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Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence
Build America Transportation Investment Center (BATIC) Institute: An AASHTO Center for Excellence


A final update to this content was completed in March 2022.

Other Finance Mechanisms

Shadow Tolls

Shadow tolls are a set payment by a public agency or authority for each vehicle that uses the facility, levied on a per-vehicle or per-vehicle-mile basis. Payments are made either to a private concessionaire or another public entity as reimbursement for particular services. Shadow tolls may be adjusted based on safety, congestion, or pre-established floors and ceilings. One advantage over real tolls is that traffic diversion to non-tolled facilities is avoided, because motorists themselves do not pay tolls.

Shadow toll concessions have been extensively used in the United Kingdom. In the United States, they have been used in public-public agreements in Texas under the term pass-through financing to repay local agencies for their upfront investments in a project.

Under the shadow toll concession model, payment is made in exchange for the concessionaire's responsibility to design, build, maintain, and/or operate a roadway for an agreed period of time. Shadow toll payments are dependent upon the volume of traffic using the road and provide an incentive for the concessionaire to optimize the facility's construction and/or operation. One disadvantage when used in a concession is that revenue to repay the concessionaire's investment must come from other public sources, which may be constrained.

Most, but not all, U.K. shadow toll projects have involved upgrades of existing roads. This has been an important attraction for private investors as historic traffic data reduces traffic risk and the need to depend on forecasts for revenue projections. In certain cases, it can also provide opportunities for generating cash flows during construction. As with conventional tolling, shadow tolls can amortize capital costs over the useful life of the investment and can create early completion and other incentives by sharing traffic forecasting and other risks with the private partners. Additional advantages include:

  • Minimizing traffic risks, making it easier for private investment partners to find more advantageous financing
  • Capturing the profit-seeking motives of the private sector, often resulting in capital construction costs savings
  • Capitalizing on the cost efficiencies of lifecycle costing
  • If structured properly, reducing the effect of lower than expected traffic volumes
  • Transferring of operating and maintenance risk to the concessionaire
  • Capping the public sector's exposure, thereby eliminating the risk of super-profitability by the concessionaire
  • Reduced public equity requirements
  • Avoiding the need for toll collection equipment

In 1999, FHWA prepared a report titled The Selective Use of Shadow Tolls in the United States on the UK's experience with shadow tolls, analyzing shadow toll-related financial and capital market issues, and exploring the potential applicability of this technique in the U.S.