More Toll Roads Won't Save America's Crumbling Highways

America’s infrastructure is crumbling, possibly at a faster rate than federal, state and local governments can repair it.

More than $2 trillion is needed to repair 4 million miles of road in the U.S., according to the American Society of Civil Engineers. At present, there is funding for less than half of that task, not counting President Donald Trump’s proposed $1 trillion infrastructure stimulus package, which he pushed heavily during the first weeks of his presidency but which remains in limbo. 

Increased traffic congestion is having a trickle-down effect on commercial real estate in densely populated urban markets. Starboard TCN Worldwide President Hans Hansson wrote in 2015 about the challenges that traffic congestion poses to the commercial real estate industry in San Francisco, and said the problem has only gotten worse since. As more people ditch their cars and take public transit or bikes to get to their destinations, local governments in the country’s most densely populated urban areas are working to alleviate traffic congestion — though their efforts can at times unwittingly add to the problem.

“San Francisco is working to increase bike parking and adding bus lanes, but in doing so they’re eliminating parking. That’s putting more cars on the road, circling around, seeking parking,” Hansson said.

Hansson said that San Francisco’s hilly, undulating terrain makes it difficult to fully commit to cycling as a primary mode of transportation. By removing parking for bike lanes, city officials are assuming that people will ditch their cars. “But the reality is that some commuters do not have a choice,” Hansson said.

The problems that congestion pose to major urban areas are not unique to San Francisco. In Chicago, a 12-mile section of the Kennedy Expressway, along Interstate 90, was deemed the worst bottleneck in the U.S. in a study by the American Highway Users Alliance. Another frustrating bottleneck in Chicago is the Jane Byrne Interchange, a 50-year-old section of the Eisenhower expressway where more than 400,000 vehicles enter and exit downtown Chicago and the heart of the city's expressway system daily. The Illinois Department of Transportation is in the middle of a three-year, $475M overhaul of the interchange intended to widen Interstate 290 and add lanes to ease congestion.

Projects like this are essential because, as Hansson said, some commuters cannot, or do not have the option of taking public transit into Chicago's downtown core, because CTA's light rail and Metra's network of trains do not cover the entirety of the city and suburbs.

Hansson no longer drives his own car for work. Instead, he utilizes ride-sharing services such as Uber and Lyft, which give him the flexibility to organize tours of office spaces and to offer his clients a convenient way to return to their offices without needing to worry about parking and its attendant expenses. Still, the popularity of Uber in San Francisco is exacerbating the city’s congestion. More than 45,000 Uber and Lyft drivers are registered to operate in San Francisco.

“Ride-sharing does not take traffic off the streets,” Hansson said.

Tolling Is Only One Piece Of The Puzzle

Because of the congested state of America's interstate system, the need to modernize decaying roadways is a growing issue.

At present there are:

• 600,000 bridges longer than 20 feet in need of repair across the country.
• 73,000 bridges in the U.S. categorized as structurally deficient.
• A record 17.6 million automobiles sold in the U.S. last year adding to the congestion problem and costing the U.S. economy $124B annually.

Limited funding options for infrastructure improvements have left state and local governments with few options to raise capital. Two of those options are tolling and public-private partnerships.

In today’s political climate, tolling is increasingly popular for states seeking to build and repair highways that are not in a position to win a tax.

International Bridge, Tunnel and Turnpike Association Director of Governmental Affairs Neil Gray said that tolling is now the predominant fallback method to pay for crate transportation routes and maintain them over time.

“A toll is a classic user fee mechanism, comparable to a fuel tax. But tolling is only one tool a government has in its kit; it isn’t a silver bullet,” Gray said.

Tolling has its limitations. States are free to toll any road within a state except existing interstate highways. Under current law, federal money cannot be used on toll roads, but Congress has loosened language in federal regulations in the past decade allowing for states to create toll roads on interstates, but only on new roads a state Department of Transportation builds. Bridges and tunnels on interstates in need of repair may also be tolled.

Tolling Is Not A Substitute For Tax Funding 

Tolling has grown in prominence as revenue from the federal fuel tax — which has been static since 1993 — declines even as more vehicles are on the roads. The federal excise taxes on gasoline and diesel fuel are important, as they are the primary sources of revenue for highway infrastructure improvements in the U.S.

Tighter fuel efficiency standards and the growing popularity of electric cars resulted in the average driver today paying $150 annually in fuel taxes. Gray said that states recognize the bind that a static fuel tax has put them in, and are debating whether to recapture the lost value elsewhere, which consumers see as a tax hike, or to enter public-private partnerships with companies to operate tollways.

“States can defer maintenance on roadways or have a solid program in place for long-term repair. Ultimately, a roadway needs to be stripped down to grade and rebuilt,” Gray said.

Though the upside to privatizing a toll road system is that it is an asset with value, states and local governments entering P3 partnerships have had their hiccups.

Critics contend that the upfront payments that are a part of such deals do not take into account the long-term revenue generation potential of a tollway. The most notable example of this is in Indiana. In 2006, Gov. Mitch Daniels awarded a joint venture of Cintra and Macquarie Access Roads a 75-year contract to operate the Indiana Tollway. That agreement came with a $3.8B upfront payment that Daniels used to set up a rainy day fund for the state and distribute money to all of Indiana’s counties.

But the Great Recession led to a dramatic decline in traffic on the tollway. In 2010 the Cintra-Macquarie JV needed 10 million toll-paying trucks on the tollway to break even; it recorded half that number. The group also used an accounting procedure called an accreting swap to exchange short-term low-debt service costs with long-term higher costs, and then refinance. The JV filed for Chapter 11 bankruptcy in October 2014, yet was still able to sell the rights to the tollway to another consortium at a premium.

The Indiana Tollway bankruptcy was a lesson for states entering P3s moving forward, mainly that state authorities recognized that they have the ability to act as a concessionaire, working to provide fairness as a utility to the public consumer.

“If a state could not facilitate an infrastructure project, at least they had the ability to make it happen via a P3,” Gray said.