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Chapter 3
Organizational Frameworks for HOT Lane Projects

In order to launch a HOT lane project, there are several organizational issues that need to be resolved. These involve identifying a logical project sponsor, arranging funding, working out operational protocols, and determining what legal ramifications may be involved. Answers to these issues may not always be obvious. This chapter identifies the wide array of organizational issues that transportation professionals must address as they consider the implementation of HOT lane projects.

HOT Lane Roles and Responsibilities

While there is no single fixed approach for implementing HOT projects, as shown in Table 1, there is a limited number of primary capacities in which transportation agencies can be involved in HOT lane projects.

Table 1.
Primary HOT Lane Roles and Responsibilities

Role Primary Responsibilities
Owner The agency that owns the facility to which the HOT lane will be added, and in whose name applications and other official documents are submitted.

The organization charged with overall project implementation. Specific tasks include:

  • Completing technical studies
  • Submitting FHWA Value Pricing Pilot Program Application
  • Education and public outreach
  • Gaining project approvals from FHWA, environmental agencies, and others
  • Awarding and overseeing design and construction contracts
  • Arranging for HOT lane enforcement
  • Operating the HOT facility
  • Completing follow-up activities mandated by FHWA or the Value Pricing Pilot Program

The organization charged with overall project implementation. Specific tasks include:

  • The organization responsible for the day-to-day operation of the HOT lane. Specific tasks include:
  • Toll collection and billing
  • Roadway and equipment maintenance
  • Monitoring and evaluation
  • Marketing

There is no set formula or norm for the institutional arrangements supporting HOT lane projects. Institutional structures will depend on a variety of factors and are likely to vary from project to project. In some cases, a single agency, such as a state DOT, may fulfill all three functions. In others, individual functions may be performed by individual agencies, private companies, or partnerships among them.

Identifying a Project Sponsor

One of the first and most important issues to resolve is the identification of a project sponsor. This is the agency that will implement the project, execute planning studies, submit applications and environmental documentation, and oversee the construction and possibly the ultimate operation of the facility. The implementing agency will need to be vested with, or obtain the legal authority to collect tolls and it will need to function as a champion for the project in order to garner the critical public and political support needed to bring the HOT project to fruition.

When HOT lane projects involve the conversion of existing HOV facilities, existing organizational arrangements are most likely to govern the operation of new HOT projects. Given that 95 percent of HOV lane-miles in the United States are managed by DOTs, responsibility for most HOV conversions is likely to rest with the state DOT. Other corridors suitable for HOT lane applications are likely to included highly constrained state or county highways.

In either case, a long legacy of institutional relationships has already been established. Therefore, it is important to understand these relationships, and then determine if any preexisting political or institutional issues should be addressed. As demonstrated by the nation’s first crop of HOT lane projects, a variety of sponsoring and operating agencies may be involved. No single approach is preferable, and decisions regarding sponsorship will ultimately reflect local conditions.

State Departments of Transportation

As the primary providers of highway service and owner/operators of a majority of the nation’s HOV lane projects, DOTs are logical sponsors of new HOT facilities. They have extensive experience in planning, designing, constructing, operating, and maintaining limited access highways. They have the financial depth to contemplate building new highway capacity and to obtain the expensive toll collection and traffic monitoring systems that most HOT facilities require. DOTs also have the power of eminent domain and many DOTs are already operating HOV networks with extensive electronic traffic monitoring capabilities.

While state DOTs have a wealth of highway experience, they may not necessarily have the legal authority to levy tolls (see Section 3.4). Most have limited familiarity with the operation of tolled facilities and the sophisticated electronic toll collection traffic monitoring systems that HOT lane projects typically require, and in certain cases they may have limited legal authority to privatize these operations. Toll road operation also involves “back room” activities including auditing, credit card billing, and customer service, all of which may be new activities for many DOTs.

Other Project Sponsors

In addition to state DOTs, there are a number of other agencies that may play important roles in the implementation of HOT lane projects, including:

The ramifications of involvement of these types of organizations are discussed below.

Turnpike and Toll Road Authorities
As a precursor to the interstate highway program, many states developed turnpike and toll authorities with specific legislative charters to finance, build and operate limited access, high-speed highways. While construction of the Interstate Highway System by state highway agencies eclipsed the need for these separate authorities, most still serve their original roles. In addition to these pre-Interstate era turnpike authorities, fiscal constraints in the 1980s and 1990s led to a revival of toll authorities, especially in fast growing areas such as California, Texas, Colorado, and Florida. Some of these authorities are state or county agencies, while others are joint entities formed by multiple jurisdictions.

In certain cases, the involvement of turnpike and toll authorities may facilitate the implementation of a HOT lane project. In addition to engineering and construction experience, they are already vested with the legal authority to operate tolled highway facilities, thereby obviating the need to seek special authorizing legislation. Turnpike and toll authorities have the staff and systems in place to conduct all of the back room revenue handling and accounting activities. In addition, many operate the advanced electronic toll collection and traffic monitoring systems that HOT lane networks require.

While turnpike and toll road authorities offer natural advantages, they are not common in all areas across the country. In addition, if HOT lanes were introduced along untolled highway segments, they would not involve roads already under the control of such authorities. Nonetheless, given that motorists are accustomed to paying tolls to turnpike and toll road authorities, their involvement in the operation of HOT lane projects could help in gaining the public’s understanding and acceptance of these potential projects.

Local Transportation Agencies and Authorities
Based upon Section 450 of Title 23 of the United States Code, in order to receive Federal funding for transportation projects all urbanized areas in the United States are required to maintain an MPO. MPO status is designated by the United States Department of Transportation and is usually given to regional Councils of Government or other joint powers’ authorities. These groups are generally governed by a board of elected officials representing municipal governments within their jurisdictions, as well as county officials, and local transit agencies. State DOTs are often represented on MPO boards by a non-voting member. The organizational structure of MPOs varies around the country and in certain cases MPO status is given to county or municipal governments.

In some areas local authorities have been created to assist MPOs in securing funding and implementing projects identified through the MPO. These transportation or funding authorities, created at the county or regional level under varying conditions, can help in studying the merits of HOT lanes, securing funding for their implementation and assist in disbursement of net revenues collected.

Given their regional mandate and their planning function, MPOs and local transportation authorities may be logical sponsors of HOT lane initiatives. They have commissioned several of the HOT studies that have been carried out in California. Their active and consistent support is also essential if a new HOT facility is to be built, and local transportation authorities often play a primary role in the initial planning studies investigating the feasibility of HOT lane projects. Although most MPOs are likely to lack operating experience or tradition, some might play a further role in overseeing the implementation and operation of a HOT facility, such as with the I-15 FasTrak HOT lane project in San Diego, where SANDAG is the project sponsor.

Public Transit Agencies
In Houston the Harris County Metropolitan Transit Authority (Houston Metro) partnered with the Texas DOT in the Katy Freeway reversible HOT lane project. Public transit agencies present interesting opportunities for participating in HOT lane projects. Several transit agencies operate bus rapid transit or HOV facilities, which have excess capacity that could be sold to carpoolers, vanpoolers or single occupant vehicles. Utilizing additional roadway capacity for other vehicles can help win political and public support and may limit the need to add additional roadway capacity. In the same vein, the participation of transit agencies in HOT lane projects sponsored by other agencies highlights the potential for HOT lane projects to provide opportunities for promoting reliable mass transit improvements. Finally, transit agency involvement in the development of HOT lanes may also help to introduce new sources of capital funds and in return, as with the I-15 in San Diego, HOT lane revenues can provide important new revenues to support improved transit service.

It is important to note, however, that transit agencies would need to obtain the backing of FTA before being able to launch a HOT lane project on their own. To date, FTA has not allowed new start funds for facilities that would also be open to SOV vehicles. The issue of transit funding limitations has also arisen when investigating the possible conversion of existing HOV lanes built with transit funding to HOT use. For instance when considering the possible conversion of HOV lanes on the I-25 north of Denver in 2001, FTA found that allowing general traffic on an HOV facility would constitute a breach of its original agreements providing funding for the lane. At that time the agency took the position that the conversion could not take place without the full reimbursement of its original $71 million contribution.

Recent collaboration among FTA, FHWA, and Congress has led to an important policy change on the part of FTA supporting the agency’s broader efforts to promote transit usage and encourage congestion management. Effective in Fiscal Year 2003 FTA will no longer withhold formula funds for fixed guideway transit facilities that provide access to paying SOV motorists under the following conditions: the facility must be able to control SOV use so that it does not impede the free flow and high speed of transit and HOV vehicles; and the toll revenues collected must be used for transit purposes.2 This important policy change demonstrates growing support for the HOT lane concept within the transit sector that may lead to new opportunities for the joint development of new HOT lane projects. Transit agencies remain logical partners in the development of HOT lane facilities, as they can help to pool resources and help to garner public support for HOT lane initiatives.

Early consultation with FHWA or FTA is strongly recommended as an essential component of any HOT initiative or study to determine whether or not further federal review or analysis would be required. The nature of interest from FHWA or FTA will depend on the source of original funds used to implement the HOV lane. It is also possible that an HOV conversion could involve facilities that were constructed using FTA funds. If this is the case, similar issues could be raised with FTA and should be discussed early in the planning process.

Private Sector Involvement

The fact that HOT projects generate toll revenues also introduces the possibility that under the right conditions they could be financially independent or even profitable ventures of potential interest to private investors.3 The conversion of existing HOV lanes to HOT use has the greatest potential to be attractive to private investors, as the associated costs are likely to be significantly less than building new lanes. A HOT lane conversion project involves the installation of electronic toll collection equipment, road sensors, signage, and perhaps changes to ramp and barrier configurations; yet, given the right conditions such a facility could generate significant revenue. One key issue facing decision makers is whether to forgo using that revenue to support transit or other publicly provided transportation enhancements or to offer it instead to a private concessionaire who would finance and operate the HOT lane.

Colorado Senate Bill 99-088, passed in June 1999 is of particular interest, as it requires the state DOT to pursue the development of a HOT lane project in conjunction with a private investor-operator. The legislation states in part:

“The department shall issue a request for proposals to private entities for the purpose of entering into a contract for the conversion of an existing high occupancy vehicle lane…to a high occupancy toll lane by a private entity; the department may convert or operate the high occupancy toll lane, or both, in the event that no proposal by a private entity for such conversion or operation is acceptable.”

In response, the Colorado DOT has evaluated the conversion of portions of the Boulder to Denver I-25 HOV lanes, to a HOT lane operation. It has also received a non-solicited offer to add HOT lanes to the I-70 between Downtown Denver and Denver International Airport.

Private sector investment in HOT lane projects involving significant new construction is likely to prove more challenging. The feasibility of attracting private participation depends on the balance between the cost of financing, building, and operating the facility and the revenues it would generate.

Private sector involvement can be an attractive option for transportation agencies, as it provides access to additional sources of capital. This allows DOTs to reserve their own funds for other needs and often accelerate the implementation of partnership projects. Private operators are motivated to maximize efficiency in order to maximize profits, and their services – both capital construction and roadway operating – often bring good value for money.

Private operators often offer an advantage in their attentiveness to quality of service as well as marketing activities, as witnessed by the customer services offered by the SR 91 Express Lanes. On the down side, financing terms for private investors may not always be as attractive as those available to the public sector, and have the potential to offset other efficiencies.

Potential Trade-offs

Inviting private investment in a HOT facility may also involve a sponsor’s relinquishing its own authority to intervene in the same corridor. For example, the contract governing the private financing and construction of median toll lanes on the SR 91 in Southern California, required California Department of Transportation (Caltrans) to agree to non-compete provisions limiting its authority to make improvements or add capacity in the SR 91 corridor. Publicly funded improvements in the congested corridor would harm the private owner’s ability to recoup investment in the HOT lanes. When Caltrans moved in 1999 to add general-purpose lanes in strategic locations on SR 91 to improve on and off ramp movements, the private owner sued to stop the plans. Caltrans ultimately withdrew its plans, but the non-compete agreement proved contentious. Interestingly, the planned sale of the SR 91 to the Orange County Tollroad Authority would render the non-compete provisions null and void.

Determining Legal Authorities and Requirements

The implementation of a HOT facility is likely to require legislative action to clarify a wide range of management and operational issues. Several issues may be involved.

Tolling Authority
One of the first issues that will need to be investigated is whether or not the authority exists to implement tolls. Title 23 of the U.S. Federal Code prohibits the implementation of new tolls on the Interstate Highway System where user fees are not currently charged.4 However, TEA-21 introduced two pilot programs which allow the implementation of tolls on the Interstate system on a trial basis: the FHWA Value Pricing Pilot Program, which allows real-time, variable pricing, and the Interstate Toll Pilot Program, which permits flat-rate tolls to raise needed revenue, but not necessarily to reduce congestion. These programs remain in force through mid-2004, after which a new multi-year authorization act will dictate transportation policy.5 During the TEA-21 period, if HOT lanes are considered on any portion of the Interstate Highway System they must be implemented through the Value Pricing Pilot Program. Following reauthorization, any future HOT lane projects implemented on the Interstate Highway System will need to conform to the tolling policies established in the new authorization act. Existing HOT Lane projects implemented through the FHWA Value Pricing Pilot Program on the are considered to retain their authority to toll unless there is a specific legislative change that removes that authority.

HOT lane projects must also comply with state and local laws on toll collection. In many states the authority to collect tolls on state highways and other roads does not exist, and when such authority does exist, it is likely to be limited to roads operated by a designated turnpike or toll road authority. If a proposed HOT lane project is not located along an existing facility operated by one of these agencies, legislative provisions will have to be made to allow for the collection of tolls on the new facility.

Variable Pricing Authority
Trust agreements governing the operation of most toll roads only allow flat point-to-point toll rates (i.e., a consistently applied toll rate from point A to point B). If a HOT lane project involves variably priced tolls, legislation may need to be drafted that establishes how and when toll rates can be changed and establishes the minimum acceptable traffic service levels in the HOT lane.

These issues should be addressed in the enabling legislation that will establish the legal and regulatory framework for the HOT facility. Because HOT lane operations require a high degree of interagency cooperation and shared responsibility, enabling legislation should designate the operating agency or agencies and outline their specific responsibilities in such areas as construction, maintenance, toll collection accounting, and enforcement. If the HOT facility were to be operated by a bi-state organization, approvals would be required from the United States Congress, as well as both state legislatures. Similarly, parallel legislation is required to establish an authority operating toll facilities connecting two countries.

Privatization Authority
Use of private financing mechanisms for transportation facilities can occur only when the necessary legal authority exists and governing legal principles and restrictions are observed. Local governments not only must have the legal power through constitutional or statutory provisions to finance transportation facilities, but they must also use this power within the legal restraints established by legislatures and courts. The methods of granting power and the limitations on that power vary widely among local governments.

Several states now have special public-private partnership (PPP) legislation designed to authorize state DOTs and other subdivisions of the state to enter into new forms of legal agreements with private entities in support of revenue-generating projects which are consistent with each state's overall transportation objectives. Most of this legislation has been oriented towards enabling states to capitalize on the provisions within ISTEA authorizing states to make loans or grants of Federal-aid to public or private entities for the purposes of toll road or HOT lane development. This type of legislation must be in place before a HOT lane concession can be awarded to a private investor.

Toll Agency Legislation Checklist

The enabling legislation for any toll agency is unique, but there are many common provisions that are likely to be addressed, including the following:

  • Creation of an authority or commission, including the legal name and nature of the newly created entity;
  • Scope, purpose, and function of the new entity;
  • Definition of terms;
  • Delineation of districts within which the entity operates;
  • Details about the entity's governing board, including the number, composition, selection or appointment process, compensation, and term of members, voting/procedural rules for governing board action, and meeting requirements;
  • The legal powers of the commission/authority, including the ability to establish rules and regulations, hire employees, sue and be sued, enter into contracts, construct facilities, acquire property, use the power of eminent domain, and impose fees;
  • The authority to issue and refund bonds and use tolls and revenues in associated trust indentures,
  • The authority to set and revise tolls and any applicable guidelines or formulas,
  • The ability to invest bond proceeds;
  • Administrative requirements, which may include periodic audits, competitive bidding, annual reports, public notice and/or hearing requirements; Any constraints or rules on the use of funds;
  • The rights and remedies of bondholders;
  • Tax-exempt status of authority property and bonds;
  • The venue and jurisdiction of legal actions against the authority/commission;
  • Police powers;
  • Operating, maintenance, and repair obligations; and
  • Relationship to other entities, e.g., for oversight, reporting, etc.

In addition to these typical provisions, an enabling act may have non-competition sections, which guarantee to the new entity that no new directly competing facility will be authorized by the state. Other legislation is likely to be required to cover issues such as:

  • signing to the road from the rest of the network;
  • advertising controls on the road;
  • operational procedures (such as arrangements for emergency vehicles and information disclosure rules, which are particularly important where tolls are levied electronically);
  • defining the enforcement regulations for non payment;
  • the use of cameras to enforce occupancy requirements;
  • provisions for land acquisition and clearance; and
  • structure for involvement of the private sector in the provision of roads.

Operational Arrangements

Once the HOT lane is operational, a number of ongoing operational functions will be required. These involve routine roadway maintenance, as well as toll collection and enforcement. These functions, particularly the latter two, pose differences from normal highway operation and are discussed in further detail below. Operational functions may be performed directly by the public or private owner of a HOT lane facility, or contracted out to an outside vendor specializing in automated toll collection or facility management.

Toll Collection
By their definition, HOT lanes require the collection of tolls from motorists not meeting occupancy requirements. Moreover, in order to maintain the time savings and ease of use they are meant to afford, toll collection for HOT lanes must be fully automated. As discussed in further detail in Chapter 5, the operation of automated tolling systems requires sophisticated equipment and expertise. Although some toll collection agencies maintain this expertise in-house, the majority rely on the services of outside contractors to maintain their automated toll collection systems. If a HOT lane project is sponsored by a state DOT, it is also conceivable that the DOT could vest responsibility for toll collection with a local turnpike or toll road authority with the appropriate expertise.

Interoperability is also another critical toll collection issue. For toll roads, it is normally advantageous for automated toll collection systems to be interoperable from region to region.6 This argument can also be made for HOT lanes. However, in certain cases, a HOT lane operator may want to limit the availability of transponders as an additional means to manage overall access to the HOT lane.

It is advisable to consider possible operational arrangements for toll collection up front. The following questions should be answered:

Planning for a HOT lane should include early involvement of the appropriate police agencies. If the HOT lane will pass through several jurisdictions where each may take an active investigative and enforcement role, then planning should include early agreements to establish response and enforcement protocols. If the HOT lanes will be added to an existing facility, then the police agencies will have considerable experience on that roadway.

If the system will have a limited number of access and egress points, then agreements may be needed to consolidate enforcement responsibilities under a small number or one police agency. If only one police agency is involved, the transportation agency should request that a liaison be assigned to ensure continuity of input during the planning process. This early involvement can be invaluable for resolving design issues for enforcement locations, investigation sites, and enforceable signing. The police liaison can also be a significant help if law or procedure changes are needed before enforcement can be undertaken.

Additional information on enforcement issues is provided in Section 5.3

Responsibility for the physical maintenance of a HOT lane is most likely to rest with the agency that maintains the corridor in which the facility is located. In most cases this is the state DOT, but other agencies could also be involved. If multiple agencies are responsible for different operating aspects, agreements will need to be put into place identifying roles and responsibilities as well as reimbursement.

Federal Assistance

The FHWA Value Pricing Pilot Program

Under Section 1216(a) of TEA-21, public agencies interested in implementing and evaluating HOT lane initiatives are eligible to apply for grants under the Value Pricing Pilot Program. The purpose of the program is to demonstrate and evaluate pricing concepts, such as HOT lanes, that have the potential to reduce highway congestion. The Value Pricing Program has dedicated funds available to support HOT lane studies, as well as the implementation of actual projects, and through it agencies may obtain the authorization to introduce new tolls on Interstate Highway System.

Information on the types of projects that are eligible for funding through the program as well as the application procedure are available in the Value Pricing Pilot Program’s May 7, 2001 notice in the Federal Register. This information remains current until the next multi-year Transportation Authorization Act takes force in mid-2003, which will likely address pricing programs.

Available Resources

In addition to this guide, the following technical resources are available through FHWA:

More general information about HOT lanes and the Value Pricing Pilot Program may be obtained from either of the following offices:

Policy Issues
Office of Transportation Policy Studies, HPTS
Federal Highway Administration
Washington, D.C. 20590
Tel: (202) 366-4076

Operational Issues
Office of Travel Management, HOTM
Federal Highway Administration
Washington, D.C. 20590
Tel: (202) 366-6726

2 Prior to this change the FTA viewed the definition of “fixed guideway” contained in 49 USC Chapter 53, as well as in the National Transit Database Reporting Manual as prohibiting any use by SOVs. This interpretation was applied to the case of the I-15 FasTrak in San Diego, resulting in the loss of formula funds for that facility following its conversion to HOT use, which allowed SOVs use the facility for a fee. This policy is documented in FTA Administrator Jennifer Dorn’s June 10, 2002 letter to Congressman Randy “Duke” Cunningham of California.

3 Although privately financed motorways are common in countries around the world, they have not generally been favored in the United States. The following privately financed toll roads operating in the United States – the Dulles Greenway in Loudoun County Virginia, the Camino Colombia in Webb County, Texas, the Foley Beach Expressway in Baldwin County Alabama, and the SR 91 Express Lanes (a HOT lane facility) in Orange County California. An additional project, the SR 125 connecting south eastern San Diego with the Mexican border is also likely to be built. The Southern Connector in Greenville, South Carolina and the Pocahontas Parkway in the greater Richmond area in Virginia have also been financed on a limited recourse basis through public benefit 63-20 corporations.

4 Title 23 grandfathers the collection of tolls on those portions of the Interstate system operated by preexisting turnpike and toll road authorities.

5 Authorizing legislation for highways began with the Federal-Aid Road Act of 1916 and the Federal Highway Act of 1921. These acts provided the foundation for the FAHP as it exists today. The FAHP has been continued or renewed through the passage of multi-year authorization acts ever since then, which has altered the program as well as supplied funding. In addition, since 1978, Congress has passed highway legislation as part of larger, more comprehensive, multi-year surface transportation acts, such as TEA-21, which was enacted on June 9, 1998, and covers the six-year period through mid-2004, or the Intermodal Surface Transportation Efficiency Act, (ISTEA) which was enacted in 1991 and then extended for an additional one-year period in 1997.

6 For example motorists can utilize the E-ZPass technology on toll facilities in New York, New Jersey, Pennsylvania, Maryland and Connecticut. E-ZPass holders can also use their transponders on the Massachusetts Turnpike, and Massachusetts FastLane tag holders also enjoy reciprocal privileges on all E-ZPass facilities.

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