Generally, a pass-through toll is a per-vehicle or per-vehicle-mile fee measured by the number of vehicles using a highway. Importantly, these fees are not paid by motorists in the traditional sense of a toll, but rather by a state or local agency or authority to a private concessionaire as reimbursement for particular services. The payment of pass-through tolls is made in exchange for the concessionaire's responsibility to design, build, maintain, and/or operate a roadway for an agreed period of time. Pass-through toll payments are dependent upon the volume of traffic using the road and provide an incentive for the concessionaire to optimize the facility's construction and/or operation.
U.S. Experience: Texas
Pass-through tolls have very little presence in the U.S. They have been authorized in Texas since 2003 with the passage of House Bill 3588 and follow-up legislation in HB 2702 (2005). In the case of Texas' authorizing legislation, the state department of transportation, TxDOT, is authorized to enter into an agreement with a public or private entity for the payment of pass-through tolls as compensation for the construction, maintenance, or operation of both non-tolled as well as traditionally tolled facilities. TxDOT is also authorized to delegate oversight and development of pass-through toll projects to a municipality, county, Regional Mobility Authority (county-level transportation authority; e.g. Central Texas Regional Mobility Authority), or Regional Tollway Authority (e.g. Harris County Toll Road Authority). TxDOT refers to this authorization as pass-through financing.
To date, TxDOT has executed two pass-through financing agreements, one private and one public:
El Paso SPUR 601
TxDOT will reimburse a private contractor/builder a fixed dollar amount per vehicle that drives on SPUR 601, a 7.4-mile roadway upgrade between US 54 and Loop 375 needed because of growth associated with nearby Fort Bliss.
City of Weatherford Pass-Through Toll Project
TxDOT will reimburse the city of Weatherford through an agreed upon per-vehicle fee to design, build, and inspect nine separate highway segments along Interstate 20, State Highway 171, and Farm to Market Road 51 totaling 7.5 miles.
In the face of ever-tightening budgets reliant on limited motor fuel tax dollars, TxDOT has recently announced a formal Pass-through Financing program to further capitalize on the state's authorization for pass-through tolling. TxDOT announced the program's call for proposals in February 2009, with a deadline for submittal in May, and expects to select up to $300 million in projects by August 2009. Further detail on the program is available on TxDOT's website including an overview and the program application.
Experience Outside the U.S.
Historically, pass-through tolls were initially adopted in the United Kingdom where they are known as shadow tolls. In the UK, unlike traditional tolls paid by motorists for the use of a specific transportation facility, a government makes shadow toll payments to a private concessionaire for a highway facility's construction, operation, or both. The payments are based on traffic volumes and service levels. Motorists see no visible evidence of government payments to the facility's contractor or operator.
Experience with shadow toll systems has shown the following advantages. Shadow tolls have:
- Minimized traffic risks, making it easier for private investment partners to find more advantageous financing
- Accelerated construction and implementation of capital projects
- Captured of the profit-seeking motives of the private sector, often resulting in capital construction costs savings
- Capitalized on cost efficiencies of life-cycle costing
- If structured properly, reduced the effect of lower than expected traffic volumes
- Transferred of operating and maintenance risk to the concessionaire
- Capped on the public sector's exposure, thereby eliminating the risk of super-profitability by the concessionaire
- Reduced public equity requirements
- Avoided the need for toll plazas
Most, but not all, shadow toll projects have involved upgrades of existing roads. This has been an important attraction for private investors as historic traffic data reduces traffic risk and the need to depend on forecasts for revenue projections. In certain cases, it can also provide opportunities for generating cash flows during construction. As with conventional tolling, shadow tolls can amortize capital costs over the useful life of the investment and can create early completion and other incentives by sharing traffic forecasting and other risks with the private partners. An important advantage of a shadow toll structure is its creation of incentives for the contractor to construct a road quickly and with high quality. Because payments to the contractor are based on traffic volume, the contractor benefits by completing the project early, avoiding construction delays and ensuring a well maintained and long-lived road.
The Selective Use of Shadow Tolls in the United States
In 1999, FHWA prepared a report on the UK's experience with shadow tolls, analyzing shadow toll-related financial and capital market issues, and exploring the potential applicability of this technique in the U.S.