Thank you for giving the Congressional Budget Office an opportunity to present testimony about congestion pricing and highway financing.
As commuters in most large urban areas can affirm, highway congestion has become a serious problem that carries high costs in terms of time. The Texas Transportation Institute has estimated that rush-hour travelers in major metropolitan areas spent 3.6 billion hours in traffic jams in 2000--at a cost of about $67.5 billion.(1) It is unlikely that the United States could ever "build its way out of congestion," even with massive increases in spending on highways. The reason is that greater road capacity--which initially permits greater speeds--tends to attract motorists who previously used other roads, traveled at off-peak times, took public transit, or moved farther out in the suburbs. Soon the road, despite its larger size, becomes as congested as it was before.(2)
The Economics of Congestion Pricing
One policy response to the problem of congestion is to use the mechanism that works so well throughout the market economy: pricing. Congestion is considered an external cost (or "externality") by economists. A motorist on a busy highway not only incurs a cost of delay but also imposes that cost on other motorists. Because individual motorists make the decision to drive on a certain road at a certain time solely on the basis of the costs they incur (not the costs they impose on others), each motorist tends to overuse the road. In theory, to achieve economic efficiency, motorists would be charged the cost of the congestion they caused.
It is impractical to estimate and assign to each motorist the cost of his or her congestion. That difficulty has led policy analysts to approach the congestion problem from a different angle. In that approach, congestion is considered to arise from the mispricing of a good--namely, highway capacity at a specific place and time. The quantity supplied (measured in lane-miles) is less than the quantity demanded at what is essentially a price of zero.(3)
If a good or service is provided free of charge, people tend to demand more of it--and use it more wastefully--than they would if they had to pay a price that reflected its cost. Hence, congestion pricing is premised on a basic economic concept: charge a price in order to allocate a scarce resource to its most valuable use, as evidenced by users' willingness to pay for the resource.(4)
Introducing congestion pricing on a crowded highway--that is, charging tolls that are higher during peak times of the day and lower during off-peak ones--has two economic effects. First, it dampens demand for the highway during the most congested periods by inducing some motorists to alter their travel plans. Some drivers will be able to modify their schedules so they use the road at less busy times. Others will find alternative routes or switch to public transit. Second, continued demand in the face of appropriate congestion pricing serves as a signal for additional investment in road capacity.(5)
Congestion Pricing in Practice
Congestion pricing has been implemented on several highways in the United States as well as in other countries. The evidence suggests that it has been successful in achieving the objective of enabling vehicles to travel at or near the speed limit on the tolled roads.(6)
Most congestion pricing in the United States has involved new lanes or lanes newly opened to general traffic. In California, private investors built the 91 Express Lanes in the median of the already-congested State Route 91, giving motorists a choice between toll-free lanes or new lanes on which tolls are charged according to the time of day.(7) On Interstate 15 in San Diego, single-occupant vehicles are allowed to "buy in" to high-occupancy-vehicle (HOV) lanes by paying a toll. Such "high-occupancy/toll" (HOT) lanes are also being tried on the Katy Freeway in Houston, Texas.
Technological advances have played a crucial role in making congestion pricing feasible. On all of the congestion-priced highways in the United States, tolls are collected electronically. To use the tolled lanes, motorists must acquire a transponder for their vehicles and prepay a certain amount; the tolls are then debited electronically. Electronic toll collection has made it possible to collect congestion charges without compounding the problem by creating congestion at tollbooths. As electronic tolling was being developed, some policymakers initially feared that motorists would not accept it, viewing the system as monitoring by "Big Brother." That concern has waned as large numbers of motorists have signed up for automatic toll collection.(8)
Technological advances have also enabled officials to make "real time" adjustments to congestion prices. Sensors in a road can tell whether it is getting so crowded that motorists cannot safely drive at the target speed.(9) If a road is becoming too congested, a signal can be sent to an electronic message board informing motorists that the price is going to rise. On I-15 in San Diego, where that system is used, motorists are warned of the price they will face well ahead of the on-ramp to the tolled lanes.
People may complain when they have to pay for something that they previously received free of charge. Where congestion pricing has been implemented successfully in the United States, it has been applied to new highways or new lanes of existing highways.(10) That strategy has given motorists a choice between sitting in traffic on previously existing roads or paying to use new, free-flowing lanes.
Some opponents of congestion pricing fear that tolled roads will be used only by people with high income. But preliminary evidence suggests that the new toll lanes in California are used by people of all income groups.(11) The ability to get somewhere fast and reliably is valued in a variety of circumstances. Not everyone will need or want to incur a toll on a daily basis, but on occasions when getting somewhere quickly is necessary, the option of paying to save time is valuable to people at all income levels.(12)
When the Congress moves to reauthorize the federal highway program (currently authorized through September 30, 2003, under the Transportation Equity Act for the 21st Century), it may want to consider ways to encourage congestion pricing. Two possible methods are eliminating the restrictions that generally prevent states from imposing tolls on Interstate highways and providing incentives for states to try congestion pricing. For example, the federal government could require that states consider imposing congestion pricing on all new highway lanes built in urban areas.