New ideas to better the Old Line State
A Better Way to Pay for ICC
Orginially Published in The Baltimore Sun
By Peter Samuel
Published on Tuesday, January 06, 2004
OP-EDS
The 1,519 page Draft Environmental Impact Statement (DEIS) on the Inter County Connector (ICC) does a masterful job in making the case for this important road and advancing the process of design of the road so it minimizes impacts.
We are less well served by its cursory treatment of financing. Officials seem to have avoided any real work on the financing of the road—though state officials constantly make the assertion that tolls will only partly finance it—and very substantial sums, even the majority, will need to come from federal grants, gas taxes and various ingenious, but onerous, borrowings. That is almost certainly wrong and the DEIS contains important pointers to this error.
The DEIS has traffic forecasts which suggest about 400 million vehicle-miles per year. At the suggested toll rates averaging 15 cents a mile this is a projected toll revenue of about $60 million a year.
The Chicago Skyway, which has toll revenues of $44 million, has been sold to investors Cintra and Macquarie, two international tollroad groups, for $1,820 million. Simple arithmetic suggests investors applying a similar bid/revenue ratio to the ICC would put $2,480 million into it in competitive bids of the kind initiated last year by the City of Chicago. In other words, since $2,480 million would cover the costs of the ICC, they would build it without requiring the state to get into the pockets of taxpayers, or put us in debt.
Further, that 15 cents a mile (13 cents off-peak, 17 cents peak) is an average figure for tolls on newer North American toll roads. It is a good toll rate for a cautious bureaucrat to name. It can be politically justified as "average." But much higher toll rates are justified by likely willingness to pay to avoid congestion, especially in the quite long peak hours. Montgomery County isn't an average area in North America. It is well above average in income, in levels of traffic congestion, and therefore in the potential toll that people here will pay for time saved on the tollroad.
Median household income where the road is located in Montgomery County was estimated in the 2000 census at $71,600, which means by now it is around $80,000—an average hourly wage of $39.60. In the tollroad business optimal tolls are usually set assuming that the value of time saved is around half the average wage, in this case $19.80/hour. Thus, toll revenues will maximize with a trip that saves say thirty minutes at a toll of $9.90.
I chose thirty minutes because it is the timesavings forecast in the DIES model for trips the length of the ICC in peak hours. For example: Gaithersburg to BWI is projected at 114 minutes without the ICC, and 81 minutes by the ICC alternate. Shady Grove to Laurel is forecast at 64 minutes without the ICC, and 32 minutes by the ICC. If a 30 minutes saving is worth $9.90 and the road is 18 miles long, then the appropriate peak toll rate comes out to 55 cents a mile—three times the DEIS toll rate of 17 cents a mile!
Also, the DEIS presents estimates of the annual value of user benefits of the tollroad (Corridor 1 numbers) for 2030: time savings $250 million, vehicle operating costs $15 million, and reliability benefits $104 million. That makes total user benefits of $370 million ($310 million for Corridor 2) per year. The value of user benefits is a measure of the ceiling of potential toll revenues. Clearly the $60 million/year suggested by 17 cents a mile in 2004 dollars is way too low, drawing on only a sixth or a fifth of user benefits. The tollroad should be able to capture a third or a half of user benefits—that's $120 million or $180 million a year for Corridor 1 ($100 million to $150 million for Corridor 2). That's a quite healthy potential income flow to fully finance a project with a capital cost estimated between $1,933 million and $2,224 million.
State officials should cease their unfounded assertions that major taxpayer subsidies and state borrowings are needed to finance the ICC. They call for investor bids, as is routinely done in Australia, Europe, and Asia, and more recently in Texas and other states.
Peter Samuel is editor of the specialist web-based news service
http://www.tollroadsnews.com/ and works on tollroad analysis for Reason Public Policy Institute and Maryland Public Policy Institute. He is based in Frederick, Maryland.
