Obama Administration Introduces Significant Changes to Federal Tolling Law

In our prior posts we noted the important changes in federal tolling law under MAP-21 and some of the issues raised by those changes.  MAP-21 modestly loosened the federal reins on tolling the nation’s Interstates and federal-aid highways.  The Obama Administration just released its federal surface transportation reauthorization legislation, the “Grow America Act”.  In section 1405, the Administration proposes further constructive steps to expand tolling rights, but reintroduces some constraints that MAP-21 relaxed.

Probably the most important proposal is to create the right to toll an Interstate facility in connection with its reconstruction.  Today this is permitted only for a maximum of three projects nationwide under the Interstate Reconstruction Pilot Program.  Section 1405 would replace the pilot program with a statutory tolling right for Interstate reconstruction, without any limit on the number of eligible projects.  The significance of this proposal cannot be overstated.  It proposes that previously free, general purpose lanes could be tolled in order to fund Interstate reconstruction.  Except for the small pilot program, this has been forbidden since the inception of the Interstate system 60 years ago.

Just as important is a proposal to allow conversion of any portion, or even all, of a toll-free facility, including the Interstates, to a tolled facility in order to promote congestion management.  No HOVs could be tolled.  The tolling regime would have to consist of variable tolling to manage demand.  The method of variable tolling appears to be flexible enough to allow either time-of-day pricing or dynamic pricing.  This proposal can be explained by the Administration’s environmental priority of reducing carbon emissions and achieving air quality attainment.  This provision, too, would be a groundbreaking departure from the historic ban against tolling free, general purpose lanes.

Section 1405 proposes to expand the purposes for which toll revenues may be used.  It would authorize use for public transportation that is within the corridor of the tolled facility or contributes to improved facility operation.  It also would allow tolls to be used to mitigate adverse impacts of tolling, such as the impacts of traffic diversion.  These provisions likewise are informed by the Administration’s environment priorities and promotion of public transit.

Section 1405 would require that all toll facilities first opened to traffic after October 1, 2015 use only non-cash electronic tolling technology to allow free flow of traffic.  This is consistent with the clear trend national toward all-electronic tolling and interoperability.

The quid pro quos are the reintroduction of federal regulatory controls and elimination of several MAP-21 tolling rights:

  • MAP-21 dropped most requirements for USDOT approvals and tolling agreements.  Section 1405 would re-impose USDOT approval rights for tolling in connection with Interstate reconstruction and for conversions of toll-free facilities to managed lanes, and give the USDOT broad authority to issue regulations on what criteria must be met.  The Administration apparently shrinks from letting states decide on their own whether to pursue such tolling arrangements.
  • MAP-21 on its face seems to authorize conversion of HOV lanes to tolled lanes without conditions.  FHWA, however, has interpreted this provision to require that, among other things, HOV vehicles continue to have toll-free use of the converted lanes.  Section 1405 would eliminate any ambiguity by mandating toll-free HOV use.  The only remaining way to toll HOVs in converted lanes would be through the Value Pricing Pilot Program, if a state happens to hold one of the VPPP slots and can get the USDOT to approve HOV tolling.
  • MAP-21 created the right to toll in connection with restoration or rehabilitation of an Interstate highway.  Section 1405 would eliminate this right.  No doubt USDOT criteria for Interstate reconstruction would distinguish between reconstruction, on the one hand, and restoration and rehabilitation, on the other hand.
  • The MAP-21 right to vary toll rates by type of vehicle, and to exempt vehicles from tolls, would be eliminated.  It is unclear whether the intent is to require uniformity of toll rates (for other than managed lanes).  Toll rate uniformity would pose very serious feasibility and political issues for tolling authorities.

We and others have advocated for wholesale removal of federal restrictions on tolling, except for restrictions on permissible uses of toll revenues.  On the whole, Section 1405 of the Grow America Act is a good step in the right direction, particularly because it seeks to address the looming problem of how to pay the massive amounts that will be needed to reconstruct the nation’s Interstates.

Tolling for the Next Generation Interstate System

We are now a short distance away from expiration of MAP-21, with no solution in sight for sources of funding to sustain the federal highway program.  There is no stomach in Congress to increase federal gas taxes or to make real progress toward replacing gas taxes with mileage-based user fees.

As for tolls, Rep. Bill Shuster, Chair of the House Transportation and Infrastructure Committee, said in a speech last week that they “might be even more difficult to do than some of the user fees."  Tolling of interstates that have been free for decades would not be kindly received by voters, according to Rep. Shuster.

This is the same political mentality that drove decisions on expansion of federal tolling authority under MAP-21.  MAP-21 created new authority to introduce tolling to fund construction of new interstate capacity and interstate reconstruction, but in both situations MAP-21 prohibits any net reduction in the number of toll-free, non-HOV lanes.  This means that, with the except of potentially converting existing HOV lanes to HOT lanes, only new lanes may be tolled in connection with interstate reconstruction or expansion. 

With this restriction, the toll revenues that can be generated from the MAP-21 tolling provision pale in comparison to the costs to reconstruct and expand the interstate system.

Bold and broad thinking on the future of the interstate system will have to well up from industry leaders and state government if there is ever to be a change in the current federal ban against tolling existing capacity of the interstates.  Bob Poole of the Reason Foundation just published a year-long study on the feasibility of interstate tolling to pay for the estimated cost to reconstruct and expand the interstate system.  The Reason study is an audacious and timely exercise that just might frame the national debate on the subject, for several key reasons:

  • It finds that the job can be accomplished at feasible toll rates – 3.5 cents/mile for cars and 14 cents/mile for trucks, on average.
  • It includes a state-by-state analysis, concluding that almost every state is capable of funding its next generation of the interstate system via tolling.
  • It is based on the premise that tolls are not introduced until value is added – i.e., until an interstate corridor is reconstructed and modernized so that it will operate at a higher level of service.
  • It proposes that the use of the toll revenues be restricted to the purpose of interstate reconstruction and expansion.
  • Modern, all-electronic tolling is assumed.
  • It would represent a significant transitional step toward a universal mileage-based user fee system, as the interstates account for 25% of total vehicle miles traveled.
  • It encompasses funding of on-going interstate maintenance as well as future improvements.
  • It even proposes to rebate fuel taxes for vehicle miles traveled on tolled interstate corridors, to avoid any claim of “double taxation.”

Tolling of the interstates under the terms enunciated in the Reason study recognizes that major portions of the interstate system are close to the end of their original design life and that modernization, rehabilitation, replacement and expansion make up the next generation of the interstate system.  It is true that federal and state fuel taxes paid for the bulk of our current, aging and capacity-constrained interstate system and so, with a few exceptions, was never intended to be tolled.  It is equally true, however, that Congressional abhorrence of higher fuel taxes and mileage-based user fees assures us that the future federal transportation program will fail to pay for the next generation interstate system.

Eliminating the federal ban on tolling interstate capacity can be viewed politically as an act of federalism rather than Congressional endorsement of interstate tolling.  In reality, it would mean that the federal government is neutral regarding the matter.  It would neither bar nor mandate interstate tolling.  It would mean that each state would make its own political decision on whether, when and on what terms to implement interstate tolling.

Political pressure from state governors, state legislators and state DOT executives will be essential to drive any action by Congress to lift the federal tolling restriction.  As Ken Orski writes in his latest cogent brief on this subject, “[t]heir collective judgment will be decisive in whether Congress votes in favor of lifting the current legislative restriction against Interstate tolling or leaves it in place.”  (NewsBrief, Vol. 24, No. 14, September 18, 2013, www.innobriefs.com)

USDOT Issues Guidance on MAP-21 Tolling Program

On September 24 the Federal Highway Administration issued policy guidance on various aspects of MAP-21, including a memorandum to its Division Administrators on the tolling provisions in MAP-21 and questions and answers on federal tolling laws.

The tolling guidance addresses (1) the “complete replacement” of the prior statutory language of 23 U.S.C. 129(a), (2) the application of the existing HOV/HOT lane provisions in 23 U.SC 166, and (3) the status of the four existing toll pilot programs.  It is a must-read for anyone concerned with federal tolling law and policy.

Sections 129 and 166

The guidance recognizes the important expansion of tolling rights under Section 129 to newly constructed lanes added to existing toll-free Interstate highways, and to initial construction of highways, bridges, and tunnels on the Interstate System.  These provisions mainstream the interstate construction and express lanes demonstration programs.  Inexplicably, it does not mention another important expansion of tolling rights – for reconstruction of existing Interstate facilities, provided the number of toll-free, non-HOV lanes is preserved.

Sections 129 and 166 have overlapping provisions addressing conversion of HOV lanes to tolled lanes.  New Section 129(a)(1)(H) authorizes conversions and is free of conditions or limitations on the tolling method and rates.  Standing alone, it allows tolling of HOV vehicles in what were formerly HOV lanes.  Existing Section 166(b)(4), on the other hand, allows non-HOV use of HOV lanes if the non-HOV vehicles – but not the HOV vehicles - are tolled under a demand management automatic tolling system.  So there is an issue under MAP-21 whether Section 129(a)(1)(H) is limited by Section 166(b)(4) and its lack of authority to toll HOV vehicles.

The FHWA guidance on this issue is creative, to say the least:

"MAP-21 makes the conversion of HOV lanes to toll facilities eligible under Section 129. However, since Section 129 does not provide specific authority allowing vehicles not meeting the occupancy limitation to operate on HOV lanes, such authority can only come from Section 166, and its provisions will thus apply to all conversions of HOV lanes to toll operations."

FHWA apparently takes the view that tolling agencies must continue to allow HOVs to have toll-free use of converted HOV lanes at all times of day.  It was not necessary for FHWA to reach this conclusion.  It was equally possible for it to conclude that Section 166 provides the authority for non-HOVs to use HOV lanes and pay a toll, and that Section 129 authorizes tolling of the HOVs.  In other words, it is reasonable to conclude that new Section 129(a)(1)(H) on its face allows a tolling agency to take an HOV lane out of circulation and make it a completely tolled facility.  While we question whether FHWA's interpretation is correct, we at least now have some more clarity on the issue.

The guidance also acknowledges that tolling agreements are no longer required under Sections 129 and 166.  Previously executed agreements will continue in effect.  FHWA will take no further action for those agreements in process but not yet signed.  In the same breath, however, FHWA is now recommending that tolling agencies use (the catchphrase is “may wish to enter into”) a form of “Memorandum of Understanding” regarding tolling of a project.  The form MOU, included in the guidance, looks conspicuously similar to a Section 129 agreement and would create a binding contract.  It remains to be seen whether FHWA division offices will leave use of the MOU to the discretion of tolling agencies or mandate their use despite clear Congressional intent to do away with tolling agreements.

Pilot Programs

MAP-21 left a lot of guesswork as to the status of the pilot programs.  The guidance and answers to questions do a good job of clarifying where the programs stand.

The Express Lanes Demonstration Program expires this September 30.  Agreements for five of the 15 slots have been executed and will remain in effect.  The projects for which slots were allocated but no agreement signed will receive no further processing under this pilot program but will be addressed under Section 129.

The Interstate System Construction Toll Pilot Program, while technically continuing until 2015, is effectively defunct.  Because new interstate system construction is now a statutory right under Section 129, FHWA will accept no further applications under this pilot program.

MAP-21 does not change the Interstate System Reconstruction and Rehabilitation Pilot Program.  This pilot program authorized only three slots, and all of them are currently reserved.  Tolling agreements are required under this pilot program.

The most important continuing pilot program is the Value Pricing Pilot Program.  It provides considerable flexibility in introducing congestion pricing mechanisms to existing interstates and highways.  For instance, the VPPP could be used to authorize a regional managed lanes program, or a cordon pricing program.  Of the 15 available slots, seven are permanently reserved under executed statewide tolling cooperative agreements; and the other eight are reserved to selected state agencies for studies or non-toll projects.  The eight slots will become available again once the studies are done.  The guidance indicates that FHWA will use the VPPP only for situations that are not authorized under the new Section 129.  Tolling agreements are required under this pilot program.

What’s Next

In the short term, expect to see increasing use of the expanded tolling authority under MAP-21, as state DOTs and local transportation agencies struggle to find new revenue sources to meet critical needs.  As Bob Poole notes, the number of managed lane projects is proliferating (Surface Transportation Newsletter #107).

In the long run, the combination of shrinking federal funding for transportation and continuation of federal restrictions on tolling is not sustainable.  Unless another robust revenue source is identified, tolling across all lanes of Interstates will be critical to finance the major Interstate reconstruction and rehabilitation that looms.  Federal law still prohibits such tolling.  There may be an opportunity to further expand federal tolling rights as part of the negotiation in Congress and with the Administration of the “Grand Fiscal Bargain” after the November elections.

In my view, there is no sound policy reason for federal law restrictions on what facilities may be tolled, at least in urbanized areas where the predominant traffic is local and regional.  Policy decisions on tolling are driven by state and local needs and local citizen input.  Local transportation bodies and the elected officials that appoint them are accountable to the voters directly affected by tolling policy decisions.  Where there is accountability, the decisions will reflect the balance of local interests and needs.  Federal law and policy should accommodate, rather than inhibit, those decisions.

MAP 21: Tolling Rights Expand Under Surface Transportation Reauthorization

Congress recently passed the Moving Ahead for Progress in the 21st Century Act (MAP-21) and under prior law, with few exceptions, tolling was prohibited on Interstate highways and many other federal-aid highways.  The bill expands the exceptions, in recognition of the fact that federal fuel tax revenues are stagnant and new revenue sources are imperative to meet the growing funding gap in surface transportation.  This expansion is tempered, however, by the fact that Congress has curtailed the existing toll pilot programs.  Nevertheless, under the new law, tolls will play an increasingly important role in transportation financing.

Government sponsors of large transportation projects will have new toll revenue options at their disposal.  They will need to develop strategies to take advantage of this new array of tolling opportunities, including use of toll concessions, as well as availability payment public-private partnerships that use tolls to reimburse public sponsors for all or a portion of the payments.

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Arizona Adopts Electronic Toll Enforcement Legislation

The Arizona Legislature sent to Gov. Jan Brewer on April 4, 2012 the landmark bill HB 2491, creating state-of-the-art toll collection and enforcement authority for the Arizona Department of Transportation (ADOT).

The bill follows on the heels of the state’s enactment of its public-private partnership (P3) law two years ago.  While that law authorizes tolling, it lacked the enforcement mechanisms needed for effective open road electronic tolling, essential to modern toll road financing and operations. 

HB 2491 includes a three-notice system, increasing charges for delayed payment, an administrative hearing process, and a panoply of means to enforce collection, including license suspension and denial, vehicle registration denial, and towing and impoundment.

The P3 law included the right of toll road users to obtain refunds of fuel taxes on fuel consumed using tolled facilities.  This unusual and administratively impractical provision, backed by the trucking industry, was repealed by HB 2491.  In exchange, the trucking industry accepted a provision limiting the toll enforcement law to new transportation facilities, which could include new tolled lanes.

Arizona does not yet have tolled transportation facilities.  ADOT is considering a potential P3 for a tolled bypass facility at the Nogales border crossing, and the Maricopa Association of Governments is actively studying a managed lanes system for the Phoenix metropolitan area, which could include conversion of HOV lanes to HOT lanes.

Nossaman assisted ADOT in drafting the legislation.

FHWA Extends TIFIA LOI Deadline; Tolling/Pricing Counts Toward "Sustainability"

 

FHWA has extended the deadline for FY2011 TIFIA Letters of Interest (LOI) to March 1, 2011. The previous Notice of Funding Availability (NOFA), issued on January 19, had allowed less than a month for interested applicants to prepare and submit LOIs. 

The January 25 revised NOFA included a new phrase addressing the role of tolling and pricing programs in enhancing environmental sustainability. Under the revised selection criteria, applicants can demonstrate that their projects help preserve and protect the environment through “the use of tolling or pricing structures to reduce or manage high levels of congestion on highway facilities and encourage the use of alternative transportation options.” 

This new tweak to the TIFIA selection criteria may indicate the Administration’s acceptance of pricing as a gateway to “greener” highways.   FHWA has found that managed lanes, which set tolls according to traffic demand, provide environmental benefits: “By reducing the number of vehicles traveling on the road and by smoothing traffic flow and maintaining freeway speeds, managed lanes help to reduce air pollution and may also contribute to a decrease in greenhouse-gas emissions.

There is still no indication of how much funding will be available for TIFIA in FY2011, so this may not be the last revision to the NOFA. FHWA also intends revise/replace the August 2010 template, and will likely update the template language on environmental sustainability.

FHWA Rules Opt for a Gradual Approach to Achieving Nationwide Interoperability for Toll Collection

On October 8, 2009, FHWA issued electronic toll collection rules in response to a 2005 SAFTEA-LU law, which in all respects reiterate the status quo for the tolling industry and provide no guidance or standards with respect to SAFTEA-LU’s goal of progressing towards a nationwide interoperable electronic toll collection system.

With regard to interoperability, Section 950.7 of the rules require the tolling agency to identify: (i) the projected users of the facility; (ii) the predominant electronic toll collection systems likely utilized by users of the facility; and (iii) the non-cash electronic technology likely to be in use for the next 5 years in that area, including a requirement that the tolling agency demonstrate that “the selected toll collection system and technology achieves the highest reasonable degree of interoperability with both technology currently in use at other existing toll facilities and with technology likely to be in use at toll facilities within the next five years in that area.” 

All of these requirements specifically focus on existing and local interoperability, but do not require a specific standard for nor set a specific path to achieving national interoperability. The comments that FHWA received in response to the Notice of Proposed Rulemaking suggested that setting a specific interoperability standard would be premature pending changes made possible with wide scale adoption of 5.9 GHz technology. Moreover, the response to comments also made clear that there was no clear consensus around what standards national interoperability should be built. Thus, FHWA adopted a rule that essentially maintained and encouraged existing trends toward achieving regional interoperability, and provided for reasonable opportunities for motorists outside of particular toll systems to pay tolls through alternative means. 

Hence, the “interoperability requirements” set forth in these rules have long been the industry standard in developing tolling collection systems. Well before these rules were promulgated, tolling agencies have spent considerable time and money researching these identical factors in developing toll collection systems. Without any federal rules requiring toll agencies to move towards a nationwide interoperable system, toll agencies will likely continue to focus its efforts on developing toll collection systems that are generally accepted and used in the local area, which is entirely acceptable under these newly promulgated federal rules.

FHWA signaled its intent to address interoperability again as new technologies come on line and if the demand to true interoperability increases.