The great 21st century comeback

March 26, 2010

Turnpikes had their heyday in the 1950s, but the model of a quasi-public entity constructing and operating a highway facility could stage a comeback, according to some sources in the industry.

Turnpikes had their heyday in the 1950s, but the model of a quasi-public entity constructing and operating a highway facility could stage a comeback, according to some sources in the industry.

Most turnpike authorities have historically been quasi-public agencies. One advantage they have is that they can decide what their tolls should be. Gas taxes are stuck where they are, because most legislators are too afraid of public backlash to vote for an increase, but a quasi-public turnpike operator can raise tolls without having to push legislation through any state or federal government.

Another advantage turnpikes have is that they have more flexibility in selling bonds to raise financing for expansion.

“The big advantage that they have is that they can access the tax-exempt markets,” Joseph Giglio, executive professor for strategic management at the Northeastern University College of Business Administration, told Roads & Bridges.

“Most state DOTs don’t issue their own debt,” Giglio added. “They go to the treasurer’s office. Generally they issue an amount of debt that’s used to tie down the 80% money that’s coming from the federal Highway Trust Fund.” In the case of the Illinois State Toll Highway Authority, they issue bonds that are independent of the state of Illinois.

“The debt that they issue is not a general obligation of Illinois, because it is revenue secured by the revenues of the agency—secured by tolls,” said Giglio.

Quasi-public revenue freedom is attractive to state DOTs. One agency that has tapped into it is the Pennsylvania DOT. The Pennsylvania General Assembly passed Act 44 in 2007, mandating the Pennsylvania Turnpike Commission to raise tolls on the turnpike as needed to meet its funding obligations. The act also added to the commission’s funding obligations by mandating that it make payments to PennDOT to supplement funding for the state’s free roads, bridges and mass transit.

The Pennsylvania Turnpike Commission made a payment of $225 million to the commonwealth of Pennsylvania in July 2009, the commission’s ninth quarterly payment since the passage of Act 44, bringing the total payments to $1.83 billion.

The turnpike’s payments of supplemental funding to PennDOT will drop to $450 million per year after July 2010 if the Federal Highway Administration rejects the commission’s application to toll I-80. If tolling on I-80 is approved, the turnpike will pay PennDOT $923 million in the following year, increasing by 2.5% per year and resulting in payments of $83.3 billion over 60 years.

Of the turnpike’s $900 million payments to PennDOT in FY 2010, $500 million will go to fund road and bridge projects, and $400 million will go to the state’s public transit agencies.

First to leverage

The Pennsylvania Turnpike really set the model for the rest of the country. It was the first turnpike, opened in 1939. It actually was built with federal and state funding not with the promise of future toll revenue, because no one knew if the toll road would be successful.

“It turned out they greatly exceeded their expectations in the first few years,” Jack Finn, senior vice president and national director of toll services at HNTB Corp., told Roads & Bridges.

“We’re also the first turnpike to really leverage those financial benefits, which is namely that we can borrow tax-free,” Carl DeFebo, a spokesman for the Pennsylvania Turnpike, told Roads & Bridges. “We don’t spend tax dollars for operation and maintenance. We fund our operation and maintenance through toll dollars exclusively.”

The next major turnpike built in the U.S., the Maine Turnpike, was built after the war and was financed entirely based on revenue collected from the users.

Then in the early 1950s there was a flood of turnpikes built, including those in New Jersey, Massachusetts, Kansas, West Virginia, Florida and Ohio. “They were all waiting to see if the federal government was going to come up with some interstate highway program,” said Finn. “They couldn’t wait any longer, so the states turned to user fees or turnpikes/toll roads to pay for it. It seemed like the only viable way of building the highways at that time.”

In 1956, the government created the Interstate Highway System and banned tolls on any federal highways.

“That kind of killed the turnpike era,” said Finn.

But today we may be seeing a resurgence of interest in toll roads. The country is again growing weary of waiting for the government to do something to solve the problem of funding construction and maintenance of highways, and the states are turning to tolls.

A new old breed

Many of the new toll authorities are not in the mold of the classic turnpikes, because they are fully public, not quasi-public, agencies, but tolling still eases their dependence on the failing gas tax for revenue. “For the most part, the tolls allow you to dedicate more resources to maintenance and to operations and to capital spending,” said DeFebo. At the very least, being independent allows the Pennsylvania Turnpike more control over its own destiny.

One new agency, created in 2002, is the North Carolina Turnpike Authority (NCTA). It was established partly with a North Carolina DOT subsidy and a federal TIFIA loan, but a toll bond also paid for part of it. Created as an offshoot of the North Carolina DOT, NCTA is now being reabsorbed into the DOT.

NCTA’s first project is the Triangle Expressway in Wake and Durham counties. This 18.8-mile toll road system is a new roadway for part of its length and made up of existing state highway for the rest. Its goal is to improve commuter mobility and reduce congestion on the existing north-south routes that serve the Research Triangle Park region. Its projected cost is just over $1 billion.

NCTA also is planning to build the Mid-Currituck Bridge over the Currituck Sound, from Currituck County on the mainland to Currituck County on the Outer Banks. The length of the new roadway will be approximately 7 miles. The preliminary cost is estimated at $659.2 million. It is being planned as a public-private partnership, with the private partner receiving a concession to build and operate it. At the end of the concession period, the bridge will be turned back over to the state.

Toll agencies are popping up all over Texas since the 2003 passage of a bill that allows urban areas to create regional mobility authorities and build their own toll roads. About half a dozen regional mobility authorities have been created, and some of them are now operating toll roads, using money from the state’s mobility fund to get started and then collecting toll revenue.

The North Texas Tollway Authority (NTTA), not one of the new agencies, operates about 100 centerline miles—and growing—of mostly commuter roads. The agency is planning or currently constructing the Dallas North Tollway extension, the President George Bush Turnpike extension, the Southwest Parkway, the Trinity Parkway, S.H. 161, S.H. 360 and S.H. 170.v

“They would be new infrastructure for the region,” Clayton Howe, assistant executive director of operations for NTTA, told Roads & Bridges. “The majority of it is per the region’s mobility plan to keep the region flowing. There’s a [revenue] shortfall from the tax-subsidized highway system. One way to get around that is to build a self-sustaining tollway, so no tax dollars are required. That’s been kind of the philosophy in this region.” Turnpikes already have the technical experience in implementing toll-related technology, such as a mileage-based use tax to replace the ailing fuel taxes.

“They’re in essence already charging per mile,” said Finn.

Charging into the future

“Toll agencies are usually very quick to add technology if it would keep traffic flowing,” added Finn, “because they’re being paid for every vehicle that drives on the roadway, and they want to keep traffic flowing, detect incidents and get them off the roadway.”

Turnpike authorities also may have a leg up on the tax-supported highways in attracting users, because they have experience with customer service. In fact, it is often written into bond agreements that the turnpike authority pays for upkeep of the structure before it pays off the debt. Lenders want the roadways maintained in good condition, because they want to collect tolls for years to come.

“Toll roads in general keep the roadways in good condition, because that’s an asset,” said Finn. “That’s what’s paying the bills.”

NTTA’s Howe concurred, saying, “We do invest in a higher level of maintenance on the roadways, so the ride quality is higher. Also, our traffic management process is much more active, so that we clear incidents much more quickly, so that the congestion is much less,” and users benefit from more dependable travel times.

The same sentiment was echoed by DeFebo. For example, the Pennsylvania Turnpike has always had a bare-pavement policy: Plows and salt spreaders do what is necessary to achieve and maintain bare pavement as soon as possible after a storm.

“We have been faulted for using too much salt to keep the road clear,” said DeFebo. “It’s part of our bare-pavement plowing policy. If you’re trying to work on a budget that could be limited, you could restrict salt-spreading rates for your drivers.”

If the U.S. goes in the direction of charging for every road and adjusting prices according to congestion, time of day and other factors, turnpike authorities’ experience with customer service may be an advantage.

“That’s one of the great benefits for a user fee or a toll, because you can’t do that with the gas tax,” said Finn. “If you want to drive at the peak hours, you’re going to pay a little more, or the busiest roadways, you’re going to pay a little more and give people a break in the late hours. If it’s electronic, then you could very easily change the pricing by time of day, where it was very hard to do that when we had cash collection out there.”

All of the collections on the North Texas Tollway Authority are electronic, or soon will be. The authority is in the proc­ess of converting the President George Bush Turnpike and the Dallas North Tollway to all-electronic tolling, with 400,000 and 500,000 transactions per day, respectively. All of its other roadways are all-electronic. If a motorist does not have the proper toll transponder, a camera records the vehicle’s license plate number and a bill is mailed to the registered owner.

Toll agencies also have the expertise in processing the massive flow of data that comes from recording a transaction for each vehicle passing a toll device, perhaps millions of transactions a day.

Their expertise in transaction processing may give turnpike authorities a great opportunity to assist public agencies in installing and operating the post-gas-tax highway funding technology.

In fact, Giglio sees assisting public agencies with implementing a vehicle-miles-traveled tax as a possible saving grace, since using a device in the vehicle and satellites in orbit, the government could toll every mile of every road and might make toll agencies redundant.

If he were a toll agency, “I [would] want to be the agency that deploys this technology statewide,” said Giglio. He would tell the state DOT, “Let me run the statewide back office.”

The fact is that one of the state DOT’s alternatives to hiking the gas tax is to toll the roads, either through a public, a quasi-public or an independent agency. And current technology offers the ability to toll roads like never before.