Why Are HOT Lanes Struggling to Make Money?
If you're a commuter in one of the increasing number of major metro areas that have implemented HOT lanes — express tolls for single-occupancy vehicles — you might already know how effective they can be for bypassing traffic. But these lanes were also promised to the public as a new road funding mechanism, pitched as a way to pay for long-delayed road maintenance or big public projects. In that regard, you might say that so far HOT lanes have come up rather cold.
The poor revenue performance of express tolls, while perhaps not universal, has certainly formed a disturbing trend. According to news reports, Virginia's new HOT lanes on Washington, D.C.'s Beltway lost $11.3 million in their first six weeks, Houston's I-45 and U.S. 59 express lanes haven't covered their costs, and Atlanta's I-85 tolls fell short of the lowest fiscal forecasts. The most egregious offender may be SR-167 in metro Seattle, whose actual earnings fall consistently and astonishingly below revenue expectations:
So if commuters hate sitting in traffic as much as they say they do, and if people of all income levels use the express tolls as surveys suggest, why are HOT lanes struggling to make money? Austin Gross, who's studying SR-167 for his doctoral dissertation in economics at the University of Washington, is one of very few scholars to look closely at the question (via Sightline). What he's finding on this particular HOT lane (in collaboration with Danny Brent) could provide lessons for other express tolls across the country.
"We're selling these things hard — at least the public sector — as congestion relief and revenue generation," says Gross. "These are still a good tool for us, but we need to use that tool better, because we're missing out on some of the opportunities."
Gross says there are a multitude of reasons SR-167 hasn't met its revenue goals, but broadly speaking his work reduces things down to two main conclusions: poor traffic planning and a lack of driver familiarity with HOT lanes.
Let's start with the planning element. When SR-167 opened about five years ago, engineers in the Washington DOT were a bit too optimistic about traffic growth. They believed vehicle-miles traveled would continue to increase, when in fact (as "peak driving" would suggest) the road hit a plateau of roughly 110,000 vehicles a day (below). If you can't estimate how many drivers will use a road, says Gross, then obviously any revenue forecasts are going to miss their mark.
Additionally, he says, planners have yet to adjust the SR-167 toll formula in response to the situation. The price of using the HOT lane, which ranges from 50 cents to $9, updates every five minutes to ensure a speed of 40 m.p.h. But while the formula has been effective for congestion, sometimes saving drivers 12 minutes on a 10-mile stretch of road, it hasn't been tweaked to generate more revenue.
"When you look at what they're currently doing, and you look at their projections and their actual revenue collected, I can't see how they're ever going to close that gap," Gross says. "It's never going to meet their expectations."
The second big factor in SR-167 performance, says Gross, is that even after several years, drivers are still adjusting to the lanes as a traffic option.
That learning curve is clear from data showing a disconnect between how much people think they're paying to use the lanes and how much they're actually paying. In surveys, says Gross, people say they're willing to spend about $9 to save the equivalent of an hour of time. When he compared SR-167 prices with true time savings, however, he found drivers were spending on the order of $22 an hour.
"We don't really understand how they're thinking about using it," says Gross, "and it seems like they don't really understand that, either."
One reason for that lack of understanding may be the poor relationship established so far between price of the lane and time savings. Drivers can speculate that a high price to enter the HOT lane means heavy congestion up ahead, and therefore conclude that using the lane will save them time. But the data show this connection to be pretty weak, says Gross, meaning commuters can't always know if an extra dollar will save them five minutes or just one.
"Price as a signal of congestion is rather noisy," he says. "It's not perfect."
These imperfections could explain why only one in five drivers, on average, are choosing to pay into the SR-167 HOT lane. (That doesn't include carpoolers who use the lane for free.) At the same time, says Gross, there's been a steady increase in usage over time (below), suggesting that commuters are becoming more familiar with the concept of express tolls, and more comfortable using them.
"It seems like, over time, more and more people are learning that this is something they'd want to participate in," he says. "You basically have an immature market, where people don't have a lot of experience participating, and they're learned their own willingness to pay for the product."
For sure, the lessons of SR-167 may not apply to every new HOT lane across the country, but Gross's ongoing work does suggest a number of fairly universal takeaways. First things first, state DOTs would be wise to share commuter and traffic data. They should also enter projects with a clear sense of whether they want their express lane to offer congestion relief or generate revenue — and shift toll formulas accordingly. And they should factor a period of driver adjustment into fiscal forecasts.
Above all, says Gross, transportation officials should keep studying how commuters respond to prices over the long term. "If we don't understand how that demand is being formed, then how can we in any way realistically expect to capture value from these things optimally?" he says. "You may as well just splatter some prices on the wall."