Overcoming the “Tolls Equal Taxes” Problem

Massive highway funding problem can be solved

America is suffering from a massive highway funding problem. The gap between what’s available from fuel-tax revenues and what it takes to keep highway capacity in step with truck and car traffic growth is in the tens of billions per year. So Americans continue to waste over $60 billion a year stuck in urban traffic congestion.

Yet the very people who would benefit the most from unleashing market pricing and toll funding – the owners of cars and trucks – are equivocal if not outright opposed to expanded use of tolling. Their overwhelming concern is that tolls will end up, de-facto, as new taxes. And this cause has been taken up by conservative anti-tax groups like Americans for Tax Reform and the National Taxpayers Union.

This concern is what undergirds the trucking industry’s opposition to proposals for rebuilding inadequate Interstate highways with tolls. It accounts for Rep. Mark Kennedy’s insisting on only temporary tolling in his FAST lanes proposal in the House version of the pending federal highway reauthorization bill. And it undergirds even the American Highway Users Alliance’s moderate position on tolling, which while supportive of HOT lanes and toll truckways, still supports tolling only on new lanes (except for HOV to HOT conversions).

While these concerns are understandable, what’s frustrating is that they ignore two overwhelming facts. The first is the enormity of the highway funding shortfall. Without expanded use of tolls, the conservatives’ success in preventing increases in fuel tax rates has leaves us with ever-greater congestion, not merely on urban freeways but increasingly on the Interstates that are the lifeblood of goods movement (with some 90% of all freight, by value, moving by truck). And that plays right into the hands of the anti-highway movement that wants to push commuters onto costly rail transit boondoggles and force freight from just-in-time trucking to increasingly clogged railroads.

The second fact being ignored, especially by Rep. Kennedy’s temporary tolling, is the demonstrated power of market pricing to eliminate recurrent congestion. On the two California HOT lanes projects, we have proved that market pricing can keep traffic flowing smoothly at the speed limit, indefinitely, at the busiest times of day. And the revenues generated are in the ballpark of what will support toll revenue bonds to pay for costly networks of congestion-relief lanes. To take away this pricing once an initial bond issue is paid off would be lunacy – a recipe for turning a congestion-relief system into an instant parking lot.

But when highway user and taxpayer advocates concede these points in private, they still produce what they see as their trump card: New York City’s toll authorities. Here, they say, is a classic example of what we fear: the exploitation of captive consumers by monopolistic agencies who milk drivers in order to dump billions a year into subways and commuter rail systems. That’s what they see in prospect if tolls are allowed to be permanent, or if they are used to rebuild currently free highways.

This concern is real. Over the past decade, as “congestion pricing” has progressed from an obscure academic concept to a proven remedy for congestion, transportation planners in many metro areas have gotten dollar signs in their eyes, dreaming of all the transit systems they can build with congestion tolls extracted from drivers who persist in the anti-social behavior of using their cars during rush hours. So representatives of drivers and trucking companies have good reason to be concerned. And we can expect them to continue to use their political clout to prevent this vision from being realized.

In building coalitions to promote expanded use of tolling, one approach is for highway and transit advocates to stand together, as they’ve been doing to some extent in the current reauthorization debate. But that means dedicating a portion of toll revenues to transit operating subsidies, and what may be a small portion today may become a large portion over time. That’s what’s happened to the “user tax” called gasoline taxes over the last several decades, as highway user groups and their taxpayer-group allies are keenly aware. They can see the same thing happening with toll revenues.

An alternative approach is to conclude that if we are to move toward tolling as the key factor in retooling our highways for the 21st century, the customers must be brought on board as core members of the coalition. And that means keeping faith with them when we say that tolls are not taxes; rather, they are market prices that both manage the use of highways and pay for their construction, maintenance, operation, expansion, and rebuilding. In this vision of the future, tolls are the prices charged to use the highway utilities, just like prices charged to use telephone, gas, and electric utilities.

Under this approach, the key safeguard would not be either of Rep. Kennedy’s rules (“tolls only for new facilities” or “tolls only to pay off construction debt”). Rather, the rule would be: tolls only for toll facilities. Thus, in provisions dealing with surplus toll revenues in the pending reauthorization bills, instead of saying that such revenues could be used for any Title 23 (highway and some transit) or Title 49 (transit) purposes, surplus toll revenues would have to be kept within the toll system that generated them (e.g., an urban or state toll agency) or turned over to a state revolving toll-roads loan fund. Only in this way would highway users be guaranteed that tolls would not be the equivalent of taxes.

This provision will be characterized by some as “anti-transit.” But transit does not currently have access to toll revenues (except in a handful of cases like New York and San Francisco, where, as a local decision, toll revenues heavily subsidize mass transit). It leaves in place the existing diversion of significant fuel-tax revenues to transit at the federal level. And it does not preclude giving transit agencies free use of value-priced lanes and networks to serve as the equivalent of exclusive busways, which would hugely benefit transit.

From a strategic perspective, large-scale use of tolling will not come about if highway users, the intended customers of 21st-century toll roads, remain in opposition. Hence, making sure that tolls do not become taxes is of crucial importance to all of us who see tolls as the best way forward.

Robert W. Poole Jr. is director of transportation studies and founder of the Reason Foundation.