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Not Worth the Cost: A 17-Month Case Study of Congestion Pricing in the SF Bay Area

written by Dr. Duru

On March 20, 2012, the Valley Transportation Authority (VTA) implemented congestion (or dynamic) pricing on a critical San Francisco Bay Area thoroughfare called Highway 237 that primarily connects commuters from the East Bay to the South Bay. This change converted an existing car pool lane into an “Express Lane” which now allows solo drivers access to the lane for a fee (or toll). This project is part of a two-phase rollout of congestion pricing on Highway 237 and one part of a grander push to implement congestion pricing across the state’s clogged highways. Government transportation officials with the (VTA) have marketed the following benefits for this change:

  1. Provide congestion relief through more effective use of existing roadways
  2. Provide commuters with a new mobility option
  3. Provide a new funding source for transportation improvements including public transit

The conversion to an Express Lane came with some unpopular changes including expanding the carpool hours by an hour (from 9 to 10am) and restricting westbound access to the Express Lane to commuters directly connecting from Highway 880. The expansion of the carpool time seems like a revenue-generating move. It greatly inconveniences commuters (like me!) who had planned their work schedules to enable hitting the freeway after the 9am expiration of the carpool lane. The change forces these commuters back onto the one lane available for merging from 880 onto 237 (two lanes each way). The restricted access provides better and orderly traffic management to keep the expressway moving smoothly. This change change is very unpopular in Milpitas whose residents cannot use the Express Lane even though it runs right through their city (for example, see “Milpitas officials protest new Express Lanes on Route 237“, February 29, 2012).

Here is a VTA video from December, 2011 from the web page for the SR 237 Express Lanes Project; it includes maps and video shots of the area:

Congestion pricing enables commuters who can afford the tolls, a method for traveling around congested travel chokepoints. Those who do not pay are forced to deal with the congestion. I like to think of this system simply as tolled highways with a tiered-feed system: people who are either willing to pay a fee or carpool get privileged access to reserved lanes with a low likelihood of congestion. Everyone else fights for space on the remaining lanes. (Note that traffic in the SF Bay Area is so bad these days that at certain times of the commute, even some carpool lanes are heavily congested!). Theoretically, a commuter should only pay the toll if the value of the time saved is worth at least as much as the toll. However, I suspect most people do not make this calculation. Given this particular stretch of highway is only 3.2 miles long and given the VTA collected about $900M in the past year from over 550M commuting vehicles (based on the averages the VTA supplied), I strongly suspect a lot of people are wasting their money. This waste is even more pronounced when comparing the paltry time savings to the length of the overall commute. Many commuters crowding onto Highway 237 must drive for 45-60 minutes and more just to travel 20 miles, including the small stretch on 237.

Here is how the VTA describes the economics:

“This project has already served close to 2 million carpool users and has provided a new travel option to another half million toll paying commuters. This has improved travel times (between Dixon Landing Road on I-880 and North First Street on SR 237) on general purpose lanes in the Express Lanes segment by about 7 minutes. Travel time savings for using Express Lanes in comparison to general purpose lanes ranged between 5 to 15 minutes (Fall 2013). The toll rate ranged between $0.30 and $5 with an average toll rate of $1.62. The estimated gross revenue after one year of operations is just over $900,000.”

Note that the VTA claims that commute times have decreased on the general purpose lanes as a result of transferring cars onto the carpool lane, a sure sign of under-utilization of the carpool lane. Also note that on average the time savings is costing commuters $13.88/hour. The minimum wage in California is $8.00/hour. Nearby San Jose is increasing its minimum wage from $10.00 to $10.15 in 2014. So for the bottom tier of workers, this toll is extremely costly just from a dollar and cents perspective.

For the typical tech worker making $85K and up per year, the absolute cost of the toll is minimal. I believe the VTA is counting on these more wealthy workers to pony up the few bucks to save a few minutes. Here is a testimonial the VTA provided from an IT contract worker as a part of its a November 12th (2013) press release announcing the one millionth toll-paying customer.

“Jonathon Quist…who has been using the lanes since inception stating ‘I use the lanes pretty much every day. In the morning, it shortens my commute by 20 to 30 minutes. My commute from Pleasanton used to be an hour and 15 minutes to an hour and a half, now it ranges from 50 minutes to a bit over an hour. The tolls range from $2 to $4, and considering I’m a contract IT worker who gets paid by the hour, paying the toll is much less expensive than losing a half hour of pay.'”

There are several things wrong with this story, but I like it because it demonstrates what a real and valuable time savings looks like. We know this testimonial is extreme at best and most likely wrong because VTA’s own data show a time savings range 5 to 15 minutes. My own data that I show below suggest a similar a range of savings. Next, Quest’s own math does not even quite add up. By his own estimates, his true range of time savings runs from a low of 15 minutes to a maximum of 40 minutes. If Quist really was spending upwards of 40 minutes stuck on three miles of freeway, it would sure be a no brainer to pay $2 to $4 to avoid that timesink! I would also expect a lot MORE people to use the same escape hatch, thus driving the price of the Express Lane much higher. Finally, the nature of Quist’s work seems odd: it seems the amount of work he gets to do is determined by the time he arrives at work and not by the amount of work to do.

Perhaps the VTA needs to interview more than one person. Maybe this person stretched out his story to make it sound good for the public; I have come to believe that people’s perception of commute delays is exaggerated because traffic jams are so incredibly annoying and painful (here too the VTA has an advantage in convincing commuters to pay the toll – pain avoidance is a powerful thing!). Regardless, I love Quist’s testimonial because it demonstrates what kind of savings it really takes to firmly rationalize paying the toll for those who can truly afford it: the time savings needs to be significant relevant to the overall commute time. The data I have collected from my own driving experience demonstrate the toll is not worth paying at all. Here is what I did and my results…

Soon after the rollout of the Express Lane, I decided to collect data on the cost of the toll and actual time to drive through the congested lanes. Unfortunately, I did not collect travel times before the implementation of the Express Lane. I originally just wanted to approximate VTA’s pricing algorithm in order to estimate my travel time based on the toll charge. I quickly realized that these data also show the difficulty of making a good assessment for the economics of paying the toll. It turns out that the time savings per dollar paid is extremely variable. I presume this is a result of dynamic pricing based on the congestion in the Express Lane and not the congestion of the general purpose lane. (I have been told that the golden rule is to keep traffic flowing in Express Lanes at about 55 miles per hour).

The Express Lane is currently about 3.2 miles long. For my study, I measured from the start of the solid white line that identifies the off-ramp from southbound 880 onto 237 and measured to the point where the carpool restriction drops from 10am to 9am (near the Great America Parkway exit). Traveling at the 65 miles-per-hour speed limit, an unencumbered commuter takes 3 minutes to drive this stretch of highway. Traveling at 70 miles-per-hour, the commute takes 2 minutes and 45 seconds. On a typical congested day, the first mile or so is the most congested portion of the drive, consuming maybe 60 to 80% of the entire time. On the days I measured toll costs and commute times, I never observed congestion in the Express Lane. I also never observed car accidents on any lane. I did however observe plenty of cheaters in the regular carpool lane on southbound 880 and plenty of commuters who illegally passed over the double white lines separating the Express Lane from the general purpose lanes.

For consistency, I not only measured between the same start and end points, but also I stayed in the left of the two general purpose lanes for the entire trip.

My first measurement day was June 18, 2012 and the last was November 26, 2013. I typically hit Highway 237 between 8:50 to 9:15 in the morning. The last measurement day was my earliest at 7:35am. I took a total of 88 measurements over the data collection period. For the first 20 measurements, I used my car clock to mark time. For the first 4, I did not attempt to account for the lack of a measure for seconds. In the next 16, I estimated a rounding to the nearest half minute. Starting with the 21st measurement, I used a stopwatch get a precise measure of driving duration. On one occasion, no toll information was available as the express lane was restricted to carpoolers.

On most days during the measurement period, I used a vanpool for my commute. I did not take any measurements while in the vanpool. However, I will note that in recent weeks, congestion has finally started showing up in both the southbound 880 carpool lane AND the 237 Express Lane. As you can imagine, this is a very disheartening change of events for carpoolers! (I noticed in the October 17, 2013 VTA board meeting that board member Esteves {the same Jose Esteves, mayor of Milpitas?} complained about traffic delays on westbound 237. Perhaps this new congestion has already caught the attention of officials.)

Highway 237 Drive Time Versus Cost of Express Lane (Random Dates from Jun 18, 2012 to Nov 26, 2013)

Highway 237 Drive Time Versus Cost of Express Lane (Random Dates from Jun 18, 2012 to Nov 26, 2013)

The x-axis shows the cost of the toll for the Express Lane. The y-axis shows the duration of the drive time on the general purpose lane for the length of the Express Lane. The red dots mark the most recent measurements. I did this because of the recent apparent increase in travel times in the carpool and express lanes and because I took no measurements between May 2, 2013 and August 17, 2013 as my use of the vanpool greatly increased. The diagonal line is a trend (or regression) line that provides an estimate of the time to travel based on to the toll shown in the formula at the top of the chart.

The chart clearly shows the dilemma for the penny-pinching, economizing commuter. It is next to impossible to know how much time s/he will really save by paying any given toll. For example, when the toll is $2.40, the drive time in the general purpose lane may be anywhere from 8 to 13 minutes. Thus, the Express Lane may save me 5 to 10 minutes of driving. Between $2.80 and $3.00, the drive time variation is particularly bad: from 10 to 16 minutes. Between $1.80 and $2.00, the drive time variability is at its worst: from 4 to 13 minutes. The overall variability in time savings improves above $3.00. The VTA’s pricing scheme is so dynamic that commuters cannot make a rational purchase decision except perhaps at the highest toll rates. Couple this difficulty with the small size of the savings compared to the overall commute, and I see a situation where it makes little to no sense to ever pay the toll.

The VTA of course sees it differently. Again, from the press release on the one millionth customer (note how the benefit statement is slightly different yet again):

“Each month, VTA has seen at least 3,000 new first time FasTrak users in the lanes and has consistently seen no fewer than 10,000 and as many as 14,000 repeat toll-paying customers. These commuters are benefiting from a travel-time savings between 5 and 20 minutes compared to those driving in the general purpose lanes during the peak commute periods. Over 21% of the cars commuting through the SR 237/I-880 interchange are tolled vehicles, meaning that one out of every five drivers are choosing to pay for and benefitting from travel-time reliability and a better commute.”

I would love to show this analysis to those 10-14,000 repeat customers and find out whether their decision-making remains the same!

I conclude this piece by pointing out the difficult decisions ahead for our transportation officials. Not only are the economics questionable for individual commuters, the project economics for these massive conversion projects are also problematic. These projects are extremely expensive and financing is extremely difficult since the tolls collected do not even come close to paying for the projects in the near-term.

For starters, here is a description of how much planning was involved in getting the 237 conversion going:

“In December 2008, the VTA Board of Directors approved the Silicon Valley Express Lanes Program (hereafter referred to as the Program) which had been under development since 2003. The Program, as approved, was the result of 18 months of coordination, analysis and outreach on both technical and policy areas related to implementing Express Lanes as a means to address congestion levels on highways while also looking towards new solutions to accommodate the future growth in travel demand. Outreach activities included reaching out to the general public, key community and project stakeholders to derive public opinion through focus groups, a web survey, open houses, and presentations to business communities and environmental groups.”

Remember, the first year of revenue for the 237 Express Lane was a gross of just $900,000.

Here is the list of current funding as shown on the 237 web page at the time of writing. It is not clear whether this is recurring or one-time funding. Either way, it is clear that toll revenues fall short of requirements.

  • $3.5 million American Recovery and Reinvestment Act (ARRA)
  • $4 million Federal Value Pricing Pilot Program (VPPP)
  • $4.3 million local funding
  • $11.8 million total funding

Now also compare the current revenues to the costs of Phase 2 for the conversion of Highway 237 and other similar projects in the South Bay…

“The key objective of the Implementation Plan is to present a plan for the SR 237 and US 101/SR
85 Express Lanes projects currently under development. For the projects in Attachment B on SR 237, US 101/SR 85, the amount spent to environmentally clear the projects will total around $14 million with the funding having come from VTA CMA Local Program Reserve funds and federal funds acquired by VTA. The remaining cost for final design and construction is approximately $585 million.

The $585 million will fund three additional express lanes projects for VTA. The SR 237 Express Lanes (Phase II) project will convert the remaining 4 miles of existing carpool lane on SR 237 to Express Lanes between North First Street and Mathilda Avenue ($15 million). In addition, the SR 85 Express Lanes project (costing $170 million) will convert entire carpool lane segment on SR 85 (24 miles) to Express Lanes. This SR 85 project will also include adding a second express lane in the segment between SR 87 and I-280. Lastly, the US 101 Express Lanes project (costing $400 million) will convert existing carpool lane segment and also add a second express lane within the existing footprint between Morgan Hill and San Mateo County (34 miles) to express lanes.”

CLEARLY, taxpayers will have to subsidize the lion’s share of these improvements, meaning that commuters are not paying the true costs of their travel unless they are the ones responsible for paying the extra taxes.

This passage confirms that the costs of these projects are very high relative to existing tax revenues and projected project revenues:

“At present, VTA does not have funds for the design phase of work for Express Lanes. Since the mid-1980s much of the highway development work in Santa Clara County has been funded by local sales tax measure, however, there is currently no local sales tax measure that provides for highway work in the county. If funding capacity is available in the upcoming 2014 State Transportation Improvement Program (STIP), it will most likely be in 2018 or 2019.”

The VTA has had to consider alternatives that include private sources of funding and/or ceding some or all control of the projects to other government agencies. Here is one of the lists of considerations as an example:

  • Is VTA willing to forego all toll revenues and control over operational policies for a certain period of time (up to 50 years) in order to accelerate project delivery?
  • Is VTA willing to share toll revenue for repayment to a private or public entity, but still maintain control of operational policies?
  • Is VTA willing to accept construction and revenue risk in order to maintain full control of policies and revenues but be satisfied with potentially significant delays in project delivery while VTA searches for additional grant funding to supplement any debt financing?

There are no simple answers. I am sure politics will play a key role in answering some of them. In the meantime, we commuters and taxpayers should also ask the tough questions on whether these efforts are the best use of our money. As I intimated above, at least from the perspective of the individual toll-paying commuter, my conclusion for now is “no.”

Author’s addendum (December 2, 2013): Please note that the Express Lane also runs in the eastbound direction on Highway 237. I did not study this direction because on most days where I drive, I avoid the commute hours altogether given congestion is typically even worse on the way home; even the carpool lane on Highway 880 northbound is clogged for most of the trip. Traffic often does not start to cool off until after 7:30pm or later (and the congestion typically starts right at 3pm when the carpool lanes are reactivated!). This same congestion can cause traffic to back up into the eastbound Express Lane. Anecdotally, on days where I was forced to deal with the evening commute congestion, I would frequently notice that tolls were turned off. I think the economic proposition for drivers heading east are even worse than the economics heading west.

2 Responses to “Not Worth the Cost: A 17-Month Case Study of Congestion Pricing in the SF Bay Area”

  1. Kevin Li

    Hey Duru, nice study! I just had a couple of questions about it. 1) How’d you calculate the drive savings on the Express Lanes based on the drive time of the general lanes? 2) Do you know how they are setting the prices of the Express Lane toll? It’d be interesting if you can bucket driving times within low, medium and high traffic categories to see when this system performs best or worst. I’m guessing they have the most problem finding an optimal price during “medium” traffic flow. 3) Lastly, I was wondering if you noticed any day of week or day of month pattern in your study. But yea, I agree that the amount of money they spent implementing this far outweighs the measly $900k in gross revenue gained thus far. Thanks for the study, really enjoyed reading and thinking about it!

  2. Thanks Kevin, for reading this study! You have some great ideas for an extension of my dataset. I recorded the specific times and dates for all my measurements. The main limitation is that the vast majority of my measurements were from 8:45am to 9:30am. While in most “normal” metros this would be the light end of the commute, traffic is so bad in this corridor that is just as heavy as ever during this time. So, I have little doubt that my data are sufficiently representative. I have driven south 880 close to the 10am expiration of the express lane and seen that connection just as bad as ever. Anyway, stay tuned for other results from data.

    Answers to other questions:

    1. I assumed the drive time in the Express Lanes is the same 3 minutes I would get from uncongested travel on the general purpose lanes. My casual observations never noted any congestion on the Express Lanes, so I think I am good with that assumption. So, the calculated savings is the actual drive time on the general purpose lanes minus 3 minutes.

    2. As I noted, I originally did this study to answer exactly that question: how is the VTA setting its pricing? As you can see from my chart, that algorithm remains a complete mystery to me. Fascinating thought that the VTA’s algorithm may be more or less accurate depending upon traffic conditions. I would LOVE for them to come public with it. I could not ind the algorithm spelled out in any of the public documents I reviewed. All we know is that generally the VTA determines pricing based on available capacity in the Express Lane and congestion in the general purpose lanes. My data seem to suggest that the latter gets very little weight in the formula. Perhaps the pricing is very slow to respond to implied elasticity of demand. Maybe it does not respond at all to elasticity.

    3. I did look at whether the data were skewed by something going on before or after 9am when the carpool lane expires on 880. But I found no difference after splitting the data that way. Another interesting wildcard is whether the VTA was tinkering with their pricing formula over the time of this study. Impossible to know without the VTA revealing the info to us.

    — Duru

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