It’s déjà vu all over again. By extolling the virtue of variable-rate tolls on all highways and bridges leading into major Canadian central business districts, the recent paper by Montréal’s latest conservative think tank, Canada’s Ecofiscal Commission (CEC), mimics the 2008 proposal by the even more conservative Montréal Economic Institute.
The latest proposal was dead on arrival. The recently elected Prime Minister of Canada had campaigned on a promise to scrap his predecessor’s toll plan for the new Champlain Bridge in Montréal. Québec’s Transport Minister, also the Minister responsible for the Montréal region, immediately scuttled the CEC proposal. In doing so, he succinctly made a point that all such proposals glance over: “What are we offering as an alternative?”
These proposals tend to assume that imposing tolls will force more people to use alternative modes of transportation, often based on some fairly flimsy anecdotal evidence (see Toronto example below). They tend to ignore the question of whether practical, affordable alternatives that people will actually use exist.
They also tend to glance over the remarkably regressive nature of tolls; much like sales taxes, they impose a relatively greater burden on lower-income families, who may actually have a greater need for access to a vehicle for work (topic for another day). In fact, most economists champion such policies for this exact reason: It’s easier and politically more expedient to impose user fees and sales taxes on the masses than to collect them from wealthy households and highly profitable corporations. Ironically, that last group includes the very profitable multinational corporations that end up effectively owning the tolled infrastructure as a ‘concession’. Speaking of which…
The 407 Electronic Toll Road (ETR) has been hailed by proponents of variable-rate tolled infrastructure as the Canadian, if not the world, standard. Indeed, it’s given a relatively glowing review in the CEC paper, which also includes a critical “lessons learned” qualifier over the public policy fiasco.
The CEC notes that the 407 ETR was “the first open-access, all-electronic toll highway in the world.”
“The private operator of Highway 407 has the authority to set tolls and collect toll revenues, and is responsible for the operation, maintenance, and expansion of the highway.”
A key public infrastructure project initiated in 1987, Highway 407 became operational in 1997, only to be sold off in haste to a private multinational consortium in 1999 (the principal shareholder currently a Spanish company). The CEC paper glances over the fact the consortium was rewarded an exclusive 99-year leasehold of Highway 407 for the paltry sum of $3.1 billion by the Ontario government. For context, the company will clear $1 billion in 2015 revenue alone.
The remarkable success of 407 International Inc. has had little to do with alleviating traffic congestion from Toronto’s perpetually gridlocked Highway 401, the reason the highway was built in the first place. In recent years the company’s profits have soared even as 407 ETR traffic remained little changed.
The secret to this ‘success’? The company just keeps jacking up toll rates. Light vehicle tolls that were 9 cents per kilometre during peak hours in 1997 are 35 cents per kilometre in 2015, a hike ten times the official Canadian inflation rate.
Why does 407 International jack rates so remarkably? Because it can.
As noted in a 2008 report by the Ontario Ministry of Transportation (MTO), “(407 ETR) traffic demand has been found to be inelastic to increases in toll rates.” Which means those who use the highway will continue to do so with little regard to the toll rate, effectively undermining the central argument for ‘right-pricing’ as a means of traffic congestion management.
That same 2008 MTO report used some clever sleight of hand to suggest the 407 ETR had helped alleviate congestion on Highway 401, despite redirecting little traffic away from it. A chart on page 7 of the report, titled “The Flattening of the Peak Periods” (attached), indicates average hourly volume on the 401 progressively increased between 1970 and 1990. However, volume remained virtually unchanged during morning (08:00) and afternoon peak (17:00) hours between 1990 and 2005. Since 407 ETR started operating in 1997, the rest should be obvious…
Except it isn’t. The referenced chart specifically looks at traffic on Highway 401 by the Keele Street exit. Those familiar with Toronto know that’s where peak-hour traffic from the western suburbs has been grinding to a halt since the mid-1990s. Simply put, there was no room for hourly traffic volume to increase at that point on the 401 after reaching capacity and becoming a virtual parking lot during peak hours. However, taking a wider perspective, traffic volumes immediately before and after peak hour spiked sharply between 1990 and 2005; early morning (6:00) reached nearly the same level as morning peak hour traffic and evening (20:00) reached the same level as afternoon peak hour traffic in 2005. (The period of analysis ending in 2005 is also problematic – see Addendum.)
Depending on how data is presented, it’s easy to make the case for toll highways, or pretty much anything. However, it’s rather disingenuous to suggest that flatter peak hour traffic on Highway 401 at Keele Street demonstrates that the 407 ETR alleviated congestion. Especially so when it’s apparent from the data that 401 drivers commuting from the suburbs had simply resigned themselves to leaving for work even earlier and returning home even later while waiting out ever-expanding traffic congestion each way.
Nevertheless, the MTO report goes on to conclude:
“Value pricing infrastructure through public-private partnerships has long been one of the worldwide means to address demand for roads. Ontario has a road pricing experience with its first open road all electronic toll highway – 407 ETR, which was also the world’s first such highway.”
So how does the CEC address the fundamental flaw in the 407 ETR ‘right-pricing’ congestion argument? By noting, in a section titled ‘Lessons learned from Ontario’, that “Private implementation has some disadvantages”. Specifically:
“(B)ecause the highway is privately run, the Ontario government has little influence in determining the toll structure. Reducing tolls on the 407 ETR, for example, might ease combined levels of congestion on alternative routes, but it is out of the provincial government’s control.”
Surely the CEC, which was at least honest enough to concede the 407 ETR ‘private implementation’ problem, would not support such a scheme.
But no. Same cognitive dissonance as the MTO. The CEC report goes on to dismiss its own concern by noting:
“Nevertheless, the existence of the well-used private 407 ETR… suggests a rising degree of acceptance for congestion pricing in the region.”
So when it comes to toll roads, CEC concedes that the Canadian standard (407 ETR) doesn’t work as intended, but concludes we should implement tolls in the same manner everywhere anyway. Toll roads are publicly acceptable according to some dodgy public opinion polling and random interviews conducted by CEC, despite the anecdotal evidence (401 traffic data) clearly suggesting otherwise.
To sum up, variable-rate tolls have had little impact on the behaviour of 407 ETR drivers, 407 ETR has done little to alleviate traffic congestion on Toronto’s Highway 401 (the reason it was built in the first place) and the billions of dollars in 407 ETR toll fees collected since 1999 have gone to private profits instead of improving Toronto public transit and/or infrastructure. It’s tough to make a case for variable-rate toll roads as a means of moderating traffic congestion in Canada’s major urban centres when the primary example in Canada’s largest urban centre has proven a failure.
But that in and of itself doesn’t make the case for mass transit. Stay tuned for part 2.
The preceding left out specifics about 407 ETR traffic demand inelasticity. The chart above, drawn from a 2012 case study from University of Toronto, provides a summary of vehicle kilometres traveled (VKT) and toll rates between the years 2000 and 2010. The study, which presents the case for why the 407 ETR is an interesting pension investment proposition (the Canada Pension Plan is an indirect share holder), highlights as a key advantage the fact 407 ETR has a “captive customer base because infrastructure businesses often provide essential services which have inelastic demands and are resilient to economic cycles.”
As noted above, the 407 began operation in 1997 as an actual public-private partnership, before effectively being sold for a song in 1999 to 407 International Inc. Major eastern and western extensions of the highway were completed in 2001. Allowing for an initial adjustment/adoption period, a quick overview of the data between 2005 and 2009 shows that while 407 International jacked rates by 33 percent , ridership rose 7 percent over the same period; 905-area (north, east and west of Toronto that 407 was intended to serve) working age (15+) population increased by 14 percent during that time (according to the Labour Force Survey).