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Value Pricing Pilot Program: Lessons Learned

Executive Summary

Overview

The purpose of this “Lessons Learned Report” is to summarize projects sponsored by FHWA’s Congestion and Value Pricing Pilot Programs from 1991 through 2006, synthesizing project experience, drawing implications for federal and project level roles and looking forward to future roles for pricing strategies.

The 24 projects selected for review have been grouped into the following six categories of pricing strategies:

  • 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

Background

The Value Pricing Pilot Program (VPPP) has been a key 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. Since its inception in 1991, Federal pricing pilot programs have sponsored over 50 pricing projects and studies in 14 states. Projects and evaluations span a diverse group represented by the six broad concept categories described earlier. Of these, over twenty projects became operational. These projects and studies have generated invaluable lessons pertaining to the design, assessment, acceptability, implementation, administration and evaluation of pricing concepts.

More than a dozen pricing projects implemented in the U.S. during the past 15 years  have demonstrated that pricing can be politically and publicly acceptable. Most of the projects have met their objectives without any significant controversy. By influencing travel behavior, pricing projects have prevented congestion from occurring on priced lanes, reduced congestion on toll facilities, and improved utilization of highway capacity. Yet, issues remain with regard to public attitudes toward pricing; equity concerns; and acceptance. Technical problems have also stalled or delayed several projects. This report summarizes the promises and challenges of value pricing, and describes how these challenges are being addressed.

Findings

For each project category, this section describes:

  • Impacts (congestion reduction and performance, cost/revenues, energy and environment, equity)
  • Implementation and operation details (planning and policy, outreach and stakeholder involvement, acceptability and politics, institutional issues, administration and enforcement); and evaluation
  • Lessons and implications for planners and managers

Travel and Traffic Impacts

With few exceptions, variable pricing strategies across categories have met their principal travel and traffic objectives. Pricing programs have demonstrated that pricing can have a number of effects on driver behavior and traffic volumes, including: changes in times trips are made, routes, or modes of travel; willingness to pay for faster travel times by traveling on toll lanes; reductions in peak-period traffic volumes and more efficient use of highway capacity. In particular:

  • HOT Lane conversions have gained better use of underutilized HOV lanes, kept lanes congestion free and not slowed or dissuaded HOV users. Also, there is some, albeit non-conclusive, evidence HOT lane conversions have brought relief to adjoining mixed flow lanes by attracting some traffic away from these lanes.
  • New variably priced express lanes render much higher throughput at significantly higher speeds than adjoining general purpose lanes, and reduce congestion on the overall facility. New variable tolls on existing toll facilities have led to more efficient facility use, postponed the need for capacity improvements and generally preserved or increased revenues.
  • Regionwide pricing initiatives are mostly in the pre-implementation stage, but planning studies suggest they will mirror the positive experiences of HOT lane conversions and new priced express lanes, and may be more effective than the sum of individual projects. Projects making fixed driving costs variable, while tested only in experimental conditions, have reduced weekday peak period and/or weekend travel by encouraging shifts in travel times and mode. Lastly, while the limited experience with carsharing and cash out cases showed mixed or inconclusive results, cash out and carsharing show sufficient promise in other referenced assessments to deserve further implementation and evaluation.

Costs/Revenues

The revenues generated by pricing have been an important source of benefits in most of the projects reviewed. Project revenues have been used to cover operating and enforcement costs, finance additional highway infrastructure, and improve transit alternatives.

  • For HOT lane conversions, revenues generally support operations and, sometimes, additional transit service, though one smaller program did not raise sufficient revenue to cover all operations and a long standing program is starting new fees to cope with declining use and revenues caused by the opening of a new nearby facility. It appears that the initial capital cost burden may be difficult to cover from toll revenues - especially where conversion requires expensive capital outlays, or where a relatively large number of vehicles are allowed to travel free.
  • The one well-evaluated new express lane project shows a privately owned and operated tollway can be financially viable and bring savings to the public sector. Financial information on new variable pricing on existing toll facilities suggests revenues can meet targets and may delay costly capital improvement expenditures. Introduction of pricing on existing toll facilities has been relatively low cost since infrastructure and operations typically already are in place. Consequently, revenues have exceeded the costs of these projects.
  • Regionwide pricing initiatives are too new to draw confident financial conclusions, though one study suggests financial feasibility is highly dependent on capital costs of new facilities. Experiments with variable driver costs are also too limited for confident conclusions, though observed user responses in experimental demonstrations suggest these strategies might be able to more than cover costs.
  • One carsharing case reviewed indicates economic viability of both profit and non-profit operations. Also, related studies suggest if carshare takes root with significant coverage and participation, it can operate successfully without the need for public funds

Equity

Since the inception of the VPPP, equity has been a key program interest, with particular attention given to mitigating possible adverse effects of projects on low-income drivers. However, project experience has shown, particularly with the most common projects funded under the early phases of the program, that the perception of unfairness may be overdone.

  • Equity issues do arise in planning and implementation across several pricing categories, but they have rarely led to project termination. Equity evaluations, though limited in scope, have found some differences in incomes of facility users, but these are not dramatic.
  • HOT Lane conversions have encountered concerns in planning about catering to the rich, but usually not sufficient to halt projects. Such concerns tend to diminish among users and the public as operations get underway. User surveys reveal higher income travelers using facilities somewhat more than other income groups, but general use across a wide range of incomes.
  • New expressways with variable pricing are limited in number but do reveal some differences in use based on income, though little difference in reactions to projects. In one case, use increased over time for all modes across all incomes. A planned expansion project found strong support with few differences about fairness based on ethnicity or income.
  • For pricing on existing tollways, equity concerns about income have not blocked programs, but issues have been raised about fairness to those with inflexible work schedules and businesses that can not respond in the short run. User surveys for this project category have been limited, but one case suggests higher income travelers were more likely transponder owners both before and after price changes.
  • The region wide pricing category again shows the variation in definitions and evaluation approaches for equity. One project accounted for impacts across ethnic and income groups by estimating jobs within a travel time perimeter compared to the general population.
  • Field tests of making driver costs variable, carsharing and cash out have not delved into equity issues to any significant degree.

Environment

  • Environmental evaluations are scarce across categories of pricing projects. A few findings suggest possible positive impacts, but more evaluation is needed to clarify the picture.
  • One HOT lane conversion found emissions growth but a comparison corridor showed even more growth. Another project evaluated CO and noise and found no significant changes compared to pre-project.
  • One case of pricing on tollways attempted a detailed air quality assessment, but found that existing forecasting models were inadequate. Regionwide pricing initiatives will entail some VMT and air quality assessments, but results are via models and still very preliminary.
  • Field tests of making driver costs variable found mileage and congestion charges can reduce travel in priced vehicles. However, air quality effects depend on mode shift and degree of shift to un-priced household vehicles, a complexity requiring further study.
  • Carsharing impacts on VMT across household vehicles and associated air quality implication requires further testing and evaluation.

Policy/Institutional

  • New public policy and institutional arrangements depend on the specific project category. HOT conversions typically require new policies, legislation, organization and operational arrangements.
  • New expressway development commonly has called for modifications to existing policies and required new agreements, especially in the case of private for-profit development.
  • New variable pricing on tollways required governing authority approval but not new legislation.
  • Regionwide pricing initiatives are likely to follow HOT conversions in the extent of policy and institutional development.
  • Field tests of making driver costs variable did not require extensive policy initiatives, but clearly replacing gas taxes with mileage-based pricing or instituting pay-as-you-drive insurance products will entail significant policy initiatives.
  • Voluntary cash out and carshare programs are initiated without significant policy changes though agreements are required for carshare arrangements with cities, employers or developers. Voluntary cash out can be supported by an agreement between a public agency promoting the concept and employers and/or developers; it also can be supported and encouraged by state legislation, as referenced literature suggests.

Outreach/Acceptance

  • Public opinion is perhaps the most critical determinant of the prospect for successful pricing project implementation. For this reason, efforts to implement variable road pricing projects have given much attention to measuring and understanding public opinion about value pricing and to shaping informational programs to address concerns expressed in public opinion surveys, focus group meetings and stakeholder interviews.
  • Outreach efforts as part of initial feasibility studies often find neutral or skeptical opinions, or outright resistance, but this is often followed by acceptance as projects get underway. Thus, early and continuing outreach efforts are expected to be most effective. The support of a key stakeholder who was able to influence public opinion also was crucial for the successful implementation of several projects.
  • HOT lane conversions demonstrate extensive outreach often leading to revised or dropped plans, though early resistance can turn to acceptance with responsive service. Support from elected officials, advocacy groups and community leaders appears vital, and may take many months if not years of effort.
  • New variably priced highway facilities suggest a similar lesson. While public support is generally favorable, the public may not understand what expenditure items pricing revenues support, and support can deteriorate if private sector operations are seen as monopolistic and inflexible.
  • Variable pricing on existing toll facilities again is accompanied by considerable outreach, leading to a successful implementation in one case but not another. In the former, the positions of opponents and supporters remained the same before and after implementation showing the importance of continuous effort to maintain an acceptance threshold.
  • Outreach is part of all ongoing region wide pricing initiatives, but with results yet to be documented.
  • Results from variable cost field tests, as with HOT lane conversions, suggest initial concerns about security and technology can turn to a favorable response after sufficient time and experience.
  • The cash out program met with stiff resistance which could not be overcome, underscoring how this category of pricing is highly dependent on the transportation, parking and economic environment in which it is attempted. The carsharing case demonstrated traditional marketing techniques can be successful in gaining participation and sustaining market share.

Technology

  • HOT lane conversions have demonstrated sufficient advances in technologies to make fully dynamic pricing feasible, along with enforcement against transponder violations by stationary and mobile enforcement. However, automated occupancy enforcement has yet to be demonstrated. The lack of a proven technology for occupancy detection also has limited the possibility of multiple price schedules based on occupancy. The category of pricing new express lanes suggests the same conclusion.
  • Congestion pricing on tollways again demonstrates the feasibility and reliability of transponders and the growth of open road tolling to ease payment. One project also is demonstrating truck axle counting equipment.
  • The category of making driver costs variable suggests some sensitive technology issues. Reliability of vehicle and fueling station technology was a concern in one program, requiring further tests and assessments.
  • The right to privacy is expected to continue to be an issue in future variable mileage fee applications. There is an important tradeoff between complete privacy or anonymity and the business need to prove that certain mileage was recorded for billing purposes.
  • Findings indicate privacy was a significant concern among participants, but such concerns were alleviated once participants learned more about the technology and were confident in data security.
  • The carsharing case has demonstrated reliable payment and vehicle check out technology.

Evaluation

  • Project evaluations have adequately covered traffic impacts, project operations, public and customer reaction, but paid less attention to equity and environmental impacts.
  • Attempts to isolate the effects of projects from outside influences such as gas price or economic swings have been modest at best.
  • Most HOT lane conversions have focused on traffic impacts and public/user reactions, one giving attention to business and land use impacts, but less attention has been given to equity and environmental effects. In the most extensive evaluation case, a comparison corridor (though not strictly equivalent) provided some guard against spurious conclusions about project effects.
  • The category of pricing new express lanes shows broad-ranging evaluations across traffic, travel time, accidents, user profiles (in part for equity assessments), user opinions and, in one case, opinions of corridor residents. Two projects compared results to non-tolled sections of the highway or nearby freeways to improve confidence of findings.
  • In one case air quality impact models were not able to adequately account for accelerations and decelerations.
  • New congestion pricing on toll facilities commonly use only before/after data without comparisons to trends on other facilities.
  • Regionwide pricing initiatives are not far enough along to demonstrate evaluation methods.
  • Field tests of making driver costs variable gather extensive baseline information to compare with travel during the pricing program and supplement vehicle instrument data with travel diaries. However, comparisons to controls without pricing are not always made.

Conclusions and Implications

Since the inception of Federal pricing pilot programs, interest in value pricing has increased significantly. Over the past decade and a half, Federal pricing pilot programs have fostered a variety of pricing applications around the country. 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 in responding to traffic congestion problems. Observations from projects implemented to date reveal that travelers are willing to pay for improvements in transportation service and that pricing can lead to more efficient use of existing highway facilities. 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. State, regional and local authorities are showing increasing interest in variable pricing approaches to address traffic congestion, funding shortfalls and related problems. 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.

Effects of Pricing

  • Pricing does reduce congestion and can increase throughput.
  • Pricing can be an important source of revenue for transportation.
  • Equity issues are ever-present and likely to persist, but project impact studies show no great disparity in use across income groups and equity impacts have not been an impediment to implementation.
  • Pricing can have positive environmental and energy benefits.

Feasibility and Implementation of Pricing

  • The nature of policy and institutional issues that arise during implementation and operation of pricing projects depends on the category of pricing projects involved.
  • Public opinion is perhaps the most critical determinant of the prospect for successful pricing project implementation and much attention is required to measuring and understanding public opinion and to shaping informational programs to address concerns identified via opinion surveys, focus groups and stakeholder interviews.
  • The technology for pricing and enforcement generally is proving reliable and effective even with complex pricing policies, though some aspects like privacy safeguards and occupancy detection require further testing and development.
  • Evaluation programs have dealt well with traffic impacts, project operations, public and customer reaction, but have paid less attention to equity and environmental impacts.

Federal Role

Federal Pricing Program managers have many opportunities to foster continued progress in the Pricing program. Key roles include continued demonstration support of pricing concepts emerging from lessons learned to date as deserving of further implementation; and corresponding support of well structured evaluations of effects and outcomes also emerging from lessons learned as important. In particular:

  • While HOT lanes have matured and demonstrated useful findings, there is room for evaluation of the operational issues of occupancy checks, multiple access/egress locations, HOT lane effects on mixed flow lanes and continued monitoring and dissemination of mode shift and speed effects. Improved automatic occupancy detection would enhance further operational policies.
  • New networks of HOT lanes deserve encouragement and good evaluation. A very critical question is whether new HOT lane networks rather than conversions can be financially feasible in a network where they require sizeable capital outlays. Private sector involvement in such networks also deserves attention as the one private case showed promising financial results but potential problems of public and political acceptability.
  • Variable driver cost programs aimed at replacing gas taxes and standard insurance and vehicle lease programs also deserve continued attention. Operational and privacy issues remain to be examined fully and next steps in technologies for broader application deserve attention.
  • New variable tolls on existing tollways deserve further encouragement and evaluation. There still is room to test, evaluate and document the peak-off peak differential needed to bring significant and long standing shifts in traffic, mode use and reduced peak congestion.
  • Carsharing and parking cash out present challenges deserving focused work. Carsharing evaluation is very complex with multiple possible effects needing careful tracing. Experimental designs could be improved to render clear and confident conclusions.
  • Cash out, while demonstrated effective in the literature, has implementation challenges identified in case study. Attention is needed  to best markets and simplification of the concept especially at employers with multiple trip reduction programs.
  • Equity evaluations would be helped by attention to more than income of users, including benefits to users across incomes and inclusion of several equity measures. Important are spatial equity within and outside priced zones, and who pays and benefits not only in terms of reduced travel time but improvements funded by pricing.
  • Environmental evaluations need best possible models to account for VMT, speeds, speed variation and vehicle type. Testing various methods of direct measurement also deserve attention. The full range of emissions should be included, including CO and CO2 emissions.
  • Federally supported evaluations in conjunction with all pilot programs are important. Emphasis on multiple measures should be maintained, across transportation, acceptability, policy and institutional formation, as well as equity, environment, costs, revenues and operations. Opportunities for improvement include attention to controls and statistical tests to insure valid results and to rule out effects of outside influences. Tracking long term effects also is important.
  • Support for the development and distribution of best practice documents and technical assistance and guidance to local project partners are all appropriate and needed federal roles.

Local, Regional and State Roles

Local, regional and state governments can benefit from the various findings and lessons coming from experience to date with the Value Pricing programs. This report provides a resource to encourage more informed implementation of pricing concepts by category. As well, there are specific implications emerging from lessons learned for governments planning and implementing pricing projects:

  • An important lesson for project planning is paying heed to the extensive outreach activities associated with all project categories. It seems evident wide effort involving not just the general public and travelers but stakeholders and champions is vital.
  • Ongoing attention to customers, the public and a willingness to make changes as necessary are also evident in implemented programs. Patience and persistence also are important in planning stages since initial opposition often diminishes over time.
  • HOT lanes present the most documentation on planning, impacts, operations, policy development and outreach. Well-designed programs can be expected to increase throughput without diminishing carpooling and perhaps generate sufficient revenues to support transit expansion. One caution is on the financial side: projects involving large capital costs, such as new facilities or networks, in contrast to conversions of existing lanes, may not be fully self-financing.
  • Local, regional and state governments interested in general reductions in VMT as well as congestion reduction will benefit from attention to the category of projects turning fixed costs into variable costs. Results suggest potential effectiveness and acceptability for sensitive to types of employers, existing TDM programs and parking conditions.
  • Project planning should pay careful attention to the assessment of latest technology innovations: For HOT lanes and new priced express lanes, important issues include pricing by transponders versus license plates; enforcement systems for transponder violations; latest developments in vehicle occupancy replacing gas taxes with VMT fees, and, perhaps, replacing standard insurance and vehicle lease programs. Planners interested in these approaches may wish to take the next steps in experiments to date. Solid experimental designs employing controls are also important to documenting impacts and paving a credible path to gas tax replacement.
  • Based on findings to date, localities interested in carshare and cash out programs should be prepared to target and fashion programs carefully. Cash out is sensitive to types of employer, existing TDM programs and availability and nature of parking and its usage patterns. Carsharing planners need to be sensitive to possible multiple effects on travel based on prior mode and travel patterns of its users.
  • Planning should pay careful attention to the assessment of technology innovations: For HOT lanes and new priced express lanes, important issues include pricing by transponders versus license plates; enforcement systems for transponder violations; latest developments in vehicle occupancy verification; open road tolling systems; and, depending on pricing options, truck axle counting automation. Findings suggest technology upgrades packaged with new pricing strategies may enhance prospects for acceptance.