Virginia Toll Projects and “Loss Aversion”

— James A. Bacon

In his book, “Thinking, Fast and Slow,” psychologist and Nobel Prize winner in economics Daniel Kahneman describes the phenomena of “loss aversion” and “reference points.” These deeply embedded cognitive quirks, which had survival value for hunter-gatherers, pose dilemmas for politicians in complex modern societies who try to change the status quo. The McDonnell administration’s plan to ameliorate traffic congestion in Hampton Roads is a case in point.

Loss aversion is the phenomenon in which people experience the loss of a thing with greater intensity than they experience the gain of a comparable thing. Thus, people will experience more anguish from the loss of $100 than pleasure in the gain of $100. Gains and losses are judged in relation to a reference point, which often is the status quo (but sometimes can be a goal to be achieved in the future). When there is a departure from the status quo, losers feel their pain more intensely than the winners.

These principles are well established through numerous psychological experiments conducted over several decades. There is nothing controversial about them. Now, let’s apply them to the McDonnell administration decision to pay for roughly $2 billion to make improvements to the Midtown Tunnel, Downtown  and Martin Luther King Boulevard in Norfolk and Portsmouth.

The tunnels were paid for originally by tolls, but the tolls came down a couple of decades ago, and the citizens of Hampton Roads have enjoyed the status quo of using them for free. Within half a year, Elizabeth River Crossings, the public-private partner in charge of expanding the tunnel capacity and collecting the tolls, will start charging tolls — more than $3 per day for a two-way trip — before the improvements are even made.

Not surprisingly, this has caused an outcry among Hampton Roads commuters. (I’ll defer for a later discussion the issue of whether or not people had ample warning that the tolls were coming and had sufficient opportunity to let their opinions be known.) The McDonnell administration response is that, yes, people will have to pay tolls, but the project will eliminate the half-hour congestion they experience each time they cross the Elizabeth River, and that by any rational calculation, saving an hour in stop-and-go traffic is well worth $3 or $4 in tolls.  (See Transportation Secretary Sean Connaughton’s remarks in “E-Z as Pie? Not Really?“).

From the perspective of  purely economic calculation, Connaughton’s argument is impeccable. But, as Kahneman points out, humans are not always economically rational creatures. The anticipation of paying that toll causes greater grief for many than the anticipation of spending less time stuck in traffic promises relief. As a result, the citizenry is up in arms and Gov. Bob McDonnell has a big problem on his hands.

Now, let’s compare the public reaction in Norfolk to the reaction in Northern Virginia, where people soon will begin paying HOT lane tolls on the Capital Beltway. Northern Virginians are far less upset. Why? Because the tolls are being used to add new lanes. People who place a premium on their time can pay to use the new lanes and avoid congestion. They have an option they did not have before. Those who don’t wish to pay the money can continue using the same old, congested lanes. While they devoutly may wish that money would fall out of the sky and pay for the new lanes so everyone could use them for free, their situation remains the same. They do not perceive themselves as losing anything. They do not get agitated. McDonnell does not have a problem on his hands.

There is a very important political lesson to be learned here as the McDonnell administration forges ahead with a series of high-profile public-private partnerships and other toll projects. Toll projects like the Interstate 95 HOT lane, which creates new capacity and new options for drivers without imposing tolls on roads that now are used for free, will meet relatively little political resistance. By contrast, the prospect of paying higher tolls on the Dulles Toll Road to pay for the Rail-to-Dulles project is causing an uproar. Predictably, the administration’s proposal to toll I-95 in order to raise money to pay for improvements in the corridor likely will raise a clamor as well.

You can argue economic logic all you want, but people who perceive themselves as losing something will gripe and bellyache. The politically astute path is to select toll projects that pay for themselves by creating new choices for drivers, not imposing tolls where there were none before. To put it more simply, toll projects must be structured as win-win arrangements to gain popular favor.

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  1. “… expanding the tunnel capacity and collecting the tolls, will start charging tolls — more than $3 per day for a two-way trip — before the improvements are even made.”

    I have to agree.

    Why are the HOT lanes built first in NoVa and the tolls upon completion and not that same way in Hampton?

    Has a good reason been given … and by “good” I mean is it one that the public understands ? There are more than a few who are not buying it.

    I suspect that the private equity folks are asking for some equal skin in the game of constructing the expansion.

    This is the second time that private sector companies have asked for and gotten an agreement to subsidize from the state (the other being US 460).

    At some point, VDOT and the State and Mr. McDonnell owe the public an honest explanation of why this is the way it has to be to go forward.

    On a related subject, I note that the Smart Growth folks are up in arms about under-the-radar legislation that gives VDOT more power over localities and requires that the locality integrate road plans with development plans in their Comp Plans.

    I know little about it and am hoping that Jim does and will blog about it but on the briefest first glance of requiring localities to integrate land-use with transportation in the Comp Plan.. I see that as a very good thing – not a bad thing.

    anyone know more ?

  2. Andrea Epps Avatar
    Andrea Epps

    Larry, Where are you getting the info on the legislation?
    I have heard a few things, but i want to mesh what I’ve heard with your info.

  3. Andrea Epps Avatar
    Andrea Epps

    And I think Comp Plans already require thoroughfare plans, either as mandatory or permitted within the existing code.

  4. The Smart Growthers appear to wanting to take control over roads from VDOT by opposing lane widening and turning through routes into bottlenecks. This is based on what I’ve seen from Tysons. VDOT has refused, which, in turn, has forced Fairfax County to work within VDOT and US DOT guidelines. I’m a strong transit user and have been my entire working career when practicable. I am also not a true believer that we can pave our way out of gridlock. But I don’t like the opposite view either — ignore traffic studies.
    Tolls will become more and more common in urban areas as they have the effect of pushing SOV traffic out of peak travel times. HOT Lanes also provide economic incentives to use buses, car pools and van pools because those vehicles travel free and faster. I also believe we will see exponential growth in telecommuting as businesses realize they can reduce their office costs by renting smaller spaces and having more workers working outside their offices.

  5. Andrea – there is not a lot of info that I’ve found (so far) on the specifics of what has the Smart Growth folks up in arms but I’ve gotten emails from several different like-minded groups with similar talking points …i.e. “VDOT is being given unprecedented power to dictate to localities”.

    You’re right about the requirement to put “something” transportation into the comp plan but it’s a joke and it has little to nothing to do land-use designations and worse than that – there is no capital facilities element much less a prioritization scheme.

    Most comp plans have lines on a map and some distant timeline associated with future road expansions.

    Basically – most localities punt on the roads … and say that it’s a VDOT responsibility no matter if the “needs” are 10-2o times what the locality expects to receive in allocations.

    you said.. carpools, find a job… commuting..and land-use.

    when people choose to commute to a job – AND they ALSO choose to NOT carpool, NOT take a bus or a VAN and to drive SOLO as a default practice (vice pooling except on days you cannot) -then those folks are the issue when it comes to roads.

    You cannot drive SOLO every day and not accept your role in the land-use/transportation conundrum.

    When Jim Bacon says live where you want but pay your fair share of location costs – this cost is one of the major ones that those who do it evade responsibility for by saying they “have no choice”.

    but they DO have choices.

    but they are taking the ones that benefit themselves and shift the externalities to others (they think). The externalalities though come home to roost when the roads that people commute on – run out of capacity and become congestion monsters at rush hour and there is no money to expand them.

    these folks then try to blame someone else for why the road they commute on has become a mess -refusing to accept responsibility – for their own choices – and the consequences of those choices.

    I strongly support making the localities directly tie road plans to land-use plans. Right now, if they did water/sewer and schools like they do roads – we have water shortages, sewage overflows and schools with class sizes of 75.

    Infrastructure and services cost big money and when people want to drive SOLO to/from work every day – there is a cost to that just as if one would want to wash their car or take 3 showers every day.

    People in this country live in twice the space that folks do – even in other industrialized countries. The live in smaller homes, use less electricity and use transit to get to/from work.

    we don’t …we choose not to ..but rather than admitting that we make these choices – we try to blame someone else for the consequences of our choices.

  6. interesting article in the Va Pilot today: ” Tolls turmoil raises questions about Va. gas tax”

    it shows some revenue numbers for various increased gas tax scenarios as well as as info showing that a 10 cent increase in the gas tax would cost Hampton Roads (everyone actually) about $100 a year more but the proposed tolls would cost folks in Hampton Roads about $920 a year.

    They have a poll asking if people would be willing to pay an increased gas tax if it resulted in no tolls and not surprisingly – the respondents overwhelmingly favored a gas tax increase!

    I wonder if they offered people in NoVa (and the DTR) the same deal, they would take it?

    by the way – keep in mind (and it’s in the article) that the gas tax currently generates about 800 million of the 2 billion VDOT budget.

    another 800 billion is generated from a 1/2% sales tax and a tax on new car sales.

  7. Andrea Epps Avatar
    Andrea Epps

    Larry: check this out….go down to 15.2-2223 and take a look.

  8. A question no one talks about is: Given air quality regulations in NoVA, just what major road projects could be constructed?

  9. DJRippert Avatar

    Jim Bacon lives in a fantasy land. The HOT tolls in Northern Virginia do not create an outcry because there are not HOT lane tolls in Northern Virginia at the moment. People have not been able to absorb the emotial impact of sitting in congested traffic on the “originial” beltway while people in the Lexus lanes are whizzing by at 45 – 60 mph. Some will decide to “bite the bullet” and get in the Lexus lanes. During times of congestion (the only time you would use those lanes) people will pay $1/mile. That makes it pretty easy to chalk up $20 per day for the HOT lanes. At 20 workdays per month, that $400 per month or $4,800 per year. After 35% of federal, state and related gas taxes, that’s $7,385 of pre-tax earnings for the privilege of driving on reasonable roads.

    We’ll see how NoVa voters feel about their elected representatives once those monthly statements from EZPass start arriving in the mail.

    Meanwhile, you write, “People who place a premium on their time can pay to use the new lanes and avoid congestion. They have an option they did not have before. Those who don’t wish to pay the money can continue using the same old, congested lanes.”. This, of course, is exactly the same as with the Dulles Toll Road. The big concern is the tools on the Dulles Toll Rd could cost $17 per trip by 2040. Excuse me? 2040?

    Everybody in Northern Virginia and Tidewater needs to understand a basic fact – the Republicans in Virginia have intentionally created a situation where those in NoVa and Tidewater will pay a small fortune to drive around town while those in Richmond and elsewhere will pay virtually nothing.

    And before someone spouts the usual claptrap about there being a few tolls in Richmond – how much do they cost per mile and how many people are compelled to take them? What percentage of vehicle miles driven in Richmond are driven on roads with tolls of $.50 per mile or more?

    The Republicans opposed indexing the gas tax. The Republicans push the asinine public-private partnerships. The Republicans will fry when those EZPass invoices start arriving in the mail.

    RIP RPV.

  10. DJRippert Avatar

    Also, interesting that McDonnell and Connaughton never had the slightest interest in making the Charlottesville Bypass a toll road.

    Nobody in NoVa or Tidewater should ever vote for another Republican in state politics. Never. Not once more.

    When the noise gets real loud, tell Tommy Norment to just sit down put his hands over his ears and put his head between his knees. From there, he can kiss his ass (and the ass of every other Republican) goodbye.

    RIP RPV.

    1. If the McDonnell administration had proposed financing the Cville Bypass with tolls, it never would have been built. That’s a perfect example of how submitting mega-projects to the discipline of toll financing can reveal whether they can be economically justified or not. Everyone loves new roads if someone else is paying for them! If they have to pay themselves…. not so much.

      1. DJRippert Avatar

        Then end the gas tax and pay for everything with tolls. But that’s not what the Republicans do. It’s free roads in Charlottesville and tolls in Northern Virginia and Tidewater.


        Let Bill Bolling win the next governor’s race without votes in Northern Virginia and Tidewater.


    this is why I advocate submitting every new road proposal to an investor grade toll analysis – even if they ultimately decide not to toll it – the investment grade analysis is a much better proxy for need than what VDOT uses right now which is akin to VOODOO.

    one small correction for DJ. It was the DEMs who started the ball rolling on I-495 HOT Lanes – not the GOP.

    1. DJRippert Avatar

      The HOT lanes are only necessary because the gas tax has been frozen in cents per gallon for 25 years. The Democrats have tried repeatedly to index the gas tax but have been defeated by the Republicans. As usual, the Party of No has no answer. It is time for them to go.

  12. DJR – Tim Kaine approved the construction of the Beltway HOT Lanes. Transurban has said tolls will range from 10 cents per mile to $1 per mile depending on congestion.
    Had Kaine not gone in this direction, it is highly unlikely the feds would have approved the widening of the Beltway for environmental reasons. Environmental groups would also have a strong incentive to fight the general widening. I am not even sure Fairfax County would have supported the project. More general purpose lanes would not have done anything for ride sharing and bus transit.
    Finally, from a network perspective, it makes little sense to spend a lot of money to increase network capacity to handle ever-growing needs, when spending less money and using pricing can push traffic out of the peak period and slow growth in demand.
    Major metro areas are going to see more tolling more traffic demand management, more paid parking, etc.

    1. DJRippert Avatar

      The feds wouldn’t let VDOT widen the lanes but they would let Transurban widen the lanes?

      “Major metro areas are going to see more tolling more traffic demand management, more paid parking, etc.”>

      Major letro areas are going to see more Democratic representatives and move Democratic votes for governor.

      It was the Republicans who froze the gas tax. It was the Republicans who refused to vote for indexing. It will be the Republicans who burn in hell when these tolls are implemented.

      Couldn’t happen to a better bunch of jack wagons.

  13. DJR – there is a big difference between HOV/HOT and general purpose lanes. I don’t think Transurban, VDOT or anyone else could necessarily build general purpose lanes on the Beltway because of air quality concerns. There would be strong opposition and likely lawsuits from the environmental community that could well stop the project. I don’t think IS DOT would approve. There is also adamant opposition from Maryland to any creastion or expansion of a Fairfax-Eastern Loud0un crossing of the Potomac River. I’ve heard that in a meeting of MDOT, VDOT, and representatives from Congressmen Van Hollen’s and Wolf’s offices. On the other hand, HOT and HOV projects can be built.
    Today, the Transportation Trust Fund remains a slush fund. The typical resident of NoVA simply doesn’t believe that the Descendants of Pocahontas or the local NoVA backslappers will spend the money on projects that actually improve traffic movement. The existing system is corrupt. No one could even get an answer to simple questions, “If we raised the gas tax by 10 cents, how much more would Fairfax County residents and businesses pay in a year and how much more money would be spent in Fairfax County?” State law doesn’t even permit the disclosure of how much gas tax is raised in any given county or city.
    People also know that, without an adequate public facilities law, we will not see any traffic improvement for more revenue. It goes back to my question to a VDOT employee several years ago. “How come after spending billions to build Dulles Rail, we don’t see any significant improvement in traffic flow on major roads, according to the EIS?” Answer, “Well that’s because Fairfax County will most likely let the developers build so much more that the benefits of rail are quickly undone.” Pay more and get nothing in return.
    Without major reforms, putting more money in the transportation slush fund will not improve anything. And those proclaiming they want to improve transportation are fighting reforms.

    1. Groveton Avatar

      TMT –

      Your arguments are challenged. Maybe people in NoVa would get more transportation relief if the gas tax was raised another 10 cents and maybe they won’t. However, they will definitely pay more when they have to cough up tolls each and every time they drive anywhere.

      “it shows some revenue numbers for various increased gas tax scenarios as well as as info showing that a 10 cent increase in the gas tax would cost Hampton Roads (everyone actually) about $100 a year more but the proposed tolls would cost folks in Hampton Roads about $920 a year.”.

      You got it!

      That’s the Republican plan. Freeze the gas tax and just abuse NoVa and Tidewater with tolls.

      Time for the Republitards to stop getting any votes in NoVa and Tidewater.

      RIP RPV.

  14. Groveton, this one is still flying by. Because of air quality restrictions, the traditional general purpose lanes cannot be added to many of the major road systems. They only thing VDOT can build on these roads, irrespective of whether there is a Republican Governor or a Democratic Governor, is HOT/HOV lanes. If the gas tax gets raised, VDOT will still not be adding general purpose capacity on major road systems in NoVA. The choice will be pay say $100 in extra gas taxes and still pay the tolls. We have gone passed the point where we can go back to just adding capacity to every road system. We have largely maxed out on capacity and are bumping up on the air quality limits.
    This is a sea change that most people don’t yet comprehend. Let’s look at Tysons. After we build everything in Table 7, we can grow to 84 To grow beyond that point requires each new trip to and from Tysons must be on transit. No additional cars or trucks. If you want to drive in, someone else needs to take a bus. We’ve entered a new world in NoVA. You will not see any major road improvements in NoVA unless they also include demand management features. That won’t change even if you were to raise the gas tax by $1 a gallon.

  15. GROVETON! Who the hell is this Groveton guy?

    re: air quality restrictions.

    if that don’t get you – the cost of right-of-way will.

    when you run out of undeveloped right-of-way, you start tearing down Lockheed Martin’s corporate offices or the Springfield Mall – a huge loss twice – one for the purchase price and again for the lost tax revenues.

    talk about eating your own! 🙂

    the next thing is to look at how much money a local as tax would bring in:

    one cent will generate about 50 million statewide. one cent in NoVa will generate about 20-30 million. 10 cents would generate about 200 million.

    that’s not chump change but what would you spend it on?

    the ICC cost 100 million a mile.

    I don’t think money of the 10 cents per gallon size is going to buy you much even if you could talk the Feds out of the air quality regs and were willing to tear down developed properties to widen roads.

    Groveton…DJ.. WHOEVER you are – do you REALLY think an increase in the gas tax is going to have a discernible impact on NoVa congestion?

    I can see it in Hampton .. when bridges and tunnels constitute real choke-points but I do not think 10 cents is going to come close to what they need either.

  16. The problem remains we have massive traffic congestion problems because local governments have approved more development than can be supported by existing or affordable additions to public facilities.
    Had Gerry Connolly not be elected to Congress, I think the Supervisors would have approved a much larger growth plan for Tysons than was adopted under Sharon Bulova. That would have come in the face of traffic studies showing that, even with what non-rail transportation improvements will now cost $2.3 billion, the Beltway, the Toll Road, Route 7 and Route 123 reach failure once Tysons grows to 84 MSF. Mr. Connolly’s political skills would have approved more density than this. How much extra should the typical resident of Fairfax County pay to achieve this result? The system is corrupt and broken. Absent major reforms, we can raise the gas tax by a dollar a gallon and the average person will see absolutely no significant improvement in travel and commuting.

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