Cost of Tappan Zee Mega-Bridge Could Cause Tolls to Triple

Building a new structure twice as wide as the current Tappan Zee Bridge could create a financial black hole, where people who never use the bridge end up paying for its construction.

“Rate shock” was the name given to the electricity industry’s financial crisis in the 1970s and 1980s, when utility company finances buckled under the weight of escalating nuclear power costs. Not only were the costs of the nukes spiraling out of control, but the electricity rate hikes required to pay for them caused energy use to flatten, as customers pinched by the high rates were forced to conserve. Facing higher costs but flat sales, the utilities made up the difference with further rate hikes, until their customers rebelled, the dividends stopped flowing, and utility investors lost billions.

You have to wonder if the same fate awaits the New York State Thruway Authority with its Tappan Zee Bridge rebuild. This time, though, it won’t be investors holding the bag. It’ll be New York State drivers and taxpayers — and maybe even New York City transit riders.

These numbers are scary. They suggest that the finances of a replacement Tappan Zee Bridge could be shakier than the roadway of the existing one.

The potential catalyst is the extraordinary toll hikes that will almost certainly be needed to pay for the replacement Tappan Zee. The carrying costs on the $5.2 billion project — that’s the official figure for a span that’s twice as wide as the current bridge but without exclusive transit lanes — are so high that if they’re borne entirely by drivers using the bridge, the current $4.75 auto toll (one-way with E-ZPass) may need to triple. Call it “toll shock.”

But that’s not all. A toll increase of that magnitude — in the $10 ballpark — would almost certainly send “demand” (the number of car and truck crossings) into a tailspin. That in turn could necessitate another toll hike to ensure that bondholders stay paid and set up another round of the downward spiral — the same whirlpool that nearly swallowed dozens of utilities a few decades ago.

I’ve run some numbers, and they’re so disturbing that even I’m not sure how much credence to give them. But with the fast-tracking of the jumbo-sized, jumbo-priced rebuild, I felt it was less risky to put them out than to sit on them.

As I see it, the variables that will determine the per-trip carrying costs for the replacement bridge — literally, the project cost divided by the number of trips expected over the project’s life — are these:

  • Project Cost — I used two figures: the official $5.2 billion estimate, or a 25 percent higher cost ($6.5 billion)
  • Interest Rate on Bonds — either 4.5 percent, the approximate average for Thruway Authority debt; or 5.5 percent, incorporating a 1 percentage point market “risk premium” if the finances are as shaky as I suspect
  • Term — 30 or 50 year project life (a longer life allows a lower carrying cost)
  • “Baseline” Growth in Trips — either 3 percent a year, 1.5 percent a year, or zero, before factoring in demand suppression from toll hikes
  • Price Elasticity — (negative) 0.4 or 0.7, with the latter figure denoting a stronger response to the higher tolls. (Note that elasticity is applied to the entire trip cost including not just tolls but gas, maintenance, parking, etc.)

These variations imply 48 different scenarios (2 x 2 x 2 x 3 x 2, for you mathematicians). The range of results, projected 10 years out, is wide: Average daily traffic across the Tappan Zee, which now stands at 134,000 vehicles, could be as high as 165,000 per day or as low as 82,000. The average projection, 123,000 vehicles per day, is 8 percent less than today. In only a third of the scenarios is bridge traffic in 10 years greater than today.

Even more yawning, though, is the range in the toll required to pay the replacement project’s carrying costs: It could be as low as $9 or as high as $30. The weighted average, $16, is well over three times today’s toll.

As I said, these numbers are scary. They suggest that the finances of a replacement Tappan Zee Bridge could be shakier than the roadway of the existing one.

Is there a way out of a Tappan Zee “death spiral” in which no toll can generate enough revenue to pay bondholders? I see two possibilities. Either the Thruway Authority offloads some of the project’s carrying costs to other parts of its system or onto the State DOT’s budget. Or the powers-that-be trim the cost by shrinking the bridge. (Or some combination of the two.)

Offloading merely shifts costs to drivers elsewhere, or to taxpayers in general. A particularly worrying downside is that to come up with the funds, Albany might be forced to starve roads and bridges in other parts of the state, or even transit in and around NYC — not in a “one-shot,” but year in and year out.

As for shrinking the bridge, trimming the cost to $3.5 billion — a number pulled out of a hat — could keep the required toll hike low enough that daily bridge crossings would be as likely to rise as fall. This would avert cascading toll hikes and allow the full cost to be covered with a toll between $5 and $12.

Of course, getting the cost down that far would probably require slimming the lane configuration to something close to the current one. Could traffic be accommodated? Yes, for the time being; and almost certainly over the long haul, by charging premium tolls during the relatively brief daily peaks.

A spreadsheet with my calculations is available as an Excel file. Please comment if you spot a flaw. I can’t quite believe that numbers so disconcerting can be airtight. Then again, the new Draft Environmental Impact Statement didn’t touch this subject. Maybe they knew?

Editor’s note: In the course of reporting on the Tappan Zee story, Streetsblog has requested financial planning documents for the new Tappan Zee from the governor’s press office, but received no answer. Our freedom of information request was also denied.

  • I think this is the East Coast’s version of the Portland-Vancouver Columbia River Crossing. 

  • J_12

    Charles, this is very good work and certainly disturbing.
    However, I wonder how you estimated the elasticity of demand in this model.

    My impression is that the majority of bridge trips would be people commuting to work in NYC from the suburbs.  I believe there is very little capacity to shift these commutes away from the bridge, at least not without adding so much time that it would not be feasible on a daily basis.
    Furthermore, I do not think that there is any significant employer that could replace the wages these commuters are earning in a location that does not require travel over the bridge.

    If I am correct in these assumptions, then the change in number of vehicle trips over the bridge should be proportionate to the change in working age population.  High tolls function as a difficult to avoid tax on most bridge users, at least in the short term (e.g. initial elasticity of demand would be close to zero.)  In the longer term, some people might decide to relocate based on avoiding the toll, but for most the cost of moving would exceed the cost of the toll, if that were the only factor in their decision.

    This looks like a situation where there are no substitutes for the good that is being taxed, and thus demand will not decrease in response to the tax, at least to the extent that people are crossing the bridge to get to and from their jobs.

    I suppose one caveat is that people might start car-pooling in greater numbers.

  • The news reports I’ve seen on the bridge put the cost at $8.3 billion right now, rather than $5.2 billion. Is this all because of the transit component, or is it extra uncounted things such as ramps?

  • Bill

    I am now confused about how the bridge will be paid.  How much is being picked up by the Feds and how much is being financed?

  • Anon

    this is not an nyc commuter’s mostly a long haul N-S roadway

  • Anonymous

    @7cf4b37ec2d4158b684563a183dcc335:disqus Thanks for your serious questions. A $10 toll hike, say (from $4.75 to $14.75) would increase the round-trip cost of a typical journey that uses the TZB by 76%. With a -0.7 “all-in” price-elasticity, which I’ve defended elsewhere (e.g., in my BTA spreadsheet), usage would fall by a third (’cause 1.76^(-0.7)=0.67). With the more conservative -0.4, usage falls by a fifth (as 1.76(-0.4)=0.8). Your points about limited alternatives are well-taken, and they support the lower figure. Note, though, that a $10/day toll rise works out to as much as $2,500 a year. That’s a very strong disincentive to switch to carpools (which you mentioned), bus, other destinations, other routes (where possible). Over time, the high toll would incentivize better bus service, business-based van pools, etc. Separately, @c510febb9bed68b5cc4a09f076701e0f:disqus  has set you straight that the TZB carries relatively few vehicles to NYC.

    @24605646f9585090b1d31afb7a1de4b8:disqus Good Q (possible fed financing). I should know, but don’t.

  • Matt Killmoto

    Raise funds for the replacement by charging those who use the current bridge.  Jack that toll up to $10.  Some will pay, some will “find an alternative.”  Then jack the price up more.  Fewer people still will use the bridge.  Rinse, repeat.

    At some point equilibrium will be reached.  The funds raised can be used to maintain the current bridge, especially as reduced demand makes it less “functionally obsolete”.  Bank the rest of the $$ in a “new bridge trust fund” as debate about transit/no transit forges on…

  • J

    This is an interesting line of inquiry. If Komanoff is correct and they decide to build a smaller bridge, the very first thing to be cut will be the “emergency lanes”, for the transit that Cuomo has no intention of building anyway. Then the bike/ped path will be cut. Pretty soon, it’ll end up being the exact same bridge that we have now, except with higher tolls and wider lanes.

    That said, I don’t see a lot of alternatives to the bridge, so I am also skeptical of how elastic demand actually is. People, however, will not sit idly by if they don’t have a choice about paying expensive tolls. They will be lobbying their elected officials constantly to “reduce the unfair tolls”, much like Staten Island and the Rockaways have done for years. In the end, I see this being generally bad for Democrats and for future transportation projects. The new bridge will be incredibly expensive, and the legacy of high tolls and no transit will be that of a Democrat governor. Republicans will be served a platter of red meat for their campaigns. I blame the incredibly shortsighted decisions by Cuomo.

  • Anonymous

    Me again, just to let folks know that they can test 100% demand “inelasticity” by zeroing out the elasticity inputs in the spreadsheet. The result is less dire — an average toll of $12.46 to cover 100% of costs, instead of $16.28 — but still pretty stark.

  • Andrew

    If the TZB toll is raised significantly, how much traffic will divert to the GWB?  Does it make sense to pump that traffic into Manhattan and the Bronx?

    Shades of the Verrazano.

  • If these rate hikes come to fruition, the Haverstraw-Ossining Ferry (ferry to rail to Grand Central) will get a MAJOR boost in ridership. Perhaps, the ferry would be expanded onto the weekends and into midday and late-night. One thing missing from this entire conversation is – if there is to be no transit on the TZB – why aren’t we discussing expanding existing transit (NJ Transit from Spring Valley and Suffern), restoring West Shore Rail service, and expanding cross-Hudson ferry service? This option is absent from main stream discussion. 

  • Plus, most commuters using the bridge are not using the bridge to get
    into the Manhattan CBD. They are going to Connecticut, Westchester, and
    northern parts of the Bronx. I say expand ferry service to existing
    MetroNorth service. For Manhattan and commuters to NJ, restore the West
    Shore (and screw CSX) and expanding existing NJT rail service. Here’s a link to the Haverstraw-Ossining Ferry: Also, after the state is finished decimating the rest of South Nyack, they should consider starting another ferry service from there to Tarrytown. The last time they tried, rich condo owners on the Nyack waterfront shot the plan down.

  • Larry Littlefield

    Interesting analysis, and WAY ahead of the likely thinking for those involved in the project.  A credit to your econ thinking more than your eco bias.

    It makes a couple of decisions relevant.

    1)  No wonder a “public-private” partnership now seems unlikely. The only deal the privates would take is that they get the upside, but the taxpayer gets the downside.

    2)  Eliminating transit from the bridge may be needed to FORCE people to drive, to collect the tolls. 

    3)  But with the additional capacity and diminished demand, travel on the bridge may be so free-flowing that buses become preferred WITHOUT a dedicated bus lanes.

    4)  Truck traffic to New England from points south and west would be diverted to I-84.

    But there is one more salient point.  Tolls have been paid on the Tappan Zee for decades.  That money has been diverted.  The MTA, the Thruway Authority AND the “Transporation Trust Fund” have ALL been drained.

    The only real solution:  make the debt go away.  Bankruptcy.  Inflation (a national solution for the public and private sectors, that doesn’t work for floating rate or short term debt).  Or, a massive state bond issue that takes the debt off the MTA, the Transportation Trust Fund, and Thruway Authority at a lower rate, perhaps after the dissolution of some of those agencies, leaving future transportation to be funded by EXISTING revenue streams on a cash basis.

    The higher state taxes needed to pay off the bonds would be assessed as a higher “sins of past generations” surcharge.

  • kinverson

    This is an interesting line of inquiry. If Komanoff is correct and they
    decide to build a smaller bridge, the very first thing to be cut will be
    the “emergency lanes”, for the transit that Cuomo has no intention of
    building anyway. Then the bike/ped path will be cut. Pretty soon, it’ll
    end up being the exact same bridge that we have now, except with higher
    tolls and wider lanes.

    This is what I would bet on. Then again, I’m not from the area and haven’t followed this all that closely. I just wonder whether if the ’emergency lanes’ are built, if there is any possibility of future conversion to rail lines. This is supposedly what was done with the massive Woodrow Wilson Bridge project here in DC (although the bike/pedestrian trail was actually built in our case, and it”s not going away).

  • Alexander Saunders

    Don’t raise the bridge – lower the water! Or at least go under it.  Of course we cannot afford a $5 going on $8 billion bridge from nowhere to nowhere, with no rail or much of anything else. However, there is hope.  The Hudson River Crossing  tunnel drawings were rejected by our DOT, and were taken to Shanghai where the construction started in 2006 and completed in 2008 for a total of 9.2 miles using two bilevel bores.  Total cost was  $0.8 Billion, the capacity was great.  70 million people used these tunnels to attend the World Trade Fair. Charles – I would like to sit down with you, go over these drawings, and discuss how to get this project on the right track.

  •  Thank You Democrats; Property Values in Rockland and Orange County just
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    was Andrew Spano’s, Hit Man !!! Now Larry ” The Brain ” is the Hit Man
    fro Andrew ” Evil Eyes ” Cuomo !!! BYE, BYE, NEW YORK !!!