NLC encourages congestion pricing, conservative revenue projections

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The National League of Cities is encouraging cities to consider congestion charging systems as one approach to generating infrastructure money, while urging them to be conservative on the resulting revenue projections.

The message emerged in a report the NLC published Wednesday. It could cost $5 trillion to fully fix and upgrade American infrastructure, NLC wrote, and gas taxes have fallen short of meeting needs for many localities. Congestion charging, in which drivers pay a fee to enter the most crowded areas, could potentially raise billions of dollars per year nationwide.

“As cities and states deal with the immediate consequences of this funding shortfall, broken transit systems and traffic woes, they will need to explore innovative revenue sources and technologies to ensure that mobility remains a public, equitable good,” NLC wrote.

In the report, NLC referenced London, which started congestion pricing back in 2003. By 2004, traffic congestion decreased and average vehicle speeds increased by 30%. Air quality also improved as there were about 1,888 fewer deaths each year because vehicle fumes had been reduced, NLC wrote.

In London, the system was expensive to run and did not bring in as much revenue as expected. Revenues accounted for 8.5% of Transportation of London’s annual revenue between 2014 and 2015.

However, congestion pricing does work well in other cities such as Singapore, which has the oldest congestion pricing program of any city in the world, NLC wrote.

“We see congestion pricing as an approach that could work for a number of cities to fund infrastructure and to always think about as these systems are rolled out, to make sure that you’re projecting revenue in a way that accrues best to your city,” said Brooks Rainwater, senior executive and director at NLC’s Center for City Solutions.

New York’s congestion plan is set to take effect by 2021 and it is the first U.S. city to give it a try. Vehicles entering Manhattan below 60th Street will pay a fee, which will go to the Metropolitan Transportation Authority. MTA is one of the largest municipal issuers, with about $41 billion in debt outstanding.

Moody’s Investors Service has said congestion pricing would help MTA.

Right out of the gate, congestion pricing is complicated by demand factors, said Kurt Forsgren, managing director at S&P Global Ratings.

Congestion pricing is similar to tolling, Forsgren said, but has an added complexity because its intention to reduce congestion is part of its success. So cities will need to find a balance between the charge and the amount of congestion.

“The more successful you are, the lower the revenues can be,” Forsgren said. “So finding that equilibrium of traffic you want to allow, as well as finding a revenue level that meets your other objectives, in the case of New York to help fund the MTA capital program, is going to be the challenge.”

Scott Zuchorski, head of North America Transportation and PPPs at Fitch Ratings, said they would look at congestion pricing similar to managed lanes since cars have to pay a premium to get into a certain corridor.

“An impact will be what is exempt or who wouldn’t be paying,” Zuchorski said. “That would be something that we would take into effect.”

John Barton, senior vice president at HNTB, said it was premature to understand the reliability of projected revenue streams for congestion pricing. He referenced London, saying because it was so effective in reducing congestion, it fell short of projected revenues.

Barton hadn’t heard anything from communities concerned about reliability of traffic in revenue forecasts since it’s similar to tolling.

“It’s not something that has been done yet in the United States, so as we start to explore these opportunities, we’ll have data to support the realities,” Barton said.

Rating agencies will have a conservative view, said Tanya Langman, who is HNTB’s director of financial services in the national toll practice and worked at Fitch for almost 10 years.

“There is revenue generating potential for these projects, but the extent of revenues would really depend on the total number of cars that would be diverted to other modes of transportation,” Langman said.

Some commuters may work from home or use other modes of transportation, and that would impact the revenue collected, Langman said.

“The country is looking to New York as a pilot as an example for how this can be done, and a lot of people will want to see it operating before they are comfortable with it,” Langman said.

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Congestion Pricing Infrastructure Transportation industry Fitch Moody's S&P Washington DC