The Federal Subsidies for HOT Lanes

The question arose in response to my December post (“HOT Lanes on the Capital Beltway Only Five Years Away“) about the role that Uncle Sam is playing in the financing of the $1.4 billion HOT lane project on the Interstate 495 Beltway. According to Quintin Kendall, deputy assistant secretary for management and budget at the Department of Transportation, TIFIA loans and PABs “were a large part of the deal all along.”

For those unfamiliar with federal acronyms, TIFIA stands for the Transportation Infrastructure Finance and Innovation Act. That program provides direct loans, loan guarantees and lines of credit for surface transportation infrastructure projects.

PAB stands for Private Activity Bonds. Federal law allows the federal government designate private companies to issue up to $15 billion in tax-free for qualifying projects.

What this means for Virginians is that we are the beneficiaries of an indirect form of federal boodle. While the Beltway HOT lane project will not be subsidized through direct cash outlays, the Fluor-Transurban partnership building the HOT lanes will be able to line up financing on highly advantageous terms. How much of the implied subsidy will flow through to HOT lane riders and how much will bolster the bottom lines of Fluor and Transurban is not a topic upon which I am willing to hazard a guess.

From the perspective of federal transportation policy, the Bush administration very much wants to get some demonstration congestion pricing projects up and running. HOT lanes on the beltway around the national capital would serve that aim nicely.

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  1. Jim Wamsley Avatar
    Jim Wamsley

    HOT lanes around the Beltway will be a very expensive way to prove that adding lanes in a congested area does not eliminate congestion. They will prove that PPTAs don’t work because they remove projects from the public eye. They also divert investment dollars from transit projects that would move people in congested locations.

  2. Larry Gross Avatar
    Larry Gross

    I think this is rich with irony.

    All this talk .. about transit being subsidized…

    .. and about how letting the private sector “do roads”..

    .. and it turns out that the Feds are .. in essence taking taxes from others to give the folks in NoVa and Maryland area a subsidy…

    and transit? Yep.. Wash Metro got money from this same fund…

    the ICC? yep.. financed the same way..

    The bailout of the Pocahontas Parkway in Richmond? Yup.

    by the way.. the source of this money is limited – there is “only” 15 billion available:

    “As part of the surface transportation legislation signed in August 2005, private companies building and operating public use facilities are authorized to borrow up to $15 billion nationwide on a tax-exempt basis to build highways and certain freight facilities. So far, the Department has authorized the issuance of $3 billion in these private-activity bonds and expects to issue billions more in the upcoming months.”

    check out these links:

    here’s a list of all the projects to date:

    so guess what folks…

    most of the major new transportation projects in the Metro DC area – are subsidized…

    so much for private sector solutions.. there was Fed money involved all along…

    Remember Groveton asking why the State could not do it’s own funding of VDOT HOT lanes.. and this guy (me) foolishly said (more than once) that only the Private sector was capable of this scope/scale financing? ( I’m still deciding if I prefer egg on the face or eating a hat).

    and one further thought…

    WHERE in the VDOT Press Releases trumpeting the success of this so-called Public-Private approach to funding new infrastructure did they reveal that a billion dollars worth of Federally-subsidized funding was involved?

    to be fair.. no one is really sure exactly how TOll road economics “work” .. and so the Feds are trying to entice some projects.. really these are truly Pilot Projects in some respects.

    Some states however – are actively exploring using toll road to generate GENERAL transportation revenues.. i.e. the toll revenue from a given facility may not be spent on that facility..

    In fact.. that’s an element of the Maryland ICC financing…

    and may well be the approach that VDOT might use for their new 460 toll road.

    Wouldn’t it be even more ironic.. if VDOT would use some of the proceeds from HOT lanes to build US 460?

  3. Anonymous Avatar

    “HOT lanes around the Beltway will be a very expensive way to prove that adding lanes in a congested area does not eliminate congestion.”

    I don’t suppose that you would concede, by the same logic, and with thirty years of experience, that Metro hasn’t eliminated congestion, either.

    Spending money on transit so that we can manage to muddle through in spite of congestion is also a waste.

    “[PPTA’s] also divert investment dollars from transit projects that would move people in congested locations.”

    Well, OK. But that is entirely different proposition, I’d say. Moving people in congested places is a different problem from eliminating congestion.

    On the one hand you attack HOT lanes because they won’t eliminate congestion, and then you promote transit because it works in spite of (or even because of) congestion.

    This kind of thinking makes my head spin.

    Congestion is a waste of time and money and resources. Rather than ranting about cars vs METRO (or transit in general), we should be focused on reducing waste associated with congestion, and maximizing productivity and convenience. (One first thing to do for convenience is make sure everybody on transit actually has a seat.)

    Obviously, we need to make some trade-offs. Transit needs considerble density to work, and there are (allegedly) some valid busineess reasons for businesses to be co-located. At the same time, too much of that works against even transit.

    And, too much co-location eventually results in congestion, even with transit, because transit only does part of the job that needs to be done. Too little co-location results in sprawl, whcih has costs of its own.

    We ought to stop making pontifications about this being better than that and just figure out what actually works best, even if it means we have to promote a little bit of something we don’t like or has a higher cost.

    This whole HOT lane discussion just shows how little we know about what will happen, or who will pay the price. No doubt, HOT lanes will be of benefit to some, and also no doubt, HOT lanes will mean we can’t spend that money on something else.



  4. Anonymous Avatar

    From the AP:

    “A special commission is urging the government to raise federal gasoline taxes by as much as 40 cents per gallon over five years as part of a sweeping overhaul designed to ease traffic congestion and repair the nation’s decaying bridges and roads.”

    So now that we have shifted the taxes we pay from subsidizing drivers to subsidizing the companies we hired to collect tolls, we are going to get the money back————-

    By raising taxes!

    Yeaahhh. Yippeee.


  5. Jim Wamsley Avatar
    Jim Wamsley

    You can view the National Surface Transportation Policy and Revenue Study Commision report at:

  6. Anonymous Avatar

    Thanks for the link.


  7. Larry Gross Avatar
    Larry Gross

    Study: Toll roads alone won’t pay for U.S. highway needs

    Bipartisan panel says Congress will need to increase gas tax

    01:13 PM CST on Tuesday, January 15, 2008

    By MICHAEL A. LINDENBERGER / The Dallas Morning News

    More and higher tolls won’t be enough to pay for the nation’s highway needs, a bipartisan study panel chaired by the U.S. Secretary of Transportation said today in a long-awaited report.

    Instead, Congress will need to raise the federal gas tax by 25 to 40 cents a gallon over five years, according to the National Surface Transportation Policy and Revenue Study Commission. The 12-member commission is a bipartisan panel formed by Congress in 2005 to rethink the way the nation builds and pays for its highways and transit systems.

  8. Groveton Avatar

    When does a going concern start selling its revenue producing assets in order to raise cash? When it is in the throes of economic collapse. Or, when the going concern believes its management is so strong that it will forgo older revenue producing assets and the cash raised by selling those assets to build new more profitable revenue producing assets.

    Which situation applies to Virginia and its sale of (potentially) revenue producing roads?

    Impending economic crisis?
    A secret master plan to use the cash to build assets which generate more money? Like maybe the “floating sidewalks” in the Jetsons’?

    We are selling the country we inherited from our forefathers. And then we are guaranteeing the finances of the companies who are buying our country.

    Where are Pat Buchanan and Ron Paul when you need them?

    Larry – if you have egg on your face it’s because you forgot the first tenet of Grovetonism:

    When it comes to the government – believe none of what you hear and only one half of what you see.

    The chickens of Dominion’s guarenteed ROI will be coming home to roost over the next few years too.

  9. Larry Gross Avatar
    Larry Gross

    “When it comes to the government – believe none of what you hear and only one half of what you see.”

    I think one of the things that I resent the most is the false impression that VDOT and others left with the public about the “need” for the private sector to design, build, operate and maintain) toll roads.

    The info about TIFA is not hidden but it’s involvement not disclosed by the sponsors of the projects that are using it.

    For instance, VDOT and the State of Virginia could have added a simple sentence/paragraph to better explain the financing involvement of the Feds – and they did not.

    so the HOT lanes AND the Pocahontas Parkway BOTH benefited from TIFA and not a word about it’s involvement in the VDOT Press Releases (as far as I have been able to determine).

    But let’s not just dump on VDOT.

    Metro also is a beneficiary of TIFA.

    And Maryland has done both VDOT and METRO one step better in that not only did TIFA enable the ICC but even with TIFA, the ICC toll viability numbers apparently did not “work” so now the plan is to have a Statewide Toll Authority and to essentially subsidize the ICC tolls from toll proceeds from other tolled facilities.

    AND.. Md is not alone.. most of the DOTs.. including VDOT are considering similar schemes to charge higher tolls on the drivers of one road .. to pay for subsidized toll roads for other drivers.

    So.. at some point.. we may well see a situation where HOT lane money from NoVa will be “skimmed” off for other road projects in RoVa – like the US 460 which is apparently not viable as a stand-alone toll road.

    the thing about not trusting “government”.. is more personal to me.. because what something like this means is that there are real, live human beings.. unelected ones – making these decisions and I end up thinking.. what kinds of people are they – that think that this kind of actions under the banner of “government” are ethical.

    so there are real, live people that are behind these schemes.. and they get away with it… in part by making sure that the real truth does not make it into .. say..a VDOT Press Release.

    It may not be outright lying but it clearly has the effect of deceiving the public.

    we have some scummy people both in private industry and the government in my view…

  10. Anonymous Avatar

    “When does a going concern start selling its revenue producing assets in order to raise cash? When it is in the throes of economic collapse. “

    I love it.

    Well said.

  11. Anonymous Avatar

    I wonder if the ICC would have been more financially vialbe if it had been built 20 or thirty years ago. How much of it could have been paid for with the energy expended to stop it?


    I thought we talked (wrote) previously about how this was going to be financed. I don’t see the big surprise.


    “….considering similar schemes to charge higher tolls on the drivers of one road .. to pay for subsidized toll roads for other drivers…… like the US 460 which is apparently not viable as a stand-alone toll road.

    I don’t see why roads should have to stand alone on tolls only. We are willing to accept that transit can be paid for partially on the basis of taxes from development and commerce it generates: I don’t see why roads should be any different.

    But, development takes time. It might be a while before a road like 460 becomes self supporting (all things considered).

    Therefore I don’t see why we shouldn’t let the money slosh around some: to allow temporary subsidies that will ultimately provide more income. It is hard to get any project or any business off the ground if the requirement is that it pays from the get go.

    Such a requirement is unrealistic. We need to make some kind of investment, and sometimes, a lump sum, cash up front investment is not only NOT the best or most economical way, but in fact a guanteed stop sign.

    That said, we need the transparency that makes the trade offs, the funding sources, the beneficiaries, and the time frame, transparent. Larry is correct in criticizing a scheme that makes six year promises when we know the money isn’t there. (VA retirement fund, take note.)


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