Monday, September 19, 2022

Spiraling admin costs + strong toll revenue recovery at HCTRA

(This week we have part 1 of 2 always-excellent blog posts by guest author Oscar Slotboom)
The Harris County Toll Road Authority recently posted its annual report for the 2022 fiscal year, which ended February 28. Of course, fiscal year 2021 (plotted as year 2020 in the charts) was heavily impacted by Covid, with revenue down 35.5%.
Anyone who drives the toll roads (including me) knows that the traffic recovery has been strong. Toll revenue rebounded to $808.9 million, 5.4% below the $855 million peak in 2019 and 13.7% below the peak using inflation-adjusted dollars.
The Katy Managed Lanes had a very strong revenue recovery from 2020's $8.9 million, posting $18.6 million in revenue, which is 17% below the 2018 peak in actual dollars and 26% below 2018 using inflation-adjusted dollars.
However, if you look at Schedule 1 on page 53 and schedule 5 on page 57, you'll see that 10 of 14 toll system segments showed a higher traffic count and higher revenue in 2022 (2021 in the charts) compared to 2020 (2019 in the charts), including a new record high for any segment in a year, $129 million on the Sam Houston Tollway North (US 290 to IH-45 North). The four segments with lower revenue were only slightly down. So why is overall toll revenue 5.4% below 2020?
The answer: A massive increase in administration cost.
Administration costs sustained a $109.9 million dollar swing from 2019 to 2021, going from a positive (i.e. revenue-increasing) $42.3 million in 2019, to -$33.2 million (revenue-decreasing) in 2020 and then to -$67.2 million in 2021. (reference schedule 5 on page 57).
If administration costs are removed from toll revenue, we can see that 2021 had record revenue of $876.1 million, 7.8% above 2019's $812.5 million, although still 2.7% below the 2018 peak using inflation-adjusted dollars.
So what is the cause of this massive increase in administration cost? There is no explanation in the 2022 annual report. The only clues we can gather are from the notes attached to the administration line item. In the 2020 annual report page 62 (corresponding to year 2019 in the chart), when administration was still a substantial positive on the bottom line, the note is
Consist of EZ tag sales fees, toll violation (VEC) revenue (excluding tolls), net of an allowance for uncollectible accounts, reimbursements to patrons for overpaid toll(s), collector/vault adjustments, and other miscellaneous revenues.
The note for 2020 and 2021 says
During the COVID-19 emergency declaration, administrative fees associated to violations were waived and no related revenue was generated. This line consists of allowance for uncollectible accounts on toll violation (VEC) revenue administrative fees (excluding tolls), EZ tag sales fees, and other miscellaneous revenues.
This prompts the following questions in my mind:
Why are we seeing a $34 million increase in administration cost in 2021 compared to 2020?
Covid-related financial impacts should have been recognized in 2020, since that's when the covid "emergency" occurred. Does 2021 include deferred recognition of losses incurred in 2020?
Should we expect administration to return to revenue-increasing status with the current fiscal year, since Covid is no longer a factor?
Is HCTRA no longer attempting to collect unpaid tolls?
Does lower operational efficiency for traditional billing tasks have any influence on this high administration cost?
Total headcount at HCTRA decreased from a peak of 1181 in Feb. 2000 to 890 in Feb. 2022, as we would expect with the end of manual toll collection. It seems like the end of manual toll collection should lower administrative cost.
In part 2 we take a closer look at toll diversions and the cost of converting the HCTRA system to be 100% electronic tolling.

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Wednesday, September 14, 2022

Countering the “Freeway Fighters”

I'm back from taking a summer break from the blog with a quick re-publishing of a great piece by Bob Poole from Reason's Surface Transportation Newsletter. I'm hoping to get back into regular weekly posts again, or something close to it. This piece gets at a growing dangerous anti-freeway movement in America which will have many negative ramifications for the economies of metro areas. Not only will the poor be unable to afford to live in the areas with jobs (already the case in many metros), but they will also no longer be able to commute to them either as freeways get removed. I predict it will be seen as another in a long string of faddish urban planning failures right up there with "slum clearance" (destroyed vibrant working class neighborhoods) and "smart growth" (destroyed housing affordability).


An anti-highway group called last month released “10 Recommendations for Freeway Fighters,” described as answering the need for ammunition by those working on “the relocation or removal of highways in American cities.” Author Jay Arzu provides brief descriptions of the 10 points, which I summarize here so that state transportation departments and other members of the highway community can know what may be coming at them.

  1. Rule #1: “Highway-to-boulevard projects should focus on neighborhood reconnection and reinvestment for current residents of the area,” Arzu writes. This seems to assume that the current residents are the same ones there when the freeway was built 40 years ago; it is mainly an argument against “gentrification”—i.e., keeping the residents in place rather than offering them buyouts so that economic development can occur (assuming the freeway is actually removed).
  2. Rule #2: “Any plan to remove a highway must include the input of local residents, and must employ Diversity, Equity, and Inclusion in design, implementation, and construction,” StrongTowns says. DEI is the current buzzword used by some for social planning, rather than letting residents make their own decisions on what is best for them. He also recommends letting a social-activist group speak for all the residents, rather than finding out what individuals, families, and business owners prefer.
  3. Rule #3: “Traffic data will always be used as an excuse for why a highway shouldn’t be removed,” says Arzu. As if disrupting urban area travel patterns would have no impact on thousands or millions of other people? And commercial vehicles?
  4. Rule 4: “Trust your city’s street grid.” Street grids can increase or restrict mobility depending on how they are configured and managed. There is nothing inherently better in whatever the current grid happens to be.
  5. Rule 5: “Create visuals/renderings showcasing the opportunities for your city if the highway was [sic] removed.” Pretty pictures are designed to be persuasive, but they may not reflect what is actually doable or affordable.
  6. Rule 6: “When you remove a highway, traffic will not come!” This is a mantra of the Congress for a New Urbanism, and the historic examples it cites are not removals of entire freeways but tear-downs of stubs of freeways that were never completed (e.g. the stub of Central Freeway in San Francisco and the stub of the Park Freeway in Milwaukee). Those making this argument—that if you remove capacity the traffic will disappear—also argue that the “iron law of freeway congestion” says that if you add lanes, they will quickly fill up and be congested. Neither is generally true, and one claim contradicts the other.
  7. Rule 7: “Get the development community on your side.” In this telling, developers are the friends of teardowns. Yet most developers want to build profitable projects (i.e., gentrify under-developed areas).
  8. Rule 8. “Land trusts/banks are a huge asset.” Land trusts and land banks require financial and development expertise that is unlikely to be present in “community-based organizations.” And what is left out of this recommendation is the owners of the properties in the relevant area, who probably don’t want their properties turned over to a land trust or land bank.
  9. Rule 9: “In the long term, take control of MPOs and DOTs.” Well, MPOs and DOTs, don’t say you weren’t warned!
  10. Rule 10: “No highway is permanent!” True, highways wear out and need to be rebuilt, the same as bridges, water and sewer systems, etc. His example of the removal of Harbor Drive in Portland is highly misleading since it was replaced by brand new I-5, which runs parallel to former Harbor Drive, which was turned into Waterfront Park.