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Table of Contents

Value Pricing Pilot Program: Lessons Learned

1.0 Introduction

Background

Value pricing when used in the context of highways refers to using the price of a direct user charge to influence travel behavior, usually for the purpose of alleviating congestion.  It is sometimes referred to as “congestion pricing”, or sometimes just “pricing”.  It differs from “tolling” in that the purpose of the price is more about transportation system effectiveness than raising revenue to pay for an infrastructure improvement (although using revenue from a pricing project to pay for infrastructure improvements is certainly a potential outcome).

The Value Pricing Pilot Program (VPPP) has been a component of the Department of Transportation’s (DOT’s) coordinated program to assist state and local governments in their efforts to stem the tide of escalating congestion costs. The Department recognizes that congestion on the Nation’s transportation system, whether it is highway, air, water or transit congestion, is one of the greatest threats to the nation’s economic well being and way of life. The multi-modal Congestion Initiative, announced by the Department in May 2006, is designed to address congestion problems, with particular emphasis on establishing partnerships with major urban areas to make significant reductions in roadway congestion. Both the Congestion Initiative and its Urban Partnership Agreement (UPA) program, which in 2006 made federal funds available to metropolitan areas to pursue aggressive strategies to reducing traffic congestion using a combination of tolling, transit, telecommunicating and technology, draw heavily on the experience provided by the VPPP.

The VPPP remains a crucial underpinning for congestion reduction programs, serving as an incubator of innovative pricing solutions to highway congestion and related adverse impacts on environment, energy use and economic productivity. The program assists state and local governments in analyzing alternative pricing strategies, designing related public participation programs, identifying appropriate administrative, technological, and project design concepts, and implementing and evaluating pilot projects. The program provides funding support and technical assistance to state and local project partners.

The U.S. Congress established this pricing program as the Congestion Pricing Pilot Program in 1991 under ISTEA. It was subsequently renamed the VPPP under Section 1216 (a) of the Transportation Equity Act for the 21st Century (TEA-21) in 1998, and continued through the 2005 Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). Fifteen states are eligible to have projects under the VPPP.

During the initial years of federal support for value pricing (or congestion pricing), state and local government interest in the concepts promoted under the VPPP was limited, and the prospects for implementing pilot tests of these concepts seemed even more limited.

Yet, after 17 years of studies, discussions, public outreach efforts, feasibility investigations, and pilot testing, value pricing projects have become operational in many states and interest in further explorations of pricing is evident in several parts of the country. Participants in the VPPP have used a wide variety of approaches to bringing market pricing principles to transportation decision-making.

Since its inception in 1991, Federal pricing pilot programs have sponsored over 50 pricing projects and studies in 14 states covering a wide variety of approaches. Of these, sixteen projects have become operational.

Rationale For Pricing

The reason for growing interest in value pricing can be seen in nearly every urban area in the United States — traffic congestion is choking off valuable movement of people and goods in day-to-day economic and social activities. Each year, Americans are paying billions of dollars in terms of lost time and productivity, air pollution and wasted energy. The Texas Transportation Institute’s latest survey of mobility in America’s 437 urban areas shows that, in 2005, traffic congestion resulted in 2.9 billion gallons of wasted fuel and 4.2 billion hours of lost time stuck in traffic. The cost of this delay and wasted fuel totaled $78 billion in 2005, more than quadruple the comparable cost figure in 1982. These estimates do not even include the environmental degradation and economic productivity losses caused by traffic congestion, and were prepared at a time when fuel prices were considerably lower than they are in mid 2008.

Given the magnitude of these costs, it is little wonder that local, state and federal agencies have been seeking better ways of dealing with congestion problems. In some cases, capacity additions can be made to better serve peak-period travel, but capacity additions are not always possible and are often prohibitively expensive. In addition, added capacity is often overwhelmed by increases in travel demand. The use of technological and operational approaches to improving system performance also shows great promise for reducing congestion, as do strategies that promote telecommuting and the use of more flexible work schedules. Strategies that promote more efficient and responsive public transit systems that tailor services to meeting rush-hour demand also have an important role to play. Yet, none of these strategies, taken alone, is likely to be sufficient unless a way is found to link the decision to travel on a congested road with the full costs associated with that travel. Value pricing has the opportunity to provide such a link.

Value pricing relies on the power of the market to reduce waste associated with traffic congestion. It involves road use fees that vary with the level of congestion. Fees are normally assessed electronically to eliminate delay associated with manual toll collection. It is similar to the pricing approach used in other sectors of the economy where demand varies by time of day, or season, or location (e.g., airlines, telephones, hotels, electric or gas utilities).

Value pricing recognizes that trips have different values at different times and places and for different individuals. Faced with premium charges during periods of peak demand, road users are encouraged to eliminate lower-valued trips or take them at a different time, or to choose alternative routes or transport modes. In cases where value pricing is applied to specific traffic lanes rather than to an entire highway facility, users have the option of choosing to pay to use high-speed priced lanes or to continue to travel on general purpose lanes without paying a toll.

All in all, congestion pricing promises a number of possible benefits including:

  • Travel time savings
  • More reliable travel times
  • Improved traffic conditions and increased traffic throughput
  • Reduced frustration and delay
  • Reduction in emissions and improved air quality
  • Improved safety
  • Decrease in energy use
  • Increased travel choices
  • More efficient modal choices
  • Revenue generation
  • Greater personal mobility
  • Economic productivity
  • Fairer automobile trip cost recovery

Purpose and Overview

This “Lessons Learned Report” provides a summary of projects sponsored by FHWA’s Congestion and Value Pricing Pilot Programs from 1991 through 2006 and draws lessons from a sample of projects with the richest and most relevant experience across selected project categories.

Since the inception of the Congestion Pricing Pilot Program in 1991, over 50 pricing projects have been funded by FHWA. More than a dozen operational projects are providing important findings regarding traffic and congestion impacts, transportation funding issues, public acceptability, administrative matters and future prospects for addressing congestion using various pricing strategies. In addition, useful information and valuable lessons have been provided by project feasibility studies and by pricing projects that did not progress to implementation or exhibited unexpected outcomes.

This report aims to synthesize the experience from the projects in the federal pricing programs regarding effectiveness at meeting their objectives and the political and technical aspects related to implementation. In an epilogue, the authors look forward to possible future roles for pricing strategies in addressing emerging congestion, capacity and funding problems.

Following this introduction, Section 2 provides a summary of 24 selected projects grouped under six broad pricing concept categories:

  • HOT lane conversions with pricing
  • Variable pricing of new express lanes
  • Variable pricing on existing toll facilities
  • Regionwide variable pricing initiatives
  • Making driver costs variable
  • Other pricing projects.

The projects cover the full range of federally funded pricing initiatives:

  • Fully implemented and evaluated programs
  • Well documented feasibility or pre-implementation studies
  • Experimental pricing trial demonstrations

The 24 projects were chosen to provide diversity in project type, project outcome (e.g., successes, failures), and public reaction and implementation experience.  More detailed tabular summaries of each of the 24 projects are provided in Appendix B.

General conclusions and lessons learned across all project categories are provided in Section 3, along with implications for federal, state and local planners and managers.  In addition to lessons learned related to driver behavior under pricing and the impacts on traffic throughput and delay reduction, Section 3 also provides lessons related to availability of funds for transportation programs; equity among different user groups; public acceptance; and environmental benefits and impacts.

Section 4 explains how the pricing program has evolved and explores implications for the future development of value pricing.

Key references and resources are listed in Appendix A, while Appendix B contains detailed summaries of the selected 24 pricing projects in tabular format.