It’s Time to Allow Tolling on All Federal-aid Highways

Commentary

It’s Time to Allow Tolling on All Federal-aid Highways

With limited gas tax proceeds, states should be allowed to build new highways and rebuild existing highways with toll revenue.

“For every complex problem there is an answer that is clear, simple, and wrong.” H. L. Mencken is quoted as having said. But Mencken was wrong himself when it comes to the issue of the authority to toll Federal-aid highways.  Federal law regarding the tolling of Federal-aid highways can be and should be clear, simple, and succinct: “Any state, to the extent authorized by its state law, may toll any federal highway, bridge or tunnel, and approach thereto, including those highways, bridges and tunnels, and approaches, on the Interstate system, whether existing or new.”

What is the federal policy regarding tolling on federal-aid highways today?

The current federal authority to toll is a hodgepodge of disjointed, confusing policies and pilot programs. The Federal Highway Administration (FHWA) found in 2013 that there were 6,088 miles of toll roads, bridges and tunnels, which included 1,158 miles of urban Interstate highways, of the 1,001,874 miles of Federal-aid highways. That means 0.6% of the Federal-aid highways were then tolled. Given federal tolling policies, it is miraculous that there is as much tolling of federal-aid highways as there is.

The Federal Aid Road Act of 1916, reflective of the era in which it was enacted, states that “all roads constructed under provision of this Act shall be free from tolls of all kinds.” While President Eisenhower planned for the Interstate system to be tolled, Congressional leaders from rural areas demanded another method, since tolling could not pay for certain rural roads. Therefore, the Federal–Aid Highway Act and Highway Revenue Act of 1956, the legislation that authorized the Interstate Highway System and created the Highway Trust Fund, settled on an excise tax for gasoline. While that law allowed for the inclusion of any toll road, bridge, or tunnel which meets the Interstate Highway standards to be designated as a part of the Interstate Highway System, it precluded the use of federal-aid highway funds for the construction, reconstruction, or improvement of any such toll road, bridge or tunnel.

The 1916 and 1956 acts notwithstanding, Congress has enacted several modest changes that allow tolling in limited instances of federal-aid highways, including of the Interstate Highway System. Each of the programs for tolling of federal-aid highways have substantial limitations either on the number of states that can be granted the authority or in what may be tolled.

The first change came in the 1927 Oldfield Act when Congress authorized the use of federal funds to build toll bridges and tunnels, but stipulated that these toll bridges had to be owned and operated by states or their political subdivision.

The general authority to toll federal-aid highways (not applicable to Interstate highways) provides that federal-aid highways may be tolled, but only for a new highway or for new lanes added to an existing highway, bridge or tunnel. Further, the facility must have the same number of toll-free lanes after construction as it did before construction. This authority restricts how the toll revenue may be spent and now requires that the state have a law authorizing tolls on the highway, bridges and tunnels subject to this program. In the most recent amendment to this authority, Congress has moved into setting tolling rules, mandating that over-the-road buses that serve the public be held to the same rates, terms and conditions as public transportation buses.

Congress authorized public agencies in the Transportation Equity Act for the 21st Century (TEA-21) to impose tolls on federal-aid highways, including the Interstate Highway System. Agencies can build High Occupancy Toll (HOT) lanes to reduce congestion and provide a free-flowing travel option. Some facilities include a high occupancy vehicle (HOV) requirement to allow carpools to travel for free or at a reduced rate. Public authorities that use tolling for HOT lanes on Interstate highways must consult with the local Metropolitan Planning Organization (MPO) about the location and the amount of the toll. They also must comply with performance requirements, including enforcement of the HOV restrictions, automated collection of tolls and variable toll rates.

In addition to these tolling provisions, there are several federal toll pilot programs. One is the Interstate System Reconstruction and Rehabilitation Pilot Program, enacted in TEA-21, which permits tolling on three specific roadway segments in three different states tied to reconstruction and rehabilitation. Congress did allow tolling of segments of the Interstate Highway System through this program when there is reconstruction or rehabilitation. The program requires each of the three states to enter an agreement with the Federal Highway Administration. Currently, Missouri has an agreement with the FHWA to reconstruct I-70, but it has not begun construction.

In the most recently-passed transportation legislation, the Fixing America’s Surface Transportation Act (FAST Act), Congress provided that the three states must begin the construction within three years after FHWA approval or their authority to toll under the Interstate System Reconstruction and Rehabilitation Program would lapse. After the passage of the FAST Act, the two states that had been seeking FHWA approval for the other slots, North Carolina and Virginia, decided to turn them back. Missouri’s slot for I-70 will expire December 4, 2017.

The other tolling pilot program for federal-aid highways, including Interstate highways, is the Value Pricing Pilot Program, (initially called the Congestion Pricing Pilot Program and not limited to tolling). It was originally authorized in the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and revised in 2005 in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The pilot authorized slots for up to 15 value pricing programs, which are allocated to state or local agencies, without limits on how many tolling projects can be installed. This program also requires an agreement with FHWA.

Why is it now time for Congress to adopt such a clear and simple policy statement?

When President Trump spoke about his $1 trillion infrastructure initiative in his speech earlier this year, which is to be financed through the investment of both private and public capital, he mentioned his two core principles: “Buy American and hire American.” He proclaimed that this initiative would create “millions of new jobs.”

Much of the discussion of the Trump $1T infrastructure initiative assumes the use of private capital and public-private partnerships (P3s). If there is a revenue stream that can be attached to a particular infrastructure, the project can attract private capital, as President Trump noted in his address to Congress, for some or all of a project. The use of P3s can help overcome the lack of public resources for such projects as well as deliver such projects “faster, cheaper and better” and consequently, safer. The recent Ash Center report, Tapping Private Financing and Delivery to Modernize America’s Federal Water Resources, which focused on rebuilding water infrastructure, made the following statement, which is equally applicable to highway infrastructure:

“Through an infusion of private capital and management, P3 (sic) can ease fiscal restraints and boost efficiency on the    maintenance of public infrastructure and services, shortening delivery times, increasing innovation,     addressing maintenance, reducing life-cycle costs, and   generating better Value-for-money(VfM) for taxpayers.”

There are a number of public policy issues that must be addressed if there is a going to be a widespread proliferation of the use of P3s for highway projects. Indeed, if the Trump administration’s plan to attract private capital for highway infrastructure investment is to come to fruition, it will necessitate changes in the tolling of federal-aid highways policy.

One need look no further than the annual financial bailout of the Highway Trust Fund (HTF) by the general fund that began in FY ’08 and continues today, averaging $20b each year, to come to the conclusion that the level of funding to maintain the existing federal-aid highways is grossly inadequate. Since the federal gas tax has not been increased in over 25 years, it seems farfetched to think that Congress will increase the gas tax to the level necessary to make up for the revenue deficiency. Congress cannot agree to even index the gas tax to inflation, much less raise the gas tax.

The remaining option to address the fiscal shortfall of the HTF would be to reduce the size of the highway program, effectively exacerbating the existing deferred maintenance on the system, and reducing economic productivity, hardly a desirable outcome.

Simply put, it is no longer possible to build and maintain our federal-aid highway system, including the Interstate Highway System, exclusively from the revenues derived from federal gas taxes, even when combined with state excise taxes. The states have accepted that the federal gas tax is unlikely to be increased and consequently, roughly 20 states have increased their state gas taxes in recent years, New Jersey and California quite substantially.

Tolling, combined with public-private partnerships, is the best option to reach the requisite level of investments in federal-aid highway infrastructure. Toll revenues can provide investors the necessary incentive to both provide the capital and assume the attendant risks that they would otherwise not assume while attaining better results for motorists and taxpayers.

The major benefits of such a simple and clear statement of law are accountability, transparency and simplicity. Transportation policy makers and investors would have an understandable and workable statement of policy that each and every federal-aid highway, bridge or tunnel, and approach to such bridge or tunnel, could be tolled, subject to the terms and conditions of that state’s law. In other words, the will of the citizens of a particular state will determine whether and how much a state tolls any particular federal-aid highway, bridge or tunnel.

Since each state owns its federal-aid highways and is charged with maintaining them, it is reasonable to allow the citizens of each state, either directly or through their elected officials, to decide whether highways should be tolled. States should be allowed to toll any Federal-aid highway without federal approval.

What conditions should states impose on tolling federal-aid highways if given the authority to toll such highways, bridges and tunnels?

To protect highway users, toll revenues should be dedicated to the highway subject to the toll. Additionally, states should provide rebates for the mileage driven on toll facilities.

The idea of allowing states to decide how and where to toll their Interstates is not new. It was recommended by the National Surface Transportation Policy and Revenue Study Commission in its 2008 report:

“Provide new flexibility for tolling and pricing. The   Commission recommends that Congress remove certain     barriers to tolling and pricing. States and local governments should be given the        flexibility to toll and/or implement congestion pricing. This will give States and local    governments that wish to make greater use of tolls and congestion pricing the flexibility to do so.”

In order to attract the capital necessary to reconstruct and maintain the current federal-aid system, private capital will be necessary and that capital can be provided to the states through P3 agreements in combination with tolling authority. While no guarantee, states are likely to adopt economically rational, sensible tolling policies. More states will begin tolling, yielding better roads at a lower cost on a faster schedule, thereby improving productivity and safety. The decision whether to toll and the terms and conditions of tolling should be left to policymakers closer to the people with greater accountability than at the federal level.

William B. Newman, Jr., is Senior Advisor to HC Project Advisors in Washington, DC. He was a former executive of Conrail, and worked on Conrail’s successful sale by the federal government. Mr. Newman has previously written articles for Reason Foundation on privatization, transportation, and infrastructure policy.

William B. Newman, Jr., is Senior Advisor to HC Project Advisors in Washington, DC. He was a former executive of Conrail, and worked on Conrail's successful sale by the federal government. Conrail was sold in an initial public offering in 1987, then the largest initial public offering in history.