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Public Works Financing

Will User-Pays Transportation Be Jettisoned?

Ongoing shift to tolling and public-private partnerships represents a welcome return to the user-pays principle

Robert Poole
November 1, 2008

One of the wisest principles of 20th-century highway policy was user-pays. When the gasoline tax was invented early last century, it was seen as a substitute for 19th-century tolling—a substitute that was easier to collect and hence more user-friendly. Groups that wanted the benefits of paved highways sold the public on the idea that the gas tax was not really a tax. Because the proceeds would be legally dedicated to developing and maintaining good roads, it was really a user fee.

In the 21st century, we are at the dawn of a long-term transition to cashless tolling, which will start with limited-access highways and may eventually encompass all roads. For a number of decades more, however, fuel taxes will remain the largest highway funding source. Consequently, we all have a stake in making sure highway user-tax revenues are spent wisely during these decades of transition.

Unfortunately, the last several decades have seen continuous whittling away at the user-pays principle. First, in the 1960s and '70s, came the creation of a mass transit account in the federal Highway Trust Fund, diverting user taxes to non-users. At the state level, constitutional protections for highway funds remain in force in many states, and most states still use fuel taxes mostly for highways—but devote a lot of other tax revenue generated from motorists (vehicle registration fees, California's sales tax on gasoline, etc.) to non-highway transportation.

At the federal level the erosion has continued each time Congress reauthorizes the federal program. Anti-highway groups keep coming up with catchy new rationales for diverting more highway user money away from those users: "fix-it-first" (i.e., don't add capacity until every last bit of maintenance backlog is eliminated), "safe routes to school" (more sidewalks and bike paths "for the children"), and more recently "complete streets" (every road must have bike paths and sidewalks). The latest, just out from Rails to Trails, is that the 2009 reauthorization must divert at least $9 billion for "active transportation," the kinds that make you huff and puff.

All these efforts have starved the highway system of capital investment funds, leading to massive recurrent congestion in all major urban areas. A doubling of vehicle miles of travel, thanks to population growth and rising affluence, has overwhelmed a highway system that has only 5-10% more capacity than the system of 25 years ago.

Over the past two years a half-dozen large-scale studies have quantified the highway investment shortfall and called for fixing the problem. But rather than strengthening the beleaguered user-pays principle, most of these proposals would further undermine it. That was true of last January's report of the Policy & Revenue Commission—and I'm sorry to say that it's also true of the reauthorization proposal unveiled in October by AASHTO, on behalf of its state DOT members.

While it calls for nearly doubling federal surface transportation spending, compared with SAFETEA-LU, it ducks the issue of how to pay for this huge increase (to $545 billion over six years). The total is that large because it includes $93 billion for mass transit (a 76% increase) and $35 billion for inter-city passenger rail—a brand-new diversion category. And the $42 billion for freight could include projects to subsidize freight railroad and waterway improvements at the expense of their trucking competitors.

Instead of a specific funding proposal (e.g., increased and indexed fuel taxes plus a major expansion of tolling), AASHTO offers a menu of items, several of which are not user fees or taxes at all. Worst of all is the idea of "tax-credit bonds," under which the debt service on these new bonds would come from the federal government's general fund (i.e., general taxpayers, as opposed to highway users). Another bad idea is to try to grab a portion of any carbon tax or cap-and-trade tax revenue for transportation; that's an ill-advised mixing of transportation investment policy with regulatory policy. We don't want to make highway investment dependent on carbon emissions; that's part of what we need to get away from! Also on AASHTO's menu is a portion of Customs fee revenue, which would give the transportation community a stake in continuing the taxation of international trade, rather than removing such barriers. AASHTO also pays lip service to VMT fees, a good long-term user fee but one highly unlikely to play a meaningful role in highway finance over the next decade.

Not on this menu at all is a significant contribution from increased use of tolling and congestion pricing, a surprising omission given the $100 billion in infrastructure equity funds just waiting for good toll road projects to invest in. The ongoing shift to tolling and public-private partnerships represents a welcome return to the user-pays principle, and should be at the heart of user-friendly reauthorization proposals.

Advocates of tolling and PPPs should align themselves with highway user groups in next year's reauthorization battle. Our shared objective should be to reform—not reauthorize—the federal program, narrowing its focus to core issues that are truly federal in nature (such as infrastructure for interstate/international goods movement and eliminating the scourge of recurrent traffic congestion) rather than further expanding it to high-speed rail and other diversions, thereby strengthening the user-pays principle.

Fortunately, two of America's most innovative DOTs—Florida and Texas—dissented from the AASHTO proposal. They are part of a coalition called Transportation Transformation (T2) that represents a breath of fresh air in these debates. I hope other forward-thinking DOTs will join T2, rather than advocating more of the same status-quo thinking about the federal role.

Robert Poole is director of transportation at Reason Foundation. An archive of Poole's work is available here and Reason's transportation research and commentary is here.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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