Congestion occurs when traffic demand approaches or exceeds the available capacity of the system. Highway travel demand continues to grow as population increases, particularly in metropolitan areas. Construction of new highway capacity to accommodate this growth in travel has not kept pace and traffic volumes are projected to continue growing. If nothing is done, congestion will worsen.
DOT Congestion Relief Initiative
In May 2006, the U.S. DOT Secretary announced the National Strategy to Reduce Congestion on America's Transportation Network. This strategy is often referred to as the Congestion Relief Initiative. The objective of the initiative is to reduce congestion, not simply to slow its increase. The document describes the costs and causes of congestion and presents DOT’s six-point plan for reducing congestion on roadways, railroads, runways, and waterways.
The six major components of the plan are: (1) Urban Partnership Agreements; (2) Public‑Private Partnerships; (3) Corridors of the Future; (4) Reducing Southern California Freight Congestion; (5) Reducing Border Congestion; and (6) Increasing Aviation Capacity. The six-point plan for addressing congestion relief is described in the U.S. DOT Congestion Initiative Web Site.
FHWA Congestion Relief Effort
FHWA has several high-priority efforts to help reduce highway congestion in support of the Congestion Relief Initiative. Information on these and other strategies are included in the Congestion Reduction Toolbox and are briefly discussed below
- Tolling and Pricing—See subsection below titled Tolling and Value Pricing.
- Public Private Partnerships—See subsection below titled Public-Private Partnerships.
- Real-Time Traveler Information—Real time travel information is information that travelers can access, understand, and act on to choose the most efficient mode and route to their final destination. Timely and detailed information about traffic incidents, the weather, construction activities, transit and special events improve travel time predictability and reduce congestion.
- Traffic Incident Management—Traffic incident management requires cooperation between various public agencies to reduce congestion by clearing accidents and removing stalled vehicles. FHWA is championing laws, policies, and practices that accelerate the clearance of major and minor incidents that create congestion.
- Work Zone Mobility and Highways for LIFE—The Work Zone Safety and Mobility Rule advocates stronger consideration and management of work zone safety and mobility impacts to reduce congestion during construction projects.
The Highways for LIFE Program, created under SAFETEA-LU, supports projects that accelerate the adoption of innovative technologies, manufacturing processes, financing, or contracting methods that improve safety, reduce congestion caused by construction, and improve quality can qualify for special funding. This program can fund up to 20 percent of project costs or a maximum of $5 million per project. The program is limited to 15 projects per year between 2005 and 2009.
- Traffic Signal Timing—Signals are initially timed, but often are not readjusted when traffic patterns change. This results in inefficiency and unnecessary delays. FHWA’s goal is to work with state and local agencies in congested metropolitan areas and encourage best practices for improved traffic signal timing.
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Public-private partnerships are not a new concept to transportation infrastructure development. The private sector historically had an important role in highway construction operation and financing, but this role declined in the mid-1800s. In the late 1980s, as Federal and state highway funding became more constrained, and as the need for highly efficient surface transportation systems continued to grow, the role of the private sector reemerged and is becoming a more used element of project delivery and streamlining.
DOT has adopted the following definition of a public-private partnership: A public-private partnership (P3) is a contractual agreement formed between a public agency and private sector entity that allows for greater private sector participation in the delivery of transportation projects than is traditional. The term “public-private partnership” is used for any scenario under which the private sector assumes a greater role in the planning, financing, design, construction, operation, and maintenance of a transportation facility compared to traditional procurement methods (e.g., Design-Bid-Build). The primary benefits of using P3s to deliver transportation projects include:
- Expedited completion compared to conventional project delivery methods;
- Project cost savings;
- Improved quality and system performance from the use of innovative materials and management techniques;
- Substitution of private resources and personnel for constrained public resources; and,
- Access to new sources of private capital.
There are several types of transportation P3s:
- Maintenance and Operation Fee Service Contracts are used for long-term maintenance and/or operation of an existing facility or system of facilities. The private sector typically is responsible for financing needed improvements and is paid a fee by the public sector for doing so. The fee may include performance incentives or disincentives.
- Program Management Fee Service Contracts involve public transportation owners transferring their program management responsibilities to private sector firms, particularly for large and complex projects. In addition to coordinating environmental studies and approvals, engineering tasks, and construction activities, many of today's private program management contracts involve financial planning as well.
- Design-Build Contracts are agreements that provide for design and construction of improvements by a contractor or private developer. The term encompasses design-build-maintain, design-build-operate, design-build-finance and other contracts that include services in addition to design and construction.
- The Build-Operate-Transfer (BOT)/Design Build Operate Maintain (DBOM) model is a partnership that combines the design and construction responsibilities of design-build procurements with operations and maintenance. These integrated P3s transfer design, construction, and operation of a single facility or group of assets to a private sector partner.
- The Design-Build-Finance-Operate-Transfer (DBFO) contracting method has the private sector responsible for all or a major part of project financing as well as facility design, construction, operation, and maintenance. Typically, the facility reverts to the state after a certain number of years. Revenues to the private sector can come from direct user charges, payments from the public sector, or both. Operations typically are covered by performance incentives, and contracts are required to include such things as maximum rate of return and maximum toll rates.
- Build-Own-Operate (BOO) is where a private contractor constructs and operates a facility while retaining ownership. The private sector is under no obligation to the government to purchase the facility or take title.
A comprehensive Report To Congress On Public-Private Partnerships, dated December 2004, prepared by DOT discusses the history and value of P3s, and impediments to their formation.
FHWA has developed a Public‑Private Partnerships Web site in response to the growing interest in P3s to plan, finance, build, and operate transportation infrastructure. This web site provides transportation professionals with information on a broad array of Transportation P3s. Special Experimental Project 15 (SEP-15) Program.
On October 6, 2004, FHWA initiated the Special Experimental Project 15 Program. SEP‑15 is a new experimental process for FHWA to identify, for trial evaluation, new P3 approaches to project delivery.
SEP-15 is aimed specifically at increased project management flexibility, more innovation, improved efficiency, timely project implementation, and new revenue streams. It allows the DOT to waive the requirements of Title 23 and the regulations under Title 23 on a case-by-case basis. SEP-15 allows FHWA to experiment in four major areas of project delivery – contracting, right-of-way acquisition, project finance, and compliance with NEPA and other environmental requirements. SEP-15 allows the DOT and the FHWA to explore changes in current laws, regulations, and practices that impede private investment in transportation improvements and to develop approaches to remove these impediments. FHWA plans to use the lessons learned from SEP-15 to develop more effective approaches to project planning, project development, finance, design, construction, maintenance, and operations (see Federal Highway Administration Special Experimental Project 15 Implementation Procedure)
Technical, Process, and Policy Challenges and Advances
Since public-private partnerships are not the usual way of developing, funding, or operating surface transportation projects, the use of these partnerships often encounters legal, financial, political, and cultural hurdles despite the benefits that such partnerships may bring to a project. Several examples of challenges and/or advances to P3s are discussed below. Additional information on other challenges and advances is included in Report To Congress On Public-Private Partnerships and on FHWA’s Public‑Private Partnerships Web site.
State Enabling Laws
Not all States allow the formation of public-private partnerships. According to FHWA, only 23 States have enacted statutes that enable the use of various P3 approaches for the development of transportation infrastructure. FHWA's State P3 Legislation website provides information for States to use to enact such laws, including key elements of State P3 enabling legislation for highway projects.
SAFETEA-LU streamlined the requirements for design-build projects in ways that will result in a savings in time and paperwork for most state DOT design-build projects. SAFETEA-LU removes the requirement that FHWA issue Special Experimental Project 14 (SEP-14) approval for design-build projects less than $50 million. The legislation also required DOT to issue revised regulations that allow award of a design-build contract and issuance of Notice to Proceed for preliminary design work before NEPA compliance is complete (see Design-Build Contracting Final Rule).
FHWA’s Public‑Private Partnerships Web site includes case studies of P3s established by many state DOTs.
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The term “innovative financing” covers a wide variety of non‑traditional techniques and methods involving the use of private funds or public funds to finance construction, maintenance, or operation of transportation facilities. Innovative finance techniques have been designed to bridge the investment gaps between available resources and infrastructure needs.
Transportation Infrastructure Finance and Innovation Act (TIFIA)
SAFETEA-LU continues the TIFIA credit program established under TEA-21. The program is designed to fill market gaps and leverage substantial private co-investment by providing projects with supplemental or subordinate debt.
The TIFIA program provides Federal credit assistance in the form of secured loans, loan guarantees, and lines of credit to states, local governments, and State Infrastructure Banks to finance nationally or regionally significant highway, transit, and rail projects. A total of $610 million was authorized through 2009 to pay the subsidy cost of supporting Federal credit under TIFIA. Under SAFETEA-LU, public-private partnerships and other legal entities undertaking a project can directly apply for TIFIA assistance.
SAFETEA-LU lowered the eligibility requirements to a project cost of $50 million, or 33 percent of a state’s annual Federal-aid apportionment, whichever is less. The threshold is $15 million for Intelligent Transportation System projects. Eligibility for TIFIA credit assistance was extended to include public freight rail facilities or private facilities providing public benefit for highway users; intermodal freight transfer facilities; and access to freight rail or intermodal freight.
Grant Anticipation Revenue Vehicle (GARVEE)
A Grant Anticipation Revenue Vehicle or GARVEE is a debt financing instrument, such as a bond, note, certificate, mortgage, or lease that enables States to pay for debt-related expenses with future Federal-aid highway apportionments. GARVEEs can be issued by a state, a political subdivision of a state, or a public authority for a wide variety of debt-related costs, such as interest payments and retirement of principal.
GARVEEs can facilitate the formation of public-private partnerships by making an immediate and reliable source of funds available for transportation projects in a way that could attract greater private sector involvement. In addition, by providing access to this additional funding, GARVEEs can enable States to move forward on a large number of projects within a compressed time period.
Generally, projects funded with the proceeds of a GARVEE debt instrument are subject to the same requirements as other Federal-aid projects except for the reimbursement process. Instead of reimbursing construction costs as they are incurred, the reimbursement of GARVEE project costs occurs when debt service is due. It is important to note that, to issue GARVEE bonds, States must have the appropriate state authorizations related to debt issuance.
Candidates for GARVEE financing are typically large projects (or a program of projects) that have the following characteristics:
- The costs of delay outweigh the costs of financing;
- Other borrowing approaches may not be feasible or are limited in capacity;
- No access to a revenue stream and other forms of repayment are not feasible; and
- The states are willing to reserve a portion of future year Federal-aid highway funds to satisfy debt service requirements.
State Infrastructure Banks (SIBs)
State Infrastructure Banks were initially authorized under the National Highway System Designation (NHS) Act of 1995. SAFETEA-LU established a new State Infrastructure Bank (SIB) program that gives States the capacity to increase the efficiency of their transportation investment and significantly leverage Federal resources by attracting non‑Federal public and private investment.
Under SAFETEA-LU, all States are now allowed the option to transfer 10 percent of its annual highway, transit, and rail apportionments to State Infrastructure Banks (SIBs). SIB loans can be used to help finance state transportation projects. Three SIB accounts may be established (highway, transit, and rail). Upon repayment, the SIB loans can be re-loaned to support other projects.
SAFETEA-LU also established a new SIB pilot program to provide various forms of non-grant assistance in the form of loans or credit enhancement to public or private entities for eligible projects.
Private Activity Bonds
To encourage additional private sector participation in the finance, design, construction, and operations of surface transportation infrastructure projects, SAFETEA-LU added highways and surface freight transfer facilities to the types of privately developed and operated projects for which qualified private activity bonds may be issued. This change allows additional private activity on these types of projects, while maintaining the tax-exempt status of the bonds. The law limits the total amount of such bonds to $15 billion. The $15 billion in exempt facility bonds is not subject to the state volume caps.
Providing private developers and operators with access to tax-exempt interest rates lowers the cost of capital significantly, enhancing investment prospects. Increasing the involvement of private investors in highway and freight projects generates new sources of money, ideas, and efficiency.
FHWA Innovative Finance Newsletter
The FHWA Innovative Finance Newsletter is published quarterly by FHWA. It provides information on the latest developments in Federally-sponsored innovative finance programs. It also includes descriptions of innovative projects and programs implemented by state DOTs and tracks legislative changes.
AASHTO Innovative Finance for Surface Transportation Web Site
Transportation-Finance.org provides information on federal, state, local, and private funding of highways, passenger rail and bus systems, intermodal links, intelligent transportation systems, and other related facilities, with an emphasis on innovative alternatives to traditional funding methods. Transportation-Finance.org is sponsored by AASHTO, with additional financial support provided by FHWA.
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Tolling and Pricing Programs
Tolling is the process of collecting revenue whereby road users are charged a fee per roadway use. Tolls may be collected on a flat-fee basis, time basis, or distance basis and may vary by type of vehicle. Value pricing, also known as congestion pricing or peak-period pricing, entails fees or tolls for road use which vary with the level of congestion. Fees are typically assessed electronically to eliminate delays associated with manual toll collection facilities.
SAFETEA-LU offered States a broader ability 1) to use tolling on a pilot or demonstration basis; 2) to finance Interstate construction and reconstruction; 3) to promote efficiency in the use of highways; and 4) support congestion reduction. In addition, the Value Pricing Pilot Program provides grants for pre-implementation and implementation costs. These programs are highlighted below.
Interstate System Reconstruction and Rehabilitation Pilot Program
SAFETEA-LU continued the authority established under TEA-21 to allow tolling on up to three existing Interstate facilities (highway, bridge, or tunnel), in cases where the costs to fund needed for reconstruction or rehabilitation on Interstate highway corridors are demonstrated to exceed available resources. Each of the three facilities must be in a different state.
Interstate System Construction Toll Pilot Program
SAFETEA –LU created a new pilot program that authorized a state or an interstate compact of state to collect tolls on a highway, bridge, or tunnel on the Interstate System for the purpose of financing the construction of new Interstate highways. This program is limited to up to three facilities on the Interstate System.
Among the eligibility criteria, there must be “an analysis demonstrating that financing the construction of the facility with the collection of tolls under the pilot program is the most efficient and economical way to advance the project.” The use of public-private partnerships to advance these pilot projects is clearly contemplated since SAFETEA-LU allows tolls to be used for, among other things, "reasonable return on investment of any private person financing the project."
Other program requirements include the following:
- There is no requirement that the facilities be in different states;
- A facility management plan must be submitted;
- Automatic toll collection is required;
- Non-compete agreements are prohibited. A state may not enter into an agreement with a private entity that prevents the state from improving or expanding capacity of adjacent roads to address conditions resulting from diverted traffic;
- Revenues may be used only for debt service, reasonable return on investment of private equity, and operation and maintenance costs. Regular audits will be conducted;
- Interstate Maintenance funds may not be used on the facility while it is tolled; and
- Applications must be submitted within 10 years of enactment of SAFETEA-LU.
Express Lanes Demonstration Program
SAFETEA-LU created a new Express Lanes Demonstration Program limited to 15 projects from 2005 through 2009 to manage congestion, reduce emissions in a nonattainment area, or finance added Interstate lanes for the purpose of reducing congestion. The law allows States, public authorities, or public or private entities designated by states to collect a toll from motor vehicles at an eligible toll facility for any highway, bridge, or tunnel, including on the Interstate. An “eligible toll facility” includes tolling of:
- Existing tolled facilities;
- Existing high occupancy vehicle (HOV) facilities;
- Facilities modified or constructed after the date of enactment of SAFETEA-LU to create additional tolled lane capacity (includes construction by a private entity or using private funds); or
- In the case of a new lane added to a previously non-tolled facility, only the new lane.
Program requirements include the following:
- Variable pricing by time-of-day or level of traffic, as appropriate to manage congestion or improve air quality, is required if an HOV facility is tolled; for a non-HOV facility, variable pricing is optional;
- Single-occupant vehicles may be permitted to use HOV lanes as part of a variable toll pricing program;
- Automatic toll collection is required in express lanes to optimize free flow of traffic; and
- Toll revenue may only be used for debt service, reasonable rate of return on private financing, operation and maintenance costs, or any eligible Title 23 or 49 project if the facility is being adequately maintained.
Value Pricing Pilot Program (VPPP)
The Value Pricing Pilot Program was initially authorized in TEA-21 as the Congestion Pricing Pilot Program. SAFETEA-LU encourages implementation and evaluation of up to 15 value pricing pilot projects encompassing innovative applications such as area-wide pricing, pricing of multiple or single facilities or corridors, single-lane pricing, and implementation of other market-based strategies. A total of $59 million for Fiscal Years 2005-2009 is available to support these pilot projects. Funds available for the VVPP can be used to support pre-project study activities and to pay for implementation costs of value pricing projects. The 15 states that have been approved to participate in the VPPP program are California; Colorado; Florida; Georgia; Illinois; Maryland; Minnesota; New Jersey; North Carolina; Ohio; Oregon; Pennsylvania; Texas; Virginia; and Washington.
The paper titled Mainstreaming Pricing Alternatives in the Project Development Process shows how pricing alternatives can be incorporated in a NEPA analysis so that they can be considered alongside other corridor improvement alternatives.
High Occupancy Toll Lanes
SAFETEA-LU clarified some aspects of the operation of HOV facilities and authorized states to create high-occupancy toll (HOT) lanes. The HOT lane program allows vehicles to pay a toll to use HOV lanes if they do not otherwise meet occupancy requirements. Programs must be established by the state to address the selection of vehicles certified to use HOT lanes, collect tolls electronically, and establish procedures for enforcing the restrictions. HOT lane tolls can be charged on both interstate and non-interstate facilities, and there is no limit on the number of projects or states that can participate.
Tolling Existing Interstates
Section 1216(b) of TEA-21 advanced the concept of tolling by establishing a toll pilot program to allow conversion of a free Interstate highway into a toll facility. SAFETEA‑LU did not terminate this toll pilot program.
The FHWA Tolling and Pricing Program Website provides information about tolling and pricing programs and provisions, following enactment of SAFETEA-LU. Federal involvement in pricing program can be found, as well as governmental publications, regulations, and programs.
This Tolling and Pricing Program Website informs users about the state of the practice. It contains links to U.S. projects in addition to those sponsored by the Value Pricing Pilot Project. This web site was developed and is maintained by the State and Local Policy Program, which is part of the Humphrey Institute of Public Affairs at the University of Minnesota. Funding for development and maintenance was provided by the FHWA Value Pricing Program, with additional funding provided by the Minnesota Department of Transportation.
Technical, Process, and Policy Challenges and Advances
Generally, the public resists toll projects and opposes the tolling of pre-existing tax-supported roads. The public views the roads as "free" and believes that the construction and maintenance of these roads has already been paid for through Federal and state gas taxes, as well as other fees. Tolls are often viewed as an additional charge for a road for which the public believes it has already paid through taxes and other fees.
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