Frank Hawkins Kenan Institute of Private Enterprise

UNC Kenan-Flagler Business School
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Shaping Transportation Solutions

Institute researchers assess viability of North Carolina's toll-road finance plan

The opening of North Carolina’s first toll road in the Research Triangle Region in December marks a new approach by the state to pay for much-needed transportation improvements. The $1 billion project is the largest single transportation infrastructure project in the state’s history.

Kenan Institute researchers played a key role in the project by helping ensure the funding model represented a sound financial investment.

“The need to repair old transportation infrastructure and create new systems throughout the country is simply more than can be financed by traditional methods,” says John D. Kasarda, director of the Kenan Institute and its Center for Air Commerce, which conducted the study. “The North Carolina legislature saw that it couldn’t keep pace with the state’s growing transportation needs unless it found new ways to finance construction.”

Tackling financing challenges

A complex range of factors must be evaluated when planning a toll road, such as location and feasibility, statewide and regional significance, local support and financial feasibility. Transportation planners hired by the N.C. Turnpike Authority (NCTA) contracted with the Kenan Institute to audit the socioeconomic data used for the financial component of the Triangle Expressway project as well as the Monroe Bypass Connector and Gaston Garden Parkway, two proposed toll roads near Charlotte.

“Toll road funds come from private investors who put up money in the form of bonds that are repaid over the long term,” says Stephen Appold, senior research associate, who led the study team. “Investors want assurance that once the roads are built and operating, the projected revenue from tolls will be there. That’s why it’s crucial that the socioeconomic data used for the financial models be as accurate as possible. The threat of default due to overoptimistic projections is real.”

North Carolina’s Triangle and Charlotte regions are nearly ideal for this kind of investment, he says. Both have grown at a pace that is generally consistent and sustainable over the long term in contrast to boom towns, which can experience sudden growth followed by dramatic downturns.

Crunching the numbers

Raleigh engineering consulting firm Wilbur Smith Associates led the project to estimate Triangle Expressway toll revenues. It combined data from metropolitan planning organizations on the numbers of people living in the region, traffic patterns and estimates for future traffic demand with findings from rider surveys to find out where people are traveling and how much of a toll they are willing to pay to gain the convenience of less traffic congestion and shorter drive times.

Socioeconomic projections were factored in to estimate how many people are expected to move into the area over the next 15-20 years, where those people will be driving, and the likely incomes of potential toll road users. The data were then analyzed to create revenue projections. The Kenan Institute conducted the audit of those projections, a state requirement to ensure objectivity.

An “accident of history” made the audit for the Triangle Expressway unusually difficult, Appold says.

“The original socioeconomic projections were calculated based on the tremendous growth North Carolina experienced during the economic bubble years,” he says. “When that bubble burst and the recession hit in the middle of the planning process, we had to reevaluate those numbers and, in fact, did have to lower some estimates. Fortunately, the planning organization was also revising its numbers and our analysis reinforced their new results. Still, the new numbers caused the state to rethink its design, which delayed the process.”

While no one was pleased with delay, that was better than risking default due to inaccurate data, he says.

Designing for success

Historically, toll road use can be slow to catch on in areas where they have never been used, but the Triangle Expressway is expected to be successful for several reasons.

“One, there are no toll booths. People simply drive through the tolls and receive a bill later, which is possible due to new technology that scans their license plates or a prepaid NC Quick Pass transponder. It’s very easy to use,” Appold says.

“Two, the gridlock is already there,” he says. “The toll road will provide immediate relief to people currently spending a lot of time in traffic. The cost is worth the tradeoff.”

All of these factors are making toll roads an appealing option for traffic planners. “Toll roads impact the people who use those roads most, and people are seeing the benefits of using them. They are an effective way to capture demand,” Appold says.

For more information, contact:

Stephen J. Appold, Ph.D.
Senior Research Associate, Center for Air Commerce
Frank Hawkins Kenan Institute of Private Enterprise
Campus Box 3440, Kenan Center
Chapel Hill, NC 25799-3440