Passive Toll Roads: An Alternative Method of Funding Highways
by
Michael D. Hatfield
Introduction
Planning for the interstate highway system began with the Federal-Aid Highway Act of 1938 in which the Bureau of Public Roads (BPR), the predecessor of the Department of Transportation, was ordered to study the feasibility of a toll-financed system of superhighways. The initial study only called for a total of six highways, three going east-west and three going north-south. The BPR’s report determined that a toll network would not be feasible, but instead recommended a system of interregional freeways that would be some 26,700 miles in length.
President Franklin D. Roosevelt appointed a committee to study the need for a national expressway system in 1941. The committee’s 1944 report supported an even larger system of 33,900 miles, plus an additional 5,000 miles of auxiliary urban routes.
In the Federal-Aid Highway Act of 1944, Congress acted on the recommendations of the committee. The act called for a national system of interstate highways that would include up to 40, 000 miles, but little construction was completed because the act did not authorize adequate federal funding to develop the interstate system.
The interstate highway system got its real start with the authorization of the National Interstate and Defense Highways Act which was officially known as the Federal-Aid Highway Act of 1956. President Dwight D. Eisenhower won a hard fought battle with Congress for this legislation. He had a good understanding of the importance of quickly moving troops and military equipment across the country for defense purposes and the value that an efficient highway system would have on America’s economy (Weingroff 1996).
The Federal-Aid Act of 1956 provided for 90% federal funding of the interstate system. This touched off an unprecedented level of highway construction activity all across this country.
“The Interstate has changed our lives and has long been considered one of the greatest engineering achievements of all times. It has certainly been the linchpin of the U.S. economy” (Linnenkohl 2006).
Maturing Highway System
The Interstate Highway System has been about 99% complete for over 30 years and many segments are starting to show their age. Traditionally, highway projects have been funded by the income derived from taxes collected from the sale of gasoline, diesel fuel, and road use taxes paid by trucking companies. This amounts to about 72 % of the total costs of building and maintaining our nation’s highways, with the remaining portion paid by the federal government. Many states have wanted to turn interstate highways into toll operations to help pay for the increasing costs of repairs, but up until recently were prohibited by federal law from charging for the use of highways that were built with federal funds. The federal government has started to relax some of their regulations to allow states to seek alternative methods of funding for their highways (Cambridge 2006).
Rapid Population Growth leads to Funding Shortfall
Major metropolitan areas such as Atlanta continue to grow outward at an alarming rate, it has become increasingly difficult to maintain existing highways and fund new highway projects at the same time.
Many states are projecting a shortfall in funding for highway development. Clemson University has produced a series of reports that deals with highway funding options for the state of South Carolina. In their Multimodal Transportation Plan, they have projected a need for $56.9 billion in state transportation needs for roads, bridges, transit, and passenger rail over the next 20 years. They are projecting a shortfall of $30.6 billion at the current funding rates (London 2003).
The state of Georgia is in a similar predicament. Total revenues estimated to be available for the years between 2006 and 2035 in 2005 dollars are forecast to be $86 billion, while the total costs of needed projects amount to be $160 billion. This amounts to a shortfall of $74 billion. This kind of deficit will cause huge problems for the economic vitality of Georgia and major quality of life issues for residents. If the state is unable to meet the ever increasing needs for transportation, there will be great reductions in its economic growth forecasts (Cambridge 2006). Many other states across this country are faced the same funding problems.
Innovation Sought for Financing New Highway Construction
Because of the growing concern for a projected shortfall in revenues, many public transportation officials are searching for innovative ways to finance future highway construction. The Georgia Department of Transportation has been considering some new options for funding. One option includes Public-Private Initiatives (PPI) which is considered a faster, more creative process for meeting Georgia’s transportation needs. PPI’s allows the Georgia DOT to accept and evaluate proposals from private/corporate businesses for transportation projects.
The State Transportation Board recently approved a letter of Intent to Negotiate (LOI) with a private firm called Georgia Transportation Partners (GTP) for a Public Private Initiative that would add managed lanes in the Northwest Corridor on I-75/575. The plan includes High Occupancy Toll (HOT) lanes, Truck Only Toll (TOL) lanes as well as a Bus Rapid Transit System (BRT) along I-75 in Cobb County to downtown Atlanta. If all goes well, the program would be expanded to other parts of the Atlanta area (Georgia Transportation Partners, 2006).
GDOT is also working on plans from another private company to convert Hwy. 316 from Atlanta to Athens into a limited access highway which will be paid for by charging tolls. This project is on hold in part because the amount proposed for tolls is much higher than GDOT is willing to accept (Frankston 2005).
In the future, we must develop new methods of funding highway construction if we are to keep up with demand. This will require some creativity on the part of transportation officials.
In Georgia, traditional toll roads have not been accepted easily. It took years just to be able to extend Georgia 400 from I-285 to I-85. The original debt service projection was to pay for the construction cost by 2011, but it is possible that the toll charges may be continued to fund other expansions to the highway because it is operating over capacity and congestion remains a major challenge. Revenue from tolls may be needed to fund future expansion of this highway.
Passive Toll Roads Defined
Since traditional or active toll roads are usually a hard sell to the public, a new method of funding could be developed that would pay for highway construction. One consideration would be to create a second category of tolling that would be defined as a passive toll system. The definition of a passive toll system is relatively simple, instead of actively charging motorists for the use of the roadway, highway construction would be paid for by leasing property along the right of way at exits to commercial interests for restaurants, hotels, convenient stores, and others. Since government entities have a right to acquire property for the building of roads and considering that the values of properties acquired are based on present use, there should be a large gain in values after a highway is built. This would help raise rental values considerably and demand for commercial property is usually very high along major highways. Another major consideration is that major restaurant chains, hotels and convenient stores usually are happy with long term lease arrangements.
How passive toll systems work
To understand how a specific example of this passive toll system would work, the following criteria are taken into consideration:
1.) At each exit to a highway, road frontage owned by the state would be extended along the secondary road to 2000 feet from the edge of the new highway.
2.) This property would be leased out to commercial interests at the following projected rate; One percent of appraised value per month. Assuming that property would be worth approximately $2000 per foot for road frontage, the total estimated value for 8000 feet would be $16,000,000.
3.) Target price for land lease would be one percent of value per month or a total of $160,000 per month or $1,920,000 per year for property available for lease at each exit. 4.) Exits would be planned for an average of every three miles. This is based on I-75 in Georgia having an exit every 2.5 miles and I-85 having an exit every three miles. The more conservative figure would generate $640,000 income per mile.
5.) Income for 30 year period per mile would be a maximum of $19,200,000.
There would also be other income possibilities from the lease of billboards and additional property leases on state property on access roads.
Conclusion
The figures above are only intended to give a general idea for the potential of this concept. A comprehensive cost-benefit analysis would be needed to determine if such a plan would be feasible.
Some would argue that this new method of funding highways may work in theory, but is not very practical because very few limited access highways are being planned. This certainly is a valid point, but there is a huge difference between what is presently being planned and what is actually needed.
References
Weingroff, Richard F. “Federal-Aid Highway Act of 1956: Creating the Interstate System.” 1996. http://www.tfhrc.gov/pubrds/summer96/p96su10.htm (21 Feb. 2006)
Linnenkohl, Harold “Georgia DOT Celebrates the Interstate System” 2006. http://www.dot.state.ga.us/50th/index.shtml (21 Feb. 2006)
Cambridge Systematics, Inc. “2005-2035 Georgia Statewide Transportation Plan” Final Report. Jan. 2006. http://www.dot.state.ga.us/DOT/plan-prog/planning/swtp/SWTP_Final_Report.pdf
London, James B., Saltzman, Ellen W., Skinner, John C., Gunaydin, Gunsel H. “Transportation Funding Options for the State of South Carolina, 2003-2022” October 2003. http://www.strom.clemson.edu/publications/london/SCDOTexec-sum3.pdf
(21 Feb. 2006)
Georgia Transportation Partners “ The Northwest Corridor, Transportation Improvement Project” 2005 http://www.dot.state.ga.us/ppi/index.shtml (21 Feb. 2006)
Frankston, Janet “GA 316 Toll Road Plan ‘Likely Alive and Well” June 2005. http://www.georgiatolls.com/SRTAExternal/eclips/06_2005/20050627%20e-clips.pdf
(21 Feb. 2006)