    Highway Finance: States' Expanding Use of Tolling Illustrates
    Diverse Challenges and Strategies (28-JUN-06, GAO-06-554).

    Congestion is increasing rapidly across the nation and freight
    traffic is expected to almost double in 20 years. In many places,
    decision makers cannot simply build their way out of congestion,
    and traditional revenue sources may not be sustainable. As the
    baby boom generation retires and the costs of federal entitlement
    programs rise, sustained, large-scale increases in federal
    highway grants seem unlikely. To provide the robust growth that
    many transportation advocates believe is required to meet the
    nation's mobility needs, state and local decision makers in
    virtually all states are seeking alternative funding approaches.
    Tolling (charging a fee for the use of a highway facility)
    provides a set of approaches that are increasingly receiving
    closer attention and consideration. This report examines tolling
    from a number of perspectives, namely: (1) the promise of tolling
    to enhance mobility and finance highway transportation, (2) the
    extent to which tolling is being used and the reasons states are
    using or not using this approach, (3) the challenges states face
    in implementing tolling, and (4) strategies that can be used to
    help states address tolling challenges. GAO is not making any
    recommendations. GAO provided a draft of this report to U.S.
    Department of Transportation (DOT) officials for comment. DOT
    officials generally agreed with the information provided.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-554
        ACCNO:   A56040
      TITLE:     Highway Finance: States' Expanding Use of Tolling
    Illustrates Diverse Challenges and Strategies
         DATE:   06/28/2006
      SUBJECT:   Federal aid for highways
    	     Financial analysis
    	     Public roads or highways
    	     State-administered programs
    	     Transportation
    	     Transportation costs
    	     User fees
    	     Tolling
    	     Highway Trust Fund
    	     Interstate Highway System

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    GAO-06-554

         * Report to Congressional Requesters
              * June 2006
         * HIGHWAY FINANCE
              * States' Expanding Use of Tolling Illustrates Diverse Challenges
                and Strategies
         * Contents
              * Results in Brief
              * Background
              * Tolling Has Promise as an Approach for Enhancing Mobility and for
                Financing Transportation
                   * In the Face of Increasing Congestion, Tolling Holds Promise
                     as an Approach to Enhance Mobility
                   * Tolling Holds Promise as an Approach to Finance
                     Transportation Projects
                   * In the Long Term, Tolling Holds Promise for Addressing the
                     Transportation Challenges Ahead
              * States' Use of Tolling to Address Funding Shortfalls, Finance New
                Capacity, and Manage Congestion Is Expanding; but for Some
                States, Tolling Is Not Viewed as Feasible
                   * Nearly Half of the States Have Operating Toll Roads, and
                     More States Are Planning Toll Roads
                   * Some States Use Tolling to Address Funding Shortfalls,
                     Finance New Capacity, and Manage Congestion; Other States
                     Find Tolling Not Feasible or Have Made Other Choices
                        * States Use Tolling to Address Transportation Funding
                          Shortfalls
                        * States Use Tolling to Finance New Capacity
                        * States Use Tolling to Manage Congestion
                   * Many States Find That Tolling Is Not Feasible or Have Made
                     Other Choices
              * States That Are Considering and Implementing a Tolling Approach
                Face Two Broad Types of Challenges
                   * Garnering Political and Public Support Is the Most Often
                     Cited Challenge to Tolling
                   * State and Local Transportation Officials Face Formidable
                     Challenges in Implementing Tolling Approaches
              * Three Broad Strategies Can Help State Transportation Officials
                Address Challenges to Tolling
                   * Develop an Institutional Framework That Supports Tolling
                   * Provide Leadership to Build Support for Individual Projects
                     and Address Tolling Challenges in Project Design
                   * Select a Tolling Approach That Provides Tangible Benefits to
                     Users
              * Concluding Observations
              * Agency Comments and Our Evaluation
         * Objectives, Scope, and Methodology
         * Correlation Analysis
         * Survey Questions
              * Current Toll Road Facilities
              * Final Questions
         * GAO Contact and Staff Acknowledgments

    Report to Congressional Requesters

    June 2006

    HIGHWAY FINANCE

    States' Expanding Use of Tolling Illustrates Diverse Challenges and
    Strategies

    Contents

    Tables

    Figures

    Abbreviations

    June 28, 2006Letter

    The Honorable James M. Inhofe Chairman Committee on Environment and Public
    Works United States Senate

    The Honorable Christopher S. "Kit" Bond Chairman Subcommittee on
    Transportation and Infrastructure Committee on Environment and Public
    Works United States Senate

    The nation's highways are critical to providing for and enhancing
    mobility-the free flow of passengers and goods-and to sustaining America's
    economic growth. Mobility gives people access to goods, services,
    recreation, and jobs; gives businesses access to materials, markets, and
    people; and promotes the movement of personnel and materiel to meet
    national defense needs. During the twentieth century, motor fuel taxes
    were the mainstay of highway financing, and during the latter part of that
    century the construction of the 47,000 mile Interstate Highway System
    dominated the agendas and activities of state and federal highway decision
    makers. In the twenty-first century, state and local transportation
    officials are on the front lines of transportation decision making and
    face a new and daunting set of challenges. Congestion is increasing
    rapidly across the nation, particularly in urban areas, and freight
    traffic is expected to almost double in 20 years. In many places, decision
    makers cannot simply build their way out of congestion, and traditional
    revenue sources may not be sustainable. As the baby boom generation
    retires and the costs of federal entitlement programs rise, sustained,
    large-scale increases in federal highway grants seem unlikely. To provide
    the robust growth that many transportation advocates believe is required
    to meet the nation's mobility needs, state and local decision makers in
    virtually all states are seeking alternative funding approaches. Tolling
    (i.e., charging a fee for the use of a highway) provides a set of
    approaches that are increasingly receiving closer attention and
    consideration.

    As requested, this report provides information on states' experiences with
    tolling and provides some insights on issues that state transportation
    officials have encountered when considering or implementing a tolling
    approach. Specifically, this report examines (1) the promise of tolling to
    enhance mobility and finance highway transportation, (2) the extent to
    which tolling is being used in the United States and the reasons states
    are using or not using this approach, (3) the challenges states face in
    implementing tolling, and (4) strategies that can be used to help states
    address the challenges to tolling.

    To fulfill our objectives, we reviewed and analyzed research reports and
    analytical studies; interviewed a wide range of stakeholders, including
    state and local transportation officials, project sponsors, and
    private-sector representatives; conducted a nationwide survey of state
    departments of transportation; and conducted semistructured interviews
    with state department of transportation officials. We also performed a
    correlation analysis to identify the extent to which state financial and
    demographic characteristics are associated with states' use of tolling. In
    addition, we interviewed transportation stakeholders in six states that
    were either planning toll projects or constructing toll projects. In
    addition to our survey and semistructured interviews, states planning toll
    roads were identified through an analysis of states' participation in
    Federal Highway Administration (FHWA) tolling programs, including the
    Interstate System Reconstruction and Rehabilitation Pilot Program and the
    Value Pricing Pilot, and states constructing toll roads were identified
    through an analysis of relevant reports and studies. During our review, we
    determined that a number of states with toll bridges or tunnels do not
    have or are not considering the tolling of roads. We, therefore, decided
    to exclude toll bridges and tunnels from our definition of states tolling
    or planning to toll to more accurately report on the challenges to
    tolling. Although we discuss the federal role with regard to states'
    experience with tolling, we did not assess the effectiveness of federal
    toll programs or the potential effects of federal grant programs on
    states' experience with the approach. (See app. I for our objectives,
    scope, and methodology.) We performed our work from June 2005 through June
    2006 in accordance with generally accepted government auditing standards.

    Results in Brief

    Tolling has promise as an approach to enhance mobility and finance
    transportation. A tolling approach can potentially help enhance mobility
    by managing congestion. Congestion impedes both passenger and freight
    mobility and is increasing as a result of rapid population growth and more
    vehicles traveling farther on our roads. Applying tolls that vary with the
    level of congestion-congestion pricing-can potentially reduce congestion
    and the demand for roads because tolls that vary according to the level of
    congestion can be used to maintain a predetermined level of service. Such
    tolls create additional incentives for drivers to avoid driving alone in
    congested conditions when making driving decisions. In response, drivers
    may choose to share rides, use public transportation, travel at less
    congested (generally off-peak) times, or travel on less congested routes,
    if available, to reduce their toll payments. For example, a study of the
    State Route 91 Express Lanes in California found that when tolls increased
    50 percent during peak hours, traffic during those hours dropped by about
    one-third. As concerns about the sustainability of traditional financing
    sources continue to grow, tolling also has promise to improve investments
    and raise revenue. The per-gallon fuel tax, the mainstay of transportation
    finance for 80 years, is declining in purchasing power because fuel tax
    rates are not increasing, and more fuel-efficient vehicles and
    alternative-fueled vehicles undermine the long-term viability of fuel
    taxes as the basis for financing transportation. In this environment,
    tolling potentially has promise to promote more effective infrastructure
    investment strategies by better targeting spending for new and expanded
    capacity. For example, among other factors, toll project construction is
    typically financed by bonds, and projects must pass the test of market
    viability and meet goals demanded by investors, although even with this
    test, there is no guarantee that projects will always be viable. Tolling
    can also potentially enhance private-sector participation and investment
    in major highway projects. Tolling's promise is particularly important in
    light of long-term pressures on the federal budget.

    According to our survey of state transportation officials, 31 of the 50
    states and the District of Columbia have or are planning toll roads,
    including 24 states that are operating toll roads and 7 states that are
    planning to toll. Tolling grew in the 1940s and 1950s and, after a period
    of slower growth, states' tolling again began to expand in the 1990s. In
    total, 23 states are in some phase of planning new toll roads. Officials
    in the 31 states that have toll roads or are planning toll roads indicated
    that their primary reasons for using or considering the use of a tolling
    approach was to address transportation funding shortfalls, finance new
    capacity, and manage congestion. For example, in Texas, tolling is being
    used to finance major new capacity projects, such as the Trans Texas
    Corridor (TTC)-a proposed multiuse, statewide network of transportation
    routes that will incorporate existing and new highways-and to manage
    congestion in Houston and other metropolitan areas. Transportation
    officials in some states, however, have told us that tolling is not
    feasible because of limited need for new capacity, insufficient tolling
    revenues, and public and political opposition to tolling. For example,
    officials from nearly every state that is not pursuing tolling mentioned
    some form of public or political opposition to toll roads. In New Jersey,
    officials told us that opposition to new toll roads is strong because many
    state border crossings and major highways are already tolled.

    State transportation officials face two types of challenges that are
    broadly related to securing support for and implementing a tolling
    approach to finance transportation. The first type of challenge, according
    to transportation officials, is the difficulty of obtaining public and
    political support in the face of opposition from the public and political
    leaders in states where tolling is being considered and applied. According
    to transportation officials with whom we spoke, opposition is largely
    based on arguments that (1) fuel taxes and other dedicated funding sources
    are used to pay for roads and tolling is, therefore, a form of double
    taxation; (2) a tolling approach is unreasonable because tolls often do
    not cover the costs of a project; and (3) applying tolls can produce
    regional, income, and other inequities. For example, a Wisconsin
    transportation official told us that Wisconsin is not implementing a
    tolling approach because the public generally believes that fuel taxes
    already pay for roads and tolls would adversely affect the state's tourist
    economy, while Kentucky and Arkansas officials said that it would be
    difficult to undertake tolling unless toll roads could be largely
    financially self-sufficient. In Florida, concerns about regional inequity
    led local governments to pass a law that led to the state's taking action
    to ensure that spending on facilities in three counties was commensurate
    with toll collections in those three counties.  The second type of
    challenge is the practical difficulty of implementing tolling, including
    obtaining the statutory authority to toll, addressing the traffic
    diversion that might result when motorists seek to avoid toll facilities,
    and coordinating with other states or jurisdictions. For example,
    Minnesota had legislation authorizing tolling, but conditions built into
    the legislation, most importantly, local government veto authority that
    could be exercised without recourse, prevented transportation officials
    from implementing a specific project. As a result, when state decision
    makers identified a toll project that would convert underused high
    occupancy vehicle (HOV) lanes to high occupancy toll (HOT) lanes that
    would allow non-HOV's to use the lanes for a fee-the Interstate 394
    optional toll lane project-state decision makers pursued specific
    legislation that exempted HOV to HOT lane conversions from local veto,
    thus providing an opportunity to advance the Interstate 394 optional toll
    lane project several years later.

    Through our review of the ways states use tolling, we have identified
    three broad strategies that have both short-term and long-term relevance
    for state transportation officials who are considering tolling. The first
    strategy that transportation officials can consider involves developing
    policies and laws that facilitate the use of tolling to finance
    transportation. In developing such a framework, transportation officials
    can, first, build support for the approach by establishing a rationale for
    its use and then secure the legislative authority to use the approach. For
    example, to expand the use of tolling and to leverage tax dollars by
    allowing state highway funds to be combined with other funds, Texas
    enacted legislation that enabled transportation officials to realize these
    goals. The second strategy that transportation officials can consider
    involves providing leadership to build support for individual projects and
    addressing the challenges to tolling in project design. For example, in
    Minnesota, a task force of state and local officials, citizens, and
    business leaders was convened in 2001 to explore a range of road pricing
    options, including the conversion of HOV lanes to HOT lanes, and make
    recommendations to elected officials. Since tolling had been fairly
    controversial in the past, decision makers believed that a task force
    would provide a more credible and independent voice to the general public.
    Ultimately, the task force supported the HOV to HOT conversions and, with
    the governor's support and the passage of legislation authorizing the
    conversion, the project was implemented. The last strategy that
    transportation officials can consider involves selecting a tolling
    approach and a project that provides tangible benefits. Promoting a
    project that provides tangible benefits can potentially help
    transportation officials justify both the costs of the project and the
    fees that users will be required to pay for the service. Although tolling
    can take different forms and decisions about its use are state specific,
    in concept, a tolling structure that varies with the level of
    congestion-congestion pricing-offers increased predictability and, as a
    result, provides tangible benefits to users. While actual experience with
    congestion pricing is still fairly limited in the United States, projects
    in operation illustrate how transportation officials have advanced
    projects seeking to achieve the potential benefits that may result from
    congestion pricing. For example, toll prices on Interstate 15 in San Diego
    are set dynamically, changing every 6 minutes, which has succeeded in
    keeping traffic flowing freely.

    The U.S. Department of Transportation reviewed a draft of this report.
    Officials from the Department indicated that they generally agreed with
    the information provided and provided technical clarifications, which we
    incorporated as appropriate.

    Background

    The responsibility for building and maintaining highways in the United
    States rests with state departments of transportation in each of the 50
    states, the District of Columbia, and Puerto Rico. In addition, local
    governments finance road construction through sources such as property and
    sales taxes. In 2004, state governments took in about $104 billion from
    various sources to finance their highway capital and maintenance
    programs-44 percent of these revenues came from state fuel taxes and other
    state user fees, and 28 percent came from federal grants. Sources of state
    highway revenues in 2004 are shown in figure 1.

    Figure 1: State Highway Revenue Sources, Fiscal Year 2004

    FHWA administers federal grant funds through the federal-aid highway
    program and distributes highway funds to the states through annual
    apportionments established by statutory formulas. Once FHWA apportions
    these funds, they are available to be obligated for the construction,
    reconstruction, and improvement of highways and bridges on eligible
    federal-aid highway routes and for other purposes authorized in law.
    Within these parameters, responsibility for  planning and selecting
    projects generally rests with state departments of transportation (DOT)
    and with metropolitan planning organizations, and these states and
    planning organizations have considerable discretion in selecting specific
    highway projects that will receive federal funds.  For example, section
    145 of title 23 of the United States Code describes the federal-aid
    highway program as a federally assisted state program and provides that
    the federal authorization of funds, as well as the availability of federal
    funds for expenditure, shall not infringe on the states' sovereign right
    to determine the projects to be federally financed.

    About 5 percent of the highway revenues to the states in 2004 came from
    tolls. In 2005, the United States had about 5,000 miles of toll facilities
    in operation or under construction, including about 2,800 miles, or 6
    percent, of the Interstate Highway System, according to FHWA.1 Tolling of
    roads began in the late 1700s. From 1792 through 1845, an estimated 1,562
    privately owned turnpike companies managed and charged tolls on about
    15,000 miles of turnpikes throughout the country.2 Between 1916 and 1921,
    the number of automobiles in the United States almost tripled, from 3.5
    million to 9 million, and as automobile use increased, pressure grew for
    more government involvement in financing the construction and maintenance
    of public roads.3 In 1919, Oregon became the first state to impose a motor
    fuel tax to finance roadway construction.4 In 1916, the Federal Aid Road
    Act provided states with federal funds to finance up to 50 percent of the
    cost of roads and bridges constructed to provide mail service. This act
    and its successor, the 1922 Federal Highway Act, prohibited tolling on
    roads financed with federal funds.

    In the 1930s and 1940s, President Roosevelt led the thinking for
    developing a series of interconnected systems of toll roads that crossed
    the United States, which was the beginning of the idea of an interstate
    highway system. Then, between 1940 and 1952, 5 states opened such
    highways,

    which they financed through tolls.5 The first of these highways, the
    Pennsylvania Turnpike, was completed in 1940. During this time, about 30
    states considered building toll roads, given the success of Pennsylvania.
    In 1943, Congress passed an amendment to the Federal Highway Act,
    directing the Commissioner of Public Roads to conduct a survey for an
    express highway system and report the results to the President and
    Congress. However, there was no determination as to how such a system
    would be funded.  President Eisenhower supported a toll system financed
    with bonds to be paid back with toll revenues until the bonds were paid
    off, at which time the tolls would be removed. A committee appointed by
    President Eisenhower also recommended a highway program financed with
    bonds, but proposed that federal fuel tax revenues, instead of tolls, be
    used to pay back the bonds. Ultimately, the Federal-Aid Highway Act of
    1956 authorized the creation of a Highway Trust Fund to collect federal
    fuel tax revenues and finance the construction of the Interstate Highway
    System on a pay-as-you-go basis. The act prohibited tolling on interstate
    highways and all federally assisted highways; as a consequence, states
    built few new toll roads while the Interstate Highway System was under
    construction. However, many of the toll roads built before 1956 were
    eventually incorporated into the Interstate Highway System, and tolling on
    these roads was allowed to continue. Tolling was also allowed, on a
    case-by-case basis under very specific conditions and with a limited
    federal funding share, for interstate bridges and tunnels.

    During the 1990s, as interstate construction wound down, states again
    began considering and implementing tolling. At the same time, some of the
    federal restrictions on the use of federal funds for tolling began to
    ease. The Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)
    liberalized some of the long-standing federal restrictions on tolling by
    permitting tolling for the construction, reconstruction, or rehabilitation
    of federally assisted non-Interstate roadways and by raising the federal
    share on interstate bridges and tunnels to equal the share provided for
    other federal-aid highway projects. The 1998 Transportation Equity Act for
    the 21st Century (TEA-21) established a new pilot program to allow the
    conversion of a free interstate highway, bridge, or tunnel to a toll
    facility if needed reconstruction or rehabilitation was possible only with
    the

    collection of tolls.6 The Safe, Accountable, Flexible, Efficient
    Transportation Equity Act: A Legacy for Users (SAFETEA-LU), enacted in
    2005, continued all of the previously established toll programs and added
    new programs. The federal tolling-related programs that have been
    authorized in surface transportation legislation are shown in table 1.

    Table 1: Tolling-Related Programs Authorized in Surface Transportation
    Legislation

                 Program                               Purpose
    Value Pricing Pilot Program  Authorized in ISTEA in 1991, this program is
                                    a pilot program for local transportation
                                    programs to determine the potential of
                                    different value pricing approaches to manage
                                    congestion, including projects that would use
                                    tolls on highway facilities.
    Interstate System            Authorized in TEA-21 in 1998, this program
    Reconstruction and           allows tolls on three pilot projects in
    Rehabilitation Toll Pilot    different states to reconstruct an existing
    Program                      interstate facility.
    Express Lanes Demonstration  Authorized in SAFETEA-LU in 2005, this
    Program                      program allows 15 demonstration projects to
                                    use tolling on interstate highways to manage
                                    high congestion levels, reduce emissions to
                                    meet specific Clean Air Act requirements, or
                                    finance additional Interstate lanes to reduce
                                    congestion.
    High Occupancy Vehicle (HOV) Authorized in SAFETEA-LU in 2005, this
    Facilities                   program permits states to charge tolls to
                                    vehicles that do not meet occupancy
                                    requirements to use an HOV lane even if the
                                    lane is on an interstate facility.
    Interstate System            Authorized in SAFETEA-LU in 2005, this
    Construction Toll Pilot      program permits tolls on three pilot projects
    Program                      by a state or compact of states to construct
                                    new interstate system highways.
    Section 129 of title 23,     Section 129 authorizes federal participation
    United States Code           in specific toll activities that are
                                    otherwise generally prohibited under Section
                                    301, also from title 23.

    Source: FHWA.

    SAFETEA-LU also created a National Surface Transportation Infrastructure
    Financing Commission  to consider revenue sources available to all levels
    of government, particularly Highway Trust Fund revenues, and to consider
    new approaches to generating revenues for financing highways. The
    commission's objective is to develop a report recommending policies to
    achieve revenues for the Highway Trust Fund that will meet future needs.
    The commission is required to produce a final report within 2 years of its
    first meeting.

    In addition to SAFETEA-LU's new tolling provisions and enhancements to
    existing programs, FHWA offers an innovative credit assistance program,
    which can be used to develop toll roads, and an experimental program,
    which can be used to test innovative toll road development procedures. The
    Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA)
    permits FHWA to offer three kinds of credit assistance for nationally or
    regionally significant surface transportation projects: direct loans, loan
    guarantees, and lines of credit. Because TIFIA provides credit assistance
    rather than grants, states are likely to use it for infrastructure
    projects that can generate their own revenues through user charges, such
    as tolls or other dedicated funding sources. TIFIA credit assistance is
    aimed at advancing the completion of large, capital intensive
    projects-such as toll roads-that otherwise might be delayed or not built
    at all because of their size and complexity and the financial market's
    uncertainty over the timing of revenues from a project. The main goal of
    TIFIA is to leverage federal funds by attracting substantial private and
    other nonfederal investment in projects. FHWA has also encouraged
    experimental projects through the Special Experimental Projects 15
    (SEP-15) program, which is intended to encourage the formation of public-
    private partnerships for projects by providing additional flexibility for
    states interested in experimenting with innovative ways to develop
    projects, according to FHWA officials. SEP-15 allows innovation and
    flexibility in contracting, compliance with environmental requirements,
    right-of-way acquisition, and project finance.

    In addition, the Department of Transportation's Office of Transportation
    Policy is proposing a pilot program-the Open Roads Pilot Program-to
    explore alternatives to the motor fuel tax. Under this pilot, the Office
    of Transportation Policy is proposing to make funds available to up to
    five states to demonstrate on a large scale the viability and
    effectiveness of financing alternatives to the motor fuel tax. Goals of
    the program would be to: (1) demonstrate whether or not there are viable
    alternatives to the motor fuel tax that will provide necessary investment
    resources while simultaneously improving system performance and reducing
    congestion, (2) identify successful motor fuel tax substitutes that have
    widespread applicability to other states, and (3) provide a possible
    framework for future federal reauthorization proposals.

    Tolling Has Promise as an Approach for Enhancing Mobility and for
    Financing Transportation

    As congestion increases and concerns about the sustainability of
    traditional roadway financing sources grow, tolling has promise as an
    approach to enhance mobility and to finance transportation. Tolls that are
    set to vary with the level of congestion can potentially lead to a
    reduction in congestion and demand for roads. Such tolls can create
    additional incentives for drivers to avoid driving alone in congested
    conditions when making their driving decisions. In response, drivers may
    choose to share rides, use public transportation, travel at less congested
    (generally off-peak) times, or travel on less congested routes, if
    available, to reduce their toll payments. Tolling is also consistent with
    the important user pays principle, can potentially better target spending
    for new and expanded capacity, and can potentially enhance private-sector
    participation and investment in major highway projects. Tolling's promise
    is particularly important in light of long-term fiscal challenges and
    pressures on the federal budget.

    In the Face of Increasing Congestion, Tolling Holds Promise as an Approach
    to Enhance Mobility

    Tolling can be used to potentially enhance mobility by managing
    congestion, which is already substantial in many urban areas. Congestion
    impedes both passenger and freight mobility and ultimately, the nation's
    economic vitality, which depends in large part on an efficient
    transportation system. Highway congestion for passenger and commercial
    vehicles traveling during peak driving periods doubled from 1982 through
    2000. According to the Texas Transportation Institute, drivers in 85 urban
    areas experienced 3.7 billion hours of delay and wasted 2.3 billion
    gallons of fuel in 2003 because of traffic congestion.7 The Texas
    Transportation Institute estimated that the cost of congestion was $63.1
    billion (in 2003 dollars), a fivefold increase over two decades after
    adjusting for inflation. On average, drivers in urban areas lost 47 hours
    on the road in 2003, nearly triple the delay travelers experienced on
    average in 1982. During this same period, congestion grew in urban areas
    of every size; however, very large metropolitan areas with populations of
    more than 3 million were most affected. (See fig. 2 for examples of
    congestion growth in selected urban areas.) Freight traffic-which has
    doubled since 1980 and in some locations constitutes 30 percent of
    interstate system traffic-added to this congestion at a faster rate than
    passenger traffic, and FHWA projects continued growth, estimating that the
    volume of freight traffic on U.S. roads will increase 70 percent by 2020.

    Figure 2: Annual Delay per Traveler in Selected Urban Areas, 1982, 1993,
    and 2003

    A number of factors, as follows, are converging to further exacerbate
    highway congestion:

    o Most population growth in the nation occurs in already congested
    metropolitan areas. In 2000, the U.S. Census Bureau reported that 79
    percent of 281 million U.S. residents lived in metropolitan areas.
    Nationwide, the population is expected to increase by 54 million by 2020,
    and most of that growth is expected in metropolitan areas.

    o Vehicle registrations are steadily increasing. In 2003, vehicle
    registrations nationwide stood at 230 million, a 17 percent increase in
    just 10 years.

    o Road usage, as measured by vehicle miles traveled (VMT), grew at a
    steady annual rate of 2.8 percent from 1980 through 2003. For the 10-year
    period between 1994 and 2003, the total increase in VMT was 22 percent.

    o Road construction has increased at a slower pace than population growth,
    vehicle registrations, and road usage. For example, from 1980 to 2000, VMT
    increased by 80 percent while urban lane miles increased 37 percent.

    In light of this increasing congestion, a tolling structure that includes
    congestion pricing can potentially reduce congestion and the demand for
    roads during peak hours. Through congestion  pricing, tolls can be set to
    vary during congested periods to maintain a predetermined level of
    service. One potential effect of this pricing structure is that the price
    that a driver pays for such a trip, including the toll, may be equal to or
    close to the total cost of that trip, including the external costs that
    drivers impose on others, such as increased travel time, pollution, and
    noise.8 Such tolls create financial incentives for drivers to consider
    these costs when making their driving decisions. In response, drivers may
    choose to share rides, use transit, travel at less congested (generally
    off-peak) times, or travel on less congested routes to reduce their toll
    payments.9 Such choices can potentially reduce congestion and the demand
    for road space at peak periods, thus potentially allowing the capacity of
    existing roadways to accommodate demand with fewer delays.

    Actual experience with congestion pricing is still fairly limited in the
    United States, with only five states operating such facilities and six
    states planning

    facilities.10 Some results show that where variable tolls are implemented,
    changes in toll prices affect demand and, therefore, levels of congestion.
    For example, on State Route 91 in California, the willingness of people to
    use the Express Lanes has been shown to be directly related to the price
    of tolls. A study by Cal Poly State University for the California DOT
    estimated that a 10 percent increase in tolls would reduce traffic by 7
    percent to 7.5 percent, while a 100 percent increase in tolls would reduce
    traffic by about 55 percent.11 By adjusting the price of tolls, the flow
    of traffic can be maintained in the toll lanes so that congestion remains
    at manageable levels. In the Minneapolis-St. Paul area, a Minnesota DOT
    study of a proposed system of variable priced HOT lanes called MnPASS
    estimated that, over time, average speeds and vehicle mileage would
    increase, while vehicle hours traveled would decrease.12 By 2010, with
    tolled express lanes and free HOV lanes, the daily vehicle mileage on the
    entire system is projected to be 3.6 million compared with 3.2 million if
    the highways are not tolled. Average overall speed on the system is
    expected to be 47 mph compared with 42.8 mph if the system is not
    implemented. Finally, congestion pricing has been in use internationally
    as well.  Canada, Great Britain, Norway, Singapore, and South Korea all
    have roadways that are tolled to manage demand and reduce congestion. For
    example, in 1996, South Korea implemented congestion tolls on two main
    tunnels. Traffic volume decreased by 20 percent in the first 2 years of
    operation, and average traffic speed increased by 10 kilometers per hour.

    Although congestion pricing was dismissed by some decision makers in the
    past partly because motorists queuing at toll booths to pay tolls created
    congestion and delays, advances in automated toll collection have greatly
    reduced the cost and inconvenience of toll collection. Today, nearly every
    major toll facility provides for electronic toll collection, greatly
    reducing the cost and inconvenience of toll collection.  With electronic
    toll collection, toll fee collection for using a facility can be done at
    near highway cruising speed because cars do not have to stop at toll
    plazas. However, as we reported, there are no widely accepted standards
    for electronic toll systems, which could become a barrier to promoting the
    needed interoperability between toll systems.13

    Tolling Holds Promise as an Approach to Finance Transportation Projects

    Tolling holds promise to improve investment decisions and raise revenues
    in the face of growing concerns about the sustainability of traditional
    financing sources for surface transportation. For many years, federal and
    state motor fuel taxes have been the mainstay of state highway revenue. In
    the last few years, however, federal and motor fuel tax rates have not
    kept up with inflation. Between 1995 and 2004, total highway revenues for
    states grew an average of 3.6 percent per year, with average annual
    increases of 4.9 percent for federal grants and 3 percent for revenues
    from state sources, according to FHWA data. However, these increases were
    smaller than increases in the cost of materials and labor for road
    construction and are not sufficient to keep pace with the robust levels of
    growth in highway spending many transportation advocates believe is
    needed.14 The federal motor fuel tax rate of 18.4 cents per gallon has not
    been increased since 1993, and thus the purchasing power of fuel tax
    revenues has been steadily eroded by inflation. Although the Highway Trust
    Fund15 was reauthorized in 1998 and 2005, no serious consideration was
    given to raising fuel tax rates. Most states faced a similar degradation
    of the value of their state motor fuel tax revenues-although 28 states
    raised their motor fuel tax rates between 1993 and 2003, only three states
    raised their rates enough to keep pace with inflation. State gasoline tax
    rates range from 7.5 cents per gallon in Georgia to 28.5 cents in
    Wisconsin. Seven states have motor fuel tax rates that vary with the price
    of fuel or the inflation rate-including one state that repealed the
    linkage of its fuel tax rate to the inflation rate effective in 2007.
    Figure 3 shows the decline in the purchasing power in real terms of
    revenues generated by federal and state motor fuel tax rates since 1990.

    Figure 3: Combined Federal and Average State Motor Fuel Tax Rates

    Note: Tax rates are in 2004 inflation-adjusted dollars. Totals for 1992,
    1995, 1996, 2000, and 2003 are rounded. State average gas tax rate is a
    "weighted average."

    Even if federal and state motor fuel tax rates were to keep pace with
    inflation, the growing use of fuel-efficient vehicles and
    alternative-fueled vehicles would, in the longer term, further diminish
    fuel tax revenues. Although all highway motorists pay fuel taxes, those
    who drive hybrid-powered or other alternative-fueled vehicles consume less
    fuel per mile than those who drive gas-only vehicles. As a result, these
    motorists pay less fuel tax per mile traveled. According to the U.S.
    Energy Information Agency, hybrid vehicle sales grew twentyfold between
    2000 and 2005 and will grow to 1.5 million vehicles annually by 2025. In
    the past five years, hybrid vehicle sales grew in the United States
    twentyfold, from 9,400 in 2000 to over 200,000 in 2005. Moreover, the U.S.
    Energy Information Agency projects that hybrid vehicle sales will grow to
    1.5 million annually by 2025. Sales of alternative-fueled vehicles, such
    as alcohol-flexible-fueled vehicles, are projected to increase to 1.3
    million in 2030, with electric and fuel cell technologies projected to
    increase by 2030 as well.

    As concerns about the sustainability of traditional roadway financing
    sources grow, tolling can potentially target investment decisions by
    adhering to the user pays-principle. National roadway policy has long
    incorporated the user pays concept, under which the costs of building and
    maintaining roadways are paid by roadway users, generally in the form of
    excise taxes on motor fuels and other taxes on inputs into driving, such
    as taxes on tires or fees for registering vehicles or obtaining operator
    licenses. This method of financing is consistent with one measure of
    equity that economists use in assessing the financing of public goods and
    services, the benefit principle, which measures equity according to the
    degree that readily identifiable beneficiaries bear the cost. As a result,
    the user pays concept is widely recognized as a critical anchor for
    transportation policy.16

    Increasingly, however, decision makers have looked to other revenue
    sources-such as income, property, and sales tax revenues-to finance roads.
    Using these taxes results in some sacrifice of the benefit principle
    because there is a much weaker link to the benefits of roadway
    expenditures for those taxes than there is for fuel taxes.17 Tolling,
    however, is more consistent with user pay principles because tolling a
    particular road and using the toll revenues collected to build and
    maintain that road more closely link the costs with the distribution of
    the benefits that users derive from it. Motor vehicle fuel taxes can
    provide a rough link between costs and benefits but do not take into
    account the wide variation in costs required to provide different types of
    facilities (i.e., roads, bridges, tunnels, interchanges) some of which can
    be very costly.

    Tolling can also potentially lead to more targeted, rational, and
    efficient investment by state and local governments. Roadway investment
    can be more efficient when it is financed by tolls because the users who
    benefit will likely support additional investment to build new capacity or
    enhance existing capacity only when they believe the benefits exceed the
    costs. When costs are borne by nonusers, the beneficiaries may demand that
    resources be invested beyond the economically justifiable level. Tolling
    can also provide the potential for more rational investment because, in
    contrast to most grant-financed projects, toll project construction is
    typically financed by bonds sold and backed by future toll revenues, and
    projects must pass the test of market viability and meet goals demanded by
    investors. However, even with this test there is no guarantee that
    projects will always be viable.18

    A tolling structure that includes congestion pricing can also help guide
    capital investment decisions for new facilities. As congestion increases,
    tolls also increase and such increases (sometimes referred to as
    "congestion surcharges") signal increased demand for physical capacity,
    indicating where capital investments to increase capacity would be most
    valuable. At the same time, congestion surcharges would provide a ready
    source of revenue for local, state, and federal governments, as well as
    for transportation facility operators in order to help fund these
    investments in new capacity that, in turn, can reduce delays. Over time,
    this form of pricing can potentially influence land-use plans and the
    prevalence of telecommuting and flexible workplaces, particularly in
    heavily congested corridors where external costs are substantial and
    congestion surcharges would be relatively high.

    Tolling can also be used as a tool for leveraging increased private-sector
    participation and investment. In March 2004, we reported that three
    states-California, Virginia, and South Carolina-had pursued private-sector
    investment and participation in major highway projects. Since that time,
    Virginia has pursued additional projects, and Texas has contracted with a
    private entity to participate and invest in a major highway project.19
    Tolling can be used to enhance private participation because it provides a
    mechanism for the private sector to earn the return on investment it
    requires to participate. Involving the private sector allows state and
    local governments to build projects sooner, conserve public funding from
    highway capital improvement programs for other projects, and limit their
    exposure to the risks associated with acquiring debt.20

    In the Long Term, Tolling Holds Promise for Addressing the Transportation
    Challenges Ahead

    Federal and state policymakers have begun looking toward future options
    for long-term highway financing. For example, SAFETEA-LU established the
    National Surface Transportation Infrastructure Financing Commission to
    study prospective Highway Trust Fund revenues and assess alternative
    approaches to generating revenues for the Fund. SAFETEA-LU also authorized
    a study, to be performed by the Public Policy Center of the University of
    Iowa, to test an approach to assessing highway use fees based on actual
    mileage driven. This approach would use an onboard computer to measure the
    miles driven by a specific vehicle on specific types of highways. A few
    states have also begun looking toward the long-term financing options.
    Oregon, the first state to enact a motor fuel tax, is sponsoring a study
    on the technical feasibility of replacing the gas tax with a per-mile fee.
    During 2006, volunteers will have onboard mileage-counting equipment added
    to their vehicles and will, for one year, pay a road user fee equal to 1.2
    cents a mile instead of paying the state's motor fuel tax.

    But beyond the questions of financing and financing sources, broader
    issues and challenges exist. As the baby boom generation ages, mandatory
    federal commitments to health and retirement programs will consume an
    ever-increasing share of the nation's gross domestic product (GDP) and
    federal budgetary resources, placing severe pressures on all discretionary
    programs, including those that fund defense, education, and
    transportation. Our simulations show that by 2040, revenues to the federal
    government might barely cover interest on the debt-leaving no money for
    either mandatory or discretionary programs-and that balancing the budget
    could require cutting federal spending by as much as 60 percent, raising
    taxes by up to 2  1/2 times their current level, or some combination of
    the two. As we have reported, this pending fiscal crisis requires a
    fundamental reexamination of all federal programs, including those for
    highways. This reexamination should raise questions such as whether a
    federal role is still needed, whether program funding can be better linked
    to performance, and whether program constructs are ultimately sustainable.
    It is in this context that tolling has promise for addressing the
    challenges ahead. In particular, we have suggested that a reexamination of
    the federal role in highways should include asking whether the federal
    government should even continue to provide financing through grants or
    whether, instead, it should develop and expand alternative mechanisms that
    would better promote efficient investments in, and use of, infrastructure
    and better capture revenue from users.

    States' Use of Tolling to Address Funding Shortfalls, Finance New
    Capacity, and Manage Congestion Is Expanding; but for Some States, Tolling
    Is Not Viewed as Feasible

    According to our survey of state transportation officials, there are toll
    road facilities in 24 states and plans to build toll road facilities in 7
    other states. Tolling grew in the 1940s and 1950s, but after a period of
    slower growth, states' tolling began to expand again in the 1990s. The 5
    states that began tolling after 1990 are currently planning additional
    toll roads. Officials in states that have toll roads or are planning toll
    roads indicated that their primary reasons for using or considering the
    use of a tolling approach were to address transportation shortfalls,
    finance new capacity, and manage congestion. Transportation officials in
    some states, however, told us that tolling is not now seen as feasible
    because there is little need for new tolled capacity, tolling revenues
    would be insufficient, and they would face public and political opposition
    to tolling.

    Nearly Half of the States Have Operating Toll Roads, and More States Are
    Planning Toll Roads

    Currently, there are toll road facilities in 24 states throughout the
    United States, and there are plans to build toll road facilities in 7
    additional states. Figure 4 shows the states that have at least one
    existing toll road, according to our survey of transportation officials
    from all 50 states and the District of Columbia and our review of FHWA
    toll-related programs. (See app. III for the survey questions.)

    Figure 4: Existing Toll Road Facilities

    Tolling grew in the 1950s, slowed for several decades, and again began to
    expand rapidly in the 1990s. Five states-California, Colorado, Minnesota,
    South Carolina, and Utah-opened their first toll roads from 1990 to 2006
    and, according to our survey of state transportation officials, all five
    are currently planning, or in some stage of building, at least one new
    toll road. Large states that have recently built toll roads, such as
    California, Florida, and Texas, are also moving ahead with plans to build
    and expand systems of tolls. In Texas, for example, the DOT's Turnpike
    Authority Division is developing a proposed multiuse, statewide network of
    transportation routes that will incorporate existing and new highways
    called the TTC,21 while three other regional toll authorities22 in Austin,
    Dallas, and Houston are also planning toll roads. In California, a state
    legislative initiative in 1989 led to the development of toll roads in
    Orange County, including the State Route 91 Express Lanes and State Route
    125 in San Diego. And in Florida, the DOT-run Florida Turnpike Enterprise
    operates nine tolled facilities that include almost 500 miles of toll
    roads and is studying the feasibility of implementing tolling to manage
    congestion on other facilities, including Interstate 95 in Miami-Dade
    County.

    According to our survey of state transportation officials and our review
    of state applications to FHWA tolling pilot programs, a total of 23 states
    have plans to build toll road facilities.23 (Fig. 5 summarizes the status
    of states' plans for highway tolling.) Eleven of these states have
    received the required environmental clearances and have projects that are
    under design or in construction. The remaining 12 states do not have
    projects that have proceeded this far, but do have plans to build toll
    road facilities, according to their respective state transportation
    officials. Of these 23 states,

    o 16 have existing toll roads and are planning additional toll roads,24
    and

    o 7 are planning their first toll roads.25

    Figure 5: Planned Toll Road Facilities

    Some States Use Tolling to Address Funding Shortfalls, Finance New
    Capacity, and Manage Congestion; Other States Find Tolling Not Feasible or
    Have Made Other Choices

    Officials in most states planning toll roads indicated that the primary
    reasons for considering a tolling approach were to address what state
    officials characterized as transportation funding shortfalls, to finance
    and build new capacity, and to manage congestion. States that are not
    planning to build toll roads have found that tolling is not feasible or
    have made other choices.

    States Use Tolling to Address Transportation Funding Shortfalls

    Transportation officials indicated that one of the primary reasons for
    using or considering a tolling approach was to respond to what the
    officials described as shortfalls in transportation funding. In Georgia,
    for example, an official told us that tolling has become a strategy
    because there is a significant gap in transportation funding, and the
    motor fuel tax rate is the lowest in the country, 7.5 cents per gallon. In
    North Carolina, where the North Carolina Turnpike Authority was
    established in 2002, an official told us that traditional funding is not
    adequate to address transportation needs. North Carolina has estimated
    that, over the next 25 years, it will need $85 billion in new
    transportation projects to accommodate the state's growth. With a
    projected shortfall of $30 billion and what the official described as a
    lack of political will to increase motor fuel tax rates, the state has
    adopted tolling as one strategy to address transportation needs. In Utah,
    state transportation officials have estimated a $16.5 billion shortfall
    through 2030 in funding for highway projects and are considering tolling,
    along with other funding alternatives. Finally, an official told us that,
    in spite of a motor fuel tax rate increase in 2003 and a $200 million
    bonding program, Indiana has a 10-year, $2.8 billion shortfall in highway
    funding and is viewing tolling as one financing tool to close the gap. The
    Indiana DOT has operated the Interstate 80/Interstate 90 Indiana Toll Road
    for 50 years and would like to apply that experience in operating toll
    roads to new roads.

    In other states, transportation officials conducted financial assessments
    on specific highway projects and determined that, to complete the
    projects, tolling would be required as a source of revenue. For example,
    in Missouri, a funding analysis performed by the Missouri DOT found that
    the estimated construction costs for the Interstate 70 reconstruction
    exceed the available federal, state, and local funding sources, and the
    project cannot be advanced without tolling or other revenue increases.
    Missouri DOT estimates that the Interstate 70 reconstruction project will
    cost between $2.7 and $3.2 billion and that, with a current funding
    shortfall of $1 billion

    to $2 billion annually, tolling is being actively considered to close that
    gap.26 Likewise, studies by the Texas DOT determined that tolling would be
    required on particular highway projects. For example, reconstructing a
    23-mile portion of Interstate 10 near Houston was estimated to cost $1.99
    billion. Available federal, state, and local funds amounted to $1.75
    billion, a shortfall of $305.2 million. The Harris County Toll Road
    Authority invested $238 million for the right to operate tolled lanes
    within the facility. In addition, the Texas Transportation Commission,
    which oversees the state DOT, ordered that all new controlled-access
    highways should be considered as potential toll projects that will undergo
    toll feasibility studies. The commission views tolling as a tool that can
    help stretch limited state highway dollars further so that transportation
    needs can be met. Moreover, states are looking for whatever financial
    relief tolling can provide. In some states, tolling is being considered,
    even though toll revenues are expected to only partially cover the costs
    of particular projects. In Mississippi, for example, the state DOT
    indicated that tolling may be advanced if toll revenues cover 25 percent
    to 50 percent of a facility's cost. In Arkansas, tolling is being
    considered if toll revenues fund as little as 20 percent of the initial
    construction costs, provided tolls pay for operations and maintenance.

    To identify state characteristics that are linked with state decisions to
    toll, we performed a correlation analysis to examine the relationship
    between those decisions and various state demographic and financial
    characteristics.  Although certain characteristics in a state's finances
    and tax policies might be related to financial need, our correlation
    analysis found only limited relationships between various state financial
    and demographic measures and states' decisions to toll or not to toll. For
    example, although we found a slight inverse relationship between a state's
    decision to toll and the level of its motor fuel taxes, this relationship
    is not strong enough to conclude that states planning toll roads are more
    likely to be the ones with lower motor fuel tax rates than other states.
    However, we found that both the size of the state, whether measured by
    population or by VMT, and whether it is growing rapidly, again measured by
    population or VMT growth, are directly related to states' decisions to
    toll. (For more information on the results of our correlation analysis,
    see app. II.)

    States Use Tolling to Finance New Capacity

    According to transportation officials, states are using or considering a
    tolling approach to finance new capacity that cannot otherwise be funded
    under current and projected transportation funding scenarios. Such new
    capacity may be in the form of new highways or new lanes on existing
    highways. For example, in Colorado, the state DOT is studying the
    investment of $3 billion in increased highway capacity, with 10 percent,
    or $300 million of the investment, coming from federal, state, and local
    governments and the remainder coming from tolls. With a $48 billion
    shortfall projected through 2030 and the percentage of congested
    lane-miles projected to increase by 161 percent, tolling is being
    considered. Projections by the state DOT in Colorado suggest that revenues
    are sufficient to allow for only spot improvements on a few transportation
    corridors over the next 25 years and, without tolling, none can undergo a
    major upgrade, and new capacity cannot be added.

    Some states are using tolling to supplement their traditional motor fuel
    tax transportation funding through private-sector involvement and
    investment. Tolling is being used as a means to gain access to private
    equity and to shift the investment risk, in part, to the private sector.
    Currently, 18 states have some form of public-private partnership (PPP)
    legislation, allowing for innovative contracting with the private sector.
    Many of the 18 states have PPP programs that were established to allow for
    toll concession agreements to finance highway projects. For example,
    Oregon and Texas are specifically looking to attract private investment as
    a new source of financing. The TTC, as shown in figure 6,27 is being
    financed, in part, through a series of PPPs. The Texas DOT has contracted
    with Cintra-Zachry to develop a long-term development plan for the
    corridor, which includes the potential to construct and operate the first
    316-mile portion of TTC 35, from Dallas to San Antonio. Cintra-Zachry has
    pledged an investment of $6 billion and a payment of $1.2 billion for the
    right to build, operate, and collect tolls for up to 50 years on the
    initial segment of TTC 35. In Oregon, the Office of Innovative
    Partnerships and Alternative Funding-an Oregon DOT office empowered to
    pursue alternative funding, including private investment through
    tolling-has received proposals from the Oregon Transportation Improvement
    Group, a consortium led by the Macquarie Infrastructure Group, to complete
    two tolled facilities in the Portland area. In both Texas and Oregon, the
    projects were approved under SEP-15, which enabled the two states to waive
    certain federal requirements and to negotiate with the project developers
    before awarding contracts. Acceptance of the projects under SEP-15 does
    not commit federal-aid funding for the projects, and FHWA retains the
    right to declare the project ineligible for federal-aid funds at any time
    during the SEP-15 process until there is formal FHWA project approval.

    Figure 6: Conceptual Drawing of the Trans Texas Corridor

    Growing freight traffic is also prompting some states to consider using
    tolls to pay for capacity enhancement. Examples include Interstate 81 in
    Virginia and Interstate 70 in Missouri. According to the original design
    of Interstate 81, built beginning in 1957, truck traffic would account for
    15 percent of traffic on the highway; truck traffic now accounts for up to
    35

    percent, and traffic levels are expected to double by 2035. Interstate 70,
    originally designed to carry up to 14,000 vehicles per day in rural areas,
    now carries up to 58,000 per day, and truck traffic, which was intended to
    be 10 percent of total traffic, is now 25 percent. Both interstates are
    major freight routes where truck traffic is expected to continue to
    increase. In 2003, the Virginia DOT received FHWA conditional provisional
    approval under the Interstate System Reconstruction and Rehabilitation
    Pilot Program to toll vehicles other than cars and pickup trucks (freight
    trucks and buses) on Interstate 81. Likewise, for Interstate 70, the
    Missouri DOT received conditional provisional approval in July 2005 to
    participate in the same pilot program. In certain cases, proposals for
    truck-only toll (TOT) lanes seek to manage congestion while increasing
    capacity by diverting trucks from passenger routes to dedicated lanes. TOT
    lanes are being considered on heavy freight routes, including Interstate
    81 in Virginia, TTC in Texas (see fig. 7), and routes throughout the
    Atlanta Metropolitan Region in Georgia.

    States Use Tolling to Manage Congestion

    While growing congestion and traffic volumes have increased the demand for
    additional highway capacity, transportation officials told us that tolling
    is being considered as a tool to manage congestion. Applying tolls that
    vary with the level of congestion-congestion pricing-can reduce congestion
    and the demand for roads because tolls that vary according to the level of
    congestion can be used to maintain a predetermined level of service. Such
    tolls create additional incentives for drivers to avoid driving alone in
    congested conditions when making driving decisions. In response, drivers
    may choose to share rides, use public transportation, travel at less
    congested (generally off-peak) times, or travel on less congested routes,
    if available, to reduce their toll payments.

    Tolling for congestion management can take the form of HOT lanes, which
    are adjacent to nontolled lanes. HOT lanes are used to manage congestion
    by creating a tolling structure that varies toll prices according to the
    level of congestion. Such a tolling structure can reflect the external
    costs that users of the facility impose on others. In some cases, HOV
    lanes that had been underused have been converted to HOT lanes, allowing
    HOVs to continue to use the lane as an HOV lane but allowing
    single-occupancy vehicles to use the lane provided they are willing to pay
    a toll. In 5 of the 23 states planning toll roads, efforts to manage
    congestion on existing capacity is prompting tolling. California,
    Colorado, Texas, Virginia, and Washington all have HOT lane projects
    planned that will use variably priced tolls to alleviate congestion by
    managing the level of traffic. All of these states have received grants
    under FHWA's Value Pricing Pilot to either develop or implement the
    projects. In California, the State Route 91 Express Lanes, as shown in
    figure 7, opened in 1995, and the Interstate 15 Express Lanes, opened in
    1998, have dedicated, tolled lanes where the flow of traffic is managed
    through toll prices that vary daily and hourly. Tolls on State Route 91
    range from as little as $1.10 to as much as $8.50. During periods of
    heavier demand and congestion, toll prices are higher so that fewer people
    will use the lanes, and a consistent flow of traffic can be maintained. In
    Texas, the Katy Freeway in Houston was originally designed to carry 80,000
    vehicles per day. With traffic now exceeding 200,000 vehicles per day, the
    Texas DOT, in cooperation with FHWA, opened HOV-3 lanes (lanes that could
    only be used by carpools of 3 or more passengers) to vehicles with two
    passengers who pay a toll as express toll lanes in 1998. Texas DOT is also
    building managed lanes, scheduled to open in 2009, that will have peak
    toll pricing between 6:00 a.m. and 11:00 a.m. and between 2:00 p.m. and
    8:00 p.m. The result, in both cases, is a system in which commuters pay a
    toll for access to less congested lanes. More recently, in Minnesota,
    where Minneapolis and St. Paul have been experiencing rapid growth in
    congestion and, according to the Minnesota DOT, HOV lanes were underused,
    the state legislature authorized the conversion of the Interstate 394 HOV
    lanes to HOT lanes. The Interstate 394 MnPASS optional toll lanes project
    opened in May 2005 with "dynamic pricing" to adjust tolls from anywhere
    from 25 cents to $8.00, according to traffic levels.

    Figure 7: California State Route 91 Express Lanes and Toll Rates

    Note: Shading represents varying toll prices.

    In some states, tolling or variable pricing-in which toll rates differ
    depending on conditions such as the time of day or location-is used
    specifically to manage freight congestion. In October 2005, for example,
    the Delaware DOT launched an initiative designed to address problems with
    freight congestion on the Delaware Turnpike (Interstate 95) by encouraging
    trucks to travel at night. Tolls on trucks between 10:00 p.m. and 6:00
    a.m. are 75 percent less than tolls during more congested daytime hours.
    Another effort that incorporates variable pricing, but is not a
    traditional form of facility-based tolling, is a road user fee system that
    is being developed with an FHWA Value Pricing Pilot grant by the Oregon
    Office of Innovative Partnerships and Alternative Funding in cooperation
    with Oregon State University. The system assesses mileage-based fees in
    place of motor fuels taxes, and the fees vary for miles traveled during
    rush hour and within cordoned downtown areas.

    Many States Find That Tolling Is Not Feasible or Have Made Other Choices

    The reason most frequently cited by state transportation officials for not
    tolling is that tolling is not feasible. More specifically, there is
    little need for new tolled capacity, tolling revenues would be
    insufficient, or there is public and political opposition to tolling as
    follows:

    o Little need for new tolled capacity.  Transportation officials in many
    states indicated that low traffic volumes, a lack of congestion, and low
    demands for additional capacity make tolling impractical. In states such
    as Montana, North Dakota, South Dakota, and Wyoming, the population
    density and percentages of urban vehicle miles traveled are too low to
    support tolling.

    o Insufficient revenues. In some states, tolling is not considered because
    toll revenues would not cover the costs of projects. In some cases, the
    issue involves traffic volumes that are so low that a tolling approach
    would be impractical. In those states, transportation officials explained
    that even if a tolling approach were to be considered, tolls would have to
    be prohibitively high to fund capacity enhancements and would likely
    result in traffic diversion to nontolled, alternative routes. For example,
    a transportation official in Kansas told us that there are few routes in
    Kansas that have a high enough level of traffic to make them viable for
    tolling. Therefore, opportunities for tolling are limited under the
    classic definition of feasibility, for which toll revenue must be adequate
    to fund construction, maintenance, and operations of a facility. Under
    this definition, most roads would not generate sufficient revenues from
    tolls to fund new highway capacity. In other cases, where traffic volumes
    are higher, transportation officials told us that a tolling approach is
    not even considered unless it can be demonstrated that the project will be
    self-sustaining. In Massachusetts, for example, an evaluation of HOT lanes
    determined that the toll rates people would be willing to pay would not
    raise enough revenue to fund the capital expenses to construct the
    facility.

    o Public and political opposition.  Officials from many states that are
    not pursuing tolling mentioned some form of public or political opposition
    to toll roads that has dissuaded transportation professionals from
    pursuing tolling. The public or political opposition is so strong,
    according to officials in some states, that tolling is studied only with
    great caution and sensitivity, if at all. While some states mentioned the
    lack of a tolling culture as a reason for not tolling, other states that
    have tolled roads for years cited the long-standing presence of toll roads
    as a reason for not planning to expand tolling. In New Jersey, New
    Hampshire, and Ohio-states with long-established toll roads-state
    officials said the presence of tolls has instilled public opposition to
    them. For example, New Jersey officials told us that opposition to new
    toll roads is strong because many state border crossings and major
    highways are already tolled. In other cases, DOTs face political
    opposition to tolling. In Mississippi, where other toll projects are still
    being considered, the state DOT withdrew its application to toll
    Interstate 10 under the Interstate System Reconstruction and
    Rehabilitation Pilot Program in response to political opposition.

    States that do not toll and are not planning to construct toll roads have
    also chosen options other than tolling to finance highway construction and
    maintenance. For example, 13 states that are not planning toll roads have
    used "GARVEE bonds" as grant anticipation financing to borrow funds and
    pledge future federal-aid highway revenues for repayment. South Carolina
    used state infrastructure bank loans and federal credit assistance, along
    with state and local funds, for its "27 in 7 Accelerated Program" through
    which it is completing $5 billion worth of highway infrastructure capacity
    and improvements in 7 years, compared with the 27 years it estimated would
    be needed under conventional financing means. A smaller number of states,
    such as Iowa and Tennessee, have remained committed to a primarily
    pay-as-you-go approach, building new capacity only when money becomes
    available through motor fuel tax revenues or other state revenues.

    States That Are Considering and Implementing a Tolling Approach Face Two
    Broad Types of Challenges

    Drawing on our analyses of states' experience with tolling and on a review
    of selected published research on tolling, we have identified two broad
    types of challenges that transportation officials have encountered when
    attempting to implement tolling: (1) the difficulty of obtaining political
    and public support in the face of opposition from the public and political
    leaders and (2) the difficulty of implementing tolling given a lack of, or
    overly restrictive, enabling toll legislation; concerns about potential
    traffic diversion resulting from toll projects; and a need to coordinate
    with other states and regions when toll projects cross jurisdictional
    boundaries. (See fig. 8.) While these two broad types of challenges may
    make a tolling approach difficult to adopt or implement, states have
    nevertheless identified specific ways to resolve or mitigate the
    challenges. We discuss the strategies that states have used to address
    tolling challenges in the following section of this report.

    Figure 8: Challenges to Tolling

    Garnering Political and Public Support Is the Most Often Cited Challenge
    to Tolling

    State transportation officials who are implementing or are considering
    implementing tolling say that garnering political and public support is
    perhaps the greatest challenge to tolling. Some studies have also reported
    this challenge. For example, in a recently issued report, the
    Transportation Research Board cited studies that identified the
    unpopularity of toll roads and public skepticism as fundamental obstacles
    to employing a tolling approach.28 The report identified the inconvenience
    of paying tolls, being forced to pay twice, and inequities that a tolling
    approach would produce as the most commonly expressed objections.29 The
    Congressional Budget Office noted in its report that opponents of toll
    roads often charge that such roads are unfair to motorists with low
    incomes who may not be able to afford them. This concern is intensified if
    it involves trips to work and the motorist has few alternatives.30 In a
    policy brief issued by the Brookings Institution, the author notes that a
    drawback of tolls is that people think these tolls would be just another
    tax, forcing them to pay for something

    they have already paid for through gasoline taxes.31 We have also noted in
    prior work that political opposition to tolling has been substantial
    because of concerns about equity and fairness.32 According to our
    analysis, a number of factors influence public and political perceptions
    about tolling. (See fig. 9.)

    Figure 9: Challenges to Tolling

    Double taxation arguments. The most frequent objection to tolls is the
    argument that motorists traveling on toll roads are being asked to pay
    twice; that is, a new roadway toll is being levied in addition to existing
    taxes. States have a number of dedicated sources of revenues that are used
    to finance highway capital programs. According to transportation experts,
    the public generally believes that transportation costs are already being
    paid for through motor fuel, property, and sales taxes, as well as license
    and registration fees, and in the case of trucks, special tire taxes and
    weight-distance fees. Therefore, new road user fees, such as tolls, are
    often viewed as new taxes.

    Transportation officials in a number of states reported that concerns
    about double taxation limited their consideration of a tolling approach to
    varying degrees. In Wisconsin, where tolling is not being implemented, a
    transportation official told us that the public understands that the fuel
    excise tax and other user fees are used to fund highway construction.
    Therefore, the public would view tolling as another tax being imposed on
    them. This type of concern can be compounded when tolls are being proposed
    for an existing facility. For example, in Missouri, consideration of
    tolling to pay for Interstate 70's reconstruction faced opposition, in
    part, because the public believes that the interstate highway has already
    been paid for, according to state DOT officials. Missouri citizens
    generally regard tolls as government's way of making users pay again,
    according to state transportation officials. This view is supported by
    Missouri's history of commitment to free roads. Citizens in Texas have
    voiced similar arguments against tolls. In Houston, for example, plans to
    convert State Highway 249 to a tolled road have met with some resistance
    on the grounds of double taxation. At the public hearing organized to hear
    views on the conversion, officials estimated that an overwhelming majority
    of those in attendance were against the conversion because they felt that
    the road had already been paid for. Strong opposition can arise even
    before a roadway has been completed.  A proposal to toll a nearly
    completed portion of U.S. Route 183 north of Austin was retracted after
    citizens expressed strong opposition. Transportation officials told us
    that these citizens believed that since the road was nearly complete,
    introducing tolls would amount to double taxation.

    Projects are not self-sustaining. Transportation officials told us that
    they often find it difficult to demonstrate that tolling is reasonable and
    necessary because revenues collected from toll projects usually do not
    fully cover project costs. In Oregon, for example, a financial analysis of
    toll proposals indicated that the proposals under consideration would not
    be economically feasible through the collection of tolls alone, according
    to transportation officials. A private consortium was selected to
    negotiate with the state DOT for the purpose of advancing the projects.
    However, in the view of this consortium, the new toll road can be
    financially viable only if existing parallel roads are tolled. In some
    states, transportation officials stated toll projects are not even
    considered unless it can be demonstrated that the project will be
    self-sustaining. In Kentucky, for example, a transportation official told
    us that traffic volumes alone can rarely financially sustain rural roads
    through tolling and emphasized that it would be difficult to garner public
    support for a toll project that required partial subsidization. A
    transportation official in Arkansas told us that while tolling is
    considered if revenues fund at least 20 percent of initial construction
    costs, a toll project would only be considered if it can be shown that
    toll revenues would cover all operations and maintenance costs. In
    Florida, toll proposals must pass a financial feasibility test  and prove
    that the proposed projects will be self-sustaining before the projects are
    further considered for advancement. According to Florida Turnpike
    Enterprise officials, the standard for feasibility is that by the twelfth
    year of operation, projected revenues must cover at least 50 percent of
    operating costs and debt service and by the twenty-second year of
    operation, projected revenues must cover all costs and debt service.

    Concerns about inequities.  Another objection to the use of tolling
    involves concerns about the inequities that the approach would produce.
    According to our review, groups that could be adversely affected by
    tolling often object, as follows, on the basis of geographic inequity,
    income inequity, and user inequity:

    o Geographic inequity.  Concerns about geographic inequity reflect the
    belief that certain regions will benefit disproportionately from a tolling
    approach while other regions will be unfairly disadvantaged. Using a
    tolling approach to address a transportation need in one part of a state
    might free up federal and state funding that might have otherwise been
    used to address that need. This available federal and state funding could
    then be used to support roads in another part of the state, creating an
    unfair burden on those motorists that are being tolled. In Florida, for
    example, there have been concerns about the distribution and use of funds
    collected for projects in one region (southern Florida) being distributed
    to and used for projects in another region of the state (northern
    Florida). In the 1990s, three southern counties-Palm Beach, Broward, and
    Dade-secured legislation that would require the Florida Turnpike
    Enterprise to calculate the dollar amount collected in those counties and
    determine how much of that amount was returned to the counties to be used
    on their facilities. As a result, the Florida Turnpike Enterprise created
    a formula to implement that law, reflecting the need to balance
    collections in those counties with what is being spent on facilities in
    those counties.

    o Income inequity.  Concerns about the unequal ability of lower-income and
    higher-income groups to pay tolls are often cited by transportation
    experts as an important political barrier to the

    acceptance of a tolling approach.33 Those opposing tolls on the basis of
    income inequity argue that since tolls would represent a higher portion of
    the earnings of lower-income households using the tolled road, tolling
    imposes a greater financial burden on them and, therefore, is unfair. In
    Maryland, this concern resulted in removing HOT lanes from consideration
    in state transportation plans, according to FHWA. In June 2001, the
    governor decided to remove HOT lanes from the state transportation plan
    because of the perceived inequity of linking an easier commute with a
    person's ability to pay. However, in the following year, the governor's
    office initiated a revised feasibility study of value pricing that
    included investigating and addressing the equity issues that were raised
    earlier, while encouraging the air quality and congestion relief benefits
    of HOV lanes.

    o User inequity. User inequity involves the belief that some classes of
    system users are being unfairly disadvantaged. The trucking industry,
    freight industry, and businesses may view tolling in this light. For
    example, a transportation official in Virginia told us that a proposal to
    toll only trucks on Interstate 81 is generally viewed by truckers as an
    unfair burden being imposed on them. This transportation official also
    noted that if the proposal is implemented, truckers will seek alternative
    routes to avoid the tolls. In Missouri, officials representing fuel
    marketers, fuel retailers, gas stations, and convenience stores told us
    that they consider a tolling proposal unfair. According to the industry
    officials, these businesses have spent millions of dollars on their exit
    locations along the interstate and believe they have paid their fair share
    of taxes. Consideration of a tolling approach to enhance mobility on the
    interstate could potentially have an adverse impact on these businesses
    because some customers may choose alternative routes.

    General views on government.  According to transportation officials with
    whom we spoke, public opposition to tolling can be exacerbated by a
    mistrust of government generally. They said that when government proposes
    tolls as a way to finance transportation, the public generally considers
    the tolls as a new tax.

    This mistrust can also be directed specifically at state transportation
    departments. For example, in 1992, the Missouri DOT proposed a 15-year
    plan that included a number of promised projects that would be undertaken
    with an increase in the state's gas tax. However, according to state
    transportation officials, after gaining support for the increase, the
    state DOT did not deliver the promised projects as scheduled. These
    officials said this failure to deliver contributed to the public's
    mistrust of the DOT and its resistance to attempts by the DOT to secure
    toll authority over the years. In some states, concerns about the cost and
    management of major highway and bridge programs have reflected
    dissatisfaction with the performance of state transportation departments.
    For instance, as we reported in 2002, a legislative commission in Virginia
    reported on cost overruns and schedule delays in the state's highway
    program in 2000 and found that cost estimates prepared for projects were
    substantially below the final costs. This commission identified a
    potential funding gap of around $3.5 billion in the state's $9 billion,
    6-year transportation plan. Such concerns about past performance can
    present challenges for transportation officials who are attempting to
    advance a tolling approach.

    Mistrust can also extend to private entities involved in toll road
    development. As we reported in 2004, states engaging private-sector
    sponsorship and investment can relinquish political control over their
    ability to set toll rates and to carry out infrastructure improvements on
    competing publicly owned roadways. For example, California could not make
    any improvements along State Route 91-a project privately financed with a
    combination of equity, bank, and institutional debt-until the year 2030
    because a noncompete clause created a 1.5 mile protection zone along each
    side of the corridor. According to officials from the Orange County
    Transportation Authority, public pressure on the state DOT to improve the
    nontolled portion of the road motivated the county to purchase the road
    back from the private consortium.

    State and Local Transportation Officials Face Formidable Challenges in
    Implementing Tolling Approaches

    In some states, transportation officials told us that they face challenges
    in implementing toll projects. (See fig. 10.) We identified the following
    three implementation-related challenges:

    o Secure legislative authority to toll.

    o Address the impact of traffic diversion caused by tolling.

    o Coordinate with other states or regions.

    Figure 10: Challenges to Tolling

    Secure the authority to toll.  Not having, or having restrictions built
    into, enabling toll legislation poses a challenge for some transportation
    officials as they develop tolling options. They told us that limited
    legislative authority for tolling hampered their ability to consider a
    full range of options to address the transportation needs in their states.
    Ultimately, these transportation officials sought methods other than
    tolling to address transportation needs or delayed the development of an
    identified toll project as they pursued tolling legislation.

    Missouri's experience illustrates the challenges transportation officials
    face when the state DOT does not have the statutory authority to use a
    tolling approach to advance a project. State transportation officials are
    considering turning Interstate 70 into a toll road to finance capacity
    improvements. However, voters would first have to approve an amendment to
    the state constitution to put toll roads under the state DOT's
    jurisdiction-a measure that voters rejected in 1970 and 1992. To avoid
    another rejection, state DOT officials are exploring alternative financing
    methods under existing authority, including the use of a nonprofit
    corporation to build, operate, and maintain the toll project.
    Transportation officials emphasize, however, that under this option, the
    entity would not be able to spend state highway revenues for the
    project-the same restriction that would prevent the state DOT from
    advancing a toll project-because state funds can be used only for the
    purposes enumerated in the state constitution, and toll roads were not one
    of those purposes.

    Restrictions in enabling legislation can also hamper attempts to implement
    toll projects. For example, in the mid-1990s, the Minnesota legislature
    authorized a study of public-private partnerships and tolling as one
    approach to address congestion and leverage state transportation
    investments. In conjunction with that study, the state DOT requested
    public-private partnership tolling proposals and received five proposals
    in response from private firms. Ultimately, the state DOT recommended a
    proposal to build Trunk Highway 212 as a toll facility and proceeded to
    complete a development agreement with a private partner. However, the
    proposal was vetoed under the provision of the enabling legislation that
    gives veto authority to local units of government affected by a project.
    As a result, the Trunk Highway 212 project is now being completed under
    traditional methods and, according to transportation officials, is taking
    longer to complete due to funding limitations. New legislation, passed in
    2003, eliminated the local veto authority for converting HOV lanes to HOT
    lanes on existing facilities, giving transportation officials more
    flexibility to implement a tolling approach. This legislation, which
    followed a DOT study of HOV lane usage on Interstate 394, authorizes the
    conversion of the HOV lanes on Interstate 394 to HOT lanes to improve
    their efficiency. Subsequently, through a design-build-operate agreement,
    a private partner was secured to bring resources to the table and run the
    operation.

    Address concerns about traffic diversion. Traffic diversion resulting from
    tolling may adversely affect people, municipalities, and businesses.
    Concerns about such diversion have surfaced in comments by municipalities,
    businesses, and the trucking industry on a proposal to toll trucks on
    Interstate 81 in Virginia, according to state transportation officials.
    Affected Virginia municipalities have suggested, for example, that trucks
    will leave the interstate to avoid tolls and wind up on local roads. Such
    diversion has the potential to create congestion, increase accident and
    fatality rates, and increase the municipalities' costs of maintaining
    these roads. The affected municipalities have also expressed concerns
    about the potential negative effects on economic development that may
    result from the loss of business along toll routes. According to a
    recently completed study that considered a number of different proposals,
    traffic diversion is likely to occur if Interstate 81 is tolled.34 The
    study estimated that up to one in four trucks would divert to nearby
    parallel routes if a high toll rate35 was applied to commercial vehicles.

    Concerns about traffic diversion are not limited to new toll roads. The
    Ohio Turnpike opened in the 1950s and, in the 1990s, traffic studies
    revealed that commercial vehicles were increasingly diverting onto
    parallel untolled roads, creating safety and other concerns. In response,
    the governor released the Northern Ohio Freight Strategy in October 2004,
    which included a policy to reduce tolls on commercial vehicles in order to
    redirect traffic back to the Ohio Turnpike. Subsequent traffic studies
    revealed this strategy was mostly successful.

    Coordinate on projects that involve multiple states or jurisdictions.
    Coordination among states and regional jurisdictions is likely to become a
    growing issue because increasing traffic congestion in metropolitan areas
    is likely to require regional solutions. Without good coordination with
    neighboring jurisdictions, individual jurisdictions may find it difficult
    to solve traffic congestion. Even if one jurisdiction manages to reduce
    congestion within its system, it may simply shift that congestion to an
    adjacent jurisdiction. Yet numerous factors could make coordination
    difficult. For example, the need for coordination is especially critical
    if states adopt separate tolling legislation with varying, perhaps
    incompatible, provisions and begin tolling. Other potential challenges
    include ensuring the interoperability of toll collection facilities when
    toll proposals involve more than one state, addressing differences in
    state toll legislation, and mitigating geographic inequities by fairly
    apportioning the anticipated benefits and disadvantages of toll projects
    among all stakeholders.

    Oregon's experience illustrates how some of these issues might present
    challenges for transportation officials who are attempting to advance
    interstate toll projects. Oregon officials cited differing statutory
    authorities between Oregon and neighboring Washington as a potential
    coordination issue. In Oregon, transportation officials have the authority
    to enter into PPPs when advancing a tolling approach, while their
    counterparts in Washington do not yet have the authority to do so if
    proposals for partnerships are unsolicited. As a result, stakeholders
    involved with the Columbia River Crossing Project on Interstate 5, which
    Oregon officials are attempting to pursue as a toll project with a private
    partner, are seeking to promote legislation in both states that will
    provide explicit authorization to advance the project. The Oregon
    officials also noted that coordination would be necessary to address
    geographic inequities that might arise from the project, explaining that
    more of the toll revenues could come from Washington, since motorists
    there commute into Portland. Transportation officials in both states will
    need to take this into account as they work towards an equitable
    apportioning of the project's costs and benefits.

    Three Broad Strategies Can Help State Transportation Officials Address
    Challenges to Tolling

    As shown in figure 11, our review of state practices in implementing
    tolling suggests three broad strategies that can help transportation
    officials address challenges to its adoption and implementation. These
    strategies have both short-term and long-term relevance for states as they
    consider new transportation finance options to supplement traditional
    approaches. Transportation officials in states that are currently
    implementing or considering tolling as a means to raise revenue or
    mitigate congestion can consider these strategies in the short term to
    build support and smooth implementation of the tolling approaches under
    consideration. In the longer term, transportation officials in states that
    are not currently tolling, but choose to begin to do so, can consider
    these strategies to build support for tolling.

    Figure 11: Strategies to Address Challenges to Tolling

    Develop an Institutional Framework That Supports Tolling

    The first strategy that transportation officials can consider involves
    developing an institutional framework that facilitates tolling. In
    developing such a framework, transportation officials can consider
    building support for a tolling approach with the public and decision
    makers in the state and securing enabling tolling legislation. (See fig.
    12.) Developing such a framework through these two means involves
    identifying and articulating the goals to be achieved by the tolling
    approach in the context of larger state policy goals.

    Figure 12: Strategies to Address Challenges to Tolling

    Building support. Building support for a tolling approach includes two
    interim steps-establishing a rationale for tolling and defining the
    underlying motivations for its use. Together, these steps provide a basis
    for gaining political and public support before seeking and securing
    adequate tolling legislation.

    Establishing a solid rationale for tolling involves linking the specific
    reasons, or goals, for tolling with state policy goals for
    transportation.36 For example, linking a tolling goal, such as managing
    congestion, to a broader state goal, such as using existing infrastructure
    more efficiently, can provide a basis for its use. Similarly, a tolling
    goal of supplementing transportation funding with new revenues could
    contribute to a broad state policy goal of funding investment in
    transportation systems with revenues generated directly from users.

    Articulating the underlying motivations for using a tolling approach can
    also help transportation officials build support for and accomplish
    broader transportation goals and tailor tolling goals to accomplish those
    ends. For example, consideration of a tolling approach might be motivated
    by a desire to accomplish other goals, such as finding a replacement for
    the gas tax or attracting private investment for transportation.
    Irrespective of the motivations that guide the development of the goals,
    advocates of tolling have to make a compelling case for its use to build
    public acceptance for it and make it politically viable. Goal setting can
    help transportation officials articulate the motivations for using the
    approach, identify the goals to be achieved by its use, and demonstrate
    how the tolling goals will tie into broader state goals. Such a process
    can help decision makers formulate a transparent and comprehensive
    rationale for the use of tolling and gain public and political support for
    it.

    Secure legislative authority.  Securing tolling legislation is the next
    step in developing an institutional framework for tolling. Although there
    are common reasons for tolling, the form legislation takes in each state
    often depends on the motivations for using the approach and ultimately the
    goals to be achieved through it. Our review of legislative efforts in
    Texas, Virginia, Oregon, and Florida illustrates how legislation evolved
    in response to different motivations and tolling goals. Following are some
    of these legislative efforts:

    o Leveraging transportation dollars.  Texas enacted legislation that
    provided for a broader application of tolling than currently existed and
    established a funding mechanism that supported a broader use of tolls in
    the state's transportation system.37 This legislation facilitates tolling
    by realizing two goals-to expand the use of tolling and to leverage tax
    dollars by allowing state highway funds to be combined with other funds to
    build toll roads. This combination of funds makes toll roads more
    feasible, since the entire cost of the project does not have to be repaid
    with tolls. Virginia's Public-Private Transportation Act of 1995 (PPTA)
    allows qualifying local governments and certain other political entities
    to enter into agreements authorizing private entities to acquire,
    construct, improve, maintain, and operate qualifying transportation
    facilities. The public entities may either solicit or accept unsolicited
    proposals from private sources.  Private-sector sponsorship and investment
    in transportation projects could help states realize both an established
    tolling goal to accelerate project delivery and a goal to leverage tax
    dollars by securing private investment in transportation projects.

    o Operating like a business. In some cases, there is a motivation to
    "reinvent government" by operating in a more businesslike manner. Public
    agencies of all types have pursued innovation and best practices found in
    the private sector to improve the cost-effectiveness and timeliness of
    product delivery. A goal that embodies these motivations can take many
    forms in legislation. In Florida, for example, legislation was passed in
    2002 that turned the Florida Turnpike, operated by the Florida DOT, into a
    business organization as a way to preserve, improve, and expand the
    turnpike system. State decision makers were interested in operating the
    turnpike as a business for the state and employing private-sector methods
    in the areas of management, finance, organization, and operation. The
    goals for the enterprise are to increase revenues, expand capital program
    capabilities, and improve customer service.

    o Transitioning to a new system of transportation finance.  The
    sustainability of the current financing system has been called into
    question, and as we have reported, a fundamental reexamination of the
    present system will be necessary to increase the cost-effectiveness of
    spending and to mitigate congestion.38 Some transportation experts believe
    that shifting to a fee structure that more directly charges vehicle
    operators for their actual use of roads would improve the operation of the
    road system and better target investment. For example, Oregon's efforts to
    explore mileage charges provide some insights into how legislation can be
    developed to carry out such an ambitious goal. A road user fee proposal,
    passed by the state legislature in 2001, created a user fee task force to
    design a method of charging drivers for their use of the state's roads as
    an alternative to the current system of gas taxes. The task force proposed
    the eventual imposition of a mileage fee in place of existing gas taxes
    and pilot testing for the mileage fee as the first step toward
    implementation. An institutional framework, such as the framework under
    development in Oregon, can help states that are seeking to test or
    implement new methods of highway financing to realize such goals.

    Provide Leadership to Build Support for Individual Projects and Address
    Tolling Challenges in Project Design

    The second strategy that can facilitate the use of tolling involves
    implementing two interrelated and critical components: (1) providing
    leadership to build support for and advance individual projects and (2)
    addressing challenges to tolling in project design. (See fig. 13.) We have
    found that having a strong advocate or advocates-committed both to
    building support for projects and to ensuring that the projects move
    forward-is crucial to the success of a project. A corollary to providing
    committed leadership is ensuring that leaders endorse those projects that
    most effectively address challenges to tolling in project design.

    Figure 13: Strategies to Address Challenges to Tolling

    Providing leadership. Although leadership can take different forms, our
    review revealed that a strong advocate can help build support for a toll
    project. Transportation agency representatives or political leaders are
    likely candidates to move a project to public acceptance. For example, in
    Texas, the Governor and key legislators took the lead in developing and
    supporting initiatives that would facilitate the use of tolling to finance
    highway construction. Their efforts led to the enactment of legislation
    that enabled the state DOT to invest in toll projects. In Indiana, the
    Governor and the DOT Commissioner have supported tolling as an approach to
    finance transportation projects by promoting it in the media and in the
    legislature.  However, in some instances, public distrust of political and
    governmental agencies may require a leader to emerge from another arena.
    For example, in Minnesota, a task force of state and local officials,
    citizens, and business leaders was convened in 2001 to explore a range of
    road pricing options, including the conversion of HOV lanes to HOT lanes,
    and make recommendations to elected officials. Since tolling had been
    fairly controversial in the past, decision makers believed that a task
    force would provide a more credible and independent voice to the general
    public. Ultimately, the task force supported HOV to HOT conversions, and
    with the Governor's support and the passage of legislation authorizing the
    conversion, the Interstate 394 HOT lanes project was implemented.

    As a spokesperson for a project, a leader can explain to the public how
    tolling will address a state's particular transportation situation.
    Through the communication of essential ideas and values that a toll
    proposal encompasses, support for the project can be solidified.
    Communicating the benefits that tolling can provide for motorists, such as
    increased efficiency, travel time savings, and choices about when and
    where to drive, could increase the likelihood of buy-in from the public
    and political leaders. For example, after examining congestion pricing
    options in Minnesota, a task force of state legislators, mayors, as well
    as business, environmental, and transportation leaders recommended that
    the state should proceed with a demonstration project. This led to the
    passage of legislation in 2003 supporting the conversion of HOV lanes on
    Interstate 394 into optional toll lanes, which would allow solo drivers to
    access the HOV lanes for a fee. With the help of a communications
    consultant, a project team led by the University of Minnesota's Hubert H.
    Humphrey Institute worked to address the concerns of the public and
    communicate the benefits of the project to the general public. The primary
    benefits of the project that were conveyed included free access and
    priority for carpools and bus users, premium speeds in express lanes that
    are maintained by tolls that vary with demand, and access to the express
    lanes to single-occupancy vehicles willing to pay a toll. Surveys
    conducted prior to project implementation revealed that 69 percent of
    those surveyed were aware of and understood the purpose of the project,
    and 64 percent believed that allowing single-occupancy vehicles to use the
    carpool lanes by paying a toll was a good idea. A leader can also stress
    that tolls can help make up for shortfalls in public funds, allowing
    needed highway improvements to be completed sooner. According to some
    transportation officials, this point is particularly relevant when the
    public does not share a state transportation leader's view of the state's
    needs, or of the challenges associated with addressing those needs within
    the current fiscal environment, or both.

    One effective way to communicate the benefits of tolling is through
    organized public education, outreach, and marketing efforts. Through such
    efforts, the public can be informed about the transportation situation in
    the state and the various options that are available to address
    transportation needs. For example, in California, strong political
    figures, as well as state and local officials, acted as champions for
    individual toll projects. Seeking to maximize the efficiency of the
    transportation system through congestion pricing, these leaders and
    officials promoted two congestion pricing projects-the Interstate 15
    project and the State Route 91 project-using public education and outreach
    to inform the public about the objectives of the projects and to
    demonstrate how the objectives would be achieved.

    Addressing challenges. In identifying toll projects to promote,
    responsible leaders will likely be interested in projects that mitigate
    the challenges to tolling. Therefore, addressing concerns about double
    taxation, inequity, diversion, and coordination in project design can help
    transportation officials build support for toll projects and secure
    committed advocates for the projects.

    When considering a tolling approach, transportation officials can identify
    ways to effectively address identified challenges and gain a better
    understanding of the potential impact of the approach through data
    collection and analysis. Understanding the potential effects of a toll
    project on traffic flows, specific groups, business activity, and
    commercial transportation can be particularly useful to transportation
    officials as they build measures into the project's design to address
    identified challenges. Table 2 includes examples of questions and data
    needs that transportation officials might consider as part of their data
    collection and analysis.

    Table 2: Questions That Can Be Considered When Planning and Designing Toll
    Projects

               Question                              Purpose
    How will traffic be       Analyzing how tolls would affect personal,
    diverted and who will     business, and commuting trips could help
    suffer?                   decision makers estimate the extent to which
                                 traffic would be diverted. From these estimates,
                                 transportation officials can develop strategies
                                 to address the impact of this diversion on
                                 affected groups.
    To what extent will tolls Determining the extent to which tolls will meet
    meet the project's goals? the project's financial and other goals could
                                 help project sponsors make decisions about
                                 setting the proper toll. If tolls are too low,
                                 they will not generate enough revenue to pay for
                                 the project or, in the case of congestion
                                 pricing, they will not divert sufficient traffic
                                 to relieve congestion.
    Who loses and how do we   Analyzing the effects that a toll project might
    compensate them?          have on specific groups enables transportation
                                 officials to address many questions about the
                                 equity consequences of the project. The data
                                 that could be collected include important
                                 household and lifestyle characteristics,
                                 including (but not limited to) income,
                                 residential location, commuting patterns, number
                                 of vehicles, number of workers, family size,
                                 annual travel, and employment type and location.
                                 Without these data, it would be difficult to
                                 estimate the consequences for the groups that
                                 could be most affected. Analysis would provide
                                 better estimates of the extent to which a
                                 tolling approach would shift drivers to carpools
                                 and transit and would provide more insight into
                                 how transit operators might be able to expand
                                 service and how transit service might benefit
                                 lower-income users.
    How will the project      Given the importance of transportation to the
    affect business activity  economy of metropolitan areas and the widespread
    and commercial            perception that congestion increases business
    transportation?           costs, transportation officials could consider
                                 examining the impact of tolling on business
                                 activity and commercial transportation when
                                 considering the use of a tolling approach.
                                 However, this can be difficult for
                                 transportation officials because little is known
                                 about the magnitude of congestion costs.a
                                 Factors affecting this include the logistics
                                 patterns of firms; the frequency, origin, and
                                 destination of trips; and the ability of firms
                                 to adapt to congestion without affecting costs.
                                 Research on how a tolling approach would affect
                                 commercial carriers operating on those
                                 facilities could also provide some insights.

    Source: GAO analysis of relevant literature.

    aTransportation Research Board, Curbing Gridlock: Peak-Period Fees to
    Relieve Traffic Congestion (Washington, D.C.: January 1994).

    To address general objections to tolling, transportation officials can
    also consider potential arguments that might be raised on the grounds of
    double taxation and inequity and think about ways to address these
    arguments. Addressing these types of concerns is complex because the
    fairness of shifting to tolling depends on the fairness of the existing
    system of finance and on how it would be changed by a shift. It can be
    argued, particularly in states where sales and property taxes are
    important sources of financing for the transportation system, that the
    existing system is not very equitable. In contrast, a tolling approach
    raises revenues directly from those users willing to pay for the service.
    Furthermore, the economics literature suggests that concerns about
    inequity can be mitigated to some degree if revenues are distributed in a
    way that addresses those concerns.

    Transportation officials can address concerns about double taxation and
    inequity during project design as a way to counter potential opposition on
    these grounds. Setting goals for a project that reflect its intended
    purpose and addressing any key challenge that could affect the achievement
    of the goals can help transportation officials directly respond to the
    concerns. For example, if the project goal is to use a tolling approach to
    relieve congestion, transportation officials could set the toll to reflect
    the external costs associated with peak period use of the road, and the
    toll revenues could be dedicated to maintaining, operating, and adding
    capacity to the facility. This approach might convince users that the toll
    is not just another tax that would be used for other purposes. In
    contrast, if the project goal is to address inequities, revenues could be
    distributed quite differently. Revenues could be distributed to
    disadvantaged groups in the form of tax rebates or improvements in roads
    and transit in certain areas. If businesses in specific areas are
    adversely affected by a project, toll revenues might be used to improve
    transportation services in those regions. For the Interstate 394 HOT lanes
    project, state decision makers established the project goals of improving
    efficiency and maintaining free-flow speeds for transit and carpools using
    the converted HOV lanes. These goals led to decisions on how the toll
    revenues would be distributed. The law requires that half of the excess
    revenues generated from HOT lane facilities be used to improve and
    maintain transit service.

    Addressing the coordination issues involved in designing regional and
    multistate projects is perhaps more daunting. No ideal institutional
    mechanism appears to be available for managing a regional program;
    nevertheless, some states have created new institutions to address
    interstate coordination issues. For example, Oregon and Washington formed
    a bistate task force to coordinate planning for improvements that cross
    state borders. The task force includes officials from both state
    governments, representatives from the affected metropolitan planning
    organizations (MPO), members of the business community, and residents of
    each state. The task force is charged with considering all modes of
    transportation that could potentially ease congestion and improve capacity
    on Columbia River crossings. The two states are jointly conducting
    environmental impact studies on highway expansion and transit
    improvements. The Oregon and Washington DOTs, the Portland and Vancouver
    MPOs, and the transit authorities from both states are jointly leading
    this study on the impact of capacity enhancement. Involving officials from
    both states in evaluating the project can help ensure that projects are
    equitable and effective in addressing the needs of both states.

    Select a Tolling Approach That Provides Tangible Benefits to Users

    When proposing a tolling approach, transportation officials should
    consider promoting one that will produce tangible benefits to users while
    justifying both the costs of the project and the fees that users will be
    required to pay for the service. (See fig. 14.) The prospect of such
    benefits increases the likelihood of the project's acceptance and can help
    allay general objections to tolling.

    Figure 14: Strategies to Address Challenges to Tolling

    Although tolling can take different forms and decisions about its use are
    state specific, transportation experts have noted that projects that use
    congestion pricing offer predictability and choice to the user and may be
    less likely to arouse fierce opposition than projects that offer no new
    benefits or choice.39 For example, HOT lane projects, which include both
    priced and free lanes, offer the benefit of faster trip times for a price
    in HOT lanes and the choice of a "free," but probably slower, trip in
    general purpose lanes. Pricing the entire facility might result in more
    efficient rationing of limited space on congested roads,40 but congestion
    tolls on entire facilities or networks tend to meet with resistance
    despite their economic efficiency. HOT lanes, on the other hand, may be
    less likely to encounter resistance because they offer premium service for
    those willing to pay the fee. While actual experience with road pricing in
    the United States is still fairly limited, proponents of HOT lanes cite
    several benefits as follows:41

    o First, according to reports and studies issued by FHWA, the
    Transportation Research Board, the Reason Foundation, and the Brookings
    Institution, they provide a premium service for a fee to those travelers
    who have a special need and are willing to pay the fee. Through variable
    pricing, traffic flows freely even during the height of rush hours. The
    use of price and occupancy restrictions to manage the number of vehicles
    traveling on them enables HOT lanes to maintain volumes consistent with
    uncongested levels of service.

    o Second, studies and reports issued by FHWA and the Reason Foundation
    note that HOT lanes reduce traffic congestion in the general-purpose lanes
    by diverting some solo drivers to the HOT lanes, thereby benefiting those
    drivers who use conventional lanes.42

    o Third, according to FHWA and others, HOT lanes can make better use of
    underutilized carpool (HOV) lanes, thereby alleviating political pressure
    to decommission them. HOT lanes may provide an opportunity to improve the
    efficiency of existing or newly built HOV lanes by filling excess capacity
    that would not otherwise be used. At the same time, HOT lanes continue to
    serve as HOV lanes for carpools and buses.

    o Finally, reports and studies issued by FHWA and the Reason Foundation
    note that HOT lanes generate revenue for transportation improvements.
    Tolls can generate revenue for highway and transit improvements, such as
    Bus Rapid Transit.43

    HOT lanes have been implemented on Interstate 15 in San Diego, State Route
    91 in Southern California, the Katy Freeway and U.S. Route 290 in Houston,
    and Interstate 394 in Minneapolis. These cases illustrate how
    transportation officials have advanced projects seeking to achieve the
    potential benefits that may result from the approach. For example, to
    guarantee free-flowing traffic, toll prices on the Interstate 15 HOT lanes
    project are set dynamically, changing every 6 minutes to keep traffic
    flowing freely in the HOT lanes. In providing motorists with choice and
    providing premium services, the State Route 91 Express Lanes provide a
    level of emergency and safety surveillance that, according to surveys
    conducted by the private firm operating the toll facility, some drivers
    choose to pay to use the toll lanes even when there is no congestion on
    the adjacent free lanes. To optimize the use of existing infrastructure,
    more productivity was sought on the Katy Freeway. HOVs are defined as cars
    with three or more people during certain peak hours. The Katy Freeway
    QuickRide program allows cars with two persons to use the HOV lanes if
    they pay a toll. Daily use by paying users has been between 150 and 200
    vehicles for peak periods, and peak hour travelers using the facility save
    an average of 18 minutes compared with travelers on the nonpriced lanes.44
    Finally, linking the conversion of the HOV lanes to transit to increase
    mobility and equity was taken into account on the Interstate 394 and
    Interstate 15 projects. Toll revenues generated on the Interstate 394 HOT
    lanes are designated for facility and transit improvement and a large
    portion of surplus revenues on Interstate 15 are used for new bus service.

    Concluding Observations

    As congestion threatens the nation's mobility at a time when motor fuel
    taxes-the principal source of funding for highway improvements-have not
    kept up with rising costs, federal and state policy has generally been not
    to increase motor fuel taxes, and state and local decision makers are
    increasingly looking to a range of alternative mechanisms, including
    tolling, to advance their surface transportation programs. Over half the
    states have either adopted tolling or are seriously considering
    tolling-and this number may increase. A tolling approach can, under the
    right circumstances, be an attractive choice to state or local governments
    because of the range of potential benefits-generating new revenues,
    managing congestion, financing new capacity-that it may provide. But these
    potential benefits come only by honestly and forthrightly addressing the
    challenges that a tolling approach presents. State and local governments
    may be able to address these challenges by pursuing strategies that focus
    on developing an institutional framework that facilitates tolling, by
    demonstrating leadership, and by pursuing toll projects that provide
    tangible benefits to users. While perhaps not applicable to every state to
    the same degree or in the same way, these strategies form a basis for
    overcoming potential impediments to tolling and developing a meaningful
    and effective tolling approach that best suits the environment in each
    state.

    In the twenty-first century, demographic trends will drive mandatory
    federal spending commitments and potentially overwhelm the ability of the
    federal government to deliver and grow its discretionary programs. This
    looming crisis requires a fundamental reexamination of existing government
    programs and commitments, and state and local governments will be
    challenged to consider new ways of delivering their programs. Regardless
    of the demand for highway improvements, sustained, long-term, large-scale
    increases in federal highway grants and state and local spending seem
    unlikely. In this context, a tolling approach is more than just finding
    new sources of money. Should states choose to undertake it, a tolling
    approach has the potential to promote efficiency in the use of
    infrastructure, allocate costs to users and capture revenue from
    beneficiaries, stimulate private financing and investment, and provide
    cost-effective solutions to mobility challenges if viewed as fair and
    equitable by the public.

    Agency Comments and Our Evaluation

    We provided a draft of this report to the Department of Transportation for
    review and comment. Officials from the Department indicated that they
    generally agreed with the report and provided technical clarifications,
    which we incorporated as appropriate.

    As agreed with your office, unless you publicly announce the contents of
    this report earlier, we plan no further distribution until 30 days from
    the report date. At that time, we will send copies of this report to
    congressional committees with responsibilities for transportation issues;
    the Secretary of Transportation; and the Administrator, Federal Highway
    Administration. We will also make copies available to others upon request.
    In addition, this report will be available at no charge on the GAO Web
    site at h  ttp://www.gao.gov.

    If you or your staff have any questions about this report, please contact
    me at h  eckerj@gao.gov or (202)512-2834. Contact points for our Offices
    of Congressional Relations and Public Affairs may be found on the last
    page of this report. GAO staff who made key contributions to this report
    are listed in appendix IV.

    JayEtta Z. Hecker Director, Physical Infrastructure Issues

    Appendix I

    Objectives, Scope, and Methodology

    The objectives of this report were to examine (1) the promise of tolling
    to enhance mobility and finance highway transportation, (2) the extent to
    which tolling is being used in the United States and the reasons states
    are using or not using this approach, (3) the challenges states face in
    implementing tolling, and (4) strategies that can be used to help states
    address the challenges to tolling. We noted where federal programs have
    played a role in state tolling decisions and projects, but we did not
    evaluate the effectiveness of those programs.

    To examine the promise of tolling to enhance mobility and finance highway
    transportation, we reviewed reports and studies issued by federal agencies
    and academia, as well as articles from relevant trade journals; relied on
    perspectives gained from our past work on transportation finance; and
    analyzed relevant studies and reports issued by transportation experts. To
    identify the issues related to the transportation system in terms of
    funding and mobility, we analyzed data on population patterns and growth
    from U.S. Census reports and vehicle miles traveled and motor fuel tax
    trends from the Federal Highway Administration's (FHWA) Highway Statistics
    reports  for 1982 to 2004. We also analyzed data from the 2005 Urban
    Mobility Report1 to determine congestion levels and congestion costs for
    selected cities in the United States. To supplement the information
    obtained through our literature review, we interviewed officials of the
    American Automobile Association; International Bridge, Tunnel and Turnpike
    Association; the American Association of State Highway and Transportation
    Officials; and the Environmental Defense Fund.

    To determine the extent to which tolling is being used in the United
    States, we designed and administered an Internet survey of state
    department of transportation (DOT) officials and performed a correlation
    analysis to examine the extent to which state financial and demographic
    characteristics are associated with their status on using tolling. (For
    more information about the correlation analysis, refer to app. II.) Our
    review focused on toll roads and therefore, did not include toll bridges
    and tunnels.

    Survey. The questionnaire asked about each state's current and planned
    toll road facilities. We sent the questionnaire to the directors of state
    DOTs in 49 states and Washington, D.C. We did not send a questionnaire to
    the Louisiana DOT because we administered our survey only a few weeks
    after Hurricane Katrina struck New Orleans and the Gulf Coast.

    To minimize nonsampling error, such as measurement errors that can be
    introduced when respondents do not understand questions or when they do
    not have information to answer a particular question, we undertook several
    quality assurance steps. Our social science survey specialists designed
    draft questionnaires and conducted pretests with state DOT officials in
    four states. During these pretests, we assessed the extent to which
    respondents interpreted questions and response categories consistently,
    the time respondents needed to complete the survey, and the extent to
    which respondents had the information needed to answer the survey
    questions. Using the results of these pretests, we revised the
    questionnaire.

    We administered the survey to the directors of state DOTs via the Internet
    during September and October 2005, e-mailing the directors a Web link to
    our questionnaire and requesting that they or their designees complete it.
    We received responses from 49 states and Washington, D.C.-a 100 percent
    response rate. We analyzed the data using statistical software.

    We compared the responses to key survey questions with information
    obtained from our interviews with state DOT officials and from state
    applications to the FHWA's tolling pilot program. In four instances, data
    from these sources were inconsistent. We contacted DOT officials in these
    states to resolve these inconsistencies and adjusted the survey results
    accordingly.

    Semistructured interviews.  To determine the reasons states use or do not
    use tolling, the challenges to tolling, and the strategies that have been
    used to address the challenges, we conducted semistructured interviews
    with state transportation officials from all states except Louisiana, and
    interviewed stakeholders in six states that we visited to determine the
    reasons states use or do not use the approach, the challenges to using the
    approach, and the strategies that have been used to address the
    challenges. We did not gather information directly from the public.

    We developed a set of questions to ask in semistructured interviews of
    state transportation officials to gain more detailed information on
    states' reasons for tolling or not tolling and the challenges states face
    in tolling. Having visited 6 states and interviewing transportation
    officials there, and excluding Louisiana, we conducted semistructured
    interviews from the remaining states. We did not interview transportation
    officials in Louisiana because our semistructured interviews were
    conducted shortly after Hurricane Katrina struck New Orleans and the Gulf
    Coast. To determine the appropriate state official to interview in each
    state, we relied on information from FHWA Division Administrators for the
    respective states. After gathering the information from FHWA, we contacted
    and interviewed the state officials and conducted our interviews. We
    analyzed the data from the semistructured to identify major themes.

    Site visits. To supplement information from our survey and semistructured
    interviews, we visited six states that were in various stages of planning
    or constructing diverse types of toll projects. We selected the states for
    their diversity in terms of geography, transportation needs, and tolling
    plans. The states were Minnesota, Mississippi, Missouri, Oregon, Texas,
    and Virginia. We visited those six states to obtain more detailed
    information on the challenges states are encountering and the strategies
    states employ or are considering employing to toll. We judgmentally
    selected four states where tolling was either planned or under way and two
    states where tolling had been proposed and rejected by a vote of either
    the citizens or the legislature. During our site visits, we interviewed
    state, local, and FHWA officials.

    To identify strategies that can be used to address the challenges to
    tolling, we analyzed the results of our review on tolling efforts and
    built on the perspectives gained from our past work on federal investment
    strategies. We also analyzed reports and studies issued by transportation
    experts and academia on finance reform to identify broad strategies that
    can be used to help transportation officials adopt and implement a tolling
    approach.

    We performed our work from June 2005 through June 2006 in accordance with
    generally accepted government auditing standards.

    Appendix II

    Correlation Analysis

    To identify state characteristics that are linked with states' decisions
    to toll roads, we performed a correlation analysis that examined the
    relationship between those decisions and various state demographic and
    financial characteristics. These characteristics included, but were not
    limited to, population; per-capita income; gross state product; vehicle
    miles traveled; capital expenditures on highways; and local, state, and
    federal highway trust fund appropriations. To perform this analysis, we
    updated the data that we had collected from the Federal Highway
    Administration (FHWA) and Bureau of Economic Analysis (BEA) for our
    previous reports,1 and converted them to inflation-adjusted 2004 dollars
    using BEA's chain-type price index for gross domestic product (GDP), as
    well as its state highway and streets chain-type price index. For those
    characteristics that represented measures of change, we used the changes
    in these factors from 1990 to 2000 to be consistent with the years when
    the U.S. Census of Population and Housing was conducted and, for those
    characteristics that represented measures of levels, we used data from
    2002. We chose 2002 because data for some characteristics were not
    available for more recent years. We divided states into two groups,
    tolling and nontolling, based on information gathered from our state
    survey and FHWA documentation. We considered the associations between
    tolling and nontolling with each demographic or financial characteristic
    singly and did not control for the effects of other characteristics on
    these tolling decisions (as we would do in a multivariate analysis). For
    this reason, the results of our correlation analysis indicate a simple
    statistical relationship between tolling status and a study characteristic
    and do not imply causality. Interactions may be more complex when multiple
    characteristics are simultaneously associated with tolling status. In
    addition, our results may be sensitive to how we defined tolling status.

    Although certain characteristics in a state's finances and tax policies
    might be related to financial need, our correlation analysis found only
    limited relationships between various state demographic and financial
    measures and whether states are and are not planning toll roads. (See
    table 3.) For example, we found the following:

    o There is wide variation in state motor fuel tax rates among the states,
    ranging, as discussed earlier, from 7.5 cents to 28.1 cents per gallon in
    2002, and we investigated whether state motor fuel tax rates are
    correlated with decisions to toll. While a slight inverse relationship
    exists between a state's decision to toll and the level of its motor fuel
    taxes, the slightness of this relationship suggests that states planning
    toll roads are not much more likely to be the ones with lower motor fuel
    tax rates than other states.

    o While state incomes vary greatly, a state with higher motor fuel tax
    rates is also more likely to have higher fuel tax revenues as a percentage
    of its gross state product than states with lower motor fuel tax rates. As
    with fuel tax rates, a slight inverse relationship exists between a
    state's decision to toll and the level of its fuel tax revenues as a
    percentage of its gross state product. However, the slightness of this
    relationship suggests that states planning toll roads are not much more
    likely to be the ones with lower fuel tax revenues as a percentage of
    their gross state product than other states.

    o The extent to which motor fuel taxes are disbursed to nontransportation
    uses could contribute to what state officials characterized as general
    shortfalls in highway funding. The relationship between states planning
    toll roads and the use of motor-fuel tax revenue is only slight,
    suggesting that states planning toll roads are not much more likely to
    have more of their fuel tax revenues used for nontransportation programs
    than other states.

    Although there appears to be little relationship between state finance and
    tax policy characteristics and tolling, our analysis indicates that there
    are some other factors that are related to states' decisions on tolling.
    For example, both the size of the state, whether measured by population or
    by vehicle miles traveled (VMT), and whether it is growing rapidly, again
    measured by population or VMT growth, are directly related to states'
    decisions to toll. These relationships are consistent with statements made
    by state transportation officials on the use of tolling to fund highways
    due to increasing demand for highway travel. In addition, our analysis
    revealed a relationship between federal funding and a state's decision to
    toll. Each state collects federal motor fuel taxes that are deposited into
    the Highway Trust Fund and receives grants through the federal-aid highway
    program according to formulas specified in law. The states that are
    planning toll roads are moderately associated with the federal-aid "donor
    states"-those states that contribute more to the Highway Trust Fund than
    they receive in federal highway grants. Thus, donor states are
    statistically more likely to be planning toll roads than donee
    states-those states that receive more in grants than they collect.

    Table 3: Results of Correlation Analysis

                            Factors                             Decision to tolla

                                                          correlation coefficient

                                                         (number of observations)
    Motor fuel tax rate (in cents per gallon)                      -0.052 (51)
    Fuel tax revenue as percent of gross state                     -0.005 (51)
    product
    Percent of fuel tax revenues used for nonhighway              -0.095 (50)b
    purposes
    Population                                                      0.309 (51)
    Percentage change in population                                 0.140 (51)
    Vehicle miles traveled (in millions)                            0.368 (51)
    Percentage change in vehicle miles traveled                     0.295 (51)
    Highway Trust Fund apportionment/payment ratio                 -0.319 (51)

    Source: GAO.

    Note: Data from 2002 were used in the correlation analysis, except for the
    percentage change in population and the percentage change in vehicle miles
    traveled, both of which measure values in 2000 against values in 1990.
    Motor fuel tax rates were expressed in 2004 dollars. It is worth noting
    that the correlation coefficient indicates a statistical association
    between the study variable and tolling/nontolling status of a state
    without controlling for the effects of other characteristics on these
    tolling decisions as in a multivariate analysis.

    a1=yes, 0=no.

    bWe did not include data for the District of Columbia.

    Appendix III

    Survey Questions

    Current Toll Road Facilities

    Question 1: Are there any toll road facilities in your state? Please do
    not count any tolled bridges or tunnels as toll roads. 1. Yes 2. No (Skip
    to question 10.)

    Question 2: Are any of these facilities new roads that were built on new
    alignments? 1. Yes 2. No

    Question 3: Were any of these facilities previously untolled? 1. Yes 2. No

    Question 4: Are any of these facilities new lanes added to roadways that
    were previously untolled? 1. Yes 2. No

    Question 5: Are any of these facilities HOT lanes (in which single
    occupancy vehicles can gain access to HOV lanes by paying a toll)? 1. Yes
    2. No

    Question 6: Do any of these facilities charge tolls that vary by time of
    day? 1. Yes 2. No

    Question 7: In what year did the first toll road facility in your state
    open to traffic? (Please do not consider facilities that opened before
    1938.)

    Question 8: In what year did the most recent toll road facility in your
    state open to traffic? (Please do not consider facilities that opened
    before 1938.)

    Question 9: Which of the following agencies participate in managing the
    toll road facilities in your state? 1. State Department of Transportation
    2. Public toll authority 3. Other state agency 4. Local or regional
    government agency 5. Private entity

    Planned Toll Road Facilities

    Question 10: Are there plans in your state to build any toll road
    facilities for which an Environmental Review and a Record of Decision have
    been completed? 1. Yes 2. No (Skip to question 19.)

    Question 11: Are any of these facilities in the design or right-of-way
    stage? 1. Yes 2. No

    Question 12: Are any of these facilities in the construction phase? 1. Yes
    2. No

    Question 13: Are there plans for any of these facilities to be new roads
    built on new alignments? 1. Yes 2. No

    Question 14: Are there plans to toll a roadway that is currently untolled?
    1. Yes 2. No

    Question 15: Are there plans for any of these facilities to be new lanes
    added to roadways that are currently untolled? 1. Yes 2. No

    Question 16: Are there plans for any of these facilities to be HOT lanes
    (in which single occupancy vehicles can gain access to HOV lanes by paying
    a toll)? 1. Yes 2. No

    Question 17: Are there plans for any of these facilities to charge tolls
    that vary by time of day? 1. Yes 2. No

    Question 18: Which of the following agencies would participate in managing
    these planned toll road facilities? 1. State Department of Transportation
    2. Public toll authority 3. Other state agency 4. Local or regional
    government agency 5. Private entity

    Final Questions

    Question 19: Are there plans in your state to build any toll road
    facilities for which an Environmental Review or a Record of Decision have
    NOT been completed? 1. Yes 2. No

    Appendix IV

    GAO Contact and Staff Acknowledgments

    GAO Contact

    JayEtta Z. Hecker (202)512-2834

    Staff
    Acknowledgments

    In addition to the individual named above, Steve Cohen, Assistant
    Director; Mark Braza; Jay Cherlow; Bess Eisenstadt; Simon Galed; Moses
    Garcia; Bert Japikse; Terence Lam; Liz McNally; and Don Watson made key
    contributions to this report.

    (544101)

    www.gao.gov/cgi-bin/getrpt? GAO-06-554 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact JayEtta Z. Hecker at (202)512-2834 or
    heckerj@gao.gov.

    Highlights of GAO-06-554 , a report to congressional requesters

    June 2006

    HIGHWAY FINANCE

    States' Expanding Use of Tolling Illustrates Diverse Challenges and
    Strategies

    Congestion is increasing rapidly across the nation and freight traffic is
    expected to almost double in 20 years. In many places, decision makers
    cannot simply build their way out of congestion, and traditional revenue
    sources may not be sustainable. As the baby boom generation retires and
    the costs of federal entitlement programs rise, sustained, large-scale
    increases in federal highway grants seem unlikely. To provide the robust
    growth that many transportation advocates believe is required to meet the
    nation's mobility needs, state and local decision makers in virtually all
    states are seeking alternative funding approaches. Tolling (charging a fee
    for the use of a highway facility) provides a set of approaches that are
    increasingly receiving closer attention and consideration. This report
    examines tolling from a number of perspectives, namely: (1) the promise of
    tolling to enhance mobility and finance highway transportation, (2) the
    extent to which tolling is being used and the reasons states are using or
    not using this approach, (3) the challenges states face in implementing
    tolling, and (4) strategies that can be used to help states address
    tolling challenges.

    GAO is not making any recommendations. GAO provided a draft of this report
    to U.S. Department of Transportation (DOT) officials for comment. DOT
    officials generally agreed with the information provided.

    Tolling has promise as an approach to enhance mobility and finance
    transportation. Tolling can potentially enhance mobility by reducing
    congestion and the demand for roads when tolls vary according to
    congestion to maintain a predetermined level of service. Such tolls can
    create incentives for drivers to avoid driving alone in congested
    conditions when making driving decisions. In response, drivers may choose
    to share rides, use public transportation, travel at less congested times,
    or travel on less congested routes, if available. Tolling also has the
    potential to provide new revenues, promote more effective investment
    strategies, and better target spending for new and expanded capacity.
    Tolling can also potentially leverage existing revenue sources by
    increasing private-sector participation and investment.

    Over half of the states in the nation have or are planning toll roads to
    respond to what officials describe as shortfalls in transportation
    funding, to finance new highway capacity, and to manage road congestion.
    While the number of states that are tolling or plan to toll has grown
    since the completion of the Interstate Highway System, and many states
    currently have major new capacity projects under way, many states report
    no current plans to introduce tolling because the need for new capacity
    does not exist, the approach would not generate sufficient revenues, or
    they have made other choices.

    According to state transportation officials who were interviewed as part
    of GAO's nationwide review, substantive challenges exist to implementing
    tolling. For example, securing public and political support can prove
    difficult when the public and political leaders argue that tolling is a
    form of double taxation, is unreasonable because tolls do not usually
    cover the full costs of projects, and is unfair to certain groups. Other
    challenges include obtaining sufficient statutory authority to toll,
    adequately addressing the traffic diversion that might result when
    motorists seek to avoid toll facilities, and coordinating with other
    states or jurisdictions on tolling projects.

    GAO's review of how states implement tolling suggests three strategies
    that can help facilitate tolling. First, some states have developed
    policies and laws that facilitate tolling. For example, Texas enacted
    legislation that enables transportation officials to expand tolling in the
    state and leverage tax dollars by allowing state highway funds to be
    combined with other funds. Second, states that have successfully advanced
    tolling projects have provided strong leadership to advocate and build
    support for specific projects. In Minnesota, a task force was convened to
    explore tolling and ultimately supported and recommended a tolling
    project. Finally, tolling approaches that provided tangible benefits
    appear to be more likely to be accepted than projects that offer no new
    tangible benefits or choice to users. For example, in California, toll
    prices on the Interstate 15 toll facility are set to keep traffic flowing
    freely in the toll lanes.
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