Getting to Yes on Interstate Tolling

If common sense prevails and support builds among highway users for a customer-friendly program to modernize the Interstates with toll finance, we may actually get a workable program

The Obama administration’s unexpected proposal to lift the ban on tolling Interstates to pay for their reconstruction has electrified state DOTs and the P3 community. With a significant increase in federal fuel tax rates still highly unlikely, Interstate tolling offers states a new funding source and the P3 community a huge opportunity for toll concession megaprojects to rebuild and modernize aging Interstates.

But is Congress likely to go along with this proposal? A bipartisan tolling flexibility amendment to the Senate version of MAP-21 was withdrawn at the last minute in 2012 due to intense political opposition from the trucking industry. This time around, that industry has mobilized a new Alliance for Toll-Free Interstates (ATFI), and congressional staffers tell me they are leery of taking on the truckers again.

Given past history, the truckers have reason to be concerned that tolling flexibility would mean turning the Interstates into cash cows to bail out state transportation budgets. Previous proposals for Interstate tolling in Arkansas, Pennsylvania, and Wyoming envisioned tolling in that way, to varying degrees. And that has given credence to trucking’s characterization of toll-financed reconstruction as “erecting toll booths on the Interstates.” That wording is meant to imply charging a lot more to use the same unimproved Interstate, while also counting on the uninformed to equate “tolling” with old-fashioned “toll booths.”

What I guarantee will not pass is a bill to let states use new Interstate toll revenues for general transportation purposes. But what might be pass-able is a provision giving highway users a genuine value proposition. I outlined such a value proposition in my March column on “value-added tolling.” Briefly, that means charging tolls only to reconstruct and modernize aging Interstates, and beginning the tolling only after the rebuilt facility is ready to accept traffic (which means the project must be financed, of course). Ideally it would also mean eliminating the concern about “double taxation” by granting fuel-tax rebates for miles driven on the newly tolled corridors.

Last month I presented these ideas to a meeting of the AAA public affairs committee and got a respectful hearing. I have also had off-the-record conversations with several senior people in the trucking industry, who told me candidly that if a tolling measure based on the above principles were enacted, it would more directly address the problem of aging and inadequate Interstates than any likely federal highway spending increase. Those are hopeful straws in the wind, but they are just the beginning of the kind of dialog that needs to take place with highway user groups.

Ironically, another possible opponent of Interstate tolling flexibility is free-market conservatives. The Washington Times and Instapundit’s influential Glenn Reynolds have blasted the Administration’s tolling proposal as a step toward federal GPS tracking of all travel and as an unwarranted tax increase. They also parrot ATFI’s nonsense about toll collection costs eating up 20-30% of toll revenue, as if this were still the age of cash tolling. Giving states the option to implement customer-friendly tolling (and P3s) should be presented to conservatives as steps toward devolution of the overly large federal role in transportation, and as a big step away from fuel taxes and toward true user fees.

My greatest fear is that state DOTs, represented by AASHTO, may inadvertently play into the truckers’ hands by pushing for unlimited Interstate tolling as the answer to their budget problems. They have seen Pennsylvania do this in 2007, saddling the Pennsylvania Turnpike with a mandate to provide $450 million per year to the state DOT for highway and transit projects statewide. That measure has led to a huge increase in Turnpike debt and an endless stream of toll increases. Moody’s Investors Service in 2012 released a report highlighting the danger of turning toll roads into cash cows.

In addition, I can expect intense pushback from state DOTs over my suggestion of granting fuel-tax rebates for miles driven on newly rebuilt and tolled Interstates. Massachusetts already operates such a rebate program for users of the Mass. Turnpike, but it’s paper-based and cumbersome. With all-electronic tolling, a rebate program is a simple software application. The toll provider knows the make and model of the customer vehicle and the number of miles driven on the tolled Interstate. A look-up table gives the EPA fuel-economy rating of that vehicle, which produces the number of gallons consumed for that trip and hence the fuel tax paid. Periodically, that file is sent to the DOT or the DMV listing the rebate amounts owed to each customer. For simplicity, the annual total could be deducted from the motorist’s annual vehicle registration fee.

For state DOTs this amounts to a simple trade. In exchange for having new revenues to fully cover the capital and operating costs of their rebuilt Interstates, the state DOT would have to give up a small portion of its overall fuel-tax revenues. It’s easy to show that the DOT would come out way ahead in this exchange. In the Reason Foundation Interstate 2.0 study, we estimated that most states could toll-finance the reconstruction and selective widening of their rural Interstates for a per-mile (automobile) toll of 3.5 cents/mile, CPI-adjusted. The average federal plus state fuel tax for cars works out to 2.22 cents/mile, with 1.25 cents of that being the average state fuel tax. So if the state had to rebate its 1.25 cents/mile in fuel tax to those paying 3.5 cents/mile on the tolled Interstate, it would still be ahead by 2.25 cents/mile compared with the status quo. And the rebates would only apply to those driving on the newly rebuilt tolled Interstates, not to all the other miles people drive.

In short, if state DOTs and other highway advocates insist on promoting Interstate tolls as a general transportation revenue source, they will likely end up with nothing, given the justified opposition of truckers and other highway user groups. But if cooler heads prevail and build support among highway users for a customer-friendly program to rebuild and modernize the Interstates with toll finance, we may actually get a workable program. And that would open up a bonanza for toll concessions. Robert W. Poole Jr. is the Searle Freedom Trust Transportation Fellow and Director of Transportation Policy at the Reason Foundation. This article first appeared in Public Works Financing.