Value Pricing Pilot Program: Lessons Learned
4.0 Looking Forward
Potential of Value Pricing
- Interest in Value Pricing is Increasing
Pricing projects in the U.S. are breaking new ground and providing important lessons for those interested in exploring the use of market-based approaches to traffic congestion problems. The implemented projects have shown that travelers are willing to pay for improvements in transportation service and that pricing can lead to more efficient use of existing highway facilities. Theorists have predicted this for decades, but the demonstration projects have confirmed that people respond to price signals when making transportation decisions, just as they do in other aspects of their economic lives, and those responses can help diminish congestion and support alternatives to solo driving. The demonstrations have also been a test-bed for the technologies that enable pricing to be used, as well as a discussion forum for important issues related to equity and public perceptions.
Whereas pricing was once something talked about by a small corner of academia, pricing is now front-page news, and is openly discussed by transportation professionals, interest groups, and elected officials. Pricing has come to be viewed as an innovative way of coping with recurring congestion problems and as an effective complement to existing transportation improvement programs.
- Revenue-generating Effects of Pricing Provide Important Stimulus
Although the primary rationale for value pricing is that it improves mobility, the revenue-generating effects of pricing have also been a major reason for interest in this approach to reducing congestion. While the past projects in U.S. have focused on single facilities and generated moderate revenues as compared to what can be expected from broader applications, some of these programs have been self-financing and a few have generated revenues in excess of operating and capital costs. Overall, value pricing shows considerable promise in a time where transportation agencies are struggling to find new and robust approaches for financing transportation programs. Moreover, it has been shown that pricing can be a fair and equitable part of a road user charge program.
- A Variety of Project Types Will Continue To Emerge
Half a dozen HOT Lane Conversions have been implemented and several others are being designed across the United States. These projects have now been “main streamed” in the Federal Aid Highway Program. A pricing concept once only theoretical has been thoroughly tested, well evaluated and adopted in several congested urban areas. As pricing technologies progress more advances can be anticipated, whether in the open road systems, refinements based on GPS or other innovations. There also will be need to address access to and egress from multiple entry/exit HOT lanes especially in network applications. The challenge will be balancing the cost and safety of safer flyover ramps versus lower cost means of minimizing and managing weaving to/from slip ramps.
Many metropolitan areas and states are planning for variably priced new express lanes and toll authorities are considering introduction of variable tolls on existing facilities. Of course, challenges remain. Some authorities are apprehensive about adopting variable tolls due to a policy catering to cash-paying customers; administrative and cost considerations; reluctance of the bonding and financing industry to move away from long-standing and familiar flat tolling practice; apprehension about limits of available pricing technologies; and concerns about public and political backlash. Yet, the pilot programs examined here suggest concerns to date are not insurmountable and progress is possible. Further carefully evaluated efforts likely will encourage more adoptions.
As more has been learned about small-scale pricing applications, interest has expanded to more comprehensive region wide and network pricing programs as well as downtown area wide cordon pricing programs. The Federal Value Pricing Pilot Program focus is also evolving in this direction as the recently launched Federal Urban Partnership Agreement Program under the FHWA’s Congestion Initiative launched in 2006 has promoted comprehensive programs with wide area and network coverage. The comprehensive programs promise to address area or region-wide congestion, generate large revenues and provide more substantial environmental benefits. Further expansion to cross state programs and continued attention to pricing in the larger role of national highway finance are potential future directions.
Programs aimed at making fixed costs of driving variable are generating interest and variable VMT fees are beginning to be debated as a possible future replacement of per-gallon fuel taxes for financing transportation funding needs. The experimental pilot projects demonstrate the possibility of employing mileage-based pricing and fee structures at a region wide or statewide level. Rich lessons from the pilots to date will aid long-term planning and policy making in areas considering implementing such systems, however much depends on viable technological and business models, new public policy as well as public acceptance and knowledge of concepts. Importantly, these programs show that the mileage fee could be paid at the pump, with minimal difference in process or administration for motorists, compared to how they pay the gas tax. Planners and policy makers at the local, state and national level can look forward to continued progress in developing these new alternatives.
- Much Remains to be Learned
Much has been learned about the promise and potential of value pricing over the last several years, yet much more remains to be learned. Many aspects and types of pricing remain untested in the U.S. Long-run impacts on land use, auto ownership, business and productivity need to be monitored over time. Continued progress in implementing acceptable, effective and ultimately informative pricing programs requires careful planning, coalition building, public education and participation, and sufficient time and resources for the development of well designed and locally acceptable project plans. Several models for effective and workable ways to proceed are shown in this report.
The Federal Congestion and Value Pricing Pilot Programs have played an important supportive role in the evolution of interest in pricing solutions to traffic congestion problems. The framework provided by the Federal Pricing Programs has helped to bring together state and local interests and the research community of universities, think tanks and consulting firms to move pricing forward and ensure programs are properly evaluated. It is now easier for State and local leaders to introduce these relatively new approaches for dealing with congestion and related problems. The Pricing Programs have also played a valuable supporting role by facilitating information exchange and sharing of experience among interested parties, providing direct technical assistance on many aspects of project design, implementation and evaluation.
Value pricing holds the promise of reducing congestion, enhancing mobility and economic productivity, reducing environmental and energy costs, and providing new sources of funding for transportation investments. Yet, despite this potential, the concept of value pricing remains controversial in many potential applications. It involves a new approach to dealing with congestion problems and charging for road use. However, public reactions to all pilot programs demonstrate favorable outcomes are possible with careful and inclusive planning and outreach. The future federal pricing programs have an important role to play in assisting state and local governments in testing, adopting and evaluating the latest pricing concepts, technologies and operational programs.
Planning For The Future
The experience over the past 17 years provides a valuable guide to planners in exploring the feasibility of future pricing applications and identifying projects for implementation.
A particularly important consideration in assessing pricing options and their equity implications is the use of revenues generated by value pricing tolls. Toll revenues can be used to compensate those who might otherwise consider themselves “losers” as a result of value pricing. Compensation can come in a variety of forms, including financing of highway improvements (particularly in the corridor where the tolls are levied), improvements in transit service, or, in cases where effects on low-income drivers are felt to be particularly severe, toll rebates to eligible drivers. Each of these approaches have been used or considered for use in pricing programs. Operating pricing programs can also help increase public awareness of the often overlooked fairness aspect of pricing placing the greatest cost burden on those who make the most use of priced facility.
Planners also need to put in more effort to highlight the potential environmental and energy benefits of pricing. While the air quality and energy conservation benefits of small-scale pricing projects implemented to date might be expected to have more modest effects on overall regional environmental quality, such projects could still have substantial health benefits by reducing localized concentrations of carbon monoxide. Further, any traffic smoothing effects of reduced congestion or positive effects on carpooling and transit use are clearly moves in the direction of improving air quality and reducing energy consumption. For instance, in HOT lane and other facility pricing projects, smoothing of traffic flows could reduce fuel consumption and emissions on priced lanes and perhaps on adjacent general lanes if congestion is reduced because space is freed up by diversion of traffic to the priced lanes. Other environmental influences could result from land use changes associated with priced lanes, but little is known to date about the extent of such influences.
Steps to successful pricing projects
The pricing program has taught the transportation community a few lessons about how to conceptualize, plan, discuss, and carry out a successful pricing project:
Define the problem – Proposals for pricing solutions need to focus on the costs of severe congestion, including traffic delay, air quality problems, accidents, lost productivity, or other locally perceived problems. Proposals need to show how pricing will address these problems, and how pricing compares to alternative potential solutions. The revenue raising aspects of pricing programs are also important considerations and these need to be compared (in terms of revenue productivity, equity, etc.) to more traditional transportation financing approaches.
Take time to include all interests – Pricing is a significant departure from existing practices, and it may have far reaching impacts and necessitate realignment of existing institutional relationships. Several public and private interests and agencies are likely to have a stake in the workings and outcomes of pricing proposals. All these stakeholders and interests need to be involved in project development. This takes time but will make for a much more successful outcome.
Consider a full range of alternatives – Pricing should be viewed in the context of a range of strategies for addressing congestion and related problems. Alternative applications of pricing should be considered and an incremental strategy with continuous evaluation and potential broader applications should be contemplated.
Carefully attend to the estimation of impacts – The estimation of a variety of potential impacts of pricing is both difficult and essential. Impact estimation difficulties stem from the lack of experience with road pricing and limitations of forecasting tools. Fortunately, as findings summarized here indicate, impacts of pricing strategies are documented and can aid planners and local decision makers in estimating potential ranges of impacts.
Introduce pricing as a part of a package – Alternative travel mode enhancements and travel demand management programs should be considered along with pricing. Alternative uses of pricing revenues should be proposed and assessed.
Focus on customer relations – Public outreach and education have been a critical determinant of acceptance of pricing programs by public and decision makers. Focus groups, public opinion surveys and media campaigns have all contributed to project successes and should be attended to all through planning, implementation and evaluation of future pricing programs.
