By Peter Samuel

By a four to one vote, Maryland's park planning commission voted February 3 in favor of the Inter County Connector. The remaining contentious issue for the ICC is financing. Amazingly for a project of this size there has been no serious study of how much toll revenue the ICC can generate - though the lack of a study hasn't stopped officials from asserting that tolls will only finance a fraction of its cost. They are almost certainly wrong on this, and the Draft Environmental Impact Statement (DEIS) on the ICC released in December (DEIS) contains important pointers to this error.

The DEIS has traffic forecasts and toll rates which add up to toll revenue of about $60 million a year. The toll rates suggested (13c/mile off-peak, 17c peak) are average for tolls on newer North American toll roads. They are good toll rates for a cautious bureaucrat to name. But let's examine the issue of toll rates on the ICC from a market point of view.

The ICC toll road will support higher rates, especially higher than the 17c/mile peak rate named. Montgomery County is well above average in income, and also above average in levels of traffic congestion. Median household income where the road is mostly located in Montgomery County was estimated in the 2000 census at $71,600, which means by now it is around $80,000-an average hourly wage of $39.60. In the toll road business optimal tolls are usually set assuming that the value of time saved is around half the average wage, in this case $19.80/hour. Thus the toll for a trip that saves say 30 minutes would be $9.90.

I chose thirty minutes because it is the time savings forecast in the DIES model for trips the length of the ICC in peak hours. For example: Gaithersburg to BWI is projected at 114 minutes without the ICC, 81 minutes by the ICC alternate, a 33 minutes time saving. If a 30 minutes saving is worth $9.90 and the road is 18 miles long, then the possible peak toll rate comes out to 55 cents a mile - about three times the peak toll rate assumed in the DEIS!

Also, the DEIS presents estimates of the annual value of user benefits of the toll road (Southern Corridor numbers) for 2030: time savings $250 million, vehicle operating costs $15 million, and reliability benefits $104 million. That makes total user benefits of $370 million per year. The value of user benefits is a measure of the ceiling of potential toll revenues. Clearly the $60 million/year suggested for toll revenue for the ICC is low, drawing on only one sixth of estimated user benefits. The toll road should be able to capture a third or a half of user benefits - that's tolls in the range $120 million to $180 million/yr.

Even if toll revenues are low-balled at $60 million/year it should not be necessary for Maryland taxpayers to go into debt to fund this road. Consider the recent sale by the City of Chicago of its Skyway tollroad to investors Cintra-Macquarie, two international tollroad operators. Chicago raised $1,830 million on a tollroad which has been generating toll revenues of $44 million per year. Simple arithmetic suggests investors applying a similar bid-to-revenue ratio would put up $2,495 million for the ICC. That would fully cover its costs (the generally favored Southern route is costed at $2,224 million) suggesting investors would build it without requiring the state to get deeper into the pockets of taxpayers, or to resort to more public debt.

State officials should stop saying that major taxpayer subsidies and state borrowings are needed to finance the ICC. They don't have any solid basis for these claims. They should call for investor bids to finance the road, a process that is routinely done in Australia, Europe, and Asia, and more recently in Texas and other US states. Like most of those toll roads the ICC will be self-supporting with tolls. Sure, the tolls will be higher, but users should pay the full costs. They are the ones who will benefit from the road.

Peter Samuel is editor of the specialist web-based news service http://www.tollroadsnews.com/ and works on toll road analysis for Reason Public Policy Institute (RPPI) and Maryland Public Policy Institute (MPPI). He is based in Frederick, Maryland.

Reach Peter Samuel at: 301-631-1148; mobile 240-446-9736; petersamuel@mac.com.