Inside ITS
January 13, 1997

ITS and private road developers have more in common than ETC. Other ITS applications will find their legs in these entrepreneurial initiatives, speaker at conference says. Premium-priced express lanes could be the automated highways of the future. Attendees from worlds of ITS, infrastructure development, finance, government and the environment examine emerging opportunities.

Two disparate communities need to work together to create free-flowing roads using ITS technology, says Robert Poole, president of the Reason Foundation in Los Angeles. One is the ITS community, and the other is the private toll road community, composed of developers and large engineering firms plus the state department of transportation (DOT) officials working with them. “There is a natural alliance between the two that goes beyond simply electronic toll collection [ETC],” he says.

“The private toll road community needs to be aware of the kind of value added services that ITS technology is likely to bring about over the next decade or two,” Poole says, pointing out such services as localized traffic information systems and congestion avoidance systems and, in the longer term, various automated highway applications.

Poole says that he has been frustrated until very recently by the ITS community because it tends to be dominated by engineers “who come up with all sorts of neat whiz bang ideas but don’t understand the institutional framework” that would allow the ideas to successfully roll out as commercial products. “I think they’re living in dreamland if they think that state DOTs are the vehicle to realize most of these kinds of new technologies,” he says. If ITS succeeds, it will be deployed in an entrepreneurial fashion by commercial companies that are willing to take bigger risks than the public sector is likely to take, and that will test markets to see what people are willing to pay for, he says.

Poole discussed his ideas on ITS and public-private partnerships in the keynote address at a conference in Toronto called “Free-Flowing Roads: Challenges and Opportunities in Road Tolling” late last year. Two publications, The Next City and Asset Finance International, sponsored the conference. The Next City is a quarterly magazine devoted to urban issues published by the Energy Probe Research Foundation, a market-oriented Canadian environmental group, and PEMA (Preserving the Environment Matters Association), a nonprofit publishing concern that is funded by the Energy Probe Research Foundation. Asset Finance International is a Euro-money publication based in the U.K. The Next City advocates using ITS to toll existing roads to eliminate both traffic congestion and the need for highway expansion, and to help the environment.

Just over 60 people attended the meeting, including representatives from government and engineering firms and many representatives from financial firms. Speakers included: Reg Alcock, chair of the Canadian House of Commons standing committee on transportation; Robert Gregg, president of Hughes Transportation Management Systems in Fullerton, Calif.; Kevin Moersch, president and CEO of MFS Network Technologies in Omaha, Neb.; Edward Regan, senior vice president of Wilbur Smith Associates in New Haven, Conn.; Stephen Farber, director of Barclays de Zoete Wedd in New York; and John Beck, president and director of Canadian Highways International Corp., which is building and operating Toronto’s all-electronic Highway 407 toll road (see Inside ITS, Dec. 16, 1996).

“They’re living in dreamland if they think that state DOTs are the vehicle to realize … new technologies.”

One reason the small conference attracted such high level participants might be that municipal governments in Canada are being given responsibility for roads, and they don’t have a budget to handle that responsibility, says Lawrence Solomon, editor and publisher of The Next City. “I think decision makers have a problem. They need new management techniques to run the road system.” And people who have products and services for roads probably recognize that there is a market for their expertise, he says.

“The entire national highway system is in need of renewal,” says Alcock. “The idea of using a public-private partnership to do the renewal and to manage the road, with government still providing the bulk of the funds, is quite attractive.”

“We’re falling about $38 million a year behind in our basic road infrastructure maintenance,” says Scott Cavalier, a member of the Metropolitan Toronto Council who attended the conference. He believes the Council is not in a position to raise taxes, so looking at “user pay is certainly an interesting concept.” The conference sessions that dealt with real life experience of user pay systems were particularly helpful, he says.

“Decision makers have a problem. They need new management techniques to run the road system.”

Poole has been called the godfather of the concept behind California’s State Route 91 Express Lanes, the congestion-priced electronic toll collection road (see Inside ITS, May 20,1996), because of a policy paper he wrote in 1988 entitled “Private Toll ways: Resolving Gridlock in Southern California.” The Reason Foundation is a public policy think tank, which Poole says is generally supportive of free market principles. He served as a consultant to both the Reagan and Bush administrations on privatization issues.

The direct user pay method of market-based electronic tolling not only provides a means of financing, but also can make roads work better, Poole says. First of all, pricing that reflects supply and demand sends the signal that people should not try to use a road beyond its capacity during rush hours, he says. Second, direct pricing mechanisms make highway projects more attractive to the private sector, which will in turn stimulate innovation, he says. It is in such an entrepreneurial and experimental environment that ITS applications will shake out and prove their value to the public, he says.

Third, the government is able to shift a significant amount of risk from taxpayers to investors. “We know that all over the world there have been many, many highway projects that can charitably be described as boondoggles,” Poole says. When a billion dollars gets invested in a road that doesn’t produce a billion dollars worth of real benefits, the taxpayer pays for it. If major investment decisions were made largely by the private sector based on commercial criteria, there would be a lot fewer boondoggles, he says.

Fourth, there is a much greater incentive to take customers seriously if roads are paid for directly. For example, an entrepreneur will perform repairs as quickly as possible and in the least obtrusive manner. Finally, Poole says there is good statistical evidence that tolled roads have better safety records and are maintained better than comparable non-tolled roads.

Looking forward to future ITS applications, automated highway applications are a natural fit with the idea of premium-priced express lanes, Poole says. “I cannot imagine a scenario in which it would actually come about other than that.” Automated highway applications will need special lanes that are limited to vehicles that are properly equipped and checked out, he says. This is an obvious fit with the general principles behind the SR 91 Express Lanes, he says, and it is a natural evolution and the best institutional framework for bringing the promise of automated highways into reality.

To facilitate public-private partnerships for highways, certain policy changes are needed, Poole says. Generally, explicit legislation is required to make it legally possible for the private sector to both finance and operate a highway. Risks need to be assessed to determine what is reasonable to transfer to the private sector and what is not. One risk that is not reasonable to transfer is the initial set of environmental impact studies, which can be very costly and could yield results that would keep the project from going forward, he says. Instead, Poole suggests that the government perform the study and, if the project goes forward, convert the cost of the study to a loan that will be repaid by the successful bidder once the project is up and running and revenues are coming in.

Poole also suggests replacing the normal bidding process for large infrastructure projects with a two-stage procurement process that the World Bank recommends. The first stage is a qualifications stage that results in a short list of the best-qualified firms, which are then invited to submit formal bids.

Automated highway applications are a natural fit with the idea of premium-priced express lanes.

The Free-Flowing Roads Conference was developed as a follow up to an article called “Revolution on the Road,’ which appeared in the summer 1996 edition of The Next City. When magazine staff noticed that their articles had become the basis for policy discussions within provincial cabinets and government committees, they began a national conference series to serve as an “implementation phase” of the material in the articles, Solomon says. Magazine staff plan to make Free-Flowing Roads an annual conference, he says.

Solomon says he was surprised by the amount of support he heard at the conference for adding tolls to existing roads. Prior to the meeting, he thought the general feeling was that such an approach was politically unpalatable. At the conference, “I don’t think that was the sense at all in the room,” he says.