Virginia Toll Operator’s Losses Flash Red Light For New Toll Lanes

The cost of driving solo on the high-demand stretch of I-66 inside the Beltway. Photo: Salesgrincity/Twitter
The cost of driving solo on the high-demand stretch of I-66 inside the Beltway. Photo: Salesgrincity/Twitter
Washington, D.C. is the nation’s capital — and its suburbs could be moving towards becoming the nation’s capital of privately owned express toll lanes.
The Virginia side of the Potomac has placed a big bet on such roadways, with 14 miles of pay lanes in the middle of the region’s famous Beltway, reversible toll lanes along 29 miles of I-95, and construction under way on three more highway segments. Last September, Maryland Governor Larry Hogan announced an even more ambitious plan for his side of the river, covering 77 miles of the Beltway and I-270.
If these plans go forward, Marylanders face a rude awakening.
New data contradicts claims that the Virginia toll lanes have been a success story. The lanes remain bathed in red ink, and their owner, the Australian firm Transurban, seems to have raised tolls to the point where drivers are simply unwilling to pay more.
One new set of data comes from Donna Chen, a civil engineering professor at the University of Virginia. She has carefully analyzed toll rates and compared them with the traffic delays on the roads’ untolled lanes.
Professor Chen found  that at the peak of rush hour – 8 to 9 a.m. and 4:30 to 6 p.m. – Beltway tolls average between $1.50 and $1.80 per mile (somewhat lower on Fridays). Per-mile tolls on I-95 are usually lower, but still relatively expensive.
Maryland Governor Larry Hogan is pushing for private toll roads. Photo: Ft Meade Public Affairs
Maryland Governor Larry Hogan is pushing for private toll roads. Photo: Ft Meade Public Affairs
Another way to look at this is the cost of time gained by using the faster-moving toll lanes. Chen has calculated this, too: Solo drivers using the Beltway toll lanes regularly can expect to pay over time $159 for every hour of travel time they save during the morning rush hour and $101 in the evening. (Those are median values; the exact cost for every hour of time saved varies because the tolls are variable by time — but it’s just as likely that the cost of an hour of time savings will be more than $159 as it is less.)
Time saved on I-95 is less expensive, but far from cheap. On the inner-suburb section of the road in Fairfax County, an hour saved costs $107 in the morning and $71 on the way home. Farther out, the price is somewhat lower: $77 and $39.
Facilities that charge these stiff rates can serve only the affluent, and they surely deserve their critics’ label of “Lexus Lanes.” Supporters try to argue that the lanes benefit all classes because, say, parents of young children can use them to bypass traffic jams and avoid late pickup charges at daycare. But using the Beltway toll lanes for such a purpose is a money-losing proposition — unless, of course, your daycare center charges $101 an hour for a late pickup.
"Highway Hogan" when he announced his $9-billion plan to widen state freeways. Photo: Maryland Department of Transportation/Twitter
“Highway Hogan” when he announced his $9-billion plan to widen state freeways last year. Photo: Maryland Department of Transportation/Twitter
As high as their tolls are, Transurban’s Virginia properties are losing lots of money, and no improvement is in sight. The company’s most recent report to stockholders, covering the year that ended in June, shows a pre-tax profit rate of negative 38% for the two facilities. And growth in traffic and revenue came to a screeching halt.
The Beltway toll lanes carried 1% fewer trips than a year earlier, and the year-over-year decline for the most recent quarter was 5%. Toll revenue grew a measly 4% for the year and dropped 13% in the final quarter. A year earlier, Transurban had reported growth of 17% in traffic and 32% in revenue.
Traffic and revenue growth on I-95 have also slowed, but it is not clear whether the dropoff is as severe as on the Beltway. The last two years of results on that highway are not directly comparable because a 3-mile extension of the toll lanes opened in December.
These two facilities earned $169 million in toll revenues last year. This did not even cover operating costs and interest on loans taken out to pay for construction, let alone pay back principal on the loans or give Transurban a return on its investment. The loss last year, before taxes, was $64 million.
But this loss did not show up on the bottom line. The company offset it with $80 million of paper income. The income was created by increasing the estimate of future profits from the Washington toll lanes. This turned past losses into assets, by allowing them to be deducted from the company’s income taxes in years to come.
This opaque maneuver is hidden in a footnote on page 67 of another document, Transurban’s audited financial statement. The company does not explain how it justifies increasing its estimate of future profits at a time when growth in traffic and revenue is cratering.
Why would Transurban engage in such financial legerdemain? One possible motivation is a desire to conceal the bad performance of the Virginia toll lanes while more toll lanes across the river hang in the balance. Governor Hogan, a Republican, is up for re-election in November, and his toll lane proposal is a big campaign issue. The Transurban presentation lists the Maryland plan as a major business opportunity.
More generally, the Virginia losses expose the fundamental weakness of the express toll lane business model. The cost of building new travel lanes on congested highways turns out to be much more than drivers think their benefits are worth. Northern Virginia is among the country’s most affluent regions and has some of its most congested highways, so its drivers have the motivation and the ability to pay unusually high tolls. If express toll lanes lose money here, it’s hard to see how they can make profits elsewhere.
Notwithstanding these gloomy financial prospects, however, pressure to build privatized toll lanes is unrelenting. There is money to be made in the here-and-now, by Wall Street dealmakers, construction contractors, and politicians in search of campaign contributions. (While the Beltway toll lanes were under construction, Transurban gave out $172,000 in illegal contributions to Virginia politicians.)
Only years later does the time come to absorb the losses. And by then someone else will be left holding the bag — the investors, taxpayers, and drivers who put up the financing and pay the tolls.
Transurban, for example, is responsible for losses only up to the amount it invested — but most of the financing for the Virginia Beltway project was a loan from the federal government. If the revenues aren’t enough to pay back that loan, U.S. taxpayers will eat it. And Transurban is not paying any principal on its government loan, but simply paying part of the interest — the rest of the interest is being added to the principal to be paid back (maybe) in future years.
Given the shortfall on toll lanes in Virginia and the difficulties of privately owned toll roads elsewhere in the U.S. — coupled with the lessened willingness of lenders to make speculative loans since Great Recession — it’s hard to believe that private financing will be available for toll lanes in Maryland without some kind of government guarantee or subsidy.

21 thoughts on Virginia Toll Operator’s Losses Flash Red Light For New Toll Lanes

  1. A network of toll lanes needs to be developed to improve the performance of the each HOT system. I-66, I-395 are coming online in the next few years and Maryland may add lanes a few years later. This is similar to Metrorail. If just the Red Line was built, the system would be a failure and be plagued with low ridership. With the addition of the Yellow, Blue, Silver, Green and Orange lines the network is robust and improves ridership on all lines.

  2. “The cost of building new travel lanes on congested highways turns out
    to be much more than drivers think their benefits are worth.” or than they are willing to pay in gas taxes, vehicle fees, fines, property taxes, so most roads were and will be paved with public debt financed from general funds, yet motorists continue to insist “we paid for the roads, so they should be for vehicles only.” ( basically the same curse I heard 40 years ago from drivers “ride on the sidewalk, a-hole”). These expenses don’t even consider the externalized medical and environmental costs or reduced residential property values from nearby highways.

  3. The claim that express-lane facilities that charge high tolls serve only the affluent is false.
    In Northern Virginia at least, these express-lane facilities are completely toll free for express buses and carpools, so the MAJORITY of people who are traveling on the I-66 and I-95 toll facilities PAY NO TOLL at all. That can be a substantial public benefit, especially if much of the toll revenue is reinvested to improve travel alternatives along the corridor.

    Even where HOV vehicles are tolled, the toll price is essentially shared among the number of passengers who are benefiting from the faster trip, thereby incentivizing ridesharing and express bus travel.

    That said, it’s one thing to convert existing HOV or general-purpose freeway lanes into express-toll lanes and another to create express-toll lanes solely via new construction. Congress should change federal law to routinely allow states to convert general-purpose freeway lanes into the much more efficient and effective express-toll lanes.

  4. This should put a stop to all those on the right who insist rail public transit should pay for itself. Actually, rail comes a lot closer to paying for itself that highways. That’s not even counting all the negative externalities highways plus pollution bring.

    None of this is a surprise when you do a thorough analysis. Of course highways will be more expensive. The require much more surface preparation then railroads. The use multiples of land area for the same capacity. They use vehicles which each require an operator, instead of one operator for a train. Those vehicles consume more resources to manufacture. They use much more energy.

    The question is why are we clinging to such an inefficient mode? By most metrics roads and motor vehicles stink. Cost, efficiency, environmental impact, average speed, you name it, rail is generally better at it. Even for shorter trips where rail might not be the best choice motor vehicles generally lose out over bicycles or walking.

    All the people clamoring to privatize our highways I say go ahead. They’ll go bankrupt, disappear, and be replaced by rail and/or bikeways.

  5. unless the State is forced to come in and take it over, in which case, now we are still stuck with more highways, which are now still subsidized.

  6. If Transurban made unrealistic financial assumptions that’s on them but has nothing to do with whether Toll or HOV/toll lanes are a good idea.

    CDOT used a P3 in adding an HOV/Toll lanes between Denver and Boulder and are using the same model on I-70 in Denver. CDOT also has two front range projects where they will operate and retain the toll income from lane expansion primarily for maintenance purposes.

    Phoenix is on schedule to open a 22-mile 8-lane freeway within 18 months. Metro Phoenix has zero toll lanes but they’re well funded. It’s also why they’re rated 47th for congestion by TomTom even though they’re the 11th largest MSA.

  7. Illegal contributions to politicians, not benefit to average commuters, and traffic jams worse than ever. Those are all signs that toll roads don’t work for the vast majority of drivers. The only ones benefiting are politicians getting illegal contributions. This is exactly what will happen all over the country if the president has his way making all roads toll roads. Idiots at work. Vote them out of office for wasting our tax dollars.

  8. This article completely ignores the benefits that Express lanes have for transit. I agree that if they are only incentivizing single occupancy vehicle (SOV) trips, express lanes should be heavily scrutinized. However, in long corridors without any sort of commuter rail etc. and commuter buses are the only viable transit option, buses usually travel in the express lanes for free, can cut travel times in half for transit rider, significantly improve reliability, and serve as a great advertisement for transit as drivers in SOVs see transit zooming by them. Of course these benefits should be weighed against the enormous costs of these lanes and how those would compare with the costs of putting in a likely more effective commuter rail system etc, but it’s disappointing to see a transit-focused site disregard the significant interplay that these lanes do have with transit.

  9. The end game here is that HOV and HOT lanes will be declared failures and revert back to being normal non-toll lanes. The public was sold on a sustainable environmentally friendly way to address congestion. But instead it will end up as the same old same old ever expanding freeways that induce demand which in turn causes more lanes to be built. The winners are the energy and construction industries.

  10. “….can cut travel times in half for transit rider, …”
    These statements almost never use the REAL time factor, the door-to-door commuting time. The bus/subway/tram/etc. ride may be shorter but the REAL factor that decides choices is the door-to-door time. It transit takes up to 1.5 times as long, many will choose transit. At 1.5-2.0 times as long, transit drops off significantly. At over 2.0 times as long, very few will use transit.
    James C. Walker, National Motorists Association

  11. Sales of toll roads, toll lanes, parking franchises, etc. to for-profit entities usually screws the selling government and the users of the facilities in the long run.
    James C. Walker, National Motorists Association

  12. +jcwconsult

    Of course they do, they cut those who were going to take the bus’s transit time in half. It also makes the gap between driving in public lanes with your private car and transit closer, allowing people on society to exist without having to be able to drive or suffer a very timely consequence on a daily bases. This is a much larger portion of the population than you think. I am one who has very much enjoyed these lexus lanes for this very reason, as have millions of others! The point of the lane was to make a freeway more equitable to transit vs car riders. With the idea that the affluent could help pay subsidize the cost for everyone else, that part may be failing.

  13. Maybe I wasn’t clear. The commute times that need to be compared are the total time from walking out the door at home to walking in at the destination address. It is very rare for the total transit time including the walks to and from the transit points to be shorter than the total time to drive, park and walk to the final destination.
    James C. Walker, National Motorists Association

  14. I agree that privately-operated toll lanes are a questionable idea. When they are publicly operated and the profits go back into the community, they can be a great asset. LA’s I-10 and I-110 HOT lanes have been generally a success: increasing year-over-year use, profits invested into transit service, and options for lower-income users to not have to pay the normal monthly fee for the transponder (so they only pay when the use the lanes).

    And HOT lane success is context-dependent–there must be existing congestion in free lanes and capacity to sell in HOT lanes.

    Overall, I think the article makes great points about the pitfalls of using privately-owned toll facilities as a silver bullet for paying for roads, but I think dismissing the idea of tolled roads entirely throws the baby out with the bathwater.

  15. I’m not sure how you come to the $64M loss figure. EBITDA for the two roads was A$128. Finance cost was ($94M) from p. 45. So profit was A$34M. Depreciation & Amortization take that to $A(2M), but those are accounting costs, not cash.

  16. I love how someone still blamed Trump and the right lol, This is clearly the Democratic’s doing. Logic = when Virginia was conservative – no tolls on 66. Now you have two states: Maryland and Virginia that take your tax money and sell your roads to the highest bidder. Now this is annoying yes, but it gets worse. The investors now look at this as an investment and no longer care about how unfair it is. Facts – Liberals don’t pay attention to the real issue. Dem’s are the ones who leave potholes all over the highways while preaching take public transportation (which cost way too much for the reality of inconvenience it is) and if you don’t take public transportation the’ll charge excessive tolls that no one in their right mind would pay. Stop voting for these idiots they don’t care about you

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