Technical Report Documentation Page 1. Report No. 2. Government 3. Recipient’s Catalog No. FHWA/TX-10/0-6044-1 Accession No. 4. Title and Subtitle 5. Report Date Actual vs. Forecasted Toll Usage: A Case Study Review July 2008; Revised August 2009 6. Performing Organization Code 7. Author(s) 8. Performing Organization Report No. Jolanda Prozzi, Kate Flanagan, Lisa Loftus-Otway, Beth 0-6044-1 Porterfield, Khali Persad, Jorge A. Prozzi, and C. Michael Walton 9. Performing Organization Name and Address 10. Work Unit No. (TRAIS) Center for Transportation Research 11. Contract or Grant No. The University of Texas at Austin 0-6044 3208 Red River, Suite 200 Austin, TX 78705-2650 12. Sponsoring Agency Name and Address 13. Type of Report and Period Covered Texas Department of Transportation Technical Report Research and Technology Implementation Office April 11, 2007 – June 30, 2008 P.O. Box 5080 Austin, TX 78763-5080 14. Sponsoring Agency Code 15. Supplementary Notes Project performed in cooperation with the Texas Department of Transportation and the Federal Highway Administration. 16. Abstract Reliable T&R forecasts are critical to the success of toll proposals. However, a number of studies by the bond rating agencies—specifically Standard & Poor’s (S&P)—have shown that a majority of toll roads failed to meet revenue expectations in their first full year of operation. These studies alluded to the existence of an optimism bias in T&R forecasts, with an over-estimation of traffic by 20-30 percent in the first five years of operation. This uncertainty contributes to increased risks about the feasibility of toll roads, requirements for escrow accounts of up to 30 percent of the amount borrowed, and thus high interest payments (and ultimately higher costs to the users) to compensate investors for higher risks. The objective of this research study was to expand upon the analysis conducted by the bond rating agencies. The research focused on toll road case studies that have been operational for varying lengths of time in areas with similar demographic and transportation characteristics as Central Texas. Special care was taken to ensure the inclusion of more mature systems. This research report (a) summarizes the analysis done by S&P, J.P. Morgan, and a recent National Cooperative Highway Research Program Synthesis study on toll road demand and revenue forecasting, (b) details the researchers’ understanding of the general T&R approach used by the industry, (c) documents the research approach and summarizes the salient case study findings, (d) lists a number of areas that requires an improved understanding to enhance the reliability of T&R forecasts of toll roads, (e) provides specific recommendations to address some of the concerns about data and data sourcing, the identification of key variables and how they are considered in the T&R forecasts, the limitations of the modeling methods used, and the sensitivity of T&R forecasts to changes in key variables, and (f) concludes with a brief description of the next year’s research activities. 17. Key Words 18. Distribution Statement T&R forecasts, toll roads No restrictions. This document is available to the public through the National Technical Information Service, Springfield, Virginia 22161; www.ntis.gov. 19. Security Classif. (of report) 20. Security Classif. (of this page) 21. No. of pages 22. Price Unclassified Unclassified 168 Form DOT F 1700.7 (8-72) Reproduction of completed page authorized Actual vs. Forecasted Toll Usage: A Case Study Review Jolanda Prozzi Kate Flanagan Lisa Loftus-Otway Beth Porterfield Khali Persad Jorge A. Prozzi C. Michael Walton CTR Technical Report: 0-6044-1 Report Date: July 2008; Revised August 2009 Project: 0-6044 Project Title: Estimated and Actual Usage of Toll Facilities Sponsoring Agency: Texas Department of Transportation Performing Agency: Center for Transportation Research at The University of Texas at Austin Project performed in cooperation with the Texas Department of Transportation and the Federal Highway Administration. Center for Transportation Research The University of Texas at Austin 3208 Red River Austin, TX 78705 www.utexas.edu/research/ctr Copyright (c) 2008 Center for Transportation Research The University of Texas at Austin All rights reserved Printed in the United States of America iv Disclaimers Author's Disclaimer: The contents of this report reflect the views of the authors, who are responsible for the facts and the accuracy of the data presented herein. The contents do not necessarily reflect the official view or policies of the Federal Highway Administration or the Texas Department of Transportation (TxDOT). This report does not constitute a standard, specification, or regulation. Patent Disclaimer: There was no invention or discovery conceived or first actually reduced to practice in the course of or under this contract, including any art, method, process, machine manufacture, design or composition of matter, or any new useful improvement thereof, or any variety of plant, which is or may be patentable under the patent laws of the United States of America or any foreign country. Engineering Disclaimer NOT INTENDED FOR CONSTRUCTION, BIDDING, OR PERMIT PURPOSES. Project Engineer: C. Michael Walton Professional Engineer License State and Number: Texas No. 46293 P. E. Designation: Research Supervisor v Acknowledgments The authors wish to acknowledge the guidance and direction of the Texas Department of Transportation Project Monitoring Committee, which includes Project Director Phillip Russell, Project Coordinator Teresa Lemons, and Project Monitoring Committee Members Bubba Needham, Jack Dugas, Jose Hernandez, Lucio Vasquez, Loretta Brown, and Duncan Stewart. Special thanks are also due to John Lowery, Beatriz Rutzen, and Mengying Zhao for their assistance, Ashley Williams for providing graphical support, and Maureen Kelly for editing the final document and assisting in the production of this document. Finally, this report would not have been possible without the support of all those interviewed and who provided information, data, and insight. Among many others, special thanks are due to: Rick Herrington (NTTA) Jim Griffin (NTTA) Clayton Howe (NTTA) Scott Thomas (Tamer Partners) Jerry Shelton (NTTA) Alan Rutter (Cambridge Systematics) Hal Worrell (previous OOCEA Director) Lennon Moore (OOCEA) Nita Crowder (OOCEA) Hugh Miller (URS) William Nelsen (URS) Jim Ely (FTE) Nicola Liquori (FTE) Fidel Saenz de Ormijana (Ferrovial) Ricardo Sanchez (Cintra) Imad Nassereddine (407 ETR International) John Washington (Del Can) George Davis Tibor Szekely (MTO) Amy Ibrahim (MTO) Brian Howells (Halcrow) Christopher Mwalwanda (Wilbur Smith Associates) Bob Collie (Andrews Kurth LLP) Edwin Harrison (Harris County) Peter Key (Harris County Toll Road Authority) Art Storey (Harris County Public Infrastructure Department) Ana Tschen (Harris County Toll Road Authority) vi Table of Contents Chapter 1. Introduction................................................................................................................ 1 1.1 Background ............................................................................................................................1 1.2 Importance of Toll Traffic and Revenue Forecasts ...............................................................6 1.2.1 Project Feasibility .......................................................................................................... 6 1.2.2 Skewed Public Decisions ............................................................................................... 6 1.2.3 Debt restructuring .......................................................................................................... 7 1.3 The Objectives of this Report ................................................................................................7 Chapter 2. Literature Review ...................................................................................................... 9 2.1 Standard and Poor’s ...............................................................................................................9 2.2 J.P. Morgan ..........................................................................................................................13 2.3 National Cooperative Highway Research Program (NCHRP) ............................................17 2.3.1 Factors Affecting Forecasting Performance ................................................................ 17 2.3.2 Specific Recommendations .......................................................................................... 19 2.4 Concluding Remarks ............................................................................................................19 Chapter 3. Traffic and Revenue Forecasting Approach ......................................................... 21 3.1 The Role of the Metropolitan Planning Organization’s Model ...........................................21 3.1.1 Four-step Travel Demand Model ................................................................................. 21 3.1.2 Modeling Toll Road Demand ...................................................................................... 24 3.2 Traffic and Revenue Forecasting Approach ........................................................................26 3.3 Concluding Remarks ............................................................................................................27 Chapter 4. Research Methodology and Case Studies .............................................................