Oregon doesn’t have tolls on any of its major roads or bridges. But faced with stagnant gas tax revenues, and with an appetite for huge freeway expansion projects, the Oregon Department of Transportation has committed itself to using tolls to generate billions of dollars in revenue.
And let’s be clear, as economists, we support the idea of congestion pricing: our urban transportation problem exists primarily because we don’t reflect back to road users the costs of providing the infrastructure they use. We try to run the state highway system like every day is “Free Ice Cream” at Ben and Jerry’s–people are lined up around the block and we don’t have enough money.
Before the state heads down the toll path, there are a few things it should know about tolling, and the risks and consequences of the approach that’s being pursued by ODOT. We’ve tried to reduce the key lessons down to this baker’s dozen of essential points.
1. The Oregon Department of Transportation thinks it has a capacity/congestion problem on Portland area freeways (I-5, I-205, I-84, 217). In reality this is a peak hour congestion problem (or peak several hours) and results from the fact that roads aren’t priced. (And also that WA essentially pays people to travel to Oregon to shop). These roads, and all others, have plenty of capacity most hours of the day.
2. ODOT’s traffic forecasts incorrectly predict that traffic will continue to grow on these roadways, and that congestion will get worse and worse. (In fact, that isn’t true. Congestion is limited by capacity, and bottlenecks like the I-5 Columbia River Bridges meter traffic on I-5 (esp. in the AM). Volumes across the I-5 bridges can’t grow—according to ODOTs own toll consultants, because there isn’t enough capacity.
3. ODOT is using these exaggerated forecasts of future growth in travel to justify the size of new roadways (10 lanes at Rose Quarter, 12 lanes for the I-5 Bridge and approaches, as well as additional lanes for the Boone Bridge and Abernethy/I-205. ODOT describes these as “bridge” projects (interstate bridge, Abernethy bridge, Boone bridge) but then all of them involve widening miles and miles of freeway on either side of the bridge. It’s a conscious tactic to mislead. A project that is actually just “replacing” a bridge, like the proposed Burnside Bridge project in Portland, doesn’t raise these issues, because its not really a highway-widening masquerading as a bridge replacement.
4. ODOT will issue billions of dollars in bonds to pay for all these projects. And bonds will be issued before the projects are started. ODOT will also put off charging tolls until after construction is started, or until after the projects are completed. This will require capitalized interest (i.e. borrowing money in excess of the construction cost and using it to pay interest before tolls are collected). The giant projects will be committed and the debt obligation put in place before there’s any actual experience with tollling.
5. Traffic volumes on tolled roads will be lower, not just lower than ODOTs excessively optimistic forecasts, but lower than before the projects were built. On average, we can expect even modest tolls to produce a 20% to 40% reduction in traffic from un-tolled levels. Those estimates are borne out in the Pacific NW based on the experience of tolling previously un-tolled roads (i.e. Highway 99 Tunnel in Seattle) and on removing tolls from previously tolled facilities (in 2017, BC eliminated tolls on the Port Mann and Golden Ears Bridges).
6. These widened roadways and bridges will have excess capacity. The classic example of this happening is the I-65 Ohio River Bridges project in Louisville, KY. It is nearly identical to the proposed CRC/Interstate Bridge Replacement. KY & IN paid $1 billion to double the I-65 bridges from 6 lanes to 12, and AFTER they were completed imposed a toll (which works out to $1 each way for regular commuters). That caused traffic on I-65 to drop by about half from 130,000 ADT to about 70,000. The twelve lane bridge looks almost empty even at PM peak hours. Here’s the I-65 bridge on a Monday afternoon at seven minutes past 5 PM.
7. There’s related issue of toll design. Congestion pricing focuses on using tolls to manage traffic, i.e. lowering toll rates when traffic volumes are low, and raising them when traffic volumes are high. In contrast, with a fixed debt obligation under HB 3055 “build/borrow/then toll”) approach, ODOT will likely want to capture revenue from all road users, even in off-peak hours. This was exactly reflected by the final changes to the CRC tolling strategy in 2013, which doubled off-peak tolls: the project’s Final Environmental Impact Statement claimed said minimum tolls would be $1.30; the project’s investment grade analysis (IGA) raised them to $2.60. Originally, peak tolls were more than double off-peak tolls; in the IGA there was just a 65 cent difference, so you end up losing much of the time-shifting incentive. Also: to show the project was “justified” in terms of demand, and in order to maximize revenue, ODOT has strong incentives NOT to raise peak period toll rates so high that they shift traffic to off-peak periods because they will get less money from motorists. If we just used tolls to manage demand, rather than finance over-sized construction projects, tolls could be much lower, and off-peak tolls could be set to zero, effectively created a low cost travel alternative when we have abundant capacity.
8. ODOT will likely have to raise toll rates over time to generate more revenue. This is already happening in Washington State, where tolls have been increased, and further increases are planned for SR 99, SR 520 and Tacoma Narrows Bridge. These toll increases have the effect of further depressing traffic growth, and at some point, it’s impossible to get significant additional revenue by raising tolls. Even with the toll increases, there isn’t enough to pay back the bonds.
9. Toll based projects will need to be bailed out from other sources. WA is currently making “loans” from its motor vehicle account to bail out the Tacoma Narrows Bridge, and the SR 99 tunnel. Tolled roadways in CA, FL, and TX have defaulted debt payments, been bailed out, and been forced into bankruptcy. In OR, under HB 3055, ODOT would be required to divert monies from state taxes and federal grants to make bondholders whole, which would mean foregoing other projects and cutting maintenance and operations.
10. None of these projects are actually fully funded by tolls. Tolls usually cover 20-40% of project costs. For example, toll backed bonds covered less than 10 percent of the cost of Seattle’s SR 99 tunnel Toll backed bonds were a minority of the revenue for SR 520 as well. Tolls would have been about a third of the proposed CRC, when its budget was about $3 billion. There’s no guarantee that toll revenue will be sufficient to cover a significant portion of project costs. With the I-205 Abernethy project, ODOT is going ahead with building the project without doing an independent, investment grade analysis that will assure that tolls are sufficient to cover capital costs.
11. The issuance of toll-backed bonds creates strong financial incentives for ODOT to maximize traffic on tolled roadways. Once bonds are issued, measures that decrease VMT on tolled roads reduce the stream of revenue to repay bondholders and force ODOT to take money from other projects and/or reduce maintenance expenditures. If you applied a “climate lens” to this policy, you would see that this is exactly the reverse of the incentives that should apply to ODOT. In short, if we don’t increase traffic on widened tolled Portland area freeways, we’ll be forced to cut back spending on everything else ODOT spends money on. From a climate perspective, that’s simply perverse. Toll based capacity expansions are inherently in conflict with out stated climate objectives. They create the financial necessity of maintaining or increasing VMT, and with it, GHG, in order to avoid cutting other projects.
12. The fact that fewer people use these roads than today if they’re tolled even modestly means people will drive on these expanded roadways only if someone else pays their cost. The value provided by the roads to the people who would actually drive on them isn’t so high that they would pay the costs. Spending money on these roads is a value-destroying proposition: It costs the people who bear the costs to spend more on the roadway than its services are worth to those who use it. Even with tolls, users aren’t being asked to pay anything approaching the actual cost of the capacity (see #9). In a very real sense, we’re using scarce public resources to pay people to drive more.
13. Viewed in the context of climate and generational change, this policy is tragic and perverse. It builds more roads now and sends the bill for these roadways to future generations. They will not only have to repay the financial debt, they’ll also have to bear the environmental burdens from worsening climate chaos. And the more future generations figure out ways to reduce travel and GHG emissions, the larger will be the debt that has to be repaid by slashing other transportation projects.
A Toll Policy Primer for Oregon
Oregon doesn’t have tolls on any of its major roads or bridges. But faced with stagnant gas tax revenues, and with an appetite for huge freeway expansion projects, the Oregon Department of Transportation has committed itself to using tolls to generate billions of dollars in revenue.
And let’s be clear, as economists, we support the idea of congestion pricing: our urban transportation problem exists primarily because we don’t reflect back to road users the costs of providing the infrastructure they use. We try to run the state highway system like every day is “Free Ice Cream” at Ben and Jerry’s–people are lined up around the block and we don’t have enough money.
Before the state heads down the toll path, there are a few things it should know about tolling, and the risks and consequences of the approach that’s being pursued by ODOT. We’ve tried to reduce the key lessons down to this baker’s dozen of essential points.
1. The Oregon Department of Transportation thinks it has a capacity/congestion problem on Portland area freeways (I-5, I-205, I-84, 217). In reality this is a peak hour congestion problem (or peak several hours) and results from the fact that roads aren’t priced. (And also that WA essentially pays people to travel to Oregon to shop). These roads, and all others, have plenty of capacity most hours of the day.
2. ODOT’s traffic forecasts incorrectly predict that traffic will continue to grow on these roadways, and that congestion will get worse and worse. (In fact, that isn’t true. Congestion is limited by capacity, and bottlenecks like the I-5 Columbia River Bridges meter traffic on I-5 (esp. in the AM). Volumes across the I-5 bridges can’t grow—according to ODOTs own toll consultants, because there isn’t enough capacity.
3. ODOT is using these exaggerated forecasts of future growth in travel to justify the size of new roadways (10 lanes at Rose Quarter, 12 lanes for the I-5 Bridge and approaches, as well as additional lanes for the Boone Bridge and Abernethy/I-205. ODOT describes these as “bridge” projects (interstate bridge, Abernethy bridge, Boone bridge) but then all of them involve widening miles and miles of freeway on either side of the bridge. It’s a conscious tactic to mislead. A project that is actually just “replacing” a bridge, like the proposed Burnside Bridge project in Portland, doesn’t raise these issues, because its not really a highway-widening masquerading as a bridge replacement.
4. ODOT will issue billions of dollars in bonds to pay for all these projects. And bonds will be issued before the projects are started. ODOT will also put off charging tolls until after construction is started, or until after the projects are completed. This will require capitalized interest (i.e. borrowing money in excess of the construction cost and using it to pay interest before tolls are collected). The giant projects will be committed and the debt obligation put in place before there’s any actual experience with tollling.
5. Traffic volumes on tolled roads will be lower, not just lower than ODOTs excessively optimistic forecasts, but lower than before the projects were built. On average, we can expect even modest tolls to produce a 20% to 40% reduction in traffic from un-tolled levels. Those estimates are borne out in the Pacific NW based on the experience of tolling previously un-tolled roads (i.e. Highway 99 Tunnel in Seattle) and on removing tolls from previously tolled facilities (in 2017, BC eliminated tolls on the Port Mann and Golden Ears Bridges).
6. These widened roadways and bridges will have excess capacity. The classic example of this happening is the I-65 Ohio River Bridges project in Louisville, KY. It is nearly identical to the proposed CRC/Interstate Bridge Replacement. KY & IN paid $1 billion to double the I-65 bridges from 6 lanes to 12, and AFTER they were completed imposed a toll (which works out to $1 each way for regular commuters). That caused traffic on I-65 to drop by about half from 130,000 ADT to about 70,000. The twelve lane bridge looks almost empty even at PM peak hours. Here’s the I-65 bridge on a Monday afternoon at seven minutes past 5 PM.
7. There’s related issue of toll design. Congestion pricing focuses on using tolls to manage traffic, i.e. lowering toll rates when traffic volumes are low, and raising them when traffic volumes are high. In contrast, with a fixed debt obligation under HB 3055 “build/borrow/then toll”) approach, ODOT will likely want to capture revenue from all road users, even in off-peak hours. This was exactly reflected by the final changes to the CRC tolling strategy in 2013, which doubled off-peak tolls: the project’s Final Environmental Impact Statement claimed said minimum tolls would be $1.30; the project’s investment grade analysis (IGA) raised them to $2.60. Originally, peak tolls were more than double off-peak tolls; in the IGA there was just a 65 cent difference, so you end up losing much of the time-shifting incentive. Also: to show the project was “justified” in terms of demand, and in order to maximize revenue, ODOT has strong incentives NOT to raise peak period toll rates so high that they shift traffic to off-peak periods because they will get less money from motorists. If we just used tolls to manage demand, rather than finance over-sized construction projects, tolls could be much lower, and off-peak tolls could be set to zero, effectively created a low cost travel alternative when we have abundant capacity.
8. ODOT will likely have to raise toll rates over time to generate more revenue. This is already happening in Washington State, where tolls have been increased, and further increases are planned for SR 99, SR 520 and Tacoma Narrows Bridge. These toll increases have the effect of further depressing traffic growth, and at some point, it’s impossible to get significant additional revenue by raising tolls. Even with the toll increases, there isn’t enough to pay back the bonds.
9. Toll based projects will need to be bailed out from other sources. WA is currently making “loans” from its motor vehicle account to bail out the Tacoma Narrows Bridge, and the SR 99 tunnel. Tolled roadways in CA, FL, and TX have defaulted debt payments, been bailed out, and been forced into bankruptcy. In OR, under HB 3055, ODOT would be required to divert monies from state taxes and federal grants to make bondholders whole, which would mean foregoing other projects and cutting maintenance and operations.
10. None of these projects are actually fully funded by tolls. Tolls usually cover 20-40% of project costs. For example, toll backed bonds covered less than 10 percent of the cost of Seattle’s SR 99 tunnel Toll backed bonds were a minority of the revenue for SR 520 as well. Tolls would have been about a third of the proposed CRC, when its budget was about $3 billion. There’s no guarantee that toll revenue will be sufficient to cover a significant portion of project costs. With the I-205 Abernethy project, ODOT is going ahead with building the project without doing an independent, investment grade analysis that will assure that tolls are sufficient to cover capital costs.
11. The issuance of toll-backed bonds creates strong financial incentives for ODOT to maximize traffic on tolled roadways. Once bonds are issued, measures that decrease VMT on tolled roads reduce the stream of revenue to repay bondholders and force ODOT to take money from other projects and/or reduce maintenance expenditures. If you applied a “climate lens” to this policy, you would see that this is exactly the reverse of the incentives that should apply to ODOT. In short, if we don’t increase traffic on widened tolled Portland area freeways, we’ll be forced to cut back spending on everything else ODOT spends money on. From a climate perspective, that’s simply perverse. Toll based capacity expansions are inherently in conflict with out stated climate objectives. They create the financial necessity of maintaining or increasing VMT, and with it, GHG, in order to avoid cutting other projects.
12. The fact that fewer people use these roads than today if they’re tolled even modestly means people will drive on these expanded roadways only if someone else pays their cost. The value provided by the roads to the people who would actually drive on them isn’t so high that they would pay the costs. Spending money on these roads is a value-destroying proposition: It costs the people who bear the costs to spend more on the roadway than its services are worth to those who use it. Even with tolls, users aren’t being asked to pay anything approaching the actual cost of the capacity (see #9). In a very real sense, we’re using scarce public resources to pay people to drive more.
13. Viewed in the context of climate and generational change, this policy is tragic and perverse. It builds more roads now and sends the bill for these roadways to future generations. They will not only have to repay the financial debt, they’ll also have to bear the environmental burdens from worsening climate chaos. And the more future generations figure out ways to reduce travel and GHG emissions, the larger will be the debt that has to be repaid by slashing other transportation projects.
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