A Threat to the Future of Private Toll Roads

Proposal to fund rail, mass transit with toll revenues is ill-conceived

Joseph Giglio is a smart and articulate thinker on transportation policy. He has written that the public sector must take advantage of privatization “whenever and wherever the opportunity presents itself . . . if we are to harvest in full the benefits to society of converting metropolitan roadway networks into financially independent enterprises that are self-supporting from highway user charges.” Since that is my long-term objective, as well, it’s painful to have to write this column in opposition to Giglio’s major new proposal for the future of U.S. highway policy.

In speeches before various transportation forums, in last year’s Hudson Institute study on “America’s transportation future,” and in his own recent book Mobility, Giglio has been hammering away at a revolutionary idea. After making the case for the superiority of value-priced tolling over fuel taxes, as well as the merits of privatization, he argues for a dramatic new policy regarding toll revenues:

“Implement road pricing in a manner that effectively converts the roadway system into a basic funding source for all [surface] transportation modes.” (Mobility, p. 38)

Giglio repeated this plea at the Transportation Improvement Forum of the International Bridge, Tunnel & Turnpike Association in Santa Monica this past March. He presented a three-step plan for converting the highway system from fuel taxes to pricing. The third, “most radical step,” would be “using some of the revenue generated by motorist user charges as a source of funds to help support other surface transportation modes. There is no sensible reason why freight shipments that can be moved by rail should burden the roads—except that the nation’s privately owed freight rail network currently lacks the capacity to accommodate more freight shipments and can’t generate the funds on its own to support more capacity. The same is true of mass transit systems in major metropolitan regions.”

That rationale for cross-subsidies is flawed on its face. If the railroads cannot generate the funds for major expansion to take mode share from trucks, it must be that they’ve been unable to persuade the capital markets that such investments would be economically viable. And the kinds of (rail) transit systems that local agencies want to build if someone gives them significant capital subsidies are hugely non-cost-effective as means of reducing highway congestion (which is Giglio’s rationale).

But just because such cross-subsidies would lead to economically wasteful projects does not mean there wouldn’t be plenty of potential recipients. As one of Giglio’s own recent articles points out, “[F]ederal control of [fuel tax] revenues caused diversion to nonhighway uses. . . . This eventually led to a gap between highway spending needs and available funds that became increasingly worrisome during the 1990s.” (Tollways, Autumn 2004) And that was with just one major cross-subsidy claimant: urban mass transit. Just think how much worse this diversion problem would be if Amtrak, maglev projects, and freight railroads were all entitled to portions of highway revenue.

Thus far, the transportation policy community has shown no signs of embracing Giglio’s proposal. Nevertheless, for many reasons I think those of us who care about better highway mobility need to make the case strongly against this proposal, before it starts gaining traction.

First, Giglio’s free-market rhetoric appeals to many conservatives, and well-meaning free-market think tanks have already begun giving Giglio and his book a platform (without realizing the danger these ideas represent to the future viability of highways).

Second, these arguments are sure to find support within the freight rail and mass transit communities. Though the railroads are still cautious about government funding, there are growing signs that their historic resistance is fading, and some railroad leaders are ready to embrace a market-friendly sounding justification for major capital-investment subsidies. The American Public Transportation Association has already figured out that the forthcoming shift from fuel taxes to road pricing is both a threat and an opportunity. It’s a threat in that if there is no longer a federal Highway Trust Fund, with a portion of federal fuel tax revenues dedicated to transit subsidies, they will need a replacement. And if road pricing is a more robust form of revenue than fuel taxes, they want to be sure to grab a piece of this larger pie. APTA has already begun demanding that HOT lane projects provide dedicated funding for transit subsidies, using a portion of their toll revenues.

Third, this kind of argument is already being embraced by Environmental Defense, one of the country’s most effective environmental groups. In its new report, “No More Throwing Money Out the Window,” ED conditions support for toll roads and PPPs on such projects meeting five criteria, including the dedication of a portion of toll revenue to transit subsidies. ED’s approach downplays building new priced lanes and roadways, in favor of converting existing lanes to value pricing, which is the surest way to generate “surplus revenues” for cross-subsidy purposes. But if drivers are charged for using something that’s already there, and the proceeds are used for some other governmental purpose, that kind of “pricing” is essentially a tax on mobility. That’s the opposite of what Giglio, IBTTA, and many other advocates of pricing and PPPs want to achieve.

And fourth, the future of the federal role in highway finance and policy is being considered by two new federal commissions. Since they are being asked to take the long view, they will (presumably) have to address the long-term transition from fuel taxes to direct roadway pricing. It’s important that those of us favoring the transformation of limited-access roadways into customer-serving, investor-owned utilities disassociate ourselves from Giglio’s proposal, identifying it as the danger that it really is.

Robert Poole is director of transportation studies at Reason Foundation and has advised the last four presidential administrations on transportation issues. An archive of his work is here and Reason’s transportation and tolls research and commentary is here.