In a major policy shift with potentially large implications for US infrastructure public-private partnership (“PPP”) activity, the Obama administration has proposed to change federal law to give US states broad authority to put tolls on existing interstate highways to provide funding for transportation purposes. The administration’s proposal is contained in a proposed $302 billion new surface transportation bill sent to Congress. The current federal surface transportation funding bill, known as “MAP 21,” expires in September.

Under current federal law that dates back to the creation of the Interstate Highway System in 1956, tolls are permitted only on grandfathered toll roads that were incorporated into the new system in 1956 (such as the corridor of toll roads from New York to Chicago) and, under later amendments, on newly built toll roads, tolled lanes added to existing roads for congestion relief, or converted High Occupancy Vehicle lanes. In addition, a narrow pilot program has allowed the federal Department of Transportation to authorize tolls on up to three existing highways for reconstruction purposes.

Putting tolls on the existing free lanes of the 50,000 miles of the Interstate System could provide massive transportation revenues of more than $50 billion annually at toll levels comparable to existing tolled facilities. The administration’s proposal would allow toll revenue from existing highways to be used for reconstruction of the tolled highway itself, or for other components of the state highway system. It would also allow toll revenues to be used to improve public transit services within the same transportation corridor as the tolled facility or, more generally, for any other purposes eligible for federal transportation funding under the statute.

While the proposal would not require that toll revenues be used for PPP projects, the tolls could support concession projects to reconstruct existing roads, with all or part of the revenue risk shifted to private operators, or to support availability payment or other PPP agreements with private operators to build or rebuild and operate other facilities. If enacted, the new flexibility would combine with and support the increasingly widespread use by US states of PPP structures for US transportation projects, particularly in the highway sector.

At the outset of the Obama administration, incoming Secretary of Transportation Ray LaHood made a public comment about the possibility of interstate tolling, or some other mileage-based revenue system, to replace or supplement the gas tax. This comment was immediately repudiated by the White House. The shift in administration thinking arises now in the context of a proposal for surface transportation funding that, even at the $302 billion level, is widely viewed as inadequate to meet US needs; and with a significant part of that proposed $302 billion coming from revenue sources other than the Highway Trust Fund, this shift will be highly controversial.

At a minimum, by making its proposal at this time, the administration has opened up public discussion of the interstate tolling issue in a new way.

The proposed bill also has other provisions that reflect the administration’s positive view of US PPP activity. These include a $4 billion increase in the authorized level of tax-exempt Private Activity Bonds, flexibility on fees for smaller TIFIA-supported projects and expanded use of the RRIF (Railroad Rehabilitation and Improvement Financing) program. The administration also proposes a new TIGER grant program and a new FAST (Fixing and Accelerating Surface Transportation) grant program designed to encourage states to “adopt bold, innovative strategies and best practices in transportation.”

For more information about the topics raised in this Legal Update, please contact John R. Schmidt, David Narefsky, Joseph Seliga or George K. Miller.