A lesson from Washington D.C. on private toll roads

Washington D.C.’s decision to allow a private operator to build and operate dynamic toll lanes is the type of thinking needed to tackle congestion in Toronto.

Toronto should look to the U.S. capital for a lesson on how to implement dynamic tolling to clear its congested highways.

Ten years ago, policymakers and drivers in Washington D.C. were faced with what appeared to be an insurmountable problem: congestion. The city’s Beltway – completed in 1964 and originally designed to handle traffic bypassing city, but had since become an integral component of the region’s transportation infrastructure – suffered the double threat of ever-increasing traffic jams and a growing city. Simply adding more lanes was too expensive and merely a short-term solution to a long-term problem.

So policymakers took a risk and reached out to the private sector to see if it could come up with a different (and cheaper) solution to try and solve the region’s gridlock. What came out of those discussions was an agreement with two companies, Transurban and Fluor, to build and operate a set of dynamic toll lanes on a 14-mile stretch of the Beltway.

While other cities in the U.S. had turned to dynamic tolling to try and get a handle on congestion, no government had reached out to the private sector to both construct and operate it.

The total cost of building the project was $2 billion, with $1.5 billion coming from private equity and debt.

Better still for the region’s taxpayers, much of the financial risk – ranging from the threat of soaring construction costs to less-than-expected toll revenue over the duration of the agreement – was transferred from the public to the private sector.

As part of the deal, the companies had the right to charge tolls on the new highway for the next 80 years. In order to protect taxpayers from the threat of leaving money on the table, the companies agreed to share profits with the government if the total return on investment exceeded an agreed on upon level.

The toll road came into operation in November of last year and has steadily gained traction among the region’s drivers – with toll revenue in the most recent quarter ending in June up more than 60 percent from the previous quarter. The final workday in the quarter – June 28 – actually brought in a record $78,155 US in revenue on more than 42,000 trips.

The speed limit in the new lanes was also recently moved higher to 65 miles per hour (mph) from its previous level of 55 mph (the current limit for the non-tolled lanes).

And while the project has suffered some criticism that it will create equity issues – so-called Lexus lanes – previous studies have show that over time the use of dynamic toll lanes is essentially even across different income groups.

But more importantly for Toronto, the experiment in Washington provides a template to change the current model of top-down control that has characterized Toronto’s highways ever since they were first built. Congestion currently costs Toronto between $6 billion to as much as $11 billion annually, with no end to the traffic jams in sight.

And according to one survey, half of Canadians say they are willing to pay tolls if it means fewer traffic jams and a faster commute to work.

While politicians at all levels of government battle over ways to solve the city’s congestion woes, few – if any – are considering the kind innovative approach taken in Washington D.C.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org