Dude, Where’re My Cars?

Washington state HOT lane revenues — actual collections versus forecast.

by James A. Bacon

In 2008 the Washington Department of Transportation converted 10 miles of HOV lanes in the Seattle metro region to tolled HOT lanes. If the experiment was successful, the state  planned to expand the HOT lane concept around the state. After four years of experience, the verdict is in: People aren’t willing to pay nearly as much to avoid congestion as assumed.

According to Washington DOT data (see chart), toll revenues are coming in at less than half of the worst case forecast. Two factors seems to be at work, sums up Angie Schmitt with D.C. Streets Blog: “People are driving less, and they aren’t as willing to pay their way out of congestion as was assumed.”

Less congestion means less incentive to pay for [Route] 167′s HOT lanes. But there’s more going on than that: Not only are fewer people choosing to use the priced lanes than expected, those who do are paying lower prices than expected. The lanes are dynamically priced, with the costs rising — and falling — based on demand. …

The prevailing theory about HOT pricing is that people would be willing to pay half their hourly wage rate to avoid sitting in traffic. But based on income data from WSDOT, far more commuters earn more than $24 per hour than are opting for the priced lanes.”

HOT lanes represent a real-world test for how much value drivers place on cutting their commuting time. Virginians should pay heed. While everybody complains about congestion, when push comes to shove, they may not be willing to pay much to avoid it.

What it means to Virginia. Virginia and its private-sector partners have made a huge commitment to HOT lanes — both for the recently opened Capital Beltway and the I-95 project under construction. The Downtown-Midtown Tunnel in Norfolk also varies toll prices by time of day.

No one has officially acknowledged it yet but I’m willing to bet that toll revenues on the Capital Beltway express lanes are running below expectations. According to a Public Works Financing newsletter article published in 2007, the project was expected to generate $335,000 daily in toll revenue by 2015. That’s roughly $10 million monthly or $30 million quarterly. While the 495 expressways are still in their ramp-up stage, they have a long way to go.

In their first quarter of reported results, Capital Beltway Express LLC reported total revenue of $828,000. As Washington-area drivers became more aware of the expressway option, traffic volume picked up considerably. The quarter ending March 31, 2013 yielded $2,475,000 in revenues. “Consistent with other express lane facilities, the 495 Express Lanes are still within the expected ramp-up period with both usage and pricing expected to increase progressively over time,” the report stated.

Please note what the report did not say: It did not say that traffic volumes and revenue were meeting forecasts. Revenue must quadruple within two years to meet expectations.

In a possible hint that revenues have proven disappointing, Capital Beltway Express made the express lanes open to drivers for free April 6 and 7. The stated justification: “The free weekend is part of an educational campaign to encourage Beltway drivers to try the new travel option on the Virginia side of the Capital Beltway and see how the Express Lanes can work for them.”

I have been a big supporter of the theory of using dynamic pricing to ration scarce highway capacity and the concrete application of that theory with the I-495 and I-95 HOT lanes projects. Further, from everything I’ve seen, Capital Beltway Express is a highly professional and well-run organization. But the situation bears watching as Northern Virginia politicians line up with their pet projects to get a piece of Governor Bob McDonnell’s transportation funding package.

Last year’s debate over transportation funding took place in a reality warp. Even  as the special interests and their toady politicians worked themselves into a frenzy over congestion, statewide congestion costs were dramatically lower than they had been five years previously. (See “Can We Have a Reality Check, Please?“)

But even I, as skeptical as I was, missed a critical part of the picture. I accepted the Texas Transportation Institute (TTI) estimate of how much congestion cost Washington-region motorists, which the McDonnell administration routinely trotted out to justify the need for more transportation spending. But what if it turns out that motorists don’t value congestion relief as much as TTI thought they do? What if it turns out that motorists aren’t willing to pay hard cash just to drive a little faster, and they’re just as content to sit in their air-conditioned cars listening to talk radio, NPR or their iPod play list?

The beauty of the 495 express lanes is that it will provide a reality-based B.S. detector. By tracking what Washingtonians are willing to pay in expressway tolls, we can measure how much monetary value they place on reducing their drive time. That information will prove invaluable as the commonwealth — and Northern Virginia in particular — plans billions of dollars on transportation projects that no one would want if they had to pay for them themselves. As Angie Schmitt put it, “If drivers won’t pay to bypass congestion, why should taxpayers?”

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12 responses to “Dude, Where’re My Cars?”

  1. reed fawell III Avatar
    reed fawell III

    How clever – Virginia’s government abuses its commuters every day of their lives, and then demands that those very same suffering commuters pay the government for the means to escape that abuse.

    So here the state of Virginia is not serving its citizens. It’s carefully deploying tactics that turn its citizens into cash cows to feed their government’s bad habits that inflict further pain on the citizens paying for it.

    What a racket!

  2. Are we in for MORE seriously low ridership figures for other very expensive transportation projects? I think the answer is yes. This means that revenues that were projected to help pay the bills…. won’t be able to help pay the bills so much. And who will pay the difference?

    In the Dulles Rail / Silver line Metrorail project, I am reading that “Moral Obligation” bond backing is being proposed in order to get lower interest rates on Tifia loans that we are told are Very Much Needed in order to pay the (excessive) price of the project. But Moral Obligation bonds appear to be backed by the Commonwealth of Virginia – as long as our Right Honorable Leaders decide they want to do the right thing or some such, I guess.

    So what is being set up, anyway? Looks like we might get all set up for another taxpayer bailout of another bad plan that GREATLY benefits certain powerful interests, at the expense of taxpayers, who as you will recall were originally promised that the rail line would be paid by businesses and road tolls.

    Maybe THIS was the true purpose of the crazed efforts to obtain the relatively low-interest Tifia loans – to trick taxpayers into accepting the risk – given that the highly touted Tifia loans can only cover 33% maximum, and we will be lucky to get them to cover 25% of the cost of this monster. That means we need 2/3 to 3/4 of the money from somewhere else, most of it borrowed of course, and paid up front, and paid back gradually – with interest. And then, when a region is in debt up to its eyeballs for one lone transportation project, what happens if the ridership is not as projected? Oooops. And the low ridership on the HOT lanes indicates that exactly this scenario is likely to play out.

    We don’t learn. The Dulles Greenway was premature like the Dulles Rail / Silver Line is, its ridership was not as projected (it was lower, of course, that’s what often seems to happen, surprise surprise), and it went bankrupt in the late 1990s. As a result, its tolls are stunning – and this rail project promises to raise the Dulles Toll Road tolls even higher than that. So if ridership was overestimated, the specter of bankruptcy will follow quickly.

    The same situation will doubtless appear in project after project. Some will laugh all the way to the bank, and the rest of us will pay. Cue somebody to say “Well, it was ever thus.”

    1. reed fawell III Avatar
      reed fawell III

      Bob – where can I get a comprehensive explanation of the bid process here on big Public Jobs like roads and this rail project. I want to compare it to my experience with privately bid jobs like big office buildings per AIA procedures.

      1. Reed, I’m not sure that there IS a standard bid process.

        Even if there was one once, certainly it was bypassed in the secretive no-bid Phase 1 of the Dulles Rail / Silver Line project that was arranged by the Commonwealth of Virginia, and then handed off to MWAA along with the Dulles Toll Road as a funding source, some years back.

        In Phase 2, MWAA put some of the work out to bid. There was a pre-selection of qualified bidders, followed by the RFQ, and a payment to the bidders of about $1.5 million each for their troubles, followed by reception of bids, which were to be approved based on compliance and cost, in that order.

        I think the general process used to be that RFQ would be put out on public offer, and bids would be considered individually. The cost of bidding was, I believe, considered part of the risk and cost of doing business.

        1. reed fawell III Avatar
          reed fawell III

          Bob says “Even if there was one once, certainly it was bypassed in the secretive no-bid Phase 1 of the Dulles Rail / Silver Line project that was arranged by the Commonwealth of Virginia, and then handed off to MWAA along with the Dulles Toll Road as a funding source, some years back.”

          This is frightening, unless all Virginians (defined as all people born or working in the Virginia) be born without the stain of original sin.

  3. DJRippert Avatar

    I will never use the HOT lanes. Why should I pay to do something that is free in the vast majority of the state? Do people in NoVa not pay enough in taxes relative to other parts of the state? Spare me. Screw the HOT lanes and screw the ass-hats in Richmond who are trying to force these abominations on NoVa and Tidewater.

    I read comments on this blog for the last five years that said the gas tax would never be raised. Never. Then along came a conservative Republican governor and guess what – he raised taxes for transportation.

  4. Absent the Express Lanes on the Beltway, the Tysons Comp Plan could NOT have been revised to allow significant density. They offer the means to help empty Tysons’ evening rush traffic more quickly and also accommodate car and van pools, as well as express bus service, all of which are necessary to support urban density levels. Given a choice between more general purpose lanes (which is not a realistic choice) and the Express Lanes, the Tysons stakeholders would clearly pick the latter.

    Moreover, there is strong support among Fairfax County supervisors for the Express Lanes. (Sharon Bulova said as much last week at the County symposium on Transportation.) So, even in a Home Rule environment, Fairfax County decision-makers would have elected the Express Lanes.

    I do expect usage on the Express Lanes to increase over time. All traffic studies show evening Beltway traffic to increase beyond the capacity of the road. More people are likely to pay to move.

  5. reed fawell III Avatar
    reed fawell III

    Let see, do I get this right?

    Not only does Fairfax steal an Interstate Highway (the Capital Beltway), now its going to force Interstate Drivers to pay a toll to use their Interstate Highway so as to cover up all of Fairfax County’s land use planning sins over the past 30 years and those sins currently planned for the next 30 years, all of which sins are motivated by greed. Could that be true? How’s that work exactly? Larry should know.

    Or, all these Express Lanes limited to Tyson’s Corner drivers, so as to leave the Interstate drivers and everyone else with all the mess, and no opportunity to even bribe their way out of the mess? And perhaps go to the poorhouse paying all the tolls before all this abuse is done.

    You see where all these sins of greedy, sloppy, irresponsible land use decisions tailored to line the pockets of special interests are leading us?

    See who gets all the money? See who gets all the power and control? See who escape scott-free with all the booty and loot?

    See who is left holding the bag? The innocent citizens who end up paying all the bills while they lose all their control over their lives, all of which abuse is designed to pay for their government’s malpractice and the private thievery of their fellow citizens running the show through special interests.

    What am I missing here? Where am I wrong? Or unfair. Or unreasonable?

    1. Reed, Capital Beltway Express added two new lanes to the Capital Beltway and took possession of the HOV lanes. Nobody loses in this deal. Buses and carpoolers still get to use the express lanes. The regular schlubs still get as many Beltway lanes as they had before. And everyone has the option to pay to use an express lane if they really want to get somewhere fast. You and I agree on almost all things, but this appears to be an instance where we disagree. I have no problem with the arrangement whatsoever. I worry that Transurban might end up losing its shirt, just like it did with the Pocahontas Parkway outside Richmond, but that’s the risk of business.

      1. reed fawell III Avatar
        reed fawell III

        Thanks for clearing that up. It helps that existing lanes are not being expropriated. It helps that the taxpayer is not paying to build the additional lanes.

        However, I do not consider this a nobody lost scenario. The public has lost a substantial amount of right of way. The public is saddled with yet another “tax” if they want to use what use to be known as a public road right of way, and if they cannot to pay that tax (the toll) they lose the right of way, and are stuck in what is far too often gridlock.

        And as best I can tell this sort of “solution” may well be ever more prevalent in the future, thanks to failures of governance.

        Likely too we are only seeing the tip of the iceberg, absent a solution out of nowhere which may well bail us out. With a bit of luck that can happen. But don’t count on a government solution, expect the reverse – more of the same but worse absent radical change, because the problems appear to be firmly and deeply rooted into the political system.

    2. Also, the deal is a Pubic-Private Partnership. If the project fails – and those ridership numbers don’t look good – my guess is that VDOT would use taxpayer money to supplement payback of the $589 million Tifia loan. My guess is that bondholders would lose everything – but who knows, there are $589 million of Private Activity Loans that may also need to be paid back with taxpayer support, and $348 million of ‘private equity’ that I suppose will probably simply be lost to some investors.

      Apparently the project involved the replacement of more than $260 million of aging infrastructure, including more than 50 bridges and overpasses; that has to be a good thing.

      The Hot lanes project also involved the construction of new access ramps. I remember that when Virginia handed the Dulles Corridor to MWAA, some bus service was dropped because MWAA needed money to build an access ramp from the Toll Road to the Hot Lanes and Rt495. Fairfax County claimed to be surprised by that.

      From the the Federal Highway website:

      Fairfax County, Virginia

      Project Sponsor / Borrower
      Virginia Department of Transportation (VDOT)

      Fiscal Year Approved
      Fiscal Year 2008

      High Occupancy Toll (HOT) Road

      The Capital Beltway High Occupancy Toll (HOT) Lanes project (officially the 495 Express Lanes) is a public-private partnership between VDOT and Capital Beltway Express, LLC (a joint venture of Fluor and Transurban) that opened in November 2012. The project limits are from the Springfield Interchange (south) to just north of the Dulles Toll Road (14 miles). Previously, the Capital Beltway had four lanes in each direction.

      Improvements included:
      14 miles of two new lanes in each direction
      First time introduction of High Occupancy Vehicles (HOV) lanes to the Capital Beltway and reliable transit options to the Beltway and Tysons Corner, Virginia
      Congestion-free network for carpools, vanpools, transit and toll-paying motorists
      Replacement of more than $260 million of aging infrastructure, including more than 50 bridges and overpasses
      Construction of carpool ramps connecting I-95 with the Capital Beltway to create a seamless HOV network

      Funding Sources
      Private Activity Bonds – $589 million
      TIFIA Loan – $589 million
      Commonwealth of Virginia grant – $409 million
      VDOT change-order funding – $86 million
      Interest income – $47 million
      Private Equity – $348 million

      Project Delivery / Contract Method
      DBFOM (design, build, finance, operate, and maintain)

      Private Partner
      Capital Beltway Express, LLC – Joint venture between Fluor and Transurban

      Bondholders, USDOT TIFIA

      Duration / Status
      Construction began in spring 2008 and reached substantial completion on November 8, 2012. The facility opened to traffic on November 17, 2012.
      The total length of the concession is 85 years – five years of construction and 80 years of operation.

      TIFIA Credit Assistance
      Direct Loan: $589 million
      The TIFIA loan holds a subordinate lien on a pledge of the project’s toll revenues and interest income, after operations and maintenance expenses, certain capital expenditures, senior debt service reserve, and debt service payments to senior lenders.

      Financial Status / Financial Performance
      Financial close and TIFIA credit agreement signed on December 20, 2007; Senior Bonds marketed in June 2008
      TIFIA interest payments are expected to begin in 2018. Loan repayments are scheduled to begin in 2033 and conclude in 2047. The TIFIA loan is structured with five years of capitalized interest during construction followed by five years of partially capitalized interest during ramp-up; then current interest only for 15 years followed by 15 years of interest plus principal.

  6. reed fawell III Avatar
    reed fawell III

    Thanks, Bob, much appreciated and very informative.

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