Tuesday, June 12, 2007

HCTRA's Toll Road Increase Memo


DATE: June 12, 2007 (Revised 6-13-07)

FROM: Art Storey

SUBJECT: Recommended toll increase / rate-setting policy – Harris County Toll Road Authority

It is recommended that system-wide and special toll rate adjustments and toll setting policies be adopted for the Harris County Toll Road Authority (HCTRA). These recommendations result from the business planning process which began with the system value studies in 2006 and continued through evaluations by HCTRA’s three consultants: First Southwest Company, J.P. Morgan-Chase, and Wilbur Smith Associates.

It is considered that adoption of these recommendations will:

  1. balance growth of the HCTRA system
  2. bolster the County’s ability to provide for future infrastructure, and
  3. maintain the financial strength and strong fund balances that we possess today.

Details of the recommendations, with operational and financial justifications follow.

I. Recommended Toll Increase

A. System-Wide

A system-wide rate increase of $0.25 for mainlane plaza and ramp transactions is recommended. This increase is in line with past toll increases (the last adjustment was a $0.25 mainlane increase implemented in November 2003), resulting in rates of $1.25 for mainlane EZ TAG transactions, $1.50 for mainlane cash transactions, and all ramps being tolled at either $0.75 or $1. Recommended exceptions:

· Ramps currently tolled at $1 will remain unchanged for Class 2 (2-axle) vehicles.

· The Ship Channel Bridge rates will remain unchanged to bring mainlane toll rates and the Ship Channel Bridge rates closer to equal.

· Mainlane and ramp toll rates for Class 5 (5-axle) and Class 6 (6-axle) vehicles will have an increase that is a multiple of the Class 2 (2-axle) vehicle rate, which will increase each class by a maximum of $1.25.

· Westpark ramps currently tolled at $0.25 will increase by $0.10. Toll rates for Class 3 (3-axle) and Class 4 (4-axle) vehicles will not change.

· Westpark ramps currently tolled at $0.35 and $0.50 will increase by $0.15. Toll rates for Class 3 (3-axle) and Class 4 (4-axle) vehicles will not change.

· Further, peak-period increases (referred to as time-of-day pricing) over and above the adjusted base toll are recommended for the Westpark Tollway, and are discussed further below.

As part of the rate increase, it is recommended that large trucks (Class 5 and Class 6) incur a higher toll increase since they inflict a disproportionate impact on the life of the system (pavement wear, debris, etc.).

B. Westpark: Time-of-Day Pricing

In order to improve the level of service currently offered by the Westpark Tollway, it is recommended that time-of-day pricing be established for this tollway. Mainlane tolls during peak periods (6-9 AM & 4-7 PM) in the peak direction of travel should increase by $1.25 (to a toll of $2.50). This limited access tollway, having been fully operational less than two (2) years, now experiences gridlock during peak periods of travel (range of speed is 10 - 25 MPH). This decrease in service is partly due to a 21% increase in total transactions within the past year. Furthermore, Westpark lies in a constrained corridor that prevents HCTRA - at present - from expanding the road’s capacity. The time-saving value offered to drivers for their toll has diminished as this tollway has become more congested. The recommendation is to increase the toll to $2.50, in order to reduce peak-period traffic volume and increase the peak period traffic speed closer to 50 MPH.

II. Recommended Toll Rate-Setting and Debt Management Policy

The proposed toll rate-setting policy calls for rational and systematic increases in tolls that:

· do not supersede toll rate covenants,

· maintain an investment grade rating for HCTRA of at least “A,”

· are commensurate with toll rate policies associated with private operators of toll roads,

· allow for continued maintenance and orderly improvement of the HCTRA system.

The policy is recommended to be re-evaluated every five (5) years to confirm that the policy is maintaining its designed purpose.

A. For Non-Constrained Cash and EZ TAG Segments

(Sam Houston Tollway, Hardy Toll Road, Fort Bend Parkway Extension)

It is recommended that tolls be adjusted annually at the greater of (a) 2%, or (b) the consumer price index (CPI) that correlates with the Harris County economy. Cash rates should be rounded to the nearest quarter, and EZ TAG rates rounded to the nearest nickel, but always less than or equal to the cash rate. The following chart provides an example of the minimum toll rate increases that would occur with this policy.



Computed Between

Computed EZ TAG EZ TAG Computed Effective Toll EZ TAG and
Year EZ TAG Rate Escalator Cash Toll Cash Toll Escalator Cash
0 1.25 $1.25
$1.50 $1.50
1 1.25 $1.25 2.50% $1.50 $1.50 2.50% $0.25
2 1.28 $1.30 2.50% $1.54 $1.50 2.50% $0.20
3 $1.31 $1.30 2.50% $1.58 $1.50 2.50% $0.20
4 $1.35 $1.35 2.50% $1.62 $1.50 2.50% $0.15
5 $1.38 $1.40 2.50% $1.66 $1.75 2.50% $0.35
6 $1.41 $1.40 2.50% $1.70 $1.75 2.50% $0.35
7 $1.45 $1.40 2.50% $1.74 $1.75 2.50% $0.35
8 $1.49 $1.45 2.50% $1.78 $1.75 2.50% $0.30
9 $1.52 $1.50 2.50% $1.83 $1.75 2.50% $0.25
10 $1.56 $1.55 2.50% $1.87 $1.75 2.50% $0.20
11 $1.60 $1.60 2.50% $1.92 $2.00 2.50% $0.40
12 $1.64 $1.65 2.50% $1.97 $2.00 2.50% $0.35
13 $1.68 $1.70 2.50% $2.02 $2.00 2.50% $0.30
14 $1.72 $1.70 2.50% $2.07 $2.00 2.50% $0.30
15 $1.77 $1.75 2.50% $2.12 $2.00 2.50% $0.25
16 $1.81 $1.80 2.50% $2.17 $2.25 2.50% $0.45
17 $1.86 $1.85 2.50% $2.23 $2.25 2.50% $0.40
18 $1.90 $1.90 2.50% $2.28 $2.25 2.50% $0.35
19 $1.95 $1.95 2.50% $2.34 $2.25 2.50% $0.30
20 $2.00 $2.00 2.50% $2.40 $2.50 2.50% $0.50

B. For Constrained EZ TAG Only Segments

(Westpark Tollway)

The toll rate would be adjusted periodically to provide an acceptable level of service. Congestion pricing is necessary to maintain the goal of average traffic speeds between 50 and 60 miles per hour. As required, a nationally recognized traffic and revenue consultant will be contracted to study traffic patterns, in order to establish toll rate targets to obtain desired traffic flows in future years.

III. System Maintenance and Improvements

With over 500 toll road lane miles under HCTRA management, efforts continue to maintain, improve, and expand the system in order to meet the increasing mobility needs of this region. Monthly transactions have increased 20% since November 2003, when the last toll increase was implemented. The increased traffic and an aging system require additional effort to maintain the roadway structures. In the past two years, HCTRA has begun a series of concrete overlays for sections of the Hardy and Sam Houston Tollways, and attention will be given to structural issues with joint replacements, pump station rehabilitations, and concrete surface repairs. The cost to make these repairs continues to escalate every year due to the continuing increase of material costs. Additionally, ongoing improvements such as widening lanes ($2 million/lane mile), converting ramps ($600,000 per location), mainlane plaza modifications, upgrades to the electronic tolling system, and an increased reliance on electronic signage are necessary to maintain an appropriate level of service. These efforts must be continued in order to provide the service expected by the public.

IV. Proposed System Expansion

HCTRA plans to continue serving the growing mobility needs of this region and looks forward to implementing the long-range plan established by Court, and in accordance with the 2007 legislative action of SB 792, with the following proposed projects:

Project Total Cost

1) Hardy Downtown Connector $300 million

2) BW 8 Northeast $550 million

3) Hempstead Highway (with 290/610 Interchange) $ 1.8 billion

4) Fairmont Parkway $300 million

5) SH 288 Managed Lanes $ 1.4 billion

6) Fort Bend Parkway Phase II (if/when) $150 million

These costs do not include any necessary connectivity improvements to promote orderly growth and allow for the system to function effectively; these are significant challenges with significant costs for the future. These challenges are being addressed in the business plan report under development by J.P. Morgan-Chase, and the recommendations in this letter will be incorporated into that plan if Court approves them.

V. The Presentation

The system consultants (Wilbur Smith & Associates) and financial advisors (J.P. Morgan Chase and First Southwest) will be available to present testimony along these lines when this matter is considered in Court.

© 2007 Harris County Toll Road Authority: www.hctra.org

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