Report on the Value Pricing Pilot Program Through April 2012

Introduction

Background

The VPPP was established by the U.S. Congress as the Congestion Pricing Pilot Program in 1991. It was subsequently renamed the VPPP under Section 1216 (a) of the TEA-21 in 1998, and continued into Section 1604(a) SAFETEA-LU, P.L. 109-59 signed on August 10, 2005.

The purpose of the VPPP is to demonstrate whether and to what extent roadway congestion may be reduced through application of congestion pricing strategies, and the magnitude of the impact of such strategies on driver behavior, traffic volumes, transit ridership, air quality and availability of funds for transportation programs. The program provides tolling authority and discretionary grants to State or local governments to facilitate the demonstration of congestion pricing applications and report on their effects.

There is a consensus among economists that congestion pricing represents the single most viable and sustainable approach to reducing traffic congestion. Congestion pricing—sometimes called value pricing—is a way of harnessing the power of the market to reduce the waste associated with traffic congestion. Congestion pricing works by shifting some rush hour highway travel to other transportation modes or to off-peak periods, taking advantage of the fact that the majority of rush hour drivers on a typical urban highway are not commuters. By removing a fraction (even as small as 5 percent) of the vehicles from a congested roadway, pricing enables the system to flow much more efficiently, allowing more cars to move through the same physical space.⁽⁵⁾ Similar variable charges have been successfully used in other industries, for example, airline ticketing, cell phone rates, and electricity rates.

Although drivers unfamiliar with the concept initially have questions and concerns, surveys show that drivers who are more experienced with congestion pricing support it because it offers them a reliable trip time, which is very valuable when someone has to be somewhere on time. Transit and ridesharing advocates also appreciate the ability of congestion pricing to generate both funding and incentives to make transit and ridesharing more attractive.

Through the VPPP, as well as follow-on initiatives such as the CRD, UPA, and Express Lanes Demonstrations, the FHWA provides key support to States to help them implement strategies to minimize the congestion problem. More importantly, findings from deployed projects continue to demonstrate that the application of innovative congestion pricing strategies can effectively manage demand on congested urban facilities.

The Value Pricing Pilot Program and Other FHWA Congestion Pricing Initiatives

Value Pricing Pilot Program

The VPPP encourages implementation and evaluation of value pricing pilot projects to manage congestion on highways through tolling and other pricing mechanisms. This is the only program that provides funding to support studies and implementation aspects of a tolling or pricing project. The program is limited to 15 slots (which FHWA has reserved for States), of which only one vacancy currently remains. Each State can have multiple projects.

The SAFETEA-LU provided a total of $90 million for fiscal years (FY) 2005-2012 for the VPPP. For FY 2005, $11 million was authorized, and $12 million was authorized for each FY 2006 - 2009. Further, $9.8 million was awarded to projects in FY 2010, $8.1 million in FY 2011, and a yet to be determined amount in FY 2012. Of the amounts made available to carry out the program, $3 million was set-aside for each FY 2006 - 2009 for value pricing projects that do not involve highway tolls. Funds available for the VPPP can be used to support pre-implementation study activities and to pay for implementation costs of value pricing projects. With the extensions of SAFETEA-LU, the VPPP continues to be available to States as a way to gain tolling authority, and FHWA continues to promote its application and use. Congestion mitigation, environmental concerns, and limited funding for highway construction has led to increased interest by State, regional and local transportation agencies in congestion pricing as a strategy to manage congestion on oversubscribed roads. As a result, the DOT has made several other congestion pricing funding programs available to help agencies implement congestion pricing strategies.

Urban Partnership Agreements and Congestion Reduction Demonstrations

In May 2006, the DOT announced the National Strategy to Reduce Congestion on America's Transportation Network, also known as the "Congestion Initiative." The intent of the initiative was to demonstrate a variety of innovative but proven strategies that could provide relief to traffic gridlock if more widely practiced. The UPA/CRD programs that resulted from the Congestion Initiative were designed to encourage more aggressive, broad-scale pricing approaches. As a part of each program, multiple sites around the U.S. were awarded funding for implementation of congestion reduction strategies.

Under the UPA program, DOT sought applicants to use multimodal strategies to relieve urban congestion, including tolling/pricing, transit, technology and telecommuting/travel demand management. In August 2007, UPA project funds were awarded to New York City, Seattle, San Francisco, Minneapolis-St. Paul, and Miami. Subsequently, New York City was unable to meet the terms of their agreement and, therefore, is no longer able to participate in the program. As a follow-up to, but separate and distinct from the UPA program, the DOT published a Solicitation of Applications for Funding of CRD Initiatives in the November 13, 2007, Federal Register. In 2008, DOT awarded CRD funds to Los Angeles and Atlanta.

The Current State of Pricing in the United States

Congestion Pricing, both for tolling and non-tolling types of projects, is getting more visibility, attention, and consideration in local plans and programs as a result of the VPPP projects and FHWA efforts to make State, regional, and local agencies aware of congestion pricing strategies. Many metropolitan regions have found that Federal funding, whether from the VPPP, UPA, or planning grants, represents a real opportunity for advancements in pricing projects. In that, the Federal Government feels that such grants are worth their investment (in funding and staff time), the sense of importance of the pricing projects is elevated at the local or State level.

The VPPP is currently the only Federal program specifically designed to provide funding to support congestion pricing studies and implementation of new and promising highway and nontoll projects such as parking pricing and distance-based pricing projects. The Federal investment in the VPPP has been particularly important in supporting States and regions as they take the initial steps toward implementing the most promising pricing strategies, generating local support for these challenging projects, and supporting comprehensive evaluations so all States and regions can learn about best practices. With relatively small grants, the VPPP has been able to give States and regions the tools and resources to implement these projects in the way that makes the most sense given local traffic, policy, institutional and acceptability considerations. Demonstration projects have not only balanced revenues against costs and gained general acceptance from travelers of all incomes, businesses, and environmental groups, but also demonstrated the potential of new financing approaches for maintaining, rehabilitating, and developing new roadways.

Market-based pricing is also being used to reduce congestion related to drivers searching for onstreet parking, which is responsible for a significant proportion of downtown congestion in large cities (e.g., up to 30 percent in San Francisco⁽⁶⁾). Pricing is also being used to revise traditional toll structures to encourage traffic to spread from congested peak periods, an approach termed as "variable pricing." Furthermore, metropolitan areas often include goals related to environmental quality, sustainability, and livability as a component of their long-range transportation plans. Congestion pricing, including parking pricing, can help areas with air quality problems to demonstrate their ability to attain or maintain air quality standards.

By making more efficient use of limited road space, congestion pricing as a tool saves money by reducing time spent in traffic congestion and reduces the need for costly and increasingly less financially feasible investments in new highway infrastructure. At the same time, the VPPP has demonstrated that congestion pricing is one of the most cost-effective tools that transportation authorities have when adding capacity to the highway system is warranted.

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