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Reconstructing the Interstates with Toll Finance

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(This first ran in Surface Transportation Innovations). For several years I have thought that, given the non-sustainability of fuel taxes for highway funding, the only way we are likely to be able to reconstruct the Interstate highway system as it reaches the end of its 50-year design life is via toll finance. And with the evolution of relatively low-cost all-electronic tolling (AET) and nationwide tolling interoperability, the major unanswered question was this: What kind of toll rates would it take to do the job? How feasible would doing this actually be?

To answer that question, more than a year ago I embarked on a large quantitative study. First it was necessary to develop a defensible estimate of what it would cost to reconstruct all the existing lane-miles, and second, to figure out which specific corridors need widening (best done when reconstructing). The final piece would be to develop a tolling proposal and project traffic and revenue. That would enable a comparison of the net present value (NPV) of toll revenue with the NPV of reconstruction and widening costs as an initial indicator of toll-feasibility.

The resulting study, “Interstate 2.0: Modernizing the Interstate Highway System via Toll Finance,” is being released this week. The bottom-line finding is that it appears feasible to finance the reconstruction and selective widening of nearly the entire Interstate system via moderate toll rates collected via AET. Overall, on a nationwide basis, the NPV of net toll revenue equaled 99% of the NPV of cost (including the cost of AET equipment on the whole Interstate system). Net toll revenue is defined as 85% of gross toll revenue, assuming 10% dedicated to operations and maintenance and 5% for AET collection costs.

More interesting to me than the aggregated national finding is the state-by-state assessment. All the analysis was done on a state-specific basis, producing cost and traffic & revenue spreadsheets for each of the 50 states plus the District of Columbia. All data on route-miles, lane-miles, and unit costs came from FHWA, most of it from their Highway Statistics tables (available online) but some details provided to me, on request, by FHWA. The study also makes use of unit-cost data on reconstruction and on lane additions, from FHWA’s Highway Economic Requirements System (HERS), customized for each state by taking into account that state’s terrain and the size categories of urban areas traversed by Interstates. Since the HERS unit-cost data are national averages, I also created an index of state-specific cost factors, to better take into account differences in underlying unit construction costs among states.

Estimating traffic and revenue was a huge task. I relied on state-specific estimates of annual vehicle miles of travel (VMT) growth rates based on an approach developed at US DOT’s Volpe Center, with separate growth rates for light vehicles and heavy vehicles for each of the 51 jurisdictions. For the basic tolling model, I used 3.5¢/mi. for cars and 14¢/mi for trucks, adjusted annually by an assumed CPI increase of 2.5%. Annual inflation adjustment is a key factor in generating enough revenues to finance the approximately $1 trillion cost of reconstruction and widening laid out in the study.

In an effort to overcome concerns about “double taxation,” the study employed what I have been calling “value-added tolling.” That means tolling would be applied only when an Interstate corridor has been reconstructed (and widened, if necessary). In addition, assuming fuel taxes are still in existence at the time (somewhere in the next two decades) tolling on a rebuilt corridor begins, I suggest that those paying the tolls on the modernized Interstate be given rebates for the fuel taxes they paid for driving those specific miles, which is easy to do with an AET system. In addition, since those who pay tolls expect premium service, the lane-addition criteria used in the study were Level of Service C for rural Interstates (most state DOTs wait until conditions have degraded to LOS D before adding lanes) and LOS D for urban Interstates (most use LOS E or F). And toll rates on urban Interstates would be higher during peak periods to reduce peak-period congestion.

Returning to the state-by-state toll-feasibility results, 30 of the 51 jurisdictions had NPV of revenues greater than NPV of costs, using the baseline toll rates. Of those 30, nine (mostly southern and western states) could do it with somewhat lower rates than the baseline. Another nine had ratios of 80-90%, suggesting they would need slightly higher toll rates than the baseline rates. Six heavily urbanized states with high construction costs would need significantly higher toll rates, but not out of line with those now being charged on new urban toll roads. There left just six problem states, where toll-financed Interstate modernization would be a stretch. In five of these (MT, ND, SD, VT, and WY) car tolls of 6-10¢/mi. would likely be needed and truck tolls of 25-40¢/mi. Those rates may or may not be deemed acceptable in those states. The remaining problem is Alaska, where the NPV ratio showed baseline toll revenues covering only 24% of the cost.

The study makes only one major policy recommendation: that Congress allow tolling of Interstates for the specific purpose of reconstruction and widening, with the toll revenues used only for those purposes (plus operating and maintenance costs). This would essentially constitute mainstreaming of the existing three-state pilot program for Interstate reconstruction using toll finance, broadening it (1) to all states and DC, and (2) to apply to all the Interstates in a state, not just a single project in each.
I’ll be discussing other aspects and implications of the study in the future. Meanwhile, I encourage you to download and read it, and let me know your thoughts. (

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