Managing congestion with market-based strategies may be the wave of the future.

Airlines use it. So do hotels, telephone companies, and even some restaurants and movie theaters. What these industries have in common is that they all use prices to help manage demand for their services. And now transportation officials in several States are using the same market-based strategies, known as value pricing.

Essentially, value pricing is a way of harnessing the power of the marketplace to reduce traffic congestion and improve the environment. These pricing strategies are also an innovative way to finance improvements to highway facilities or add transportation options like bus rapid transit. In a report titled Curbing Gridlock: Peak-Period Fees to Relieve Traffic Congestion, the National Academy of Sciences views pricing as a powerful persuader for car­pooling, using mass transit, telecom­muting, altering travel times, and combining trips.             

The U.S. Congress established the Value Pricing Pilot Program in 1998 under the Transportation Equity Act for the 21st Century (TEA-21). The program provided Federal funds to establish, maintain, and monitor value-pricing projects—about $26 million through fiscal year 2002 for more than 30 projects in 12 States. In addition, approximately $30 million was expended for several projects under the predecessor Congestion Pricing Pilot Program established in 1991 by the Inter­modal Surface Transportation Efficiency Act.

Early successes are encouraging State departments of transportation (DOTs) to take a close look at this strategy. As Secretary of Transportation Doug MacDonald of the State of Washington, puts it: "System efficiency remains the key concern for transportation officials, and value pricing promises to improve efficiency . . . Available funding resources for transportation are not sufficient. Given the sobering picture of increased demand and increased social and economic costs to expansion, as well as decreased investment, it is necessary to change the course of thinking about transportation finance."

New Tolls on Existing Toll-Free Facilities

On high-occupancy/toll (HOT) lanes, low-occupancy vehicles are charged a toll, while high-occupancy vehicles (HOVs) are allowed to use the lanes free or at a discounted rate. HOT lanes currently operate in San Diego, CA, and Houston, TX.

Under the San Diego pricing program that began in 1996,motorists in single-occupant vehicles pay a toll each time they use the I-15 HOV lanes. The HOT lanes were the brainchild of Jan Goldsmith, former assemblyman and mayor of Poway, CA. "There was a lot of resistance to the idea of letting people buy their way out of traffic," he says. He pressed ahead anyway. Despite early resistance, a recent survey taken after several years of HOT lane operation showed that the vast majority of users and non-users consider the HOT lanes to be fair. Moreover, their top choice for further reducing congestion was extending the HOT lanes, an option that was much preferred over additional general purpose lanes.

On the I-15 HOT lanes, fees are collected electronically and can vary in 25-cent increments as often as every 6 minutes to help maintain free-flowing traffic. Motorists are informed of the toll rate changes through variable message signs located in advance of the entry points.

The HOT lanes now generate about $2 million per year. "Toll revenues are supporting express bus service in the corridor, in addition to all operation costs of the HOT lanes, including police enforcement," says Heather Werdick, associate transportation planner for San Diego's Association of Governments.

Houston's QuickRide pricing program was implemented on the existing reversible HOV lane of the Katy Freeway (I-10) in January 1998 and on US 290 in November 2000. The program allows a limited number of two-person carpools to buy into a lane previously restricted to carpools with three or more persons during peak travel periods. Participating two-person vehicles pay a $2 per trip toll. Revenues from several hundred vehicles each day pay for operating the program.

In other examples, existing HOV lanes are being studied for conversion to HOT lanes in the San Francisco Bay area on I-680; in Denver, CO, on I-25/US 36; in the Washington, DC, metropolitan area; and in Minneapolis-St. Paul, MN.

"We need to rethink how we manage congestion," says Minnesota State Senator Ann Rest. "I can see myself paying a fee to use the lanes when late for committee meetings in St. Paul."

Some criticize HOT lanes as "Lexus lanes" for the wealthy, viewing them as being priced beyond some motorists' abilities to pay. In June 2001, Maryland's then-Governor Parris Glendening raised the equity issue when he halted a test of HOT lanes on Route 50 in the suburbs of Washington, DC. As reported in The Washington Post on June 25, 2001, he said, "If you are well-off financially and want to pay $4 or $5 a day to avoid congestion, then you get to use the lanes. But if you're a working person out there making $35,000 a year, an extra $25 per week is a lot of money."

Another approach is applying tolls on all lanes of existing free roads, not just HOV lanes. Fort Myers Beach, an island community in Lee County, FL, that faces a heavy influx of visitors each tourist season, is considering the option of pricing the existing toll-free lanes on the roads that access the island. Lee County Commissioner John Albionis a strong advocate of value pricing. "Drivers are already paying a hidden tax in the form of fuel burned while in traffic, as well as time lost," he says. "Value pricing comes down to providing an alternative. The fact is, the cost of doing nothing is prohibitive. It is important to find ways of getting more use out of existing capacity."

An innovative concept called "FAIR" (Fast and Intertwined Regular) lanes attempts to overcome public resistance. Under this idea, congested freeways are separated into fast lanes and regular lanes. The fast lanes are electronically tolled, with tolls set dynamically in real time to ensure that traffic moves at the maximum allowable free-flow speed. Users of the regular lanes still face congested conditions but are eligible to receive credits if their vehicles have electronic toll tags. Accumulated credits can be used as toll payments on days they choose to use the fast lanes, or as payment for transit or paratransit (shuttle van) services.

A feasibility study involving FAIR lanes is underway in Alameda County, CA, in the San Francisco Bay area. FAIR lanes also are being studied at freeway entrance ramps on Highway 217 in Portland, OR, and as an alternative to HOT lanes on the Katy Freeway in Houston, TX.

Variable Tolls on New Lanes

With State and local budget cuts and unsuccessful attempts to fund transportation improvements through taxation, interest in finding ways to finance additions to existing highways is increasing. Value pricing is one option. Priced new express lanes are under consideration in many States—for C-470 in Denver, CO; I-40 in the Raleigh-Durham and Piedmont areas of North Carolina; Highway 217 in Portland, OR; the LBJ Freeway (I-635) in Dallas; and an expansion of the Katy Freeway (I-10) in Houston.

"It comes down to providing more options for commuters and more solutions to combat the gridlock grind," says Texas Governor Rick Perry. "Commuters of Houston will be the very first in Texas to experience tollways on an existing interstate. It will represent the best of both worlds—several free lanes for those who don't want to pay a toll and tollways for those who want to bypass traffic."

Priced express lanes opened in 1995 in the median of one section of SR 91 in Orange County, CA, one of the most heavily congested highways in the United States. The toll lanes are separated from the general purpose lanes by a painted buffer and plastic pylons.

As of November 1, 2001, tolls on the express lanes varied between $1 and $4.75, set by time of day to reflect the level of congestion delay avoided. All vehicles must have a FasTrakª transponder (an electronic tag mounted on the vehicle's windshield) to travel on the express lanes. Vehicles with three or more occupants may travel toll-free as of May 19, 2003. Toll revenues have been adequate to pay for construction and operating costs.

Based on traffic data from the operator, vehicle throughput is 33 percent higher per express lane, relative to the regular lanes, during heavily congested periods. The express lanes carry 40 percent of total traffic even though they comprise only one-third of the total capacity.

"There's good data now that everyone values their time," says Dan Beal,of the Automobile Club of Southern California, the country's largest American Automobile Association (AAA) affiliate. "You don't have to be wealthy to value your time. People use it when it's best for them."

Variable Tolls on Toll Facilities

Under this form of pricing, tolls on congested toll roads vary by time of day, encouraging some travelers to use the highway during less congested periods, change routes, or shift to another mode of transportation. With fewer people traveling during congested periods, the remaining travelers in peak periods experience decreased delays.

Toll facilities in California, Florida, New Jersey, and New York have implemented variable tolls. Three additional projects are under consideration—for the Pennsylvania Turnpike and Florida's Turnpike and Sawgrass Expressway.

In August 1998,Lee County, FL, implemented a value-pricing strategy on two toll bridges between Fort Myers and Cape Coral. The project offered bridge users a discount toll during times before and after the peak traffic periods. The program successfully induced significant shifts in traffic out of the peak congestion period. Surveys by the University of South Florida indicate that more than 71 percent of eligible motorists (such as those with vehicle transponders) shifted their time of travel at least once a week to obtain a toll discount amounting to just 25 cents.

In March 2001, the Port Authority of New York and New Jersey adopted a variable toll strategy for users of its electronic toll collection system (E-ZPassSM). The Port Authority provides a 20 percent discount for off-peak tolls on bridges and tunnels crossing the Hudson River.

Former Port Authority Chief Operating Officer Ernesto Butcher says, "We urge our regional employers to encourage their workers to take advantage of the off-peak discounts and mass transit alternatives whenever possible. By removing some commuters from the peak period, we can work to improve traffic flow at all of the crossings."

Studies show that morning peak period traffic in May 2001 experienced reductions of 7 percent when compared with the traffic count from the same month in 2000. Evening peak traffic dropped by 4 percent, and overall traffic remained stable.

The New Jersey Turnpike Authority began a variable pricing program in the fall of 2000. The program provides for tolls that are about 7 percent lower during off-peak hours than during peak periods for users of the electronic toll collection system. The price differential is scheduled to increase in phases over several years.

The turnpike embarked on a very modest beginning so that the public could become acquainted with the program. Value pricing is more effective with greater price differentials; however, greater price differentials also create greater potential problems for gaining public acceptance.

The introduction of variable tolls on the New Jersey Turnpike has improved traffic flow and provided associated reductions in air pollution and energy consumption. Preliminary data show that value pricing is working to shift traffic out of the peak period. Most of the recent growth has been in the off-peak hours, with total traffic up by around 7 percent, but morning peak traffic up by only 6 percent and afternoon peak traffic up by only 4 percent.

AAA spokesman Mantill Williams is not convinced of the fairness of charging more to travel during peak periods. "The reason people travel during rush hour is because it's a condition of their work or family," he says. "The issue is whether 'congestion fees' are an option motorists choose, or a punishment when they have no choice."

Usage-Based Vehicle Charges

Seeking alternatives to conventional tolling techniques, several innovative pilot projects are using the vehicle rather than the roadway as the basis for user charges. This year the Minnesota DOT began a demonstration of mileage-based automotive leasing, which will simulate changes in vehicle lease pricing that substantially reduce fixed lease costs but charge for every mile of travel.

In a pilot test of global positioning system-based pricing in the Puget Sound Region of Washington State, meters will be placed in the vehicles of volunteers so that different charges can be imposed depending on the location and time of travel. An integrated GPS antenna/receiver will be used to record the usage.

A task force formed by the Oregon DOT was charged with considering potential revenue sources to replace the fuel tax as the primary funding source for the State's highway system. The task force decided to go forward with a test of mileage-based road user fees. A vehicle miles-traveled fee will be collected at the fuel pump, with data generated by either a GPS device or odometer sensor with automated vehicle identification technology.

Regional Pricing Initiatives

In recent years, several metropolitan areas have completed or initiated efforts to assess the feasibility of regional pricing programs. Portland, OR, completed a regional pricing study in 2000, which led to selection of HOT lanes on Highway 217 as its first pilot proposal. Phoenix, AZ, completed a regional study in 2002, and studies are underway in Maryland (including Baltimore and the Washington, DC, suburbs), the Twin Cities of Minnesota, and Dallas, TX.

"Our intention is to promote the value-pricing concept from long-range planning policy into an operational environment as quickly as possible," says Wes Beckham,transportation engineer at the North Central Texas Council of Governments in Dallas. "To make this happen, we are currently evaluating the feasibility of value pricing within our region, and then, assuming we receive positive feedback, we plan to undertake a demonstration project to prove the concept. At the same time, we are identifying corridors for potential long-term implementation as part of the metropolitan transportation plan."

Paving the Way for Nationwide Acceptance

Value pricing is not an appropriate tool to address every congestion problem. It is difficult to introduce tolls on roadways that have unrestricted access. Even where pricing may be technically feasible, public acceptance can be a hurdle.

Key features of successful efforts include a focus on coalition building and support from political leaders. Former Minnesota State Senator Carol Flynn stresses the importance of involving as many people as possible. "We've tried everything else, but congestion just gets worse, and transportation funding continues to be a problem, so we decided to look at value pricing as a solution," she says. "Political leaders need to get involved in this issue if they are serious about tackling the problem of congestion and paying for transportation."

Equity and public acceptance have been issues with HOT lane proposals on Route 50 in the Washington suburbs of Maryland and on I-394 in the Twin Cities, MN. Lon Anderson, a spokesman for AAA Mid-Atlantic, expresses some of the concerns. "I think we have the possibility here of creating two classes of travelers," he says. "I thought when we paid for our roads, the idea was that everyone should be able to move."

To help address equity issues, pricing may need to be combined with some form of direct benefits to those who pay tolls or those who give up the right to use facilities that formerly were provided without charge. Such incentives can take a number of forms, including provision of alternative transportation services such as transit, "life line" toll credits similar to credits provided to low-income public utility customers, tax credits to low-income commuters toward tolls paid by them on value-priced lanes, or toll credits for those who choose not to use value-priced lanes.

"One lesson for Minnesota DOT planners is that people should be able to use a toll lane on an as-needed basis," says Ken Buckeye of the Office of Investment Management at MNDOT. "I think that would be largely the key to making it work."

A Promising Alternative

Existing projects have demonstrated the feasibility and effectiveness of value-pricing strategies. Value pricing has resulted in improved traffic flow, fuel savings, and reductions in air pollution; improved use of capacity on underutilized HOV lanes; funding for new capacity; prevention of congestion on new roads; and new mobility options for travelers, including transit services funded from toll revenues.

Despite the many benefits, public acceptance is a significant hurdle, except perhaps in areas where motorists are familiar with an operational project. With major efforts to communicate the benefits to the public, value pricing holds promise for addressing the transportation issues that metropolitan areas face over the coming years.

Patrick DeCorla-Souza is the team leader of FHWA's Highway Pricing and System Analysis Team at the Office of Transportation Policy Studies. Angela Jacobs and Shannon Ballard are members of the team, and Theresa Smith is a former member. The team works with State and local government partners in 12 States to implement innovative pricing strategies.

For more details on value pricing, visit: www.ops.fhwa.dot.gov/tolling_pricing/value_pricing/index.htm.