Funding under this program is also available to reimburse eligible implementation costs for up to three years from the time the project is implemented. Academic studies of the theoretical impacts of value pricing or broad area-wide planning studies which incorporate value pricing as an option will not be funded under this program.
While the content of the pilot program has changed very little from its predecessor program, the TEA-21 Value Pricing Pilot Program authorizes $51 million in new funding for up to 15 public entities to undertake projects approved under the program. The period of availability of both the program and the funding runs from 1999 through 2003, the final year of the TEA-21 authorization period.
Value pricing, also known as congestion pricing or peak-period pricing, is a way of harnessing the power of the market to reduce congestion and the economic and environmental costs that congestion imposes. Value pricing is not synonymous with tolling, for it can involve other kinds of charges - such as parking fees - that are similarly designed to influence drivers' behavior. Still, tolls continue to represent a pre-eminent tool in the value pricing arsenal.
The key difference between a typical toll structure and a value pricing toll is variability. The key is for toll rates to vary with the level of congestion on the tolled roadway. Thus, rates tend to be higher during rush hour. This concept of assessing relatively higher prices for travel during peak periods reflects other industries' similar pricing responses to peak-use demands - airlines offer off-peak discounts; hotel rooms cost more during peak tourist seasons. Road-use charges that vary with the level of congestion provide incentives to shift some trips to off-peak times, less congested routes, or alternative modes of transportation. Value pricing can also encourage drivers to combine some lower-valued trips with other trips or to eliminate them altogether. Research on congestion pricing during the late 1990s showed that elimination of a relatively small proportion of peak-period trips can lead to substantial reductions in overall congestion.1
Public toll authorities as well as local, regional, and state sponsors of pricing projects designed to reduce congestion may apply for funding under the Value Pricing Pilot Program. Although public agencies must be the grant recipient of record and sign the project agreement with FHWA, it is acceptable for the project team to include private participants as well.
Candidate projects for this program should seek to reduce congestion through the use of pricing mechanisms. Just a sample of possibilities includes:
Legislation directs U.S. DOT to give priority to proposals with the greatest potential to reduce congestion and advance current knowledge of price effects, operations, enforcement, revenue generation, equity, and monitoring and evaluation mechanisms. FHWA will also give priority to promising but untried technological, operational, and institutional innovations. Projects with strong evaluation programs, significant commitment by implementing organizations, and evidence of stakeholder support are also encouraged. Finally, it is necessary for proposals to include a consideration of the potential financial effects on low-income drivers. The projects may include mitigation measures to correct potential adverse effects on this population.
It is permissible for any value pricing project selected under this program to levy tolls on the Interstate system, notwithstanding the general prohibition on tolls on the Interstate system. Interstate toll projects approved under this program do not count against the three Interstate toll projects permitted under the Interstate Reconstruction and Rehabilitation Pilot Program described in the preceding section.
Activities eligible for Federal-aid reimbursement under this program include planning for, establishing, managing, operating, monitoring, evaluating, and reporting on value pricing projects. The standard Federal share of costs for projects selected under this program is 80 percent, just as for most other Federal-aid highway programs.
A Federal Register notice published on May 7, 2001 (Vol. 66, No. 88) solicited applications for the Value Pricing Pilot Program and provides the particulars on the application process.
Applicants are encouraged to discuss the nature of their proposed projects with FHWA before submitting an application. As part of the application project sponsors should prepare and submit a sketch plan that describes the congestion problem, the nature of the pricing project, and potential equity consequences of the proposed project. Following FHWA's review of the sketch plan, FHWA will work with the project sponsor to develop a detailed proposal, including a plan for monitoring and evaluating the project and a detailed finance and revenue plan. A team comprising several offices within U.S. DOT as well as the Environmental Protection Agency will review the proposal, though U.S. DOT has the ultimate authority to approve the proposals. If approval is granted, the next step is for FHWA and the project sponsor to sign a cooperative agreement defining the scope of work and funding commitments.
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Value Pricing in Action Projects in 12 states are currently being funded under the program. Three projects were undertaken in the original Congestion Pricing Pilot Program established under ISTEA, and are continuing in operation.
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