Commentary

Should the Interstates Have Been Built With Toll Financing, Rather than Taxes?

In response to a recent satirical article linking the health care debate to Federal transportation policy, Peter Samuel at TollRoadsNews.com explores (via comments from an anonymous transportation official) whether the Interstate highway system should have been built through toll financingâ??as was originally recommended by the commission that advanced the Interstate concept (emphasis mine):

So to conclude, yes, construction of the Interstate Highway System was a remarkable achievement and it has produced tremendous benefits (also costs, but that’s another story).

But just because the system has been beneficial it does not follow that it was developed or managed in the optimal manner. In fact, as our current situation shows, the Federal funding model that looked like such a good deal in 1956 is no longer workable.

How much farther along might the states be toward a sustainable and efficiently managed highway system if the Federal Government had taken a different approach in 1956?

We can’t say with certainty, but it seems likely a toll-funded highway system would have concentrated more of the new capacity in places where there was strong demand, and spent less in places where there wasn’t.

The system would very likely be much more efficiently operated – toll road operators don’t like congestion, it reduces revenue. And those car-loving suburbanites would probably have paid for a much larger share of the system, which might even have discouraged some sprawl that was made possible by Federal funding of freeways to the suburbs.

Would those outcomes have been such a bad thing?

Not to mention that toll financing does a much better job of addressing life-cycle asset maintenance costs. Toll-based financing incorporates the maintenance of an asset over its design life (typically decades for roads) to ensure that the asset is properly maintained over that entire time. Investors in the toll revenue bonds used to finance toll projects demand that operations and maintenance be the top priority of toll facility revenues (second only to debt service).

By contrast, the current tax-based, pay-as-you-go funding system is focused on just getting the asset builtâ??with no endowment for ongoing maintenance costsâ??and policymakers are then left to try and scrape together the next several decades of road maintenance funds. And because road maintenance isn’t sexy and doesn’t create photo ops, policymakers have every incentive to ignore it and try to shift limited funds to new construction projects (where you get the ubiquitous politician-in-suit-with-“golden shovel”/hardhat-at-project-groundbreaking photos).

Toll roads, however, are effectively self-financing roads over the long haul, with life-cycle maintenance built in. Far more powerful in my mind than the silly system dominant today, where we can’t even properly maintain the roads we have, much less build the new ones we need to keep our economy moving.

All of that is an artifact of the legacy tax-and-grant system we’ve inherited, and all the more reason to ditch it…pronto.

For Reason Foundation’s extensive body of work on toll roads and their benefits, see our transportation research center here.

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Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

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