Benefit/Cost Analysis of Value Pricing Projects

1. Benefit/Cost Analysis of Value Pricing Projects Presented to the 2012 Symposium on Mileage-Based User Fees and Transportation Finance Summit Presented By Michael Lawrence April 29, 2012 Jack Faucett Associates and ECONorthwest

2. The Cost of Congestion – Public Responsibility and Private Opportunity* • The overall cost of congestion (based on wasted fuel and lost productivity) reached $101 billion in 2010 • Approximately $713 for every U.S. traveler. • The total amount of wasted fuel in congestion topped 1.9 billion gallons • A week’s worth of fuel for the average U.S. driver. • The amount of wasted time totaled 4.8 billion hours • Nearly one full work week (or vacation week) for every traveler. *Source: Texas Transportation Institute’s 2011 Urban Mobility Report

3. Analyst’s Perspective • Public Sector Uses Benefit Cost Analysis to • Reduce Societal Loses • Seek Efficiency in Government Facility Operations • Achieve Equity for All Users • Prepare for Emergency Responses • Provide Safe Systems • Private Sector Uses Cash Flow and Profitability Analysis to • Seek Infrastructure Investments • Seek Investments with Low Risk of Default • Seek Returns on Investment • Today’s Talk Is About Public Sector Decision Making

4. Uncertainties in Costs and Benefits • Extent of Congestion Relief • Time Savings • Emissions • Energy • Level of Fee Required • Cost of User Fee Collection Systems • Time and Cost Related to Transition from Current Revenue System to Future Revenue System • Modal Capacity Required

5. Solution: Charge Marginal Cost for Use? • Achieving Many Public Sector Goals • Reduce congestion • Improve travel times • Encourage transit use • Reduce vehicle emissions • Reduce energy consumption • Fund transportation programs and projects • Promote regional economic development • Pricing Mechanisms Available • FuelTax • Mileage-Based User Fees • Roadway Tolling • Managed Lane Pricing (Value Pricing)

6. Selecting the Best Option (Public Sector) • Use Benefit/Cost Analysis (BCA) • Determine the Benefits and Costs of individual project financing alternatives • Justify roadway pricing mechanisms • Provide transparency and accountability for investment decisions • Evaluate alternatives using existing methods and data • A BCA quantifies the benefits and costs of a particular project structure to determine whether an investment is justifiable • BCA must express all benefits and costs in monetary terms • The benefit/cost ratio is the net present value of benefits divided by the net present value of costs

7. Steps to Perform BCA • Establish Objectives • Define Alternatives • Forecast Performance • Estimate Benefits and Costs • Analyze Risks • Rank Alternatives and Make Recommendations

8. Existing FHWA BCA Tools • BCA.Net • Evaluates the benefits and costs of resource allocation and investment decisions through the analysis of alternative strategies for highway management and improvement • STEAM • Assesses the efficiency of multimodal transportation alternatives and demand management strategies on a corridor or regional level • NBIAS • Evaluates the economic impacts of the condition and performance of bridges on highway users and agencies • HERS-ST • Evaluates the economic impacts of the condition and performance of highways on highway users and agencies

9. HOT-BCA: Tool Objective • Three common options under consideration by transportation planners • Construct new, variably-tolled Express Lanes • Convert existing HOV lanes to variably-tolled Express Lanes • Convert all lanes of a conventionally-priced toll road to variable pricing • Three optimization alternatives in HOT-BCA • Maximize Revenue • Maximize Throughput • Maintain Level of Service

10. HOT-BCA: The Data Collection Effort • Challenges • Few Candidate Facilities (~10 domestically) • Poorly maintained data on volume and composition • Projects differ on many dimensions • Limited available data on site, though calls to some regional DOT and facility operators proved fruitful • Sufficient data was only available for less than half of the surveyed facilities • Corridor Volumes • Demographic Conditions • Carpool Policies • Traffic Composition • Tolling Objectives • Facility Geometry • Pricing Methodology and Limits • Hours of Operation

11. HOT-BCA: Simulated Data - ECONorthwest • Toll Optimization Model • Equilibrium lane volumes • Toll levels • Revenues • Associated travel times for tolled highway facilities • Smaller Optimization Kernel • Reduced form of the Toll Optimization Model includes modified: • Variations in segment characteristics • Traffic characteristics and composition • Toll policies • Operating constraints • HOT-BCA: The Final Product • A Reduced Form Excel-based Tool that has the relationships that have been revealed through this analysis

12. HOT-BCA: User Inputs • The following elements are required for to use the HOT-BCA tool: • Project years for which to analyze the project lifecycle (base case and project case) • Tolling objective for each project year • Five time periods (such as: AM peak, Midday, PM peak, Evening, Night) • Time period start and end times • Tolling methods for each time period (Dynamic, Static, or None) • Vehicle class names (SOV, HOV2, HOV3, COM, MTK, HTK) • Passenger car equivalents (PCE) for each vehicle class • Value of time (VOT) for each vehicle class, in $/hr • Managed lane access rules for each vehicle class (base case, versus project case) • Free flow speed • Capacity for general purpose (GP) and managed lanes • Minimum level of service for managed lanes • Number of segments for the managed lane facility • Segment length and direction • Number of GP and HOT lanes per segment, per time period, for base case and project case • Volumes for each vehicle class, per segment, per time period

13. HOT-BCA: Benefits Estimated • The following are calculated by HOT-BCA and converted to dollars (where identified): • Travel time savings, in dollars • Vehicle miles traveled • Vehicle hours traveled • Disbenefitsfrom tolls, in dollars • Revenues from tolls, in dollars • Energy savings from fuel consumption reduction, in dollars • Criteria Pollutants and Greenhouse Gases • The tool user provides the following items used in the benefit/cost calculations: • (Benefit) Annual safety benefits in the base year and project year • (Cost) Construction cost of the project • (Cost) Annual operating cost of the facility

14. Transition Cost Minimization • Problem: • One of the highest cost for implementing MBUF is the transition from fuel tax revenue to mileage-based revenue systems as envisioned by MBUF • High transition costs are a political challenge • Solution: • Allowing users to choose payment systems minimizes transition costs • Green Charging provides incentives for users to choose value priced systems for travel • Hot Lanes • Priority Parking • Ride Sharing

15. Transition Cost Minimization • Problem: • Electric Vehicles (EVs) don’t buy gas or pay fuel taxes • EVs cannot continue to be exempt from user fees • Solution • Develop an EV user fee payment system • Link the EV payment system with a green charging transition process. • Utilize the EV’s GPS technology to incorporate mileage-based user fees

16. Our Team • Jack Faucett Associates (www.jfaucett.com) • Michael Lawrence, Principal Investigator (lawrence@jfaucett.com) • Jon Skolnik, Senior Economist • Devon Cartwright-Smith, Economist • ECONorthwest (http://econw.com/) • Randall Pozdena, Ph.D, Co-Principal Investigator • Carl Batten, Senior Economist • Sean Wallace, Senior Analyst

17. Contact Information Michael F. Lawrence JFA President 4550 Montgomery Avenue Suite 300N Bethesda, MD 20814 Phone: (301) 961-8835 Fax: (301) 469-3001 lawrence@jfaucett.com