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Long Range Planning: Infrastructure Needs & Financing: Funding the Capital & Operating Needs of New York City's Bridges & Streets
Click HERE for graphic. Long Range Planning Infrastructure Needs & Financing PT2209893 PT220980L Contract D000642 Task 3.0 The preparation of this report was financed in part with funds from the U.S. Department of Transportation, Federal Highway Administration, under the Federal Highway Act of 1956, as amended, and the Urban Mass Transportation Act of 1964, as amended. This document is disseminated by the New York City Department of Transportation in the interest of information exchange. It reflects the views of the New York City Department of Transportation, which is responsible for the facts and the accuracy of the data presented. The report does not necessarily reflect any official views or policies of the Urban Mass Transportation Administration, the Federal Highway Administration, or the State of New York. The report does not constitute a standard, a specification, or a regulation. Prepared by: New York City Department of Transportation Michael A. Weiss Chief of Staff Edward S. Seeley Jr. Deputy Assistant Commissioner Ann Marie Sledge, Director of Strategic Plan Development Erica Caraway, Deborah J. Molina, Graphics T A B L E 0 F C 0 N T E N T S I. EXECUTIVE SUMMARY 1 II. FUNDING NEEDS 32 III. NEW REVENUE SOURCES 43 V. TOLL COLLECTION SYSTEMS 58 VI. ENVIRONMENTAL CONSEQUENCES 71 VII. THE TOLLING ENTITY 76 VIII.LEGAL ISSUES 89 IV. A BRIDGE TOLL SCENARIO 47 APPENDIXES 96 I. E X E C U T I V E S U M M A R Y OVERVIEW This report details preliminary findings about the operating and capital funding needs of New York City's surface transportation infrastructure, and options for meeting these needs. This critical infrastructure system is composed of 877 bridge structures (including five short tunnels), 18,596 lane miles of highways and streets, plus the traffic lights and other control facilities needed to assure safe and smooth traffic flow. Because of the heavy traffic loads that the surface transportation infrastructure must carry in supporting New York's economic and social life, meeting its operating needs (which include adequate on-going maintenance) is just as important as meeting its capital reconstruction needs. The findings in this report are the preliminary results of an analysis that focused on a ten year evaluation period beginning in 1994 and running through 2003. The analysis is part of an on- going assessment that is being conducted by New York City's Department of Transportation, which is responsible for this infrastructure system. Helpful advice and input was provided by the City's Office of Management & Budget and by its departments of Law and Environmental Protection. The two primary concerns of this analysis were to: * Estimate the funding shortfall in being able to meet the operating and capital needs of the surface transportation infrastructure if the City were to rely only on its existing revenue sources. * Identify possible new revenue sources, evaluate their practical feasibility, and estimate their potential for assuring adequate funding of the infrastructure system. The analysis has found that the City will be able to fund less than three-quarters of its surface transportation infrastructure needs during the ten year evaluation period if it must rely entirely on existing revenue sources. The projected funding shortfall, which totals 26 percent of these needs, seems disturbingly large and could restrict future economic growth. Tolling the City's East River and Harlem River bridges may offer the best option for assuring full funding of the infrastructure system. The benefit 1 potential and practical feasibility of bridge tolls appear high enough to warrant serious efforts to pursue this new revenue option ahead of all others. These efforts should be undertaken as soon as possible. To pursue the Bridge Toll option, the City should: * Ask the New York State Legislature to create a New York City Surface Transportation Authority. This new authority would have the power to implement tolls on the East and Harlem River bridges; to issue bonds secured by toll revenue that would fully fund the capital needs of all City bridges; to use toll revenue to fully fund the operating needs of these bridges; and to use any revenue surpluses remaining to help fund the capital and operating needs of City streets and traffic control facilities. The authority would be controlled by the Mayor, with input from the City Council. * Commission a series of technical studies to provide detailed answers to the various issues that must be resolved before tolls can be implemented. These issues involve such matters as environmental consequences, changes in traffic patterns, toll collection systems, revenue projections, economic impacts, enforcement, and the impact of tolls on various categories of tripmakers. Many of these issues are discussed in this report and require comprehensive analysis by qualified professionals. SUMMARY OF PRELIMINARY FINDINGS 1. The operating and capital funding needs of the surface transportation infrastructure are projected to total $10.6 billion during the ten year evaluation period. However, the City expects to be able to fund only 74 percent of these needs, by providing $7.9 billion from existing revenue sources. The resulting 26 percent shortfall totals $2.7 billion during the evaluation period. Given the current condition of the surface transportation infrastructure, the size of this shortfall raises troubling questions about the infrastructure's ability to serve New York City's future social and commercial demands. 2. The extent of deterioration of the twelve East and Harlem River bridges, and their critical role in providing entry to Manhattan, has made it necessary for the City to allocate 23 percent of all expected 2 capital resources for surface transportation infrastructure to their needs. This has unbalanced the City's funding plan - mainly at the expense of streets, where existing capital resources will be able to meet less than two-thirds of funding needs. one consequence of this is that the City's recent success in improving streets in the four residential boroughs would come to a halt, and the previous trend of on-going street deterioration would resume during the ten year evaluation period. 3. Despite the high priority given to Manhattan's East and Harlem River bridges in the City's funding plan, less than three-quarters of their operating and maintenance needs can be funded from existing revenue sources. Since lack of adequate maintenance in the past is a major reason why these twelve bridges must consume such a high proportion of the infrastructure's total capital resources, the City's inability to meet their future maintenance needs is especially troubling. 4. The infrastructure's overall 26 percent shortfall, the inability to meet bridge capital needs except by shortchanging streets, and the lack of adequate maintenance funding for the Manhattan bridges provide clear indications that the City is unable to fund surface transportation infrastructure in a satisfactory manner from existing revenue sources. New revenues must be found. 5. Three possible sources of new revenue are a local gasoline tax, an increase in the City's auto use tax, and tolling the City's East and Harlem River bridges. The infrastructure funding shortfall could be covered by a 21 cents per gallon tax on gasoline sales in the five boroughs, an increase in the auto use tax of $155 per vehicle, or a $1.50 (each way) toll on the City's Manhattan bridges. 6. All things considered, tolling Manhattan's East and Harlem River bridges appears to be the most reasonable option for generating the new revenue needed. Under present circumstances, these twelve bridges constitute such an enormous drain on the City's existing resources that they make a balanced funding plan impossible. But tolls can correct this. They would convert the Manhattan bridges into a funding source for their own needs plus the needs of surface transportation infrastructure facilities in all five boroughs, rather than allowing them to remain a funding drain. 3 7. Bridge tolls could also improve traffic flow and reduce air pollution if toll rates on the City's Manhattan bridges were set at levels equal to TBTA's rates on its four Manhattan crossings. Severe traffic congestion on the approaches to the City bridges due to vehicles seeking to avoid TBTA tolls imposes a heavy cost burden on commercial vehicles. The air pollution generated by this congestion presents a major barrier to the City's efforts to attain the air quality standards that are mandated by the federal Clean Air Act. Failure to attain these standards could expose the City to costly sanctions that would reduce the capital funds available for improving its bridges and streets. 8. If tolls on the City's Manhattan bridges were the same as TBTA tolls, they could produce net revenues of $7.9 billion during the ten year evaluation period (after allowing for trip diversions due to the presence of tolls, collection costs, and other costs and losses). This would enable bridge tolls to: * Fund 100 percent of the operating and capital needs for all City bridges, plus * Eliminate the projected funding shortfalls for streets and traffic control facilities, plus * Provide the City with $5.7 billion in expense budget relief to help address the structural deficit and hold the line on taxes, plus * Reduce the City's capital borrowing needs by $5.2 billion, plus * Generate an additional $1 billion in revenues that the City could use to fund other transportation improvements. 9. Bridge tolls at TBTA rates would also enable TBTA to recapture the crossing vehicles that it now loses to the toll-free City bridges. This would mean a revenue gain to TBTA of about $1.1 billion during the ten year evaluation period. Under existing law, all of these new TBTA funds would be turned over to the Transit Authority and the commuter railroads. 4 10. Electronic toll-collection technology that is now in operation in other cities would make it possible to toll the City bridges without the need to build elaborate toll plazas and without generating new traffic congestion and air pollution problems that could not be mitigated. Surveys indicate that over 90 percent of Manhattan-bound vehicles come from the New York State portion of the metropolitan region. This very high "local origin" percentage enhances the potential for enrolling a significant proportion of the vehicle owners who make Manhattan trips in an electronic collection/payment system similar to the one that TBTA and the Port Authority plan to implement at their toll crossings. However, nearly three-quarters of the drivers entering Manhattan would still have the option of paying cash tolls on the TBTA crossings they would normally use, or on those City bridges where cash payment lanes can be provided to supplement the electronic payment lanes. 11. The consensus of environmental experts is that bridge tolls would have generally positive environmental consequences. There could be some localized negative consequences at certain Manhattan crossings, but none that could not be mitigated. This is a complex issue that requires careful analysis in the course of the technical studies that we have recommended. 12. We believe that the tolling entity should be a newly-created New York City Surface Transportation Authority. This authority would be self-supporting from bridge tolls, would be responsible for fully meeting the operating and capital funding needs of all City bridges, and would use its revenue surpluses to help meet the funding needs for City streets and traffic control facilities. The authority would be controlled by the Mayor, with input from the City Council. A more detailed discussion of these findings is presented below. FUNDING NEEDS, RESOURCES, AND SHORTFALLS For the purposes of this report, New York City's surface transportation infrastructure has been defined as consisting of four distinct facility groups. 5 * The twelve Manhattan bridges that cross the East River and the Harlem River. * The City's other bridges and five short tunnels that carry motor vehicle traffic throughout the five boroughs. * The 18,596 lane miles of limited access highways, through streets, and local streets. * The traffic lights, street lights, signs, and other facilities to provide for the safe and efficient control of motor vehicle traffic. The report's estimates for the operating and capital funding needs of these four infrastructure groups over the ten year evaluation period reflect minimum levels required for safe and adequate performance. The estimates are based on certain assumptions about future condition levels, deterioration rates, cost inflation, and other factors that are difficult to forecast with precision. These assumptions are under continuing review and are subject to periodic revisions that may result in new estimates. For the purposes of this report, the estimates presented should be regarded as reasonable assessments of funding needs that reflect currently,available information and the functional definitions outlined above for the four infrastructure groups. The nature of these definitions, which were developed specifically for this report, may result in some of the needs estimates appearing to differ from estimates made previously. Any such differences are contextual and arise from the constraints imposed by the definitions, except where they reflect up-dated information. Estimates for the funding resources that may be available to meet these needs reflect projections of expected federal and State grants, plus projections of City funds that can reasonably be expected to be available from existing revenue sources. These estimates are also under continuing review and may change in the future. To facilitate comparisons, the evaluation period begins in 1994 - the same year that bridge toll collections are assumed to begin under the illustrative revenue scenario outlined below. Except where noted, all estimates of funding needs and resources are presented in terms of their actual demand on City revenues during the period in question. This enables operating and capital estimates to be shown on the same basis. Total operating and capital needs for the ten year 6 evaluation period are $10.6 billion. Existing City revenue sources plus expected federal and State grants appear to be sufficient to provide $7.9 billion in funding resources, which would cover only 74 percent of these needs. The resulting shortfall totals $2.7 billion, or 26 percent of needs. The five pie charts on the next page facilitate comparisons of funding needs, available resources, and shortfalls for the surface transportation infrastructure as a whole and for each of its four component groups. In each case, the entire pie represents ten year funding needs, the large slice represents expected resources, and the smaller slice represents the shortfall. For each of the four surface transportation infrastructure groups, the estimates break down as follows: * The Manhattan Bridges: - Ten year total operating and capital needs are $1.6 billion, or 16 percent of total infrastructure needs. - Existing revenue sources and grants are expected to provide $1.5 billion, which is 19 percent of total infrastructure resources. This would be sufficient to cover 90 percent of Manhattan bridges needs (100 percent of capital needs, but only 73 percent of operating needs). - The ten year funding shortfall for the Manhattan bridges is $165 million, or 10 percent of needs. All of this shortfall is on the operating side. It accounts for 6 percent of the total infrastructure shortfall. * The Other Bridges - Ten year total operating and capital needs are $1.4 billion, or 13 percent of total infrastructure needs. - Existing revenue sources and grants are expected to provide $1.1 billion, which is 14 percent of total infrastructure resources. This would be sufficient to cover 83 percent of the needs for these other bridges. - The ten year funding shortfall for these bridges is $238 million, or 17 percent of needs. This accounts for 9 percent of the total 7 Click HERE for graphic. infrastructure shortfall. * Streets - Ten year total operating and capital needs are $5.2 billion, or 49 percent of total infrastructure needs. - Existing revenue sources and grants are expected ,to provide $3.3 billion, which is 41 percent of total infrastructure resources. This would be sufficient to cover 63 percent of the needs for streets. - The ten year funding shortfall for streets is $1.9 billion, or 37 percent of needs. This accounts for 70 percent of the total infrastructure shortfall. * Traffic Facilities - Ten year total operating and capital needs are $2.4 billion, or 23 percent of total infrastructure needs. - Existing revenue sources are expected to provide $2 billion, which is 26 percent of total infrastructure resources. This would be sufficient to cover 83 percent of traffic needs. - The ten year funding shortfall for traffic facilities is $410 million, or 17 percent of needs. This accounts for 15 percent of the total infrastructure shortfall. (The "pie chart equation" on the next page illustrates these relationships among the four infrastructure groups. It is followed by a table that summarizes the numbers.) IMPLICATIONS OF THE SHORTFALLS The 26 percent total funding shortfall constitutes a major problem, given the existing condition of the surface transportation infrastructure. If New York's economy is to grow at a satisfactory rate in the future, the many barriers preventing smoother and faster traffic flow in all five boroughs must be addressed. This is unlikely to be accomplished by a funding plan that meets less than three-quarters of infrastructure needs. The total shortfall masks another serious problem. As 8 Click HERE for graphic. Click HERE for graphic. the discussion in the previous section indicates, lack of sufficient funds from existing revenue sources has made it impossible for the City to develop a balanced infrastructure funding plan. This is illustrated by the pie charts referenced earlier. The twelve Manhattan bridges have a much higher percentage of their needs funded than the average for all four groups. As a result, they gobble up 19 percent of the City's available infrastructure resources, including 23 percent of the resources available for capital improvements. The reasons for this are simple. Decades of under- maintenance and postponed capital reconstruction have accelerated the structural deterioration of the Manhattan bridges. They are now at a point where their restoration can no longer be delayed. The City has had to give this first priority in its infrastructure funding plan. It has done so by allocating 23 percent of its expected capital resources to these twelve bridges during the ten year evaluation period. This enables 100 percent of their capital needs to be met. However, despite the high priority given to the Manhattan bridges, only 73 percent of their operating needs (which are mainly for on-going maintenance) could be met from the City's existing revenue sources. This is virtually the same funding percentage for operating needs as the average for all four infrastructure groups. A funding percentage this low for operating maintenance of the Manhattan bridges raises questions about whether some of the benefits expected from their capital reconstruction would be compromised during.the evaluation period. Lack of adequate maintenance in the past is a major reason why these twelve bridges must consume such a large share of total capital resources for surface transportation infrastructure. The priority that the Manhattan bridges must have in the City's funding plan comes at a high price. Only 56 percent of operating and capital needs for streets can be funded from existing revenue sources. Having to underfund streets so severely may not compromise their inherent safety. But it does reduce their ability to accommodate New York's legendary traffic demands. Deteriorated street surfaces force vehicles to travel more slowly than normal traffic volumes would otherwise permit. The consequences of this problem are especially serious on the City's heavily-used highways where vehicle slow-downs can ripple back through the traffic flow like giant waves for a mile or more, producing stop-and-go conditions that are equivalent to what would occur if an entire highway lane 9 was removed from service. The additional congestion generated by this functional "narrowing" of City highways greatly increases vehicle trip times. A high proportion of these vehicles are making commercial trips. Therefore, increases in trip times impose heavier burdens on business costs that could constrain the future growth rate of the local economy. This impacts the profits of New York business firms and the tax revenues needed to fund municipal services. Another consequence of deteriorated street surfaces is greater vehicle wear. There is evidence that vehicle life in New York (as measured by total miles driven) is materially lower than the national average. Since so many of these miles are driven for commercial purposes, shorter vehicle life increases New York's already high cost structure. In summary, the most important implications of these shortfalls are as follows: * With its existing resources, the City can only meet the capital needs of the twelve Manhattan bridges by severely underfunding streets. This imposes a heavy burden on the four residential boroughs, where most of these streets are located. * Despite the high priority given to the Manhattan bridges in the City's funding plan, less than three-quarters of their on-going maintenance needs could be funded. This means that an underlying cause of their present deterioration cannot be addressed with existing City resources. * The four infrastructure groups constitute a single integrated transportation system. Therefore, a funding shortfall in one group can limit the benefits gained from spending for the other groups. Under these circumstances, the dollars spent by the City are unable to deliver their full value to New Yorkers. These implications underscore the urgent need to find practical and productive new revenue sources to cover the projected $2.7 billion shortfall and assure a rational, balanced plan for funding infrastructure needs. RAISING MORE REVENUE Any steps taken to raise more revenue locally for the 10 surface transportation infrastructure will impact New York City's overall cost structure. In this sense, increases in municipal taxes or user fees are no different from increases in the price of food, electricity, medical services, or other basic necessities. The real issue is how the cost of raising more revenue compares to the cost of failing to cover the surface transportation infrastructure's funding shortfall. This is a complex issue that needs to be evaluated carefully. Under favorable circumstances, the overall economic consequences of raising new revenue to cover the surface transportation infrastructure's funding shortfall may not be entirely negative and could be positive. It all depends on the manner in which the new revenue is raised and how it is used. To the extent that any new revenue raised is spent locally, there will be offsetting benefits in the form of greater economic activity. This is especially significant in the case of revenue used to support more capital spending. The construction.activity arising from capital spending has a high multiplier effect, causing each dollar of direct spending to generate considerably more than a dollar of increased economic activity. This translates into more jobs, higher personal income, increased business profits, and higher revenues from existing local taxes. The Port Authority and several private economic consulting firms have developed computer models of the local economy that can facilitate quantitative evaluations of these issues. It would be desirable to make use of these models for the economic analysis that should be part of the technical studies we have recommended. Also important in evaluating new revenue sources is the degree of linkage between those who pay and those who use City bridges and streets. Available evidence suggests that substantially less than 100 percent of these users are city residents. For example, surveys conducted by TBTA at all nine of their toll bridges and tunnels within the five boroughs show that about 44 percent of the tripmakers using these crossings have trip origins outside the city. Most of these tripmakers are probably not city residents. From this perspective, a revenue source that taps both non-residents and residents is preferable to one that taps only city residents. POTENTIAL REVENUE SOURCE: GASOLINE TAX Imposing a gasoline tax to provide new revenue for the 11 surface transportation infrastructure has the advantage of directly charging motor vehicles users to improve the bridges and streets that they depend on. Since the amount each driver would pay would reflect the amount of gasoline purchased in the city, and since gasoline purchases roughly reflect the number of miles driven on City bridges and streets, charges would be more or less linked to use. This would make a gasoline tax a classic application of the user charge concept that has become a popular way to fund certain kinds of municipal functions. Conservative estimates indicate that motorists purchase approximately 1.3 billion gallons of gasoline in New York City each year. Therefore, each nickel per gallon increment in a gasoline tax would generate about $65 million per year in new revenue. To close the entire funding shortfall, a 21 cents per gallon gasoline tax would be needed. Since gasoline consumption per mile driven has been declining over time as new cars that offer better gas mileage replace elderly gas guzzlers, future increases in revenue would depend on incremental increases in the tax. More auto use would also increase revenue. But this could exacerbate New York's traffic congestion and air quality problems and would conflict with the policy goal of encouraging a greater percentage of local trips to be made by public transportation. If the gasoline tax was charged only on purchases made at gas stations within the city, it is likely that only a small percentage of the revenue collected would come from non-residents who use City bridges and streets. POTENTIAL REVENUE SOURCE: AUTO-USE TAX INCREASE New York City's $26 per year Auto-Use Tax is actually a fee imposed on cars registered within the five boroughs. The amount paid is unrelated to how many miles driven on City bridges and streets. It is therefore not a true user charge, even though its application is limited to local auto owners. There are currently about 1.733 million automobiles registered in New York City. Each $10 increase in the Auto-Use Tax would produce about $17 million in new revenue. To close the entire funding shortfall with the Auto-Use Tax, it would have to be increased to $155 per vehicle. All of this revenue would be generated by city residents and none by non-residents who use City bridges and streets. 12 POTENTIAL REVENUE SOURCE: BRIDGE TOLLS Tolls are the oldest and most classic form of user charge for surface transportation facilities. In most cases, toll revenue is dedicated exclusively to supporting the tolled facility - as is the case with the New York State Thruway. In New York City, however, toll revenue has been more broadly applied. TBTA's revenues from its nine tolled crossings are co- mingled, and are used both to support the nine crossings and to help subsidize the New York City Transit Authority and the two commuter railroads. The Port Authority's revenues from its six tolled Trans-Hudson crossings are applied even more broadly. They are co-mingled with PATH fares, World Trade Center rents, airport revenues, and seaport facilities charges to support the entire range of Port Authority activities. Tolls on the City's East River and Harlem River bridges could generate substantial amounts of new revenue for the surface transportation infrastructure. How much revenue depends on the toll rates used. For example, under one minimum effort" scenario, bridge tolls could produce $3.6 billion over the ten year evaluation period. This assumes that the toll rate in 1994 would be $1.50 for all vehicles (half the projected TBTA auto toll rate in 1994) and would rise by a quarter each time the TBTA increases fifty cents. Under this scenario, tolls would completely cover the projected shortfalls during the evaluation period and would produce an additional $1.6 billion that could enable tolls to assume a larger share of the infrastructure funding burden (see Appendix D for details of this scenario). Bridge tolls also provide a way to allocate the payment burden among drivers based on their use of the East and Harlem River bridges (and the other City bridges and streets they use before and after crossing these bridges). TBTA surveys that were focused only on their four Manhattan crossings (therefore excluding the five bridges that do not provide entry to Manhattan) show that about 49 percent of the drivers using these crossings have trip origins outside the five boroughs. The percentage of non-resident drivers using the City bridges may be somewhat lower, but probably not much. Finally, bridge tolls go right to the heart of the infrastructure funding problem - which is the magnitude of the needs that these twelve bridges impose on the City's existing revenue sources. Their capital needs can be funded, but only by leaving nearly half of the needs for 13 streets unfunded. And less than three-quarters of the on-going maintenance needs for these bridges can be funded. Tolls would change all that. In fact, tolls have the potential for turning the Manhattan bridges into a funding source with enough strength to assure that all surface transportation infrastructure needs in all five boroughs are completely funded. How this potential could be realized and what it could accomplish is illustrated in the next two sections. AN ILLUSTRATIVE REVENUE SCENARIO FOR BRIDGE TOLLS The more comprehensive scenario described in this section assumes that toll rate's on the City's Manhattan bridges would be the same as the toll rates on TBTA's four Manhattan crossings. Equalizing tolls would provide some major benefits in addition to new revenues to fund surface transportation infrastructure. One of these benefits is that equal toll rates on all entry points to Manhattan would eliminate the present cost incentive for many drivers to go out of their way to use the City bridges. These trip diversions increase traffic congestion and worsen air quality problems. The other benefits are described in the next section. At TBTA's projected $3.00 one way toll rate for automobiles in 1994, first year net revenues from tolls on the Manhattan bridges would be $685 million (after allowing for trip diversions due to equalized tolls, toll collection costs, and other losses and costs). Over the ten year evaluation period, as toll rates rise to $3.50 in 1997 and $4.00 in 2001 (keeping pace with projected increases in TBTA tolls), net revenues would increase at an average rate of three percent per year, totaling $7.9 billion. For comparison purposes, the first year's $685 million in net revenue would be equivalent to a 53 cent per gallon New York City gasoline tax, and a $395 per vehicle increase in the City's Auto Use Tax. These estimates reflect the following assumptions: * Toll collection begins in 1994. It seems unlikely that tolls could be implemented before then because of the environmental reviews and other technical studies that would have to be completed, as well as the need for action by the New York State Legislature. * Estimated 1994 gross vehicle crossing volumes on the 14 Manhattan bridges would be the same as actual 1990 volumes, and would remain at the 1990 level throughout the ten year evaluation period. It should be noted that TBTA's Official Statement for their June 1991 bond sale projects crossing volume growth rates averaging 0.88 percent per year during the evaluation period for their four Manhattan crossings. In the absence of measures to discourage Manhattan entries by motor vehicle, similar increases in crossing volumes at the City bridges seem likely. If these increases were to materialize fully, net toll revenue over the ten year evaluation period would be $487 million (6.2 percent) higher than the scenario projects. * The initial one-way toll rate would be $3.00 - equal to TBTA's projected one-way auto toll rate in 1994. The same toll rate would be charged all vehicles except buses, which would be exempt as public transportation vehicles. * The one-way toll rate would increase by fifty cents each time the TBTA toll rate increases fifty cents, in order to avoid undesirable trip diversions based solely on cost. TBTA's toll rates are driven primarily by the funding needs of the New York City Transit Authority, the Long Island Railroad, and Metro-North (which TBTA revenues help subsidize). Based on the rate projections in TBTA's June Official Statement, we are assuming that City bridge toll rates would increase to $3.50 in 1997 and to $4.00 in 2001. This results in an average annual toll rate increase during the ten year evaluation period of 3.25 percent, which is about two-thirds of the average 4.8 percent rate for local Consumer Price inflation that New York City's Office of Management & Budget has assumed in its current Four Year Financial Plan. * In addition to the exclusion of buses, another 17 percent of 1990 gross crossing volumes would not be tolled. This reflects the diversion of trips from the City bridges due to the implementation of tolls. These are highly preliminary assessments. Detailed economic and traffic analyses are needed to develop more precise estimates, The "revenue value" of our diversion loss estimate is $133 million in the first year of the evaluation period (19 percent of net toll revenues). * On the Alexander Hamilton bridge, through traffic 15 between the Bronx and New Jersey would not be tolled because it already pays a toll on the George Washington Bridge. This through traffic amounts to 17 percent of 1990 gross crossing volumes. * Toll collection costs are estimated at about $50 million in the first year of the evaluation period (7.4 percent of gross collections). These costs rise each year at the rate of local Consumer Price inflation and total $618 million during the evaluation period. They include both on-going operating costs plus the amortization of all start-up costs for issuing free toll tags to local motorists as well as planning, equipping, and implementing all other facilities needed for collecting tolls. * Other costs and losses are estimated at $271 million in 1994 (40 percent of gross collections) and $3.2 billion for the ten year evaluation period. They include revenue lost through toll beating and the costs of enforcement. These costs and losses are offset by fines collected on tickets issued to toll beaters. Charging the same toll for all vehicles regardless of size or type is a simplifying assumption for this illustrative scenario. In practice, the City bridges may charge higher tolls for trucks - as does TBTA. This would produce somewhat more toll revenue. Trip diversions from the City bridges to TBTA's four Manhattan crossings due to the equalization of toll rates would increase TBTA's toll revenues in the first year by $91 million (assuming a $3.00 TBTA toll in 1994), and by about $1.1 billion over the ten year evaluation period. Under existing New York State law, this new revenue would be divided equally between the- Transit Authority and the commuter railroads. The new funds in 1994 would represent a 33 percent increase in funding for public transportation, relative to the $274 million in operating subsidies that TBTA paid to the Transit Authority and the commuter railroads in 1990. If this additional TBTA revenue was used to support bonds issued to fund new MTA capital projects, it would generate roughly $1.4 billion for public transportation improvements during the evaluation period. This represents about 20 percent of the estimated funding shortfall in the MTA's proposed third Five Year Capital Program. 16 These revenue estimates reflect-prudently conservative assumptions about crossing volumes, diversions from the bridges due to the imposition of tolls, the costs of installing and operating the toll collection/payment system, and other costs and losses. But the estimates do not reflect any assumptions about the growth rate of the local economy during the ten year evaluation period. Changes in the growth rate from year to year could cause changes in the underlying demand for trips to Manhattan, which would have an impact on toll revenues. The implementation of bridge tolls, and subsequent increases in toll rates, could have some influence on the local economy's growth rate. So could changes in the level of capital spending on the surface transportation infrastructure, which has a high multiplier effect. In the interest of simplicity, none of these economic factors is reflected in this illustrative scenario. The toll revenue estimates projected by the scenario provide a reasonable picture of the new funds that could be generated. But a more thorough analysis of these estimates should be undertaken because of the various assumptions made. AN ILLUSTRATIVE FUNDING SCENARIO The toll revenues projected in the previous section would easily cover all surface transportation infrastructure funding shortfalls during the ten year evaluation period. In fact, funding these shortfalls would only consume about one-third of net revenues. This makes it possible to consider having toll revenues take over direct responsibility for funding all operating and capital needs of the Manhattan bridges (not just the shortfall), and all other City bridges as well. Such a scenario means that: * The operating needs of all City bridges would be 100 percent funded - rather than only 77 percent funded, which seems likely if they must rely entirely on existing City revenues. This would mean an end to the tradition of under-maintaining bridges. * The capital needs of all City bridges would be 100 percent funded - rather than only 91 percent funded, as projected if they must rely on the capital funds that the City could make available. * The City's budget would be completely relieved 17 of the need to appropriate bridge operating funds. This would result in a net budget saving of $673 million during the ten year evaluation period. This on-going budget relief could help reduce the City's structural deficit - or reduce the impact on other municipal services of future measures to eliminate the structural deficit. * If a way can be found to issue bonds secured only by toll revenues, all bridge capital needs could be funded without requiring the City to issue any general obligation bonds for this purpose. over the ten year evaluation period, this would reduce the City's projected general obligation borrowings by $2.2 billion. The resulting net reduction in City debt service over the evaluation period would be about $1.4 billion, raising net budget savings to $2 billion. (Since City debt service costs are normally funded by a portion of the real estate tax that is reserved exclusively for this purpose, the debt service savings could be used to help limit future increases in real estate tax rates or make a larger portion of total real estate tax revenues available for operating purposes.) Under this scenario, there would still be toll revenue surpluses remaining after all bridge needs were funded. Over the ten year evaluation period, these surpluses would total $5.9 billion. The surpluses could be used by the City in various ways to improve the surface transportation infrastructure. One possible sequence of options is outlined below. * FIRST: each year's surplus toll revenue would be applied to covering the capital and operating funding shortfalls for streets and traffic facilities. This would enable these two infrastructure groups to become fully funded. Doing so would use up $1.7 billion (29 percent) of the surpluses over the evaluation period, leaving $4.2 billion still available. * SECOND: to the extent possible, each year's remaining surplus would be used to replace the operating and capital funds for streets and traffic that are now expected to be from existing City resources. This would provide an additional $3.7 billion in net budget savings over the evaluation period and offset 71 percent of the funding burden on existing City resources. 18 * THIRD: after these City funds are replaced, the $1 billion worth of toll revenue surpluses still remaining during the first six years could be used to fund other important transportation improvements that shortages of existing City resources might otherwise rule out. These could include the development of more park-ride facilities to serve auto commuters to Manhattan. Other options for using the toll revenue surpluses are possible. But the sequence described above has two intriguing benefits. It would assure full funding for all capital and operating needs of streets and traffic control facilities. And it would provide $3.7 billion in additional City budget savings for operating costs and debt service, by assuming much of the funding burden that is now expected to be borne by existing City revenues. . Apart from its ability to assure full funding for all infrastructure needs, the potential that this complete funding scenario offers for City budget relief is attractive. Over the ten year evaluation period, net budget relief would total $5.7 billion - $2 billion in City operating and debt service savings for its bridges, and $3.7 billion in City operating and debt service savings for streets and traffic control facilities. (This entire infrastructure funding scenario is diagramed on the next page.) TOLL COLLECTION The classic method of collecting tolls is to have each vehicle stop at a toll booth and make cash payment. This method requires the construction of elaborate toll plazas and, under the traffic volume conditions common at the City's Manhattan bridges, can result in long queues of vehicles backed up waiting to pay tolls. Exclusive reliance on cash payment toll collection for the City bridges is not feasible. It would require the acquisition of additional land on which to construct toll plazas, and the resulting vehicle queues are likely to cause serious environmental problems. However, electronic toll collection technology is now available that could minimize these problems by substantially reducing the reliance on cash payment collection. This technology is in operation on a heavily used toll road in Dallas, on two major river bridges in New Orleans, on Oklahoma turnpike system, and on toll roads in France and Italy. 19 Click HERE for graphic. TBTA and the Port Authority have-been field testing this technology since 1988. They have also formed a "working group" with other toll authorities in New York, New Jersey, and Pennsylvania to adopt a single, compatible electronic collection system for toll facilities in all three states in order to facilitate development of a very large user base. The working group intends to issue a hardware procurement request in the Fall of 1991. The technology employs a radio frequency sensor to "read" a unique ID number coded into a toll tag that is fastened to the inside of each vehicle's windshield. The toll tag is about the size of a credit card and is held against the windshield by velcro strips so that it can be easily removed when the vehicle is left unattended. The system does not require toll booths and can process streams of traffic at normal highway speeds. Toll collection with such a system on the City bridges would eliminate the need to build elaborate toll plazas and would minimize the incidence of negative environmental consequences caused by lengthy traffic queues backed up waiting to pay cash tolls. Motorists using such a system on the City bridges would be given payment accounts against which each of their crossings would be charged. Monthly payments could be by any major credit card, automatic debits to checking accounts, or regular checks. There need be no surcharges, account maintenance fees, prepayment requirements, or other cost disincentives to motorists for participating in the electronic toll collection system. The extent to which such a system can reduce reliance on cash payment depends on the degree of participation by motorists making trips to and from Manhattan. A major factor affecting participation is the proportion of these motorists who have local origins and can therefore be assumed to register their vehicles locally. Surveys at TBTA's four Manhattan crossings show that 98 percent of their Manhattan-bound vehicles have trip origins in the Tri-State region, and 93 percent have trip origins in the New York State portion of the region. These "local origin" percentages should be at least as high on the City bridges. This suggests a high potential for enrolling a sizable proportion of motorists who make trips to Manhattan in an electronic collection/payment system, especially if enrollment imposes no additional costs or hassle on these motorists. Once they are enrolled, the conveniences of electronic payment (i.e. faster trip times and no need to fumble for currency at toll booths) make it likely that they will use the system to pay for all or most of their crossings. Therefore, as the number of motorists enrolled 20 in the system increases, the number of vehicles seeking to pay cash tolls on the City bridges will decrease. On the basis of consumer surveys and other market research, TBTA and the Port Authority have indicated that 20 to 30 percent of the drivers using their toll crossings could be expected to participate in an electronic toll collection system for these crossings. However, because of bond covenants and other restrictions, the system used by these two authorities would.have to require advance payment, with motorists laying out money ahead of time to maintain positive balances in their payment accounts against which crossings could be charged. This is an obvious barrier to high participation rates, as is demonstrated by the actual participation rates for the electronic toll systems in Dallas and New Orleans where advance payment is required. Since the City bridges need not require advance payment for their electronic toll system, higher participation rates may be achievable. In any case, cash payment facilities would still be needed to accommodate the 2 percent of vehicles with origins outside the region (or the 7 percent with origins outside the New York State portion of the region). Such facilities would also be needed for local vehicles whose owners decline to use the electronic system. The four TBTA crossings will always offer the option to pay cash tolls, even after they implement electronic collection. Assuming the trip diversion percentages used in estimating tollable crossings on the City bridges, 35 percent of all vehicles making Manhattan trips would normally be using the four TBTA crossings - and will therefore have the option of paying cash tolls. The cash payment option could be made available to nearly three-quarters of all vehicles making Manhattan trips - and at a more widely distributed selection of crossings by providing some cash payment lanes on City bridges to supplement those on the TBTA crossings. Therefore, the percentage of vehicles that would have the option of paying cash tolls on the crossing they would normally use corresponds closely to the 70 to 80 percent of vehicles that TBTA and the Port Authority anticipate will continue to pay cash tolls at their crossings after electronic collection (with its advance payment requirement) is implemented. Preliminary analysis of peak hour traffic volumes on the City bridges indicates that such lanes could be provided at a number of locations without causing negative environmental consequences that could not be mitigated. Obvious candidates for such lanes would be the Manhattan, 21 Williamsburg, and Queensboro bridges over the East River (which are expected to carry 26 percent of all vehicles making Manhattan trips after tolls are implemented), and the Broadway, University Heights, Macombs Dam, and Madison Avenue bridges over the Harlem River (which are expected to carry 12 percent of these vehicles). The success of efforts to address the inevitable problem of toll beating is an important factor in maximizing revenues. A certain number.of drivers will use the electronic payment lanes without having valid toll tags or accounts. To deal with this effectively, the primary focus of enforcement efforts should be on maximizing revenue, not on preventing drivers from misbehaving. This is an important distinction. Trying to change human behavior is a costly and frustrating endeavor. But..maximizing revenue from those who insist on misbehaving is not. It simply requires a "toll beating" fine schedule that is high enough to assure that fine revenue is at least equal to the toll revenue lost through fare beating, under reasonable assumptions about ticketing and fine collection rates. The projections for gross fine revenue described earlier assume that 10 percent of all drivers crossing the City bridges will beat the toll, and that half of these drivers can be issued tickets. This ticket issuing rate should be achievable without disrupting traffic if television cameras on the bridges can successfully record the license plate numbers of 50 percent of all crossing vehicles, so that toll beaters (who are assumed to be randomly distributed among all drivers) can be identified and tickets mailed to them. (This use of television cameras may require enabling legislation from the State Legislature.) Since the City's Parking Violations Bureau currently collects about 60 percent of its tickets, a similar collection rate was assumed in the revenue projections. The toll beating fine was assumed to be twenty times the toll rate (or $60 in,1994). The practical feasibility of electronic toll collection is one of the most critical factors affecting a decision to toll the Manhattan bridges. Reliable assurances that it can do the job in New York City'S environment are essential. This is an issue that must be evaluated carefully in the course of the technical studies we have recommended. 22 ENVIRONMENTAL CONSEQUENCES This is obviously an important issue, since the federal Clean Air Act could effectively prohibit the imposition of tolls if they resulted in negative environmental consequences that could not be mitigated. At the same time, many environmental specialists believe that bridge tolls would, on balance, have positive environmental consequences. New York City has not yet attained the air quality standards for carbon monoxide and ozone that are mandated by the Clean Air Act. By November 15, 1992, the State must submit to U.S. EPA a revised "State Implementation Plan" (SIP) describing the measures that will be used to attain the Act's standards for carbon..monoxide. Failure to meet this schedule could expose the City to costly sanctions, including loss of the $538 million in federal highway funds that were assumed in the estimates given earlier of the funds available for bridge and street restoration. To avoid the possibility of sanctions, the City must complete work on its portion of the revised SIP by Spring 1992 so that the State will have adequate time to meet the submission deadline. Candidate measures for inclusion in the SIP are currently being evaluated by the City's Department of Environmental Protection and DOT. Since motor vehicles account for most of New York's carbon monoxide air pollution (especially in Manhattan), SIP measures must reflect credible strategies for reducing pollution from this source. Bridge tolls are an obvious candidate measure for accomplishing this. But they are only a candidate measure, and nothing should be done at this time that either precludes, or obligates, their inclusion in the revised SIP. It is unlikely that tolls could be included in the SIP unless the legal power to impose them was available. Such power is available for the East River bridges, but not for the Harlem River bridges. It might be prudent to obtain toll authorization as soon as possible in order to assure that the City has the option of including tolls in the portion of the SIP that it must send to the State by Spring 1992. Bridge tolls will require an analysis of their environmental consequences, regardless of whether or not they are included in the revised SIP. Such an analysis should be started as soon as possible, as one of the technical studies relating to bridge tolls that we have recommended. The legislation authorizing tolls can specify that this analysis should focus exclusively on the impact of tolls on traffic flow and air quality. This would eliminate 23 the need to analyze their impact on such unaffected areas as water quality and archeological relics, which would be required in a Environmental Impact Statement prepared for a typical large-scale construction project. DOT and Task Force staff have discussed the environmental consequences of bridge tolls with DEP and private sector environmental specialists. They emphasized that quantifying the environmental consequences of tolls would be a complex task. At the same time, they expressed their belief that the net impact of tolls would be positive and would enhance the feasibility of attaining Clean Air Act standards on schedule. Assessment of environmental consequences must consider both the immediate local consequences in the areas adjacent to the bridges that would be tolled and the longer term system-wide consequences. In the past, the immediate local consequences appeared to be negative, because the presence of toll plazas would slow traffic and increase polluting emissions in the surrounding areas. The use of electronic toll collection could mitigate this expected reduction in traffic speeds and could be crucial in avoiding negative consequences. More complex assessments of system-wide consequences rest on the ability to project changes from current traffic volumes and patterns that would be caused by tolling the City bridges. The kinds of questions to be addressed include the following: * Current estimates indicate that upwards of 35 percent of the vehicles now crossing the City bridges could reach their destinations more directly if they used the tolled TBTA crossings. Would they choose these crossings if the price differential was eliminated? What would the environmental consequences be on the City bridges and the TBTA crossings? * If all Manhattan crossings charged the same toll, it would be possible for the City bridges and TBTA's crossings to charge a round-trip toll for Manhattan entries and nothing for exits (as the Port Authority currently does on its three Manhattan crossings). What would be the environmental consequences of round-trip tolls at the TBTA crossings? * Would bridge tolls eliminate some vehicle trips to or from Manhattan entirely? Would their occupants 24 switch to public transportation, or simply cease making trips to Manhattan? * Electronic toll collection has the potential to allow differential price strategies based on time of day and type of vehicle. What would be the environmental consequences of such strategies? A comprehensive analysis of the environmental consequences of bridge tolls is needed to provide detailed, defensible answers to these kinds of questions. But the judgements expressed by some leading environmental specialists leads us to conclude that, even though these consequences are complex, they no longer present any obvious barrier to moving forward. Therefore, the environmental analysis should be started as soon as possible. THE TOLLING ENTITY Options for the tolling entity include the City itself, TBTA, a new authority that would be responsible only for the tolled bridges, and a new authority that would have broader responsibilities for surface transportation infrastructure. Three considerations should be kept in mind in evaluating these options. * The need for an explicit link between toll revenues and spending levels to improve City bridges and streets. It may be difficult to persuade motorists (and their lobbying groups) to accept tolls if they believe that most of the revenue will end up being used for non- transportation purposes. * The need to maximize the amount of budget relief that tolls can provide to the City by assuming some of the funding responsibility for the operating needs of the surface transportation infrastructure. These needs must now be funded by existing City revenues and therefore compete with a multitude of other important municipal functions. * The need to establish a new issuer of infrastructure debt whose bonds will not be general obligations of the City. Representatives of the investment banking community have pointed out that many institutional buyers of municipal bonds are approaching their charter limitations on the percentage of their portfolios that can be invested in City bonds. They believe that additional "New York" debt issuers whose bonds are not general 25 obligations of the City can help assure a more favorable market in the future for new City general obligation bond sales. It should also be noted that debt service costs on City bonds have to be funded in the expense budget through a special component of real estate tax revenues. At a given overall real estate tax rate, higher debt service costs mean that less real estate tax revenue is available to fund the operations of municipal services. If the City itself were to be the tolling entity, toll revenue would flow directly to the General Fund - as is now the case with parking fees and fines. There would be no explicit link between toll revenue and spending to improve bridges and streets. Each year's allocations for surface transportation infrastructure would depend on overall needs for all municipal functions. This maximizes the Mayor's control over how toll revenues would be used. But motorists might believe that the tolls they pay would be used primarily to support City programs that were of little benefit to them. This perception would greatly increase the difficulty of gaining legislative approval for bridge tolls. Also, the New York State constitution requires that all debt issued by the City be general obligation debt. If the City were the tolling entity, this would make it impossible to issue bonds to improve bridges and streets that were secured only by toll revenues. Thus, the opportunity for tolls to reduce the City's future general obligation debt burden (and debt service costs) would be lost. If TBTA became the tolling entity, their engineering and operating expertise would become available for the tolled bridges - though not for the other City bridges or streets. However, the Mayor would lose direct control over the level of toll rates, the pace of bridge restoration, etc. All such decisions would be made by the MTA board (since TBTA is a subsidiary of the MTA). Only four of the MTA's thirteen board members are appointed on the recommendation of the Mayor. Under existing State law, TBTA is required to turn over all revenue in excess of its operating and debt service needs to the Transit Authority and the commuter railroads. Under the illustrative revenue scenario presented above, the needs of the tolled bridges would consume only 14 percent of toll revenues during the ten year evaluation period, leaving 86 percent to be divided equally between the Transit Authority and the commuter railroads. This would amount to $6.8 billion over the evaluation period. None of these funds would be available for the other City bridges, the 26 street system, or City budget relief. This would be good for public transportation. But it would exacerbate the opposition of motorists, who would assume that only fourteen cents out of every toll dollar they paid was being used for their benefit. State laws affecting TBTA could be amended to direct that the surplus revenues be turned over to the City, or paid into a dedicated "surface transportation infrastructure fund" that the Mayor would control. But neither option would eliminate the need for the City to issue general obligation bonds for capital projects involving the other City bridges and the street system. Also, the amendment process risks providing an opportunity for motorist groups to reduce or eliminate TBTA's current ability to provide funds for public transportation from its existing revenues. A more practical approach may be to ask the State Legislature create a new authority to be the tolling entity. It would have the power to collect tolls on the Manhattan bridges and be able to issue revenue bonds that were not obligations of the City. Members of the authority's board of directors would be appointed by the Mayor. The funding responsibilities of this authority could be limited only to the tolled bridges. In this case, its enabling legislation could direct that toll revenues in excess of the needs of the tolled bridges be turned over to the City or paid into a fund dedicated to surface transportation infrastructure that the mayor would control. If the excess revenues were simply turned over to the City, they would flow into the General Fund. Again, this maximizes Mayoral control over these revenues and assures their availability for any municipal function. But motorists would tend to see this as a way to make them pay for programs that didn't benefit them, which would stiffen their resistance to bridge tolls. If the revenues were paid into a special surface transportation fund, there would be an explicit link between toll revenues and surface transportation spending. Mayoral control would be more limited, in the sense that the revenues could only be used to support the other City bridges and the street system. During the early years, when annual revenues significantly exceed annual needs, none of this surplus could be used for short-term budget relief. Some of it might be used to fund capital projects involving bridges and streets on a pay-as-you-go basis. Or it could be used to fund debt service payments on City bonds previously issued for surface transportation infrastructure projects. Alternatively, it could simply be hoarded within 27 the surface transportation fund against future needs. Such hoarding might cause.motorists to protest against tolls that seemed to be "higher than necessary". But charging tolls at lower rates than TBTA would lead to undesired trip diversions based solely on cost, which would reduce the ability of bridge tolls to improve traffic flow and air quality. Lower toll rates would also reduce the potential for bridge tolls to help fund the needs of other City bridges and the street system, and to provide the City with budget relief. Apart from the possibility of some pay-as-you-go capital project financing during the early years, a dedicated surface transportation fund would still not eliminate the need for the City to issue general obligation bonds to restore the other bridges and the street system. This could only happen if the fund were, in fact, a "surface transportation authority" with the power to issue revenue bonds. In which case, the bridge authority becomes an unnecessary complication. Its powers to toll the bridges and issue revenue bonds for their restoration could simply be incorporated into the powers of the surface transportation authority (or the bridge authority expanded into a surface transportation authority, with no need for a separate dedicated fund). Such an authority would be: * Entirely self-supporting from tolls on the Manhattan bridges. * Fully responsibility for meeting the operating and capital funding needs of all City bridges. * Able to use its revenue surpluses to eliminate the funding shortfalls for streets and traffic control facilities, and to help the City address its structural budget deficit. The authority could fulfill its direct operational responsibilities for the bridges by entering into contracts with DOT, TBTA, other public agencies, and private corporations for the operating services it needs. There would be no need to build up a large, in-house staff before it could start functioning. However this option could be pursued in the future at whatever level was considered desirable. On balance, it seems most practical that the tolling entity be a new authority with direct responsibility for funding the capital and operating needs of the tolled 28 bridges and all other City bridges, and with the power to help fund the needs of the street system and traffic control facilities. Such an authority should be controlled by the Mayor, with input from the City Council. CONCLUDING NOTES As stated at the beginning of the Executive Summary, this report recommends that the bridge toll option be pursued further in order to validate its apparent potential. Such a recommendation is unlikely to be greeted with universal applause. It will disturb many firmly-held perceptions about some of the things that hold New York together, or cause it to fragment. These perceptions are deeply rooted in New York's civic history and need to be evaluated thoughtfully. As a municipal entity,'New York City is little more than ninety years old - making it the youngest major American city. In 1898, the cities and towns in what are now the five boroughs voted to form a federation of counties in order to pursue effective solutions to such region-wide problems as water supply, sewage disposal, and transportation. Thus was born the nation's only full-service regional government. But federal law makes no allowance for the realities of regional government. That is why New Yorkers were recently forced to abolish the Board of Estimate - their only legislative body in which each of the five counties had an equal voice. This loss has sharpened always-present concerns over the ability of certain counties to dominate the others. At their most extreme, such concerns can threaten the viability of the five county federation by causing some of its residents to believe that they would be better off "going it alone". Any discussion of bridge tolls hits a nerve that lies at the heart of these concerns. Some people will be horrified by the prospect of "having to pay to enter Manhattan". While this perception may be irrational, it is nonetheless real and may be the most important issue to be addressed in discussing bridge tolls. In the early days, everyone entering Manhattan had to pay a fee (toll, fare, whatever) in order to use the private ferries that provided the only way for most people to cross the rivers. The construction of the four East River bridges did nothing to change this. They were built primarily to carry elevated railways and trolleys, which charged a fare and usually required a transfer (and another fare) on one 29 side of the East River or the other to complete a Manhattan trip. Even their roadway lanes charged tolls until 1911. Most of the people entering Manhattan across the Harlem River bridges used public transportation, which meant paying at least one fare and mote probably two because of the need to transfer at the river's edge. The perception of paying to enter Manhattan began to blur around 1920 when completion of the IRT and BMT subways systems eliminated the transfer and second fare requirement for many Brooklyn, Queens, and Bronx residents. They still had to pay a fare on the subway to reach Manhattan, but they had the cost-free option of remaining on their trains through Manhattan to reach one of the other boroughs. The perception was furthered blurred after World War Two, when two of the East River bridges were stripped of their passenger rail facilities and became devoted exclusively to motor vehicles. This helped accelerate the use of private automobiles to enter Manhattan. And private automobiles could avoid any explicit entry payment by using the toll-free City bridges. This "cost-free" entry option theoretically remains available to anyone who has access to a private automobile for trips to Manhattan. But practical realities dictate that only a small minority of those who make trips to Manhattan can do so by automobile. Therefore the option is not actually available to the majority of tripmakers. They must use public transportation, which means paying a fare for each Manhattan trip. Survey data indicates that, on average, the family incomes of those who drive to Manhattan across the toll-free City bridges are materially higher than the family incomes of those who must pay to reach Manhattan by public transportation - which raises some troubling equity questions. These issues of comparative Manhattan entry costs by mode, by tripmaker income, and by trip purpose are complex and important. They merit some judicious analysis in the context of the technical studies that we have recommended. The concept of bridge tolls is obviously not without potential for being a divisive issue. But it need not turn out that way. The real issue is how to provide adequate funding for the City's surface transportation infrastructure. We can face this issue squarely, or we can try to ignore it. But facing this issue can help assure that our pocketbooks will be fatter in the future, by removing an important constraint on the ability of New York's economy to grow and prosper. 30 The findings outlined above, along with the methodologies used in the analysis that led to them, are covered in more detail in the sections of the report that follow. It should be kept in mind that the findings are preliminary, that the analysis was not comprehensive, and that all conclusions still need to be validated through the technical studies we have recommended. 31 F U N D I N G N E E D S New York City's Department of Transportation has been conducting an on-going analysis of the capital and operating funding needs for the surface transportation infrastructure. This analysis has two purposes. * To estimate the annual levels of funding needed to restore the infrastructure to a condition of good repair, keep it in good repair, and operate it in a manner that assures satisfactory service. * To estimate the annual levels of funding that can be expected from the City's existing revenue sources to meet these needs, so that potential shortfalls can be identified. For the purposes of this report, the analysis has focused on a ten year evaluation period running from 1994 through 2003. Selection of the initial year of the evaluation period reflects the fact that 1994 appears to be the earliest feasible year that bridge tolls could be implemented. Use of this ten year period facilitates comparisons between various potential sources of new revenues. The analysis has projected that existing revenue sources can be expected to meet only 74 percent of the surface transportation infrastructure's funding needs during the evaluation period. The anticipated shortfall totals $2.6 billion, measured according to actual revenue demands. INFRASTRUCTURE COMPONENTS For the purposes of this report, the surface transportation infrastructure is defined as consisting of: * The City's East and Harlem River bridges, which connect Manhattan with Brooklyn, Queens, and the Bronx. * The City's other roadway bridges and five short tunnels that carry motor vehicle traffic. * The City's 18,596 lane miles of streets and highways. * Traffic control facilities, including signals, signs, and street lights. 32 Taken together, the four component groups of this municipal infrastructure system provide access for people and goods to all parts of the five boroughs. This function is essential to New York City social and economic welfare. The estimates presented in this report for the operating and capital funding needs of the four infrastructure groups over the ten year evaluation period reflect minimum levels required for safe, adequate performance. The estimates are based on certain assumptions about future condition levels, deterioration rates, cost inflation, and other factors that are difficult to forecast with precision. These assumptions are under continuing review and are subject to periodic revisions that may result in new estimates. Therefore, the estimates presented here should be regarded as reasonable assessments of funding needs that reflect all currently available information. Operating needs reflect all appropriate costs for the on- going operation of the surface transportation infrastructure. These include maintenance, supervision, engineering, administrative overhead, pension contributions, and other fringe benefit costs. Capital needs reflect all appropriate costs for facility restoration and reconstruction, equipment purchases, engineering, and contract supervision. Estimates for the funding resources that may be available to meet these needs reflect projections of expected federal and State grants, plus projections of City funds that can reasonably be expected to be available from existing revenue sources. These estimates are also under continuing review and may be changed in the future. HOW FUNDING NEEDS WERE MEASURED The most practical and realistic measure of funding needs is in terms of their actual demand on City revenues each year. This is simple enough for operating needs. A hundred dollars worth of operating needs in a given year implies a demand for that amount of City revenues in that year to meet these needs. Capital needs are more complicated. A hundred dollars worth of capital contracts awarded in a given year does not make a hundred dollar demand on City revenues in that year. * The full dollar value t)f a capital project is not paid out when the contract is awarded. Rather, it is paid out to the contractor in a series of progress payments as work is completed. Many 33 infrastructure projects take-more than a year to complete. Therefore, progress payments may occur over several years. * Normally, the progress payments made in the course of a year are not funded with City revenues (as are operating payments). Instead, the City raises cash to cover these progress payments by selling bonds. These bonds are paid off serially over a period of years (corresponding to the "period of probable usefulness" for the capital projects in question, as specified by State law). * Each year's debt service on these bonds is funded with City revenues. Debt service in a given year consists of payments to redeem bonds plus payments of interest on bonds still outstanding. Therefore, each year's debt service on bonds issued to fund capital contract progress payments is the most realistic measure of capital funding needs. It fully reflects the actual demand on City revenues in that year. That is why the summary tables of year-by-year infrastructure funding needs presented later in this section show totals for each year's operating costs plus capital contract debt service (and federal and state capital grants). This is the true bottom line. The figures for existing resources were computed according to the same methodology so that resources could be compared with needs in identifying funding shortfalls. All references to needs, resources, and shortfalls reflect operating costs plus capital contract progress payments, except where noted. Estimates of debt service on bonds issued to fund these progress payments reflect the constraints imposed by State law on the maturity structure of City bond issues. In simple terms, these constraints mandate that each year's dollar value of bonds redeemed for a given bond issue be roughly the same as the previous year's dollar value. When interest payments are added in, the effect of this requirement is that a bond issue's annual debt service is highest in the first year (when the largest interest payment is made, because the maximum amount of bonds are outstanding) and declines each year thereafter. The following steps were used to compute estimates of capital debt service (for needs and for resources) in each of the four infrastructure groups: 1. A given year's dollar value of capital contract awards was allocated in equal installments over a number of years corresponding to the rounded integer 34 of the weighted mean of the expected progress payment schedules for the various kinds of capital projects in the infrastructure group. 2. Each year's estimate of progress payments was assumed to be funded entirely by the proceeds of new City bond issues. 3. The maturity schedule for each bond issue assumed equal annual bond redemptions over a number of years corresponding to the truncated integer of the weighted mean of the periods of probably usefulness for the various kinds of capital projects in the infrastructure group. 4. A borrowing cost of 8.066 percent was assumed for all bond issues. This was the True Interest Cost of the City's August 7 bond sale. 5. Full debt service payments were assumed to begin in the year following the borrowing year. Since interest payments are normally made every six months, one of these (half-year) interest payments was assumed to be made in the borrowing year. This methodology is somewhat crude, but it provides reasonable order-of-magnitude estimates for City debt service. The tables in Appendix A provide both annual and ten year totals for needs, resources, and shortfalls. Ten year totals are shown in two ways - as a simple sum of the annual amounts, and as a Net Present Value of the annual amounts (using 8.066 percent as a discount rate). The simple sum reflects the actual dollar total, with no allowance for the impact of time on the present value of annual dollar amounts. This is the dollar value implied in all references to "totals", except where noted. The Net Present Value is a standard measure of the dollar total after allowing for the impact of time. In certain cases, it allows for more meaningful comparisons. ANALYSIS RESULTS: TOTAL INFRASTRUCTURE The chart on the next page and the table that follows it show the analysis results for the surface transportation infrastructure as a whole during the ten year evaluation period. They provide a picture of the estimated needs, the resources that are expected to be available from existing City revenues to meet these.needs, and the resulting shortfalls that would require new revenues to cover. 35 Click HERE for graphic. Click HERE for graphic. * Needs Ten year needs total $10.6 billion. The annual needs begin at $443 million in 1994 and increase by an average rate of 16 percent per year through 2003, when they reach $1.7 billion. The operating component of these needs totals $4.6 billion over the ten year period. This is 44 percent of the combined needs total for the period. The capital component totals $6 billion over the ten year period, or 56 percent of the combined needs total. * Resources Ten year resources are expected to total $7.9 billion. This is 74 percent of total needs for the evaluation period. The operating component of resources is 43 percent of total resources and meets 74 percent of operating needs over the ten year period. The capital component is 57 percent of total resources and meets 75 percent of needs. Shortfall * A comparison of needs vs. resources indicates a potential shortfall of $2.7 billion over the ten year evaluation period. This is 26 percent of total ten year needs. In dollar terms, it rises at an average rate of 15 percent per year - from $119 million in 1994 to $412 million in 2003. In terms of percent-of-needs, however, it peaks out at 30 percent in 1996, then declines to 24 percent by 2003. The operating component of the shortfall is $1.2 billion over the ten year period - 26 percent of operating needs and 44 percent of the total shortfall. This is a vivid demonstration of the City's inability to-properly maintain its surface transportation infrastructure with existing revenues. The capital component totals $1.5 billion over the evaluation period. This is 25 percent of needs and 56 percent of the total shortfall. The capital shortfall demonstrates the City's inability to adequately fund infrastructure restoration with its existing general obligation borrowing power. 36 ANALYSIS RESULTS: MANHATTAN BRIDGES The chart on the next page and the table that follows it show the analysis results for the twelve East and Harlem River bridges. * Needs * Ten year needs total $1.6 billion, or 16 percent of total infrastructure needs. Annual needs begin at $88 million in 1994 and increase by an average rate of 11 percent per year through 2003, when they peak at $244 million. * The operating component of these needs totals $623 million over the ten year period. This is 38 percent of total Manhattan Bridge needs for the period. * The capital component totals $1 million over the ten year period. This is 62 percent of total Manhattan Bridge needs. * Resources * Ten year resources total $1.5 billion, or 19 percent of total infrastructure resources. This is 90 percent of total needs, for the evaluation period. The operating component of resources is 31 percent of total Manhattan Bridge resources and meets 73 percent of operating needs over the ten year period. The capital component is 69 percent of total resources and meets 100 percent of needs. * Shortfall A comparison of needs vs. resources indicates a potential shortfall of $165 million over the ten year evaluation period, or six percent of the total infrastructure shortfall. This is 10 percent of total ten year needs. In dollar terms, it is largest in 1995 (at $25 million), then fluctuates in the $13 million to $18 million range thereafter. In percentage terms, it is largest in 1994 (at 27 percent) and declines thereafter. At $165 million, the operating component of the Manhattan Bridge shortfall constitutes the entire shortfall over the ten year period. It is 27 percent of operating needs. 37 Click HERE for graphic. Click HERE for graphic. As the discussion above indicates, the Manhattan bridges come closer to being fully funded than any other infrastructure group. Their total shortfall as a percentage of needs is less than half as great as the overall percentage for the surface transportation infrastructure. However, less than three-quarters of their operating needs (which include on-going maintenance) can be met from existing City resources. Inadequate maintenance in the past is a major reason why these twelve bridges must consume such a large share of total City resources for infrastructure capital. RESULTS: OTHER BRIDGES The chart on the next page and the table that follows it show the analysis results for the City's other bridges (including its five short tunnels). * Needs Ten year needs total $1.4 billion, or 13 percent of total infrastructure needs. Annual needs begin at $47 million in 1994 and increase by an average rate of 20 percent per year through 2003, when they reach $240 million. The operating component of other Bridge needs totals $415 million over the ten year period. This is 30 percent of the Other Bridge total for the period. The capital component totals $950 million over the ten year period. This is 70 percent of the Other Bridge total. * Resources Ten year resources total $1.1 billion, or 14 percent of total infrastructure resources. This is 83 percent of total Other Bridge needs for the evaluation period. The operating component of resources is 38 percent of total Other Bridge resources and meets 83 percent of operating needs over the ten year period. The capital component is 62 percent of total Other Bridge resources and meets 82 percent of needs. * Shortfall A comparison of needs vs. resources indicates a potential shortfall of $238 million over the ten year evaluation period, or nine percent of the total 38 Click HERE for graphic. Click HERE for graphic. infrastructure shortfall. This is 17 percent of total ten year other bridge needs. In dollar terms, it is largest in 2003 at $59 million. In percentage terms, however, it is largest in 1994 at 27 percent of needs. The operating component of the shortfall is $69 million over the ten year period - 17 percent of operating needs and 29 percent of the total Other Bridge shortfall. The capital component totals $169 million over the evaluation period. This is 18 percent of needs and 71 percent of the total Other Bridge shortfall. ANALYSIS RESULTS: STREETS The chart on the next page and the table that follows it show the analysis results for the City's streets and highways. * Needs Ten year needs total $5.2 billion, or 49 percent of total infrastructure needs. Annual needs begin at $142 million in 1994 and increase by an average rate of 23 percent per year through 2003, when they reach $941 million. The operating component of Streets needs totals $1.5 billion over the ten year period. This is 30 percent of the Streets total for the period. The capital component totals $3.6 billion over the ten year period. This is 70 percent of the Streets total. * Resources Ten year resources total $3.3 billion, or 41 percent of total infrastructure resources. This is 63 percent of total Streets needs for the evaluation period. The operating component of resources is 26 percent of total Streets resources and meets 56 percent of operating needs over the ten year period. The capital component is 74 percent of total Streets resources and meets 67 percent of needs. 39 Click HERE for graphic. Click HERE for graphic. * Shortfall A comparison of needs vs. resources indicates a potential shortfall of $1.9 billion over the ten year evaluation period, or 70 percent of the total infrastructure shortfall. This is 37 percent of total ten year Streets needs. In dollar terms, it is largest in 2003 at $292 million. In percentage it is largest in 1996 at 51 percent of needs. The operating component of the shortfall is $678 million over the ten year period - 44 percent of operating needs and 36 percent of the total Streets shortfall. The capital component totals $1.2 billion over the evaluation period. This is 33 percent of needs and 64 percent of the total Streets shortfall. ANALYSIS RESULTS: TRAFFIC The chart on the next page and the table that follows it show the analysis results for the City's traffic control facilities. * Needs Ten year needs total $2.4 billion, or 23 percent of total infrastructure needs. Annual needs begin at $167 million in 1994 and increase by an average rate of 7 per year through 2003, when they reach $305 million. The operating component of these needs totals $2.1 billion over the ten year period. This is 85 percent of the Traffic total for the period. The capital component totals $362 million over the ten year period. This is 15 percent of the Traffic total. * Resources Ten year resources total $2 billion, or 27 percent of total infrastructure resources. This is 83 percent of total Traffic needs for the evaluation period. The operating component of resources is 88 percent of total Traffic resources and meets 86 percent of operating needs over the ten year period. The capital component is 12 percent of total Traffic 40 Click HERE for graphic. Click HERE for graphic. resources and meets 67 percent of needs. * Shortfall A comparison of needs vs. resources indicates a potential shortfall of $410 million over the ten year evaluation period, or 15 percent of the total infrastructure shortfall. This is 17 percent of total ten year needs. In dollar terms, it is largest in 2003 at $48 million. In percentage terms, it is largest in 1997 at 19 percent of needs. The operating component of the shortfall is $291 million over the ten year period - 14 percent of operating needs and 71 percent of the total Traffic shortfall. The capital component totals $119 million over the evaluation period. This is 33 percent of needs and 29 percent of the total Traffic shortfall. The three pie charts on the next page show each infrastructure group's share of ten year needs, resources, and projected shortfall. Note that both the dollar shortfall ($1.9 billion) and the percentage shortfall (37 percent) are greatest for streets. From a pure funding standpoint, this indicates that streets face the most severe problems if the City must rely only on existing resources. CONCLUSIONS It is widely recognized that the present condition of the City's surface transportation infrastructure is far from ideal. A great deal of capital restoration must be undertaken to make up for decades of neglect. A great deal more on-going maintenance is required to assured that newly restored facilities never again deteriorate to such levels. That is why infrastructure needs are so substantial - and exceed the resources that the City can realistically be expected to make available from existing revenues. The potential consequences of allowing these funding shortfalls to remain unfilled are serious. Lack of restoration and continued under-maintenance will exacerbate existing patterns of deterioration. This will lead to reductions in functional traffic capacity, increased spending for emergency repairs to keep facilities functioning safely, longer trip times for motorists, higher goods movement costs, more traffic congestion, increased accident rates, and greater vehicle wear. 41 Click HERE for graphic. These consequences would impose additional cost burdens on the local economy that can constrain its future growth rate. A lower growth rate negatively impacts the outlook for enhancing the living standards of New York residents, the profits of New York business firms, and the tax revenues needed to fund the municipal services that residents and business firms depend on. In other words, the real issue is not whether we as an urban society should provide more funds in the future to meet infrastructure needs, or use these funds for other purposes. The funds in question may not be in our pockets at all if we fail to meet our infrastructure needs. The economic growth needed to generate them would not have occurred because of the cost burdens imposed by a deteriorated surface transportation infrastructure. That is why the need to find new revenue sources to cover infrastructure funding shortfalls in a practical and productive manner is so urgent. This is something that will be discussed in the next section. 42 III. N E W R E V E N U E S 0 U R C E S As noted in the Executive Summary, any steps taken to raise more revenue locally for the surface transportation infrastructure will impact New York City's overall cost structure. Increasing municipal taxes or user fees have the same kind of economic effect as increasing food prices, electricity rates, medical fees, or other basic necessities. But failing to cover the surface transportation infrastructure funding shortfall will also impact New York's economy and overall cost structure. The trade-off between raising more revenue and failing to meet our needs is very complex and must be analyzed carefully in the course of the technical studies that we have recommended. At the same time, new revenue that is spent locally will generate more economic activity. This is especially significant in the case of revenue used to support more capital spending. The construction activity arising from capital spending has a high multiplier effect, so that each dollar of direct spending (therefore, each dollar of new revenue) generates considerably more than a dollar of increased economic activity. This can result in more jobs, higher personal income, increased business profits, and higher revenues from existing local taxes. Therefore, it is possible that the overall economic consequences of raising new revenue to cover the surface transportation infrastructure's funding shortfall may be at least neutral and could be positive. It all depends on the manner in which the new revenue is raised and how it is used. These considerations are reflected in the subsequent discussions of potential new revenue sources. Another consideration worth keeping in mind in evaluating new revenue sources is how fairly they allocate the cost burden among those who use City bridges and streets, whether they are residents or non-residents of the five boroughs. As noted earlier, TBTA surveys indicate that about 44 percent of the tripmakers using their nine tolled crossings have trip origins outside the five boroughs. A NEW YORK CITY GASOLINE TAX New York State currently imposes an 8 cents per gallon tax on gasoline purchases. This is the second lowest state gasoline tax in the nation and has not been increased since 1973. There is no City tax on gasoline. 43 As a result, the true cost of gasoline in New York City - when adjusted for the impact of inflation - is lower now than at any time since the early 1950s. That is why many people believe that a higher gasoline tax is a reasonable source of new funds for surface transportation infrastructure. Approximately 1.3 billion gallons of gasoline are purchased in New York City each year. Therefore, each nickel per gallon increment in a gasoline tax would generate about $65 million per year in new revenue. In rough terms, this means that a City gasoline tax of 21 cents could be sufficient to cover the $270 million average annual shortfall in infrastructure funding identified in the last section. If the tax was imposed only in the five boroughs, city residents would have to bear the entire funding burden. Non- resident drivers who use the City's surface transportation infrastructure would avoid buying gas in the five boroughs in order to escape the higher cost because of the tax. One partial solution to this problem would be for the State to impose the tax (i.e. raise its existing tax) in all twelve counties of the Metropolitan region. This would remove the incentive to avoid buying gasoline in the five boroughs. The State could then return to each county the tax revenue it collected in that county. Under this arrangement, non-resident drivers would absorb some of the funding burden (to the extent that they purchased gasoline in the five boroughs). But it seems likely that their share would be far less than would be warranted by their use of the City's surface transportation infrastructure. RAISING THE CITY'S AUTO USE TAX The City currently imposes a $26 annual Auto Use Tax on cars registered in the five boroughs. There are about 1.733 million such vehicles. Each $10 increase in the tax would generate about $17 million in new revenue, which could be applied to the infrastructure shortfall. To cover the entire shortfall in this manner, the Auto Use Tax would have to be increased to $155 per vehicle. This does not seem like a realistic possibility. The Auto Use Tax is paid only by owners who register their vehicles in the five boroughs. Non-resident drivers would therefore absorb none of the funding burden if this mechanism was used. Since the charge per vehicle is 44 unrelated to how many miles it travels on City bridges and streets, it is not a true user charge. BRIDGE TOLLS Tolling the City's East River and Harlem River bridges could generate substantial amounts of new revenue for the surface transportation infrastructure. The actual amount generated each year would depend on a variety of complex factors. Bridge tolls would allocate the payment burden among drivers based on their use of the East and Harlem River bridges, and their use of other City bridges plus streets they use before and after crossing the Manhattan bridges. TBTA has found from surveys that about 49 percent of the drivers using their four Manhattan crossings have trip origins outside the five boroughs. While reliable data for the City bridges is not available, it is estimated that the percentage of non-resident drivers using these bridges is somewhat lower than at TBTA's Manhattan crossings. A major factor that determines revenues from tolls on the City bridges is the extent of traffic diversions (from the City bridges, to the TBTA's four Manhattan crossings) because of tolls. It is generally assumed that a certain number of drivers whose most logical routes would involve one of the TBTA crossings currently divert to one of the City bridges in order to avoid the cost of tolls. The only available quantitative information on the impact of such diversions is contained in the 1977 report entitled Traffic Impact of Tolls on the East and Harlem River Bridges, which was prepared by the New York City Transportation Administration (now DOT). This report provides diversion percentages for each of the City bridges and the TBTA crossings. However, it assumes equal tolls on all crossings and provides no information about diversions for various degree of toll equality less than 100 percent. Therefore, we can estimate crossing volumes on each of the City bridges with no tolls (using actual 1990 figures) and with tolls equal to TBTA rates.(by applying the report's diversion percentages to the 1990 figures). But we cannot estimate crossing volumes with tolls at less than TBTA rates. This requires the kind of macroeconomic analysis that we should be undertaken in the course of the technical studies we have recommended. The best we can say at the present time is that each 25 cent toll increment on the City bridges would produce first year gross revenues of between $56 million (assuming the 45 same diversions that tolls equal to TBTA rates would produce) and $70 million (assuming no diversions due to tolls). Toll collection and enforcement costs, which must be subtracted from gross revenues, are estimated at about $120 million in 1994 (based on assumptions discussed in the illustrative scenario presented in the next section). They are unlikely to vary with the toll rate level. Other costs and losses are assumed to be offset by fine revenue on tickets issued to toll beaters. In rough terms, therefore, a City bridge toll of $1.50 (half TBTA's projected auto toll rate in 1994) that rose by twenty-five cents each time TBTA's auto toll rate rose fifty cents could provide sufficient revenue to cover the average annual funding shortfall during the evaluation period. It would also generate a $1.6 billion surplus during the evaluation period that could enable tolls to assume a larger share of the infrastructure funding burden... (See Appendix D for details.) 46 IV. A B R I D G E T 0 L L S C E N A R I 0 This illustrative scenario is designed to provide a more comprehensive picture of the potential that bridge tolls may have as a source of new revenue to help meet surface transportation infrastructure needs. It assumes that tolls would be implemented in 1994 on the City's four East River bridges and eight Harlem River bridges. Preliminary estimates indicate that first year net revenues would be about $685 million, after allowing for traffic diversions from the bridges due to the imposition of tolls, toll collection costs, and other costs and losses. Over the ten year evaluation period, net revenues would rise at an average rate of three percent per year, to total $7.9 billion. This breaks down as follows: * $375 million in 1994 from the four East River bridges (55 percent of total net revenues), or $4.3 billion over ten years. * $290 million in 1994 from the eight Harlem River bridges (42 percent of total net revenues), or $3.3 billion over ten years. * $21 million in 1994 from the Alexander Hamilton Bridge over the Harlem River (3 percent of total net revenues), or $241 million over ten years. Note that most of the traffic crossing this bridge would not be tolled because it is through traffic between the Bronx and New Jersey and uses the George Washington Bridge, where it already pays a toll. For purposes of comparison, 1994's net revenue estimate would be equivalent to the revenue produced by a 53 cent per gallon New York City gasoline tax, or a $395 per vehicle increase in the City's Auto Use Tax. These estimates reflect the following assumptions: * Gross 1994 crossing volumes would be the same as actual 1990 volumes and would remain at this level throughout the ten year evaluation period. * The TBTA's one-way-auto toll would be charged to all vehicles except buses, which would be exempt as public transportation vehicles. This toll rate is expected to be $3.00 in 1994. 47 * The toll rate would increase by $0.50 in 1997 and 2001 to keep pace with the rate increases that TBTA has projected on its four crossings that provide entry to Manhattan. Keeping all toll rates at the same level avoids undesirable trip diversions based solely on cost. * Annual "tollable" crossing volumes are assumed to be 31 percent less than gross volumes. The 31 percent reduction is to allow for trip diversions resulting from the implementation of tolls, and for through traffic between the Bronx and New Jersey on the Alexander Hamilton Bridge that would not be tolled because it already pays a toll on the George Washington Bridge. * Toll collection costs would be $50 million (7.39 percent of gross collections) in 1994 and would increase each year at the rate of local Consumer Price inflation. Collection costs include both on-going operating costs and amortization of all start-up costs for toll collection equipment and facilities and issuing free toll tags to motor vehicle owners. * Other costs and losses directly related to toll collection would total $201 million in 1994. These include revenues lost from toll beaters and from motorists who never pay their electronic payment bills, plus enforcement costs. They would be offset by $268 million in ticket fine revenue collected from toll beaters. ANALYSIS OF ASSUMPTIONS These assumptions can impact toll revenue in various ways. A discussion of the logic behind each assumption follows. Crossing Volumes Holding gross crossing volumes at actual 1990 levels throughout the ten year evaluation period is a simplifying assumption that imposes a conservative bias on revenue projections. It should be noted that TBTA projected a 0.88 percent average annual growth rate for crossing volumes at their four Manhattan crossings in the Official Statement for their June 15, 1991 bond sale. These projections were prepared by Wilbur Smith Associates, a nationally recognized private firm of consulting engineers, economists, and planners. 48 Increases in motor vehicle entries to Manhattan are generally considered to be undesirable because they would result in more traffic congestion, worse air quality, and greater delays for commercial vehicles making economically important trips. Therefore, the crossing volumes used in these revenue projections allow for the potential impact of measures that the City may have to implement in order to attain federal air quality standards. Actual crossing volume demand depend upon the level of local economic activity. This could be negatively affected by the implementation of bridge tolls. It could be positively affected by the higher level of capital spending that toll revenue would support, since capital spending has a high multiplier effect. Neither of these potential impacts, which are complicated to estimate, was evaluated in this preliminary analysis. This should be done as part of a comprehensive study of bridge tolls. Toll Rates TBTA currently charges automobiles a $2.50 one-way toll on the on the Brooklyn-Battery Tunnel, the Queens-Midtown Tunnel, and the Triborough Bridge. A toll of $1.25 is charged automobiles crossing the Henry Hudson Bridge. This illustrative scenario assumes that all tolls on entries to Manhattan would be the same at each crossing in order to avoid undesirable trip diversions based on opportunities to minimize toll costs. TBTA toll rates can be expected to rise in the future, since these rates are driven primarily by the funding needs of the Transit Authority, the Long Island Railroad, and Metro-North (for which TBTA provides funding support). According to TBTA's Official Statement for its June 15, 1991 bond sale, the one-way rate for automobiles is expected to be $3.00 in 1993, rising to $3.50 four years later in 1997. If TBTA toll rates continue to rise while the rates on City bridges remained unchanged, there-would probably be traffic diversions away from the TBTA crossings to the City bridges. This would mean more toll revenue for the City bridges. But it would also result in greater traffic congestion on the approaches to these bridges, which could have negative environmental consequences. In the interests of simplicity during this preliminary evaluation, we assumed that TBTA toll rates would increase by $0.50 in 1997 and 2001 and the rates on 49 City bridges would keep pace. This results in an average annual increase of 3.25 percent during the ten year evaluation period, which is two-thirds of the 4.8 percent rate for local Consumer Price inflation that the New York City Office of Management & Budget has assumed in the City's current Four Year Financial Plan. TBTA charges higher toll rates for eight categories of vehicles that are larger than automobiles. For simplicity, we have assumed the same toll rate for all vehicles without reference to size or type. We have also assumed no trip diversions to the City bridges by these other vehicles in order to exploit cost savings. In actual practice, it is possible that toll rates equal to TBTA's for each class of vehicle would be charged on the City bridges. The revenue impact of this (which is likely to be modestly positive) requires some fairly sophisticated analysis that must still be undertaken. All buses are assumed to be exempt from tolls. Most buses entering Manhattan are public transportation vehicles, whose use we wish to encourage. Annual Crossing Volumes The 1994 crossing volume on each bridge to which tolls would be applied was estimated in the following manner: * Actual 7AM to 7PM weekday crossing volumes (in both directions) for each of the five classes of vehicles counted during DOT's 1990 survey were used as a starting point. * Percentages figures were computed to determine each vehicle class's proportion of total 7AM to 7PM crossing volume. * These percentages figures were adjusted to reflect likely percentages per vehicle class during 24 hours. * The adjusted percentages were applied to actual 24 hour crossing volume to obtain estimated volumes for each vehicle class. * These volumes were multiplied by an analyzing factor to obtain estimates of total crossings during 1990. The annualization factor used was 330, which reflects the judgement of DOT traffic specialists about the,.relative balance between weekday, weekend, and holiday volumes. 50 * 1990 bus crossings were subtracted from 1990 total crossings to obtain an estimate of theoretical "tollable" crossings before allowance for trip diversions due to tolls. * On the four East River bridges and eight of the Harlem River bridges, trip diversions due to tolls were subtracted from theoretical tollable-crossings to obtain an estimate of actual tollable crossings. Trip diversions for each bridge were computed by applying the percentage factor estimated in the 1977 report Traffic Impact of Tolls on the East and Harlem River Bridges. Each bridge has a different percentage factor. Together, they average 17 percent of theoretical tollable crossings. These factors were developed from a detailed analysis of changing traffic volumes on each of the seventeen Manhattan crossings following various TBTA toll increases. A new analysis of equivalent sophistication needs to be done to determine whether these factors are still valid. * On the Alexander Hamilton Bridge, through trips were subtracted from theoretical tollable crossings to obtain an estimate of actual tollable crossings. Through trips were estimated by subtracting Port Authority data for the volume of eastbound through trips on the George Washington Bridge from DOT data for total eastbound trips on the Alexander Hamilton Bridge. The difference was assumed to be trips originating in Manhattan and, in percentage terms, was assumed to be the same in each direction. * 1990 tollable crossings were applied to each year of the evaluation period. Appendix B includes 1990 output tables from the Tollable Crossings estimation model that follows this methodology. The most critical factor in the methodology is the estimate for total diversions due to the implementation of tolls. The "net revenue value" of these diversions (at $3.00 per crossing) is $133 million in 1994, or 19 percent of net revenues. Since these diversions reflect the estimates published in the 1977 report, additional analysis is needed to determine whether they are still appropriate. 51 The Alexander Hamilton Bridge As noted above, through trips between the Bronx and New Jersey that use this bridge already pay a toll on the George Washington Bridge. Therefore, we assumed that these trips would not be charged an additional toll. Westbound trips on the Alexander Hamilton Bridge that have Manhattan destinations would be tolled on the exit ramps from the Trans-Manhattan Expressway. Eastbound trips originating in Manhattan would be tolled on the entry ramps to the Trans- Manhattan Expressway. Toll Collection Costs First year toll collection costs were estimated at $50 million (7.39 percent of gross collections). They cover the amortization of hardware acquisition and installation, implementing and operating the electronic collection and account payment systems, distributing free toll tags to motorists, and implementing and operating the supplementary cash payment facilities. These costs were assumed to rise each year at the rate of local Consumer Price inflation. During the ten year evaluation period, total collection costs would be $618 million, or 7.9 percent of gross collections. This estimate is based on information provided informally by a private corporation that offers to provide, install, and operate on a contract basis the kind of hybrid electronic/cash payment toll collection system described in the next section. Under this kind of contract arrangement, such a corporation would retain a portion of gross toll collections in order to cover its operating costs and provide a return on the capital it invested to install the toll collection system. Using a cost estimate based on this approach enables start-up and on-going costs to be annualized in a realistic manner. Other Costs And Losses Some percentage of motorists can be expected to use various methods to avoid paying tolls. Enforcement mechanisms will be needed to minimize this, but they are unlikely to be 100 percent successful and will cost money to implement. We have estimated that 10 percent of all crossing vehicles will "beat the toll" by running electronic collection lanes without having valid toll tags or payment accounts. This results in lost toll revenue of 52 $67 million in 1994 and $782 million during the ten year evaluation period. We have assumed that half of these toll beaters can successfully be issued tickets for this kind of misbehavior, that 60 percent of these tickets will actually be paid (this is the current collection rate for the Parking Violations Bureau), and that the ticket fine will be twenty times the toll rate. These assumptions result in ticket fine revenue of $335 million in 1994 and $3.9 billion during the evaluation period. The operating costs of thus ticketing program are estimated at $70 million in 1994 and $873 million during the evaluation period. These estimates were based on PVB's FY92 $4.45 "cost per ticket processed", which was multiplied by an inflation factor of 1.128 to get a 1994 figure of $5.02. An additional 25 percent was added to reflect the cost of identifying toll beaters and issuing tickets. The resulting "issuing and processing cost per ticket" of $6.27 rises by 4.8 percent per year after 1994 to reflect inflation. In addition, 20 percent of gross collections has been set aside to cover potential losses from vehicle owners who never pay their electronic collection bills. This reserve amounts to $134 million in 1994 and $1.6 billion during the evaluation period. FUNDING CAPABILITY OF BRIDGE TOLLS There are many possible scenarios for the use of the ten year $7.9 billion bridge toll revenue stream presented above. The scenario outlined here illustrates some of the possibilities. It concentrates on three goals: * Assuring that 100 percent of the surface transportation infrastructure's operating and capital funding needs are met during the ten year period. * Maximizing the amount of budget relief that can be provided to the City. * Minimizing the amount of general obligation debt that the City has to issue for surface transportation infrastructure. To facilitate meeting these goals, the scenario assumes that the tolling entity is an independent authority with the power to issue revenue bonds that are not obligations of the City. 53 STEP ONE: The authority assumes full responsibility for meeting all operating and capital needs of the twelve Manhattan bridges. Since these are the bridges that generate the toll revenue, their needs must have first call on toll revenues. The ten year cost of fully meeting these needs (as measured by the drawdown on toll revenues during the period) is $1.1 billion - $623 million for operating costs, and $470 million for debt service on the revenue bonds issued to meet the capital needs of these bridges. The methodology used to estimate the amount of toll revenue drawn down in each year of the ten year evaluation period is described below. * The cost of each year's operating needs (as given in the FUNDING NEEDS section) is covered entirely by toll revenues. This comes to $623 million over the ten year evaluation period. In the course of meeting these needs, toll revenues replace $458 million in City funds that are otherwise expected to be provided through expense budget appropriations. * The cost of each year's "Capital Contract Progress Payments" is reduced by the amount of federal and State capital grant funds estimated (in the FUNDING NEEDS section) to be available. The ten year total of capital contract progress payments is $1.5 billion. The ten year grant fund total is $301 million. The $1.2 billion balance is the share of progress payments that the authority would have to fund. * Each year's authority share of contract progress payments is assumed to be funded entirely by issuing revenue bonds that mature serially over 30 years. The structure of bond maturities is designed to produce equal annual debt service payments (like a home Mortgage). The interest rate for the bonds was set at eight percent, on the recommendation of Goldman Sachs. * The resulting series of equal annual debt service payments is assumed to begin in the accounting year after the bonds are issued. This reflects the authority's favorable cash flow situation, with toll revenues in each year substantially exceeding 54 the combined total of that year's debt service, bridge operating cost, and capital contract payment commitments. Therefore, the authority need not issue bonds before the seventh month of each year, so that the first interest payment on these bonds would not be due until the next accounting year. * Total debt service payments on these borrowings is $470 million over the ten year period. Because of the more favorable debt service schedules possible with revenue bonds, the debt service payments on these borrowings (which fully funded the capital needs of the Manhattan bridges) are 65 percent as high as the $724 million in debt service payments on City borrowings (which would also have fully funded bridge needs). City debt service payments would be funded with expense budget appropriations, which toll revenues make unnecessary. * Additional debt is issued each year to maintain a debt service reserve fund equal to the following year's debt service on contract payment borrowings. It was assumed that the reserve fund's assets would be invested to produce annual income equal to annual debt service on the borrowings done to produce these assets..' Therefore, total debt service payments that to be funded by toll revenue total $470 million over the evaluation period. * Each year's operating and debt service costs are added together to produce an annual estimate for drawdown on toll revenue. This totals $1.1 billion over the ten year evaluation period, or 14 percent of net toll revenues. Therefore, after fully meeting the operating and capital needs of the Manhattan bridges, $6.8 billion in toll revenues remains available. Gross expense budget savings to the City total $1.2 billion ($458 billion in bridge operating costs- and $724 million in debt service on borrowings to fund bridge capital projects). These savings net out to $1.1 billion. The difference reflects the fact that engineering costs are appropriated through the expense budget but are ultimate funded through capital borrowings. STEP TWO: In this scenario, the authority also assumes full responsibility for meeting the operating and capital needs of the City's other bridges and five short tunnels. The resulting toll revenue drawdowns and 55 budget savings to the City were computed according to the same methodology used in Step One. Therefore: * The authority uses $415 million worth of toll revenues over the evaluation period to fully fund bridge operating needs. This replaces the $346 million in City funds that would have been provided through expense budget appropriations. * The authority uses an additional $472 million in toll revenues to cover debt service payments on the revenue bonds it issues to fully fund the capital needs of these bridges. This replaces the $574 million in City debt service payments (on borrowings that would have resulted in only 83 percent of bridge needs being funded) that would have been provided through expense budget appropriations. * As a result, the authority draws down another $888 million in toll revenues to fully fund these bridges. This use of toll revenues generates gross expense budget savings of $920 million for the City and $895 in net savings. Steps One and Two achieve full funding of the capital and operating needs of all City bridges over the evaluation period. This requires toll revenue expenditures of about $2 billion (25 percent of net toll revenues). The City's net expense budget savings total $2 billion. After meeting its responsibilities to fully fund the operating and capital needs of all City bridges, the authority has $5.9 million in "surplus" toll revenues remaining. in this scenario, they are applied as follows: STEP THREE: The authority uses its surplus revenues to cover the operating and capital shortfalls identified in the FUNDING NEEDS section for Streets and Traffic. This results in all four infrastructure groups becoming fully funded. * Funding the Streets shortfall draws down $1.4 billion in toll revenues during the evaluation period - $678 million for operating costs and $680 million for debt service. * Funding the Traffic shortfall draws down $341 million - $291 million for operating costs and $50 million for debt service. 56 Following these drawdowns, $4.2 million in surplus toll revenues still remain. STEP FOUR: Each year's remaining surplus is used to replace expected City funds for Streets and Traffic. During the evaluation period, $4.9 billion (71 percent) of these City funds are replaced - $1.9 billion for operating and $3 billion for capital. * For Streets, $3.8 billion (77 percent) are replaced - $783 for operating costs and $3 billion for capital. The City would not have to provide any operating or capital funds for Streets until 2001, the eighth year of the evaluation period. * For Traffic, $1.2 billion (57 percent) are replaced - all for operating costs. The City would not have to provide any operating funds for Traffic until 2000, the seventh year of the evaluation period. These uses of the toll revenue surpluses therefore result in an additional $3.7 billion gross saving for the City in budget appropriations for operating costs and debt service. Adjustments for capital engineering costs (which would ultimately be funded from City bond sales) would reduce this by about $69 million. After completing Steps Three and Four, about $1 billion in toll revenue surpluses would still remain. They occur during the first six years of the evaluation period. This illustrative scenario shows how toll revenues could be used to: * Assure full funding for all operating and capital needs of the surface transportation infrastructure during the evaluation period. * Provide the City with $5.7 billion in net expense budget savings for operating costs and debt service, plus an additional $1 billion in residual toll revenue surpluses. * Reduce City borrowings for infrastructure capital projects by $5.6 billion. Appendix C provides output tables from the computer model that was used to develop this scenario. 57 V. T 0 L L Until recently, toll collection always involved some kind of manual cash payment system. This requires the construction of toll plazas with a high multiple of toll lanes for each traffic lane in order to minimize serious queuing problems when traffic is heavy. In the last few years, electronic collection-systems have become operational. These systems can eliminate the need for classic toll plazas and can process vehicles at normal highway speeds so that queues do not develop. Extensive use of electronic toll collection supplemented by cash payment facilities may be the most effective way to implement tolls on the East and Harlem river bridges. CASH PAYMENT TOLL SYSTEMS The traditional way to collect tolls is by means of a cash payment toll booth placed astride a traffic lane. But the need for each vehicle to stop and wait during the toll payment process impedes the flow of traffic on roads that experience demand levels common at the Manhattan river crossings during the day. For example, if it takes an average of fifteen seconds per vehicle to make a toll payment, this means that a toll booth can process only four vehicles each minute, or 240 vehicles each hour. This is equivalent to an average speed of about four miles per hour, which becomes the maximum speed of the traffic flow in the lane approaching the toll booth. To maintain higher speeds in the approach lane, more toll booths are needed to serve that one lane. In order to maintain an average speed of 30 mph in the approach lane, eight toll booths would be needed - just for that one lane. If there are three lanes approaching the toll collection point, the same multiple applies in order to maintain an average speed of 30 mph. Therefore, 24 toll booths would be needed to serve the three lane's. This little exercise illustrate one of the major problems inherent in attempting to toll a previously toll-free Manhattan river bridge by using a cash payment toll collection system. A substantial amount of space is needed to provide enough toll booths so that traffic is not impeded - much more space than is available within the right-of-way of the bridge's lanes. So additional land must 58 be acquired outside the existing right-of-way to allow construction of a large enough toll plaza. If other constraints make it impossible to acquire enough land, then the number of toll booths that can be provided is not sufficient to maintain a reasonable speed in the approaching flow of traffic. The result will be long queues of vehicles extending back a considerable distance from the toll plaza. Since each gasoline-fueled vehicle in the queue emits carbon monoxide in amounts that are inversely proportional to its speed, these queues can produce serious air quality.problems that violate Federal Clean Air Act standards and may not be subject to mitigation. If detailed environmental analysis establishes that this is likely to be the result of imposing a cash collection toll system on a particular bridge, then Federal law would prohibit the imposition of tolls on that bridge. The 1977 report entitled Traffic Impact of Tolls on the East and Harlem River Bridges included sketch plans for toll plazas on each of these thirteen bridges. These plans were prepared by the traffic engineering firm of Madigan-Hyland. It appears that a major goal in developing the plans was to minimize the need for land acquisition, though the report did not discuss this. But the report stated that the toll plazas would cause major delays during peak inbound periods on seven of the bridges, with vehicle queues of up to a mile in length on three of the Harlem River bridges. It should be noted that average daily crossing volumes on the East and Harlem River bridges were 17 percent higher in 1990 than they were in 1975 (the year used in the report). So delays and queues lengths may be proportionately worse then the report estimated. The report also estimated the construction cost and time for these toll plazas. In 1991 dollars, their construction cost would be about $145 million and they would take at least three and one half years to build (following completion of an acceptable Environmental Impact Statement). ELECTRONIC COLLECTION SYSTEMS These systems rely on a sensor unit mounted above each traffic lane at the toll collection point. The sensor "reads" the unique ID number encoded into an inert "toll tag" that is carried in each vehicle passing the toll collection point. The system's computer records the passage of the vehicle and automatically bills the vehicle owner's payment account for one crossing at the toll rate in effect at the time of the crossing. Account payments can be made 59 by major credit card, automatic debits to checking accounts, or regular check. One family of such systems uses radio frequency electronic identification (RFID) technology, which its advocates claim is superior to optical or magnetic identification technology because it can identify vehicles at greater distances and higher speeds, and because its performance is unaffected by bad weather or dirt.. RFID systems are becoming available for a number of different transportation-related purposes, including toll collection. RFID toll collection systems are currently in operation on the Crescent City Connection Bridge and the Lake Pontchartrain Causeway in New Orleans, the Dallas North Tollway, the Oklahoma Turnpike, and on several toll roads in France and Italy. The Port Authority and TBTA have been field testing this technology since 1988. The Port and TBTA have also formed a working group with seven other toll authorities in New York, New Jersey, and Pennsylvania in the expectation of being able to establish a single electronic toll collection system for all major toll facilities in the northeast. These seven agencies expect to issue a procurement request for toll tags and other RFID hardware in the Fall of 1991. An RFID Operating Scenario The following scenario illustrates how an RFID system might operate on the East and Harlem river bridges. * Sensor antennas would be mounted above each traffic lane near the middle of the bridge. These antennas are small and unobtrusive. * Any vehicle wishing to use the RFID lanes on one of these bridges would be required to have a toll tag and a valid payment account. (A start-up scenario for distributing toll tags and establishing accounts is described below.) Vehicles without tags would have to use cash payment lanes The toll tag itself is about the size of a credit card and is fastened to the inside of the vehicle's windshield with velcro strips so that it can be easily removed when the vehicle is unattended. * As the vehicle passes beneath the sensor antenna while crossing the bridge, its toll tag is read. This will not require.the vehicle to slow down, change lanes, or make any other movements that are not dictated by the traffic flow itself. The flow of traffic on the RFID lanes is unaffected by the 60 tag reading process, which takes only a fraction of a second to complete. There would be no barrier gates at which vehicles must wait while the system is processing the tag reading (possible enforcement measures are outlined below). * After reading the toll tag, the sensor transmits to the system's central computer the tag's unique ID number (which identifies the vehicle and-its account), the bridge ID, the lane ID, and the date and time of day. This information is entered into the vehicle owner's account. This is obviously an ideal scenario. It seems likely that some cash payment capability would have to be provided on the City bridges to supplement TBTA's facilities. Options for doing this are discussed below. A Possible Start-Up Scenario A critical element in the success of the system is that a high percentage of the vehicles using the Manhattan river crossings have toll tags and valid accounts. Surveys at TBTA's four Manhattan crossings indicate that 98 percent of their Manhattan-bound vehicles have trip origins within the Tri-State region, and 93 percent have trip origins within the New York State portion of the region. It is likely that these "local origin" percentages are at least as high on the City bridges. This makes it feasible to seek to enroll in the electronic collection payment system a high percentage of the vehicles that make trips to Manhattan. Achieving this goal would require a well-designed and professionally implemented marketing program. Such a program might include the following features: * At a suitable time in advance of the day when tolls are implemented, toll tags would be mailed to each motor vehicle owner (one tag per vehicle registered in his name) in the New York State portion of the metropolitan region. These mailings would be require the assistance of the New York State Department of motor Vehicles. * Accompanying the toll tag would be a brochure describing the electronic collection/payment system, the date when tolls begin, and details of the payment account that has been established for the vehicle owner. The brochure would stress that 61 there is no charge for the toll tag, no charge to maintain the payment account, no premium to pay for using electronic collection rather than cash payment, and no pre-payment requirement. * Vehicle owners would be billed monthly for the crossings that they made the previous month. Each owner would be given the option of making account payments by the credit card of his choice by mailing back an authorization form. In this case, his crossings would automatically be billed each month (as a lump sum) to his credit card. He could also elect to receive monthly or quarterly statements that detail each crossing billed to him, showing the date, time of day, direction, and toll rate charged (much like the detail for long distance calls on a telephone bill). * An 800 telephone number would be maintained so that vehicle owners can easily replace lost toll tags, obtain new tags (for newly purchased vehicles), get information about their accounts, etc. A Possible Implementation Scenario There are three different options for implementing a toll collection/payment system. * The tolling entity can buy the necessary hardware, have it installed by private contractors, and operate the system with its own personnel. * The tolling entity can buy the hardware and retain a private firm to install it and operate it for a flat annual fee. * The tolling entity can enter into a long term contract with a private firm under which the firm would accept full responsibility for installing and operating the system at its own expense, in return for a share of gross toll revenues. The third option may be attractive because it requires no direct capital expenditures by the tolling entity to acquire and install the system, relieves the entity of the need to operate and market the system, and shifts the risks associated with system reliability to the contract operator . In effect, the tolling entity would simply receive an electronic funds transfer each day for its share of the toll revenues. 62 If such a contract is competitively bid, potential bidders might include large utilities, banks, credit card companies, and other corporations whose current business activities provide them with experience that may be relevant to implementing and operating an electronic collection/payment system. Differential Tolls Each crossing by a motor vehicle gets charged when it is posted to the owner's account by the system's computer. This makes it possible to charge different prices for each crossing based on such factors as: * The type of vehicle. * The bridge used for the crossing. * The day of the week that the crossing was made. * The time of day that the crossing was made. * The traffic demand conditions on the bridge at the time that the crossing was made. * The owner's income, residential location, or degree of physical disability. The use of differential tolls is an option that electronic toll collection facilitates. But decisions about how, when, or even whether to pursue this option do not automatically follow from a decision to use electronic toll collection on the City bridges. Such decisions involve policy issues that are outside the scope of this report. Inflation Indexing The same capability could be applied to maintain the "real" (i.e. inflation-adjusted) toll rate at a constant level. Modest percentage increases each year, or even each month, could be implemented to match percentage increases in the local Consumer Price Index without concern for the change- making implications of odd penny or nickel increments. Environmental Implications Under the operating scenario described earlier, an RFID system itself would have no direct environmental impact. The process of collecting tolls electronically 63 would not change the speed of the traffic flow on any newly- tolled crossing. However, the elimination of toll-free crossings is likely to cause some of their traffic to divert to TBTA crossings when they offer a more direct route. This would mean lower traffic volumes on the newly-tolled crossings, resulting in higher traffic speeds. But it would also mean higher traffic volumes on the TBTA crossings, which would.reduce their traffic speeds. on the other hand, the gain in traffic speeds on the TBTA crossings when they convert to an RFID system may be sufficient to absorb this. A more detailed discussion of these issues is presented in the ENVIRONMENTAL CONSEQUENCES section. They need to be explored comprehensively in the course of the technical studies that we have recommended. HYBRID SYSTEMS It would be possible to implement a toll collection system on City bridges that includes a mix of electronic facilities and cash payment toll booths. This could be necessary if it was determined that the cash payment booths that TBTA will retain on its Manhattan entries are not sufficient to handle vehicles that do not have toll tags. Based on the diversion percentages published in the 1977 report, TBTA's four Manhattan crossings are expected to handle 35 percent of all Manhattan trips if tolls are implemented. TBTA's four Manhattan crossings are (reading from south to north): * The Brooklyn-Battery Tunnel: which the 1977 report indicates would handle 8.7 percent of all Manhattan trips if tolls are implemented. According to TBTA surveys, 1.6 percent of the Tunnels Manhattan-bound vehicles have trip origins outside the Tri-State region, and 3.4 percent have origins outside the New York State portion of the region. This crossing could provide a cash payment option for vehicles that might otherwise use the Brooklyn and Manhattan bridges, which are expected to handle 15.3 percent of all Manhattan trips if tolls are implemented. 64 * The Queens-Midtown Tunnel: which would handle 8.8 percent of all Manhattan trips if tolls are implemented. TBTA survey data shows that 2.1 percent of its Manhattan-bound vehicles have trip origins outside the Tri-State region, and 3 percent have origins outside the New York State portion of the region. This crossing could provide a cash payment option for vehicles that might otherwise use the Williamsburg and Queensboro bridges, which are expected to handle 20 percent of all Manhattan trips if tolls are implemented. * The Triborough Bridge: which would handle 11.3 percent of all Manhattan trips if tolls are implemented. TBTA survey data shows that 1.3 percent of its Manhattan- bound vehicles have trip origins outside the Tri-State region, and 6.9 percent have origins outside the New York State portion of the region. The Triborough could provide a cash payment option for vehicles that might otherwise use the Queensboro, Willis Avenue, Third Avenue, Madison Avenue, 145th Street, Macombs Dam, and Washington bridges. These seven City bridges are expected to handle 36 percent of all Manhattan trips if tolls are implemented. * The Henry Hudson Bridge: which would handle 6.6 percent of all Manhattan trips if tolls are implemented. TBTA survey data shows that 2.5 percent of its Manhattan- bound vehicles have trip origins outside the Tri-State region, and 12.7 percent have origins outside the New York State portion of the region. This bridge could provide a cash payment option for vehicles that might otherwise use the University Heights and Broadway bridges, which are expected to handle 5.6 percent of all Manhattan trips if tolls are implemented. However, it would not be necessary to rely only on the TBTA crossings for cash payment. Preliminary analysis of peak period traffic volumes on the City bridges suggests that most of them would be able to accommodate at least one cash payment lane without worsening traffic flow in ways that could lead to negative environmental consequences that could not be mitigated. The most suitable locations for such lanes appear to be on: * The Manhattan Bridge (which is expected to handle 5.6 percent of all Manhattan trips if tolls are implemented). 65 * The Williamsburg Bridge (8.2 percent of trips). * The Queensboro Bridge (11.8 percent of trips). * The Madison Avenue Bridge (2.9 percent of trips). * The Macombs Dam Bridge (3.9 percent of trips). * The University Heights Bridge (3.6 percent of trips). * The Broadway Bridge (2 percent of trips). Providing cash payment lanes on these bridges would broaden the distribution of-crossings that offer a cash payment option. It would also make this option available to nearly three-quarters of all vehicles on the crossing they would normally use. It is worth noting that this proportion corresponds closely to the 70 to 80 percentage of crossing vehicles that TBTA and the Port Authority anticipate will continue to use cash payment booths even after they provide electronic collection facilities on their river crossings. The expected low participation rate at electronic facilities at these crossings reflects the advance payment requirement that these two authorities have indicated they will impose. Requiring motorists to maintain positive balances in their accounts against which crossings can be charged is a barrier to high participation rates in an electronic toll collection system. This is consistent with the experience in Dallas and New Orleans, where advance payment is required of motorists wishing to use electronic collection lanes at the toll facilities in these cities. However, the City bridges need not require advance payment. Therefore, it is possible that the participation rates for electronic toll collection could be much higher than at the TBTA and Port Authority crossings. If this turns out to be the case, it might eventually be possible to replace some of the cash payment lanes on the City bridges with more electronic payment lanes. This would improve traffic flow. 66 ENFORCEMENT If tolls are implemented on the City bridges, it is likely that a certain number of motorists will attempt to "beat the toll". Some will-use electronic collection lanes without displaying valid toll tags or having active payment accounts. Some will neglect to pay their account bills. Some may even try to rush through cash payment booths without stopping. All of these actions will result in lost toll revenue. The credibility of any bridge toll proposal is closely linked to the level of confidence that can be established in an enforcement program to minimize revenue losses from toll beating. Classical enforcement programs follow two basic approaches. 1. Active Enforcement This approach would require a large and highly visible presence of uniformed enforcement officers at each bridge. Any driver who attempts to cross without paying would be pulled over and ticketed. The idea is that the presence of officers would deter drivers from misbehaving by causing them to believe that it is highly likely that attempting to beat the toll would result in a ticket. Such a program has the following shortcomings: * It would be very expensive to implement because of the large number of enforcement officers that would be needed. * Stopping and ticketing misbehaving drivers would disrupt traffic during high demand periods. This could result in negative environmental consequences. * It only addresses toll beating on the bridges themselves. Drivers who beat tolls by neglecting to pay their account bills would have to be dealt with by an entirely different set of procedures. 2. Passive Enforcement Under this approach, large signs on the roads leading to each bridge would warn drivers of the fines or other penalties they stand to incur if they attempt to beat the toll. The deterrent 67 effect of these warnings would depend on two factors: * The likelihood of being caught. If drivers believe that the likelihood is high, the deterrent effect can be substantial. On the bridges themselves, this would require the presence of enforcement officers, though probably in much fewer numbers than for active enforcement. To deter drivers from neglecting to pay their account bills, an effective (and well-publicized) collection effort would be needed - with appropriate cost,penalties for late payment. * The cost of being caught. If this cost is high enough, the likelihood of being caught can be quite low. For example, a fine of $5,000 for toll beating might be high enough to deter most drivers from beating the toll even if the presence of officers on the bridges was largely occasional and random. The risk of being caught might be so low as to seem almost non-existent. But the cost of being caught would be so high that the risk, no matter how low, would not be an acceptable one. A similarly high fine for neglecting to pay account bills would have the same deterrent effect on this kind of behavior. Both of these enforcement approaches attempt to change human behavior. This can be a difficult and costly undertaking under the best of circumstances. Its credibility can be suspect unless a considerable amount of money is being spent on enforcement measures. A very different and more pragmatic approach begins by rejecting any attempt to change human behavior. It focuses instead on simply maximizing revenue from the bridges through some feasible combination of tolls collected from law-abiding drivers and fines collected from toll beaters. The key to this approach is the fact that revenue lost because of toll beating can be offset by revenue gained from the collection of fines for toll beating. If the fine for toll beating is a high enough multiple of the toll rate, then fines need to be collected from only a modest percentage of those who beat the toll. Therefore, a fine that is twenty times the toll rate and is collected from only one out of every twenty toll beaters can completely offset the revenue lost from toll beating. 68 The chart on the next page (and the table that follows it) illustrates how effective this approach can be in maximizing bridge revenues. It demonstrates that revenue maximization need not depend on unrealistically low toll beating rates. In fact, high toll beating rates can actually increase gross bridge revenues, while also providing funds to help cover the cost of this approach to enforcement. The chart and table reflect the assumptions described earlier in the BRIDGE TOLL SCENARIO section. * The number of tollable crossings is as projected for 1994. * The toll rate is $3.00. * The initial fine for toll beating is $60.00 (or 20 times the toll rate). * One out of every two toll beaters can be successfully ticketed. This rate should be achievable by having television cameras record the license plate numbers of all vehicles crossing the bridges (which would require new legal authority that could be included in the enabling legislation for tolls). In practice, such cameras are something less than 100 percent effective. But they should be able to record the plate numbers of at least half of all crossing vehicles. Since we can assume that toll beating vehicles will be randomly distributed among all vehicles, this suggests that 50 percent of toll beating vehicles can be identified and tickets mailed to their owners. * Sixty percent of the tickets issued are actually collected. This is the current ticket collection rate for the Parking Violation Bureau. CONCLUSIONS Three points seem apparent as a result of this preliminary analysis: 1. The ability to make use of an effective electronic toll collection/payment system may be a necessary (though probably not sufficient) condition if bridge 69 Click HERE for graphic. Click HERE for graphic. tolls are to be viable. Exclusive reliance on conventional cash collection systems could generate air quality problems that may not be mitigable. Also, toll plazas are expensive to build and would delay the start of revenue flow by at least three years. 2. Serious consideration should be given to awarding a competitively-bid contract arrangement with a qualified private corporation to be fully responsible for collection system implementation and operation (including provision of cash lanes on City bridges where they are needed). This kind of privatization" eliminates the need for public sector capital outlays, may result in lower operating costs, and transfers responsibility for making the system work effectively to a private corporation that has an important financial stake in a successful outcome. 3. Suitable protection against toll beaters need not be either difficult or impossibly costly, so long as the focus is on maximizing bridge revenue rather than on changing human behavior. In fact, the critical question may well be whether the toll beating rate will be high enough to generate fine revenue that is sufficiently greater than lost toll revenue to cover a significant portion of the costs of identifying, ticketing, and collecting fines from toll beaters. 70 VI. E N V I R 0 N M E N T A L CO N S E Q U E N C E S Bridge tolls have the potential for causing a host of environmental consequences. Most are expected to be positive. But there are circumstances under which some could be negative and would have to be mitigated. There are two reasons why the issue of environmental consequences is important. First, implementing tolls is an action that must comply with existing environmental law. Second, tolls could have negative consequences in some locations where existing concentrations of carbon monoxide or ozone already exceed national ambient air quality (NAAQ) standards. This is complicated by the fact that tolls could have positive consequences in other locations. Therefore, implementing tolls becomes an issue that must be resolved within the context of the 1990 amendments to the federal Clean Air Act. This means that tolling the East River and Harlem River bridges would require an environmental review in order to comply with existing law. It is possible to argue that this review could be something less detailed than a formal Environmental Impact Statement (EIS). As a practical matter, however, the formal EIS process should be undertaken. Even if bridge tolls were to be considered primarily as an air quality improvement measure, it would be necessary to show that tolls were consistent with the existing State Implementation Plan (SIP) and with the revised SIP that must be submitted to federal EPA by November 15, 1992. Alternately, we would have to design a complete program around bridge tolls that could be used as a control measure for reducing carbon monoxide or ozone pollution. Either way, the same analysis and public hearing process would be needed as for an EIS. However, the level of detail can vary depending on the goal that is to be met. There are additional requirements beyond an air quality analysis that must be satisfied in order to include bridge tolls in a SIP revision that EPA could approve. This suggests that gaining approval of bridge tolls as a SIP measure could be more time-consuming than completing a normal EIS, which might still be required. Any quantification of the positive and negative environmental consequences of bridge tolls is beyond the scope of this report. But the qualitative nature of these consequences can be described. Our sense is that the 71 positive consequences will be substantial, and there will be no negative consequences that cannot be mitigated. POTENTIAL POSITIVE CONSEQUENCES Many environmental specialists believe that tolling the Manhattan bridges would have positive environmental consequences. These consequences arise because bridge tolls can help reduce traffic congestion within Manhattan, and on the approaches to the City bridges leading into Manhattan. Since traffic congestion is the major cause of air pollution in New York City, reducing traffic congestion in these locations would improve air quality. Some of the ways that bridge tolls could help reduce traffic congestion include: * Eliminating the cost incentive to use Manhattan streets for westbound trips to New Jersey from locations east of the East River. When vehicles making such trips enter Manhattan across one of the City bridges and reach New Jersey via the Holland or Lincoln tunnels (which collect tolls eastbound only), tolls are avoided. The result is that traffic congestion on some Manhattan streets (such as Canal Street) is increased because of the presence of vehicles making through trips via Manhattan solely to avoid tolls. * Eliminating the additional trip miles generated by motorists who now divert from more direct routes using the TBTA crossings in order to take advantage of the toll-free City bridges. All else being equal, additional trip miles by motor vehicles mean additional emissions of exhaust pollutants that degrade air quality. * Reducing the additional traffic volume on and approaching the City bridges that is caused by motorists who divert from the TBTA crossings to avoid tolls. The additional volume worsens traffic congestion in these locations, which increases air pollution. According to the 1977 report traffic Impact of Tolls On The East & Harlem River Bridges, these diversions result in a 20 percent greater traffic burden on the four East River bridges, and a 14 percent greater burden on the eight Harlem River bridges. * Eliminating the perceived cost penalty of traveling to Manhattan by public transportation, which 72 requires payment of an explicit cash fare. The perception that travel to Manhattan by car is less costly than travel by public transportation (especially when several people are traveling together) further enhances the apparent advantages of using automobiles for personal trips. This has contributed to the long term growth trend of Manhattan auto entries, which has worsened traffic congestion in Manhattan and on its roadway approaches. POTENTIAL NEGATIVE CONSEQUENCES There are two categories of negative consequences that could arise from tolling the bridges. The first is related to the actual process of collecting tolls. The second is due to motorists diverting from the City bridges to more direct routes that are no longer more costly to use. The process of collecting tolls could have negative environmental consequences if it reduces traffic speeds. During high demand periods, lower speeds would worsen traffic congestion in the lanes approaching the toll collection point. More traffic congestion means more air pollution. Such consequences are believed to be likely if cash payment toll booths were the only method for collecting tolls. As noted earlier, the requirement that each motorist stop to pay a toll imposes a low limit on the number of vehicles per minute that the toll booth can process. This becomes the limit on the maximum speed of traffic in the lane approaching the booth, except when very high demand levels reduce the number of vehicles per minute that can reach the booth to a value that is less than its processing rate. Only when a comparatively large number of toll booths is available to serve each approach lane can this congestion problem be avoided. On the City bridges, this would require toll plazas too large to be practical. Electronic toll collection offers a way around this problem if it can be used extensively and in a manner that has no direct impact on traffic speeds. As the percentage of vehicles using electronic collection lanes increases, new congestion caused by toll collection diminishes. The critical percentage" required to avoid unacceptable new congestion must be determined so that an adequate number of cash payment lanes can be provided on enough City bridges to accommodate (together with the TBTA's cash payment booths) all vehicles that do not have toll tags. 73 As noted previously, TBTA origin/destination surveys have shown that 98 percent of the vehicles entering Manhattan across their four Manhattan crossings have trip origins in the Tri-State region, and 93 percent have origins in the New York State portion of the region. Most of these vehicles can be assumed to be registered locally. These percentages are likely to be at least as high on the City bridges. This underscores the importance of encouraging a high percentage of vehicle owners in the region to join the electronic toll collection system, so they can use the electronic lanes when crossing the City bridges. Among other things, this means making it as easy as possible to join the system - by not requiring that tags be purchased (they are sent free to each motorist in the region), by not charging service fees to maintain payment accounts (motorists are charged only for each crossing they make), and by not requiring advance payments to maintain positive account balances (motorists are billed each month either directly or to whichever credit card they prefer for the crossings they made the previous month), etc. It may also mean imposing some disincentives for cash payment by frequent users, which must be carefully planned to avoid exacerbating air quality problems. They might include deliberately providing somewhat fewer than the optimal number of cash payment lanes (to increase the time it takes to make a cash payment crossing), locating most of these lanes on bridges that are less convenient for most tripmakers to use, and perhaps offering a modest discount on each crossing that is made via an electronic collection lane. The second category of potential negative consequences includes those arising from trips that divert from the City bridges. As noted earlier, these diversions also produce positive consequences. The-effect of one versus the other is not necessarily off-setting since the locations benefiting from positive consequences are different from the locations burdened by the negative consequences. * Westbound through trips that are no longer made via Manhattan will divert to the northern bypass route (via the George Washington Bridge) or the southern bypass route (via the Verrazano Bridge). This will impose additional traffic volumes on these crossings and their approach highways. Detailed traffic analysis is needed to quantify the impact of this new burden and determine whether it causes negative environmental consequences that must be mitigated. 74 * Trips that divert from City bridges to TBTA crossings will impose additional traffic volumes on these crossings and their approaches. The 1977 report mentioned earlier indicated a 53 percent increase in volume for the Brooklyn-Battery Tunnel, a 26 percent increase for the Queens-Midtown Tunnel, a 27 percent increase for the Triborough Bridge, and a 37 percent increase for the Henry Hudson Bridge. TBTA intends to equip its toll plazas for electronic toll collection (regardless of whether the City bridges are tolled) and believes that the resulting increase in the volume of traffic that its crossings can process will be sufficient to absorb the diversion volumes. Detailed traffic analysis is needed to quantify the impact of these diversion volumes on the approaches to these crossings and determine whether there are negative environmental consequences that must be mitigated. This analysis is especially important for the Manhattan sides of the Brooklyn-Battery Tunnel, Queens-Midtown Tunnel, and Triborough Bridge - all of which connect directly to the Manhattan street network. * Trip diversions from the City bridges is likely to improve traffic flow on these bridges and their approaches. There is a widely-accepted theory, reflecting several generations of experience in traffic engineering, that such improvements can induce new trips in enough volume to return traffic speeds to their lower, pre-improvement levels. If this were to occur, the volume of new trips would worsen traffic congestion on roadways that connect with the bridge approaches - leading to negative environmental consequences. Detailed traffic analysis is needed to quantify the potential impact of this phenomenon. But it should be noted that the theory's cause/effect relationship between traffic flow improvements and new trip induction may be more apparent than real. It is equally possible that empirical data from the past simply demonstrates the presence of a of natural growth rate in trip generation that could not have been accommodated if improvements in traffic flow were not made. In which case, the improvements themselves cannot be said to have induced new trips and caused negative environmental consequences. Rather, they partially mitigated the impact of negative consequences that would have occurred anyway. 75 VII. T H E T 0 L L I N G E N T I T Y There are four possible options for the entity that would impose tolls and receive the revenue. 1. The City government itself, in which case the revenue would flow into the General Fund. 2. TBTA, to which responsibility for the Manhattan bridges would be transferred. 3. A newly-created New York City Bridge Authority, which would be self-supporting from toll revenues and would be responsible for fully funding the operating and capital needs of the tolled Manhattan bridges. 4. A newly-created New York City Surface Transportation Authority, which would be self-supporting from toll revenues, would be responsible for fully funding the operating and capital needs of all City bridges, and helping to fund the needs of City streets and traffic control facilities. Each option has its own set of legal issues, as well as having some legal issues in common with the other options. These issues were researched by New York City's Law Department, and their conclusions are reflected in the discussion below. THE CITY GOVERNMENT New York City's government could implement bridge tolls itself and assign overall responsibility for toll collections to its Department of Transportation. Toll revenues would flow into the City's General Fund, where they would co-mingle with revenues from many other sources. The allocation of toll revenues would be handled through the City's expense budget. There would be no automatic link between any year's toll revenues and that year's funding levels for the bridges or other portions of the surface transportation infrastructure. The relationship between the two would be determined each year by the Mayor through the expense budget, subject to approval by the City Council. 76 Operating Costs Annual funding for bridge operations (which includes maintenance) would be determined in the same way as it is now. DOT would submit its expense budget requests for this activity. OMB would review and modify them, based on its larger perspective of appropriate spending levels for a myriad of transportation and non-transportation activities throughout the City. Some negotiation would follow. The final spending level would be included in the Executive Budget, but could be modified somewhat after consultations with the City Council. If tolls were implemented, the revenues that the bridges would generate might become a factor in OMB's determination of the appropriate funding level for their operations. How large a factor - and how consistent a factor from year to year - cannot be estimated. Capital Restoration Annual funding for capital reconstruction of the bridges would also be determined in the same way as it is now. DOT would submit its capital budget requests, reflecting its long term plan for restoration of the bridges. OMB would review and modify these requests, etc. Normally, the City raises funds for capital projects by selling bonds. As the Law Department pointed out, the New York State constitution requires that these bonds be "general obligation" bonds, secured by all City revenues. The State constitution also gives the City the power to levy a special tax on real estate at whatever rate is needed to generate sufficient funds to meet debt service payments on its outstanding bonds. (This tax is separate from the real estate tax for operating revenue, though the two are combined into a single bill for property owners.) However, the City also has the option of funding any portion of its debt service payments with General Fund revenues. It also has the option of funding capital projects with General Fund revenues, on a pay-as-you-go basis. If tolls were implemented, the City could therefore use the toll revenue to fund some (or all) bridge reconstruction projects on a pay-as-you-go basis. Or it could use the toll revenue to fund some (or all) of 77 the debt service on the bonds issued to fund these reconstruction projects. But it is likely that any such decisions would be made on a year-to-year basis and would mainly reflect budget management and debt service management factors. There would be no clear, consistent link between the toll revenues being generated by the bridges and spending for capital reconstruction. Budget Relief Toll revenues would provide some long term budget relief by adding a new revenue source to the General Fund. If the budget allocations for bridge operations remained unchanged from currently planned levels, all of the toll revenue would be available for budget relief. To the extent that allocations for operations were increased to meet actual needs, the amount of budget relief would be reduced. At minimum, however, budget relief would equal..currently planned operations levels (which are now funded by other General Fund revenues). Credibility Perhaps the biggest problem with having the City's government act as the tolling entity may be that too many motorists will assume that implementing tolls is nothing more than a general revenue mechanism. Without a formal link between toll revenue and transportation spending, it may not be possible to convince enough people that tolls will result in the bridges being restored and properly maintained. Public finance theorists have never been comfortable with the concept of dedicated revenues. But increasingly, the general public is insisting that they will only pay more if they can be assured that the new revenue will be dedicated to supporting a public services that provide visible benefits to them. It may be difficult to offer this assurance if the City government is the tolling entity. TRIBOROUGH BRIDGE & TUNNEL AUTHORITY TBTA is a member of the MTA's family of transportation authorities. One of its missions is to operate and maintain nine tolled river crossings in New York City. It does this very well, which makes it an obvious candidate to be the tolling entity for the City's East and Harlem river bridges. 78 Such an arrangement would probably require that complete responsibility for these bridges be transferred to TBTA. As noted earlier, TBTA has been working with the Port Authority since 1988 to field test electronic toll collection technology. TBTA has indicated its intention to begin installing such a system at its toll plazas in 1992. Providing Funds for Public Transportation TBTA's second major mission is to generate operating and capital funds for the New York City Transit Authority, the Long Island Railroad, and Metro North three public transportation operators that also belong to the MTA family. In recent years, its policies for setting toll rates have been driven primarily by this mission. Public transportation operating funds are transferred each year to the three operators from TBTA's "surplus revenues" (i.e toll revenues in excess of its operating and debt service costs). Half of these funds are turned over to the Transit Authority to help support the operations of the City- owned subway and bus systems, which are leased to the Transit Authority. The other half are divided between the Long Island Railroad and Metro North, which operate commuter railroads that bring suburban residents to jobs in the Manhattan CBD and downtown Brooklyn. This allocation, which is specified in the New York State Public Authorities Law, has been in effect since 1968 when the MTA was established. TBTA provides capital funds to the three public transportation operators by selling bonds that are backed by its toll revenues. This arrangement has been in effect since the early 1980s and has provided about 13 percent of the capital funds used in the MTA's first two five year plans to restore its public transportation systems to a state of good repair. Budget Relief Since the Manhattan bridges would be transferred to TBTA, the costs associated with their operations and restoration would be removed from the City budget. On the operating side, this would represent a $623 million saving for the expense budget over the ten year evaluation period. Since no new City bonds would have to be issued for capital restoration, City debt service costs would be $843 million lower over the evaluation period. 79 However, the illustrative toll revenue scenario described earlier showed revenues greatly in excess of the needs for these bridges. Under existing law, none of this excess revenue would be available to the City. Nor would the Mayor have any direct control over how it was used. In fact, half of this revenue would be used to subsidize the commuter railroads - a purpose that some would argue does not directly benefit New York City residents. This issue is discussed below. The Equity Issue Some people have problems with the formula under which TBTA provides operating funds to the three public transportation operators. They argue that this formula shortchanges the City, since all of the funds are generated within the five boroughs but only half are allocated to the City's subway and bus systems. Two arguments are usually offered to counter this: * City motorists account for only about 56 percent of TBTA's toll revenues. Most of the remainder is generated by motorists who are residents of Long Island and the Northern Suburbs. * The primary function of the Long Island Railroad and Metro North is to provide commuting transportation to the Manhattan CED for suburban residents. This enables CBD firms to tap a larger and more varied labor pool than they could if these commuter railroads didn't exist, which enhances the attractiveness of the CBD as a business location. * Public perception of this equity issue should be taken into account in determining whether TBTA would be an appropriate tolling entity for the Manhattan bridges. Half of any surplus revenue generated by their tolls would be turned over to the MTA's commuter railroads unless new legislation is passed to modify the formula in the Public Authorities law. The Governance Issue Because TBTA is a member of the MTA family, its board of directors is the MTA's board. The thirteen members of the MTA board are appointed for fixed terms by the Governor, subject to approval by the New York State Senate. Four of these members are appointed on the recommendation of the Mayor. 80 Under this structure, the Mayor has no direct control over TBTA. His only formal input on policy issues is through the four MTA board members who are (functionally) appointed by him. If TBTA became the tolling entity for the Manhattan bridges, the Mayor might have only modest and indirect influence on decisions about toll rates, the pace of bridge restoration, whether differential tolls should be used to rationalize the flow of traffic entering and leaving Manhattan, etc. These could be significant public policy issues. There may be significant problems with having them decided by non-elected officials over whom the Mayor has no direct control. Other Issues There is no provision in the Public Authorities law for the TBTA to transfer any of its revenue to the City's government. As noted above, this would rule out any use of toll revenues from the Manhattan bridges to provide budget relief (in excess of the operating and debt service costs of the bridges themselves), or to help fund other portions of the surface transportation infrastructure. DOT's Bureau of Bridges has a large cadre of City employees who have substantial experience with the care and needs of the Manhattan bridges. The Law Department pointed out that these employees would have to be transferred to TBTA under arrangements that protect their pension benefits, compensation packages, seniority rights, and union memberships. This should be feasible, but there are many complex issues to be resolved. Their resolution could be time-consuming. A NEW YORK CITY BRIDGE AUTHORITY The tolling entity could be a new City authority specifically established to assume responsibility for the Manhattan bridges. It would be under the Mayor's control, entirely self-supporting from toll revenues, and with the power to issue bonds that would not be obligations of the City itself. Scope of Responsibility There are two possible options for defining the scope of the new authority's responsibilities. One option is a classic "full service" authority like TETA. It would take over the bridges, toll them, 81 operate them, maintain them, reconstruct them, etc. This means that a significant portion of the activities (and employees) of DOT's Bureau of Bridges would be transferred to the new authority. These operating costs would no longer be funded through the General Fund or appear in the City's expense budget. And the City would no longer have to issue its own bonds to provide capital funds for bridge reconstruction. The second option limits the new authority's responsibilities to financing and overall planning. it would be empowered to toll the bridges, collect the revenues and issue its own bonds for bridge reconstruction. But it would "contract out" the tasks of operating, maintaining, and reconstructing the bridges. Some of the contracts could be with DOT's Bureau of Bridges, which would therefore retain the same functional responsibilities (and employees) that it now has. But the General Fund would be reimbursed by the authority for the cost of these activities, which would continue to appear in the City's expense budget. In effect, things would be the same as they are now except that: * The General Fund would receive new revenue from the authority to fully reimburse the cost of operating and maintaining the bridges, even at a higher level of effort than now. * The Authority could contract with private firms to provide additional maintenance and other services, thus "privatizing" some of bridge activities. * The Authority, rather than the City, would issue the bonds needed to fund bridge reconstruction. These bonds would not be City obligations. Comparisons The first option would theoretically reduce the size of City government somewhat, because the activities (and employees) now housed in DOT's Bureau of Bridges would be absorbed by the new self-supporting authority. The second option would provide the City with new revenue to (1) fully offset the costs of the current level of bridge activities, and (2) support a higher level of bridge activities. Both options would provide the same degree of budget relief. The first option results in a large authority, which some people might view as a new public bureaucracy encompassing all the sins of existing bureaucracies. 82 The second option results in a small authority with a small staff of skilled professionals, which some people might view as an overpaid elite controlling a very large amount of public money. The first option may limit opportunities for large scale privatization of bridge activities, because the new authority would be implicitly intended to be a full service organization. The second option may encourage much more privatization, because the authority would never be in a position to do everything in-house. Surplus Revenues Under either option, the new authority is likely to generate much more revenue than it needs simply to operate and restore the Manhattan bridges. Provisions would have to be made for appropriate use of these surpluses. For credibility reasons, it might be best to have such provisions written into the new authority's charter and any enabling legislation. Surpluses would be defined as revenues in excess of the authority's annual needs for operating costs and debt service. Some possible (but not mutually exclusive) uses for the Authority's surplus revenues are listed below. * Transferred annually to the City's General Fund to help support various City services. The Mayor would determine how these funds are to be used. * Transferred to a new City fund dedicated exclusively to helping support transportation services and facilities other than the Manhattan bridges. The Mayor would determine how these funds are to be allocated among various transportation services. * Used to support special bonds issued by the Authority to fund capital improvements to City transportation facilities other than the Manhattan bridges. (The advantages of issuing authority bonds, rather City bonds, for these improvements is discussed below.) The Mayor would control the allocation of the capital funds generated by these bonds. However, the Mayor and the authority would have to agree on a long term schedule for issuing these bonds that is compatible with the authority's schedule for issuing bonds to fund bridge restoration. 83 Authority Debt Some people in the investment banking community have indicated that the level of outstanding City debt is beginning to reach a point where additional "New York" debt issuers may be needed in the future in order to help assure favorable market access for the City. This is because most institutional buyers of tax exempt debt have limits on the percentage of their portfolios that can be invested in the securities of any single issuer. Many such institutions are believed to be approaching this limit for City general obligation bonds. The Bridge Authority would be a new debt issuer. It would issue debt for bridge reconstruction that would otherwise have to be issued by the City itself. It could also issue debt for other transportation-related purposes that would otherwise have to be issued by the City. The maturity structure of its debt issues would not be constrained by State laws that dictate the maturity structure of City debt issues, and this could facilitate more advantageous debt service schedules. Finally, the authority could issue a greater volume of debt for these purposes than the City might be able to issue without encountering problems with the portfolio limitations of institutional buyers. This could become an important argument in favor of creating a new entity to toll the bridges. Continued market access for the City's non-transportation debt must be maintained. The volume of non-transportation debt that the City will wish to issue in the future is not insubstantial. Creating a new entity to issue transportation debt can help assure a ready market for the City's other debt. Budget Relief In addition to relieving the General Fund of bridge costs, the authority could provide the City with some immediate, short term relief for temporary budget problems. Its surplus revenues during the early years could be transferred to the General Fund. The justification for this transfer could be as a down-payment on "purchasing" the bridges from the City. An alternate justification might be that this transfer represented an "advance payment" on excess revenues that the authority would eventually turn over to the City anyway. 84 A NEW YORK CITY SURFACE TRANSPORTATION AUTHORITY This would be a newly-created entity similar in all respects to the Bridge Authority described above, except that its responsibilities would also extend to other surface transportation facilities. These could include: * Funding the capital and operating needs of all City bridges, not just those providing entry to Manhattan. * Helping to fund the capital and operating needs of City roadways, including limited access highways, major arterials, and local streets. * Helping to fund the capital and operating needs of traffic control facilities on the roadway system. * Helping to provide more funds for public transportation in New York City. All of the issues and options mentioned above for a bridge authority would apply to a surface transportation authority, except as discussed below. The Credibility Issue As noted, tolling the Manhattan bridges is likely to generate more revenue than is needed simply to restore and maintain these bridges. It may be prudent to assume that motorists will only accept tolls if they believe that toll revenues will be used mainly to improve the surface transportation infrastructure that they depend on. In which case, we face the need to develop mechanisms to provide these assurances in a credible fashion. Creating a surface transportation authority to be the tolling entity could be the simplest way to accomplish this. It would have formal, explicit responsibility for a range of transportation facilities whose needs are sufficiently great to absorb all or most of the toll revenue. For the most part, these needs are well documented and already apparent (or can be made apparent) to the public. And there is widespread recognition that these needs cannot be fully met with the financial resources that are currently available to the City. Therefore, creating a surface transportation authority to become responsible for these needs - and giving it the power to toll the Manhattan bridges as the most feasible way to generate the financial resources to meet these needs - could be perceived by 85 the public as a reasonable and appropriate (if not painless) response by government. With a bridge-only authority, a complex of formal or informal ancillary mechanisms would have to be established to direct the authority's surplus revenues to other transportation needs. Some might be quite elegant, and even efficient. But there is danger that the public might perceive them simply as devices for laundering money collected from motorists and re- directing it to non-transportation uses. This would be less of a problem with a surface transportation authority that had explicit responsibility for funding the needs of other City bridges and helping to support other portion of the surface transportation infrastructure. A Full-Service vs. Financing Only Authority All of the issues and options discussed above for the bridge- only authority apply to a surface transportation authority. But three additional points should be noted. * A financing-only authority might be able to get started faster. It would not have to spend time working out the details of transferring DOT employees to its payroll, which is likely to be a lengthy process. Rather, it would simply contract with DOT to provide the transportation services that DOT currently provides. Contract payments would be designed to fully reimburse the General Fund for these costs. * Having a surface transportation authority provide special budget relief for the City might be more easily handled than would be the case with a bridge-only authority. A surface transportation authority's broader responsibilities would offer a closer, and possibly more acceptable, link between special budget relief cash and actual General Fund costs for which relief was being provided. * A financing-only authority could be given the power to gradually acquire some or all of DOT responsibilities and employees. Since this would be done over a period of time as the details were worked out, it would not delay the Authority's ability to start doing useful things as soon as it is legally established. All such acquisitions would require the Mayor's approval. 86 CONCLUSION The need to address the operating and capital needs of the City's surface transportation infrastructure is clear and compelling. The City's current fiscal problems may provide a window of opportunity to do this in a fiscally-sound manner by implementing tolls on the Manhattan bridges. This may also provide an opportunity to address a broader range of transportation problems whose implications can significantly impact New York's economic future. But only by establishing a tolling entity with sufficiently broad responsibilities. - The logic behind this argument runs as follows: Bridge tolls can provide new revenue to fund more maintenance and better operations of all City bridges and streets. It can also help relieve the General Fund of the cost burden of existing levels of maintenance and operations. But motorists are likely to tolerate bridge tolls only if they are convinced that most of the revenue will be used to improve the bridges and streets that serve them - not siphoned off for non-transportation purposes. The most effective way to accomplish this is for the tolling entity to have explicit responsibility for funding all City bridges - not just the tolled bridges. A Surface Transportation Authority could be given this responsibility in its enabling legislation. A Bridge Authority, by definition, could not. TBTA does not currently have this responsibility, and could be given it only by significant amendments to the laws that govern its operations. If bridge tolls are set at TBTA rates, net revenues during the first ten years would be about four times greater than the capital and operating needs of the tolled bridges. A Bridge Authority could be required by law to-turn this "surplus" revenue over to the City. But motorists would inevitably believe that most of this revenue will end up being used for non-transportation purposes, once it reaches the General Fund. Perceptually, this would be no different from having the City itself be the tolling entity. And motorists are unlikely to accept bridge tolls under these circumstances. 87 * On the other hand, a Surface Transportation Authority can be required to use this revenue to improve the other City bridges and streets. This would demonstrate to motorists that the tolls they pay really will be used to benefit them. * To avoid the surplus revenue issue that is inherent in a Bridge Authority, tolls could be set at rates that are much lower than TBTA rates - just high enough to meet the needs of the tolled bridges. But then there would be no new revenue to fund more restoration and better operations of the City's other bridges and the street system. And budget relief to the City would be much less, with the General Fund still having to bear the cost burden of maintaining and operating the other bridges and the street system. All of which argues for a tolling entity with sufficiently comprehensive powers to assure the public that new revenue collected from motorists will be dedicated to improving transportation facilities in New York. 88 VIII. L E G A L I S S U E S In connection with its evaluation of the proposed tolling of the East River and Harlem River bridges, the Mayor's Management Advisory Task Force requested the New York City Law Department to provide a brief description of the various alternatives which may be available to capitalize the toll revenue-stream. The Law Department's comments follow. ANALYSIS As a starting point, it should be noted that the City itself is unable to issue bonds secured solely by dedicated sources of revenues such as tolls. Article VIII, Section 2 of the New York State Constitution prohibits a city from contracting indebtedness unless it pledges its full faith and credit for the repayment of this indebtedness. Because of the City's inability to issue bonds that are secured only be dedicated revenue sources, capitalization of toll revenues with bonds secured by such revenues will require creation by the State Legislature of a public benefit corporation with revenue-bonding authority. Thus, at a minimum, any public benefit corporation for financing bridge reconstruction that is created pursuant to State legislation must be given the power to issue bonds, to set and collect tolls, and to pledge toll revenues toward repayment of its bonds. Beyond that common denominator, the proposed authority's level of involvement in the operational aspects of the tolled bridges can range from total to minimal. For the most part, the desired level of operational control is a matter of policy. It seems likely that credit considerations will require a transfer of the tolled bridges to the entity that issues the toll- backed bonds. This is the case regardless of whether the entity is a new agency or an existing one, such as TBTA. The enabling State legislation will also provide the procedure for such a transfer, thus overriding Charter restrictions on alienability. The legislation could also exempt the bridge transfer, as well as tolling itself, from SEQRA and ULURP review. More realistically, the City might attempt to obtain authorization for expedited versions of such reviews. While the City appears to have authority to impose tolls on the East River bridges, it would need additional authority for the Harlem River bridges. The City itself will not be setting the tolls under any of the scenarios described below. Thus, the legislation must give clear 89 power to the new authority to implement and revise toll structures. Finally, it should be noted that there is a significant likelihood that the State Legislature will request a Home Rule message from the City. Consequently, it may be necessary to obtain the approval of the City Council before the Authority legislation can be enacted. AUTHORITY OPTIONS 1. No Operational Involvement. At one end of the spectrum, the proposed authority would have no role in the operation of the tolled bridges. All construction, maintenance, and operation of the tolled facilities would be performed by the City in accordance with existing City procedures and regulations. Although toll revenues would belong to the Authority, the City would collect such revenues on the Authority's behalf and turn them over to the Authority. The Authority would reimburse the City for its operating costs, after debt service requirements have been met. This arrangement would be spelled out in a contract between the City and the new authority. The enabling legislation would specifically authorize such a contract. Since the Authority would have no operational function and would serve solely as a financing vehicle, there would be no need for full-time employees or any civil service structure. The Authority's financing activities would be managed by City employees who would receive no additional compensation for performing such duties. Although there would be close ties to the City by virtue of the City's continued role in the operation of the bridges, the Authority would exist as a separate legal entity. Moreover, bondholders would require independent certification that the City's operating and capital budgets relating to the tolled bridges (and perhaps its feeder roads and approaches) were adequate to insure the integrity of the revenue stream. Covenants may also be sought which could affect the City's regulatory activities with respect to bridge operations, to the extent that such activities could have an adverse financial impact on revenue streams. 90 For example, TBTA found it necessary to prohibit the construction of new, competing untolled bridges. This first alternative.essentially mirrors the structure of the City's Water Authority, with some slight deviations. The new bridge financing arrangement will require hiring new employees (or contracting with an existing authority or private firm) to perform the toll collection function. No new employees were hired in connection with the Water Authority. Further, the legal structure of the Water Authority was complicated by a prohibition in Article X, Section 5 of the State Constitution against the creation of a public corporation having Doth the power to contract indebtedness and the power to levy charges on property owners for services related to that property without a public referendum. As a result, it was necessary to create two public corporations. The Water Authority was empowered to issue bonds. The Water Board was responsible for levying water and sewer charges. Since Article X, Section 5 would not apply to services unrelated to real property, the powers to issue debt and implement bridge tolls may be vested in a single authority. However, like the Water Authority and Water Board, the proposed Bridge Authority need not have any operational role outside of its toll setting and collection functions. 2. Transfer of operations to Existing Authority. A second alternative involves transferring some or all of the operational aspects of the bridges to an existing entity that has relevant operational experience. Such an entity could be the Triborough Bridge and Tunnel Authority, the Port Authority, the New York Thruway Authority, or the New York City Transit Authority. As in each of the various alternatives, financing functions would be performed by the new Bridge Authority. This option has certain advantages, such as capitalizing on the experience of existing entities. On the other hand, the new Bridge Authority could enter into contracts with these other authorities to obtain their expertise. The primary disadvantage would seem to be the loss of control by the City in areas that have traditionally been the City's concern. The option 91 may also prove difficult to implement, since transfers of employees from the City to TBTA or another existing entity that might take over bridge operations would probably have to be performed under Civil Service Law 70(2), which governs the transfer of personnel when a function is transferred from one civil division of the State to another civil division of the State. Although such transfers have been implemented in the past (most recently with the School Construction Authority), it will probably require negotiation with the unions involved - which could lead to further delays. The complexities raised by personnel transfers would not be found in a scenario where the role of the existing authority is limited to toll collection operations, since no City agency currently performs this function. If the City were to undertake this activity on its own, it would seem necessary to hire new employees or contract with a private firm to provide toll collection services. Transfer of toll collection operations to an existing entity with an in-place, experienced work force would eliminate the need for new City hires. One potential advantage to transfer of bridge operations to TBTA derives from the federal limitations on the tolling of bridges whose construction or reconstruction was funded in part by federal highway funds. It is possible that TBTA may be able to take advantage of the "Golden Gate Bridge" exception to this prohibition. This exception is available to agencies that do not have taxing powers but whose functions include operating a federally assisted public transit system that is subsidized by toll revenues (as long as the public transit subsidy exceeds federal bridge repair funds). It could be argued that TBTA's relationship with the MTA, and the use of its surplus revenues to subsidize public transit would qualify it for the exception to the federal limitation on tolls. However, this arguable advantage may be moot since we have been advised that pending federal legislation to nullify the toll restrictions appears likely to succeed. The transfer of operational functions to an existing authority could provide other incidental advantages, depending upon which entity is selected. For example, contracts for bridge repairs entered into by the entity taking over bridge operations would not be subject to City contracting procedures. 92 Rather, it is possible that such entity may have more streamlined procedures available that would be appropriate under the circumstances. However, any such advantages could conceivably be granted to the City in any enabling legislation that establishes the Bridge Authority. 3. Bridge Authority with Complete Operational Control. At the other end of the spectrum from the financing-only option, a third alternative would vest complete operational control of the tolled bridges, as well as financing powers, in the new Bridge Authority. In addition, this option may be refined further depending on the scope of the Authority's operational jurisdiction. Such jurisdiction could be limited to the tolled bridges or expanded to include all feeder roads and approach highways. As with the second alternative of transferring bridge operations to an entity like the TBTA, transfer of operations to the Bridge Authority would entail complicated personnel issues and would doubtless involve negotiation with the relevant unions. However, transfer of bridge operations to a completely new entity would afford the opportunity to fashion procedures in areas such as contracting in a manner that will most efficiently achieve implementation of the capital plan for bridges. From a management point of view, the Authority's narrower focus on this aspect of the City's transportation network could also prove beneficial. On the down side, vesting complete operational authority in an independent public benefit corporation may raise concerns of political accountability. These concerns, however, could be partially addressed by-including several City officials as ex officio members of the Authority's governing board. CONCLUSION Since the City lacks legal authority to issue revenue bonds, a public benefit corporation with revenue bonding authority must be created by' State legislation in order to capitalize toll revenue streams. The new Authority must, at a minimum, be given the powers to issue bonds and to 93 implement and collect tolls that would be pledged to secure repayment of the Authority's debt. The form that the Authority could take is largely dependent on the degree of the Authority's involvement with bridge operations. This is basically a question of policy rather than law. To summarize, the alternatives for the structure of the Authority include: 1. Financing Only/No Operational Role. Advantages - Minimize staffing and bureaucracy. - Minimizes complications and delays that could be associated with a transfer of functions. - Existing successful model (the Water Authority), which may make the proposal more acceptable to the bond markets. - Maintains City control over an area of traditional concern to City. - Maintains City accountability for bridge operations. Disadvantages - Unless specifically granted in enabling legislation, less of an opportunity to fashion streamlined operating procedures. 2. Transfer of Bridge Operations to TBTA or Other Entity. Advantages - Capitalize on the experience of the existing toll- collecting entity. - May offer opportunities for streamlining bridge operations in areas such as contracts. - Transfer to TBTA may enable exemption from federal toll restrictions. 94 Disadvantages - Complications raised by the transfer of personnel. - Loss of City control and accountability. 3. Full Operational Authority (Bridges only or Bridges and Highways). Advantages - Typical model, very familiar to the credit markets. - Full opportunity to streamline operating procedures. - Narrower management focus. Disadvantages - Limited toll collection experience. - Transfer of personnel complications. - Loss of City control and accountability. 95 A P P E N D I X A (Contains output tables from the computer model that was used to project the capital and operating needs of the city's surface transportation infrastructure.) 96 Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. APPENDIX B (Contains output tables from the computer model that was used to estimate "tollable" crossings. It includes allowances for diversions from the City bridges due to the imposition of tolls, not tolling buses, and not tolling through traffic between the Bronx and New Jersey via the Alexander Hamilton Bridge.) Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic. Click HERE for graphic.
