by John T. Berg and Felicia B. Young

Have you ever been stuck in traffic? Many of us have, and we all know the frustration created by traffic congestion. All too often, it is a daily occurrence that adds commuting time to our workday, and in many locations, it seems to be getting worse. Now there is a federal pilot program that is exploring a new way to reduce congestion using a method called "value pricing" that relies on market forces. Value pricing would increase travel options by providing incentives to shift some trips to off-peak times, alternative modes, or less congested routes. It would also provide a source of revenue to support travel alternatives.

The High Cost of Idling
Traffic congestion is costing Americans billions of dollars every year in terms of lost time and productivity, air pollution, and wasted energy. These costs are measured in wasted minutes, extra gallons of fuel consumed, dirty air, added costs of businesses getting products to the market, or simply lost business opportunities.

As states and localities seek new and more effective responses to the problems created by growing traffic congestion, many are beginning to look to techniques used in other parts of the economy where demand varies by time of day, season, or location. These techniques, often called value pricing, congestion pricing, or variable pricing, rely on the power of market incentives to adjust demand to available capacity.

Using price to allocate space on congested roads involves charging relatively higher prices for travel during periods of peak demand than in other periods. Faced with these premium charges, travelers would be encouraged to eliminate lower-valued trips, or take them at a different time, or to choose alternative routes or modes. By recognizing that trips have different values at different times and places and for different individuals, value pricing provides incentives for more efficient use of existing highway capacity and more effectively signal of the need for future capacity expansion.

A critically important aspect of value pricing is that while it is reducing the economic waste associated with congestion, it is also generating revenues that can be used to provide benefits to a broad spectrum of road users. Possibilities include funding necessary improvements to the transportation infrastructure, providing improved transportation alternatives, or reducing (or not increasing) other transportation user charges or other local taxes

Federal Support for Value-Pricing Initiatives
In the landmark federal transportation legislation, the Transportation Equity Act for the 21st Century (TEA-21), Congress continued federal support for pricing initiatives by creating the Value-Pricing Pilot Program. This program replaces the Congestion-Pricing Pilot Program in the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). In reauthorizing the program as a pilot program, Congress recognized that value pricing is a new and innovative approach to congestion relief and that much remains to be learned about its effectiveness in different urban settings. Both technical and financial support is provided to support state and local efforts to plan, implement, manage, evaluate, and report on value-pricing initiatives.

Congressional authorizations of up to $51 million for fiscal years 1999 to 2003 are provided for the program, and up to 15 new pricing projects are authorized. The projects can involve tolling on interstate highways. Authorization is also provided to allow a driver with no passengers to purchase entry to high-occupancy-vehicle (HOV) lanes if the lanes were part of a value pricing project. That means a single-occupant vehicle would be permitted to use lanes that are normally restricted to vehicles with two or more (HOV-2) or three or more (HOV-3) occupants.

Revenues from congestion fees can be used for any Title 23 purpose. However, encouragement is given to uses that support the purposes of the pilot program. This might include support for alternative transportation services in areas where pricing occurs.

As part of its program-support activities, the Office of Transportation Policy Studies in the Federal Highway Administration (FHWA) has held a series of regional workshops on value pricing. To date, workshops have been held in Claremont, Calif.; Philadelphia; Chicago; Houston; Tampa; Portland, Ore.; and Washington, D.C. These workshops, sponsored jointly by FHWA and the Humphrey Institute for Public Affairs at the University of Minnesota, have provided a forum for public participation, featured presentations by representatives of active pricing projects, and examined potential local pricing applications.

Interest in local value-pricing applications continues to grow. Many of the workshops have been attended by more than 125 persons. The most recent workshop in Washington, D.C., facilitated public input to the development of program guidance and project solicitations that were published in the Federal Register on Oct. 5, 1998. It also provided current information on lessons learned from existing value-pricing pilot projects and feasibility studies.

Value-Pricing Projects in Action
A number of projects were launched under the auspices of the ISTEA pilot program, including three operating pilot projects, a comprehensive study of a private pricing project, and seven pricing feasibility studies. The operating pilot projects are in San Diego; Houston; and Lee County, Fla.

San Diego
San Diego's reversible two-lane HOV portion of Interstate 15 had significant excess capacity. Until recently, the 13-kilometer HOV lanes were used only by two-or-more-person car pools, motorcycles, buses, and emergency vehicles. In December 1996, as part of the value-pricing program, a limited number of solo drivers were allowed to purchase monthly permits (Express Pass) to use the HOV lanes during rush hours. Car pools of two or more persons continued to use the lanes free of charge.

To manage traffic flow, a limited number of Express Passes were issued. The first 500 subscribers were allowed to purchase Express Passes for $50. In February 1997, the number of subscribers allowed to purchase passes was increased to 700. In March 1997, the monthly fee was increased to $70. The following month, an additional 200 subscribers were allowed to participate in the program. Despite these changes, approximately 84 percent of the original customers stayed with the pilot program.

In March 1998, a variable pricing program called "FasTrak" was implemented. Fees are now based on the actual level of congestion in the HOV lanes. A real-time message sign posted in advance of the entrance indicates the current fee. Transponders deduct the fee when the vehicle travels under overhead readers. Tolls range from 50 cents to $4 per one-way trip under normal conditions. More than 5,000 transponders are now in use. Traffic flow is monitored in the express lanes to ensure that the HOV lanes are maintained at free-flow conditions. This project is gaining worldwide attention because it represents the first application of "dynamic pricing," in which the tolls vary — as often as every six minutes — in response to changes in real-time congestion levels. A comprehensive monitoring and evaluation effort is underway to assess the project's impact on traffic flow, modal usage, operational issues, costs, revenues, acceptance, and business activities.

Many I-15 commuters have demonstrated a willingness to pay for the added convenience that FasTrak provides.

"I save about an hour each day. It's incredible," said one user who was quoted in the I-15 Express News. "There's also the savings I wasn't counting on: gas, wear and tear on my car, and wear and tear on me. With FasTrak, what I've bought is peace of mind."

Nonusers of the HOV lanes also benefit from this project because revenues are used to support the operation of a new express bus service.

Houston
Because the HOV-3 lanes of the Katy Freeway in Houston had excess capacity, local officials sought ways to increase the use of these HOV lanes while also improving the overall traffic flow on the Katy Freeway. In January 1998, a value-pricing pilot project called "Quick Ride" was implemented. This project allows two-person car pools to use the 21-kilometer stretch of HOV-3 lanes during rush hours for a $2 fee. Car pools of three or more persons continue to use the lanes free of charge.

A limited number of passes were issued to two-person car pools. Initially, only 300 passes were issued to ensure smooth traffic flow in the HOV lanes. Transponders are mounted on the windshields. The fee is automatically deducted when the vehicle passes under the overhead reader. After monitoring traffic flow, it was determined that additional vehicles could be allowed to use the HOV lanes without negatively impacting the existing traffic flow. Therefore, officials approved the issuance of up to 300 additional passes for two-person car pools. According to preliminary reports, nearly 500 transponders have been issued. Average daily trips for Quick Ride users ranged from 100 to 150 trips over the first 45 days of the program. Traffic data for the Quick Ride project is being compiled for an interim report.

Lee County, Fla.
A value-pricing project was implemented in Lee County, Fla., in August 1998. According to County

Commissioner John E. Albion, "Variable pricing is being implemented in Lee County to manage traffic congestion and air quality in the face of one of the highest growth rates in the country." The goal of this project is to shift discretionary traffic out of the peak period by reducing the existing tolls on two bridges during times surrounding the morning and evening rush-hour peaks.

An electronic toll collection process has been installed. The discounted toll (50 percent of the existing toll) is only available to persons using this new technology when traveling during the shoulder of the peak. It is hoped that the successful demonstration of this project will reduce congestion and emissions as well as postpone the need for future capacity expansion.

Orange County, Calif.
In 1995, the first variable-priced and fully automated highway in the United States began operation in Orange County, Calif. This project (Express Lanes) involves value pricing on four lanes of a 16-kilometer stretch of state Route 91. Private sector funds were used to design, construct, and operate the Express Lanes. Tolls range from 60 cents to $3.20. However, the actual toll depends on the time of day with variations according to a fixed schedule that replicates expected daily peak traffic conditions. Electronic transponders attached to the windshield automatically deduct the fare when a vehicle passes under the overhead reader. A 50-percent discount is given to car pools of three or more persons.

The Express Lanes program has been very successful. Approximately 90,000 transponders have been issued. Intelligent transportation systems are used to monitor traffic flow and to expedite responses to traffic incidents. Toll revenues cover highway operations and maintenance costs. Recently, toll revenues reached levels that would, if sustained, cover bond obligations incurred to construct the Express Lanes.

The first phase of a study to monitor and evaluate the Express Lanes was recently completed. This study, funded by FHWA, the Federal Transit Administration, and the California Department of Transportation (Caltrans), revealed that the level of service on the Express Lanes has been maintained. Drivers report a time savings of up to 20 minutes compared to trips taken in the main traffic lanes. The study also found that traffic on the main lanes has also improved and car pooling has increased

Importance of Feasibility Studies
Value-pricing projects are not implemented overnight. They require considerable planning and coordination. Feasibility studies are often a critical component of laying the foundation for the successful implementation of value-pricing projects.

Feasibility studies have been undertaken in several areas, including:

International Experience With Value Pricing
The United States is not alone in focusing increased attention on value pricing. Pricing projects in Singapore, Norway, France, and Canada illustrate the progress being made in other countries.

Singapore

In 1975, Singapore introduced a congestion-pricing program in its downtown area during morning rush hours. In 1989, pricing was also applied to evening rush hours. A manual Area License Scheme was implemented to manage the number of vehicles entering a restricted downtown zone that covers 5.2 square kilometers. In spring 1998, an electronic tolling system replaced the manual system. Over the years, Singapore's pricing program has been very successful in reducing congestion in the downtown area and in encouraging the use of transit and other transportation alternatives.

Norway
Over the past 10 years, cordon charges have been used in Norway to manage traffic entering three major cities: Bergen, Oslo, and Trondheim. In 1991, Trondheim established a toll ring around its downtown area. Electronic tolling systems are used to collect the fees, which vary by the time of day. Fees are higher in the morning peak period. Revenues are used to finance roadway improvements and to support public transit and pedestrian/bicycle facilities. The toll ring in Trondheim has resulted in reduced congestion during the peak period, increased public transit usage, and increased travel during the off- peak period.

France
Since 1992, variable tolls have been used in France to spread peak-period traffic on congested portions of major intercity tollways. Many of these tollways are heavily congested with weekend traffic from Paris to Lille and other destinations. On Sunday afternoons, tolls were increased 25 to 50 percent during the peak period and reduced 25 to 50 percent in the off-peak periods. This variable-pricing program has succeeded in reducing congestion by shifting traffic from the peak period.

Canada
In the fall of 1997, variable pricing was implemented on a new toll road (Highway 407) in Toronto, Ontario. Fees are based on the time of day, vehicle class, and distance traveled. An electronic tolling system is used to collect the fees. The variable-pricing program is expected to reduce congestion on Highway 407 and generate approximately $70 million in the first year of operation.

Tips for Successful Implementation
Although value-pricing projects in the United States are still relatively new, many valuable lessons have been learned over the past six years about the process of examining the feasibility of value pricing and implementing pilot tests. The early projects are demonstrating that value pricing can be successful in reducing congestion, generating revenue, and addressing equity concerns. However, the implementation of value-pricing projects can be controversial because of the varying perspectives on potential outcomes and impacts of these projects. Some of the lessons learned from existing value-pricing projects include:

Clearly Define the Problem
If people don't perceive congestion as being a serious problem either now or in the projected future, they are unlikely to be receptive to value-pricing proposals. Proposals for pricing solutions will need to focus on issues of concern to citizens and decision-makers, including: cost of delay, air quality impact, safety, and lost productivity. These statements should specifically outline the expected impacts and benefits of the proposed value-pricing project.

Take Time to Include All Interests
An inclusive planning and implementation process is essential to the long-term success of the project. Value pricing is a significant departure from existing practices, and it may have far-reaching impacts and require alignment of existing institutional relationships. Local businesses, commuters, low-income groups, environmental interests, and others may have different perspectives on the potential outcomes of pricing solutions. Considering all of these interests in the process of project development takes time and patience but will make for a much more successful outcome.

Consider Full Range of Alternatives
There is no "one size fits all" approach to introducing value pricing. Each area is different, and each needs to look at a full range of alternatives for responding to congestion problems. Pricing should be viewed in the context of a range of strategies for addressing congestion. Various forms of value pricing should be considered (peak, off-peak, pricing new structures vs. existing structures, etc.).

Include Impact Estimation in Project Plan
It is essential to estimate as accurately as possible the potential consequences of value-pricing projects. Improved analysis of pricing and non-pricing policies will provide essential information for the decision-making process.

Introduce Congestion Pricing as Part of a Package
Implementing value-pricing projects in conjunction with other transportation alternatives (i.e., transit, car pooling, etc.) and technological enhancements may improve the attractiveness and feasibility of value-pricing projects.

Focus on Customer Relations
Ongoing outreach and public education are essential to develop and maintain support for value-pricing projects. FHWA has emphasized the importance of public participation and education and media relations as a continuing part of the process of project development.

Next Steps
The lessons learned in the existing pilot projects and studies and outreach efforts will be very helpful in the next phase of the Value-Pricing Pilot Program. FHWA is now seeking additional projects for participation. A Federal Register notice outlining the guidelines for future proposals for participation was issued on Oct. 5, 1998. A copy of this notice can be obtained via the Internet (http://www.fhwa.dot.gov/tea21/implinks.htm). Additional information regarding value pricing can be obtained on the congestion-pricing home page (http://www.hhh.umn.edu/centers/slp/conpric/conpric.htm), which is being operated for FHWA by the Humphrey Institute's State and Local Policy Program.

Value pricing holds the promise of reducing congestion, enhancing mobility, reducing highway-related pollution, and increasing the efficiency of highway transportation. The Value-Pricing Pilot Program will continue to support innovative pricing approaches to reduce congestion on the nation's highways.

John T. Berg is FHWA's team leader for highway revenue analysis and pricing and manager of the Value-Pricing Pilot Program. He also manages a program of studies to evaluate issues related to FHWA's highway revenue program, including analysis of tax policy issues and emerging highway finance strategies. He develops policy and legislative initiatives related to highway financing and user fees, congestion management, pricing, air quality, energy, and alternative fuels. Berg previously held the position of senior staff economist for FHWA's Office of Policy, and he has taught economics at the University of North Dakota, the University of Wisconsin at Eau Claire, and The George Washington University.

Felicia B. Young is a transportation specialist in the FHWA Office of Policy Development. She has more than 13 years of experience in transportation policy and planning. In FHWA, she has also worked on freight policy and on strategic planning initiatives. Prior to joining FHWA, she served as assistant director of a national nonprofit transportation policy organization. She has more than nine years of experience planning and coordinating the implementation of roadway, transit, and community development projects in Washington, D.C. She has a bachelor's degree in community development and a master's degree in city planning.