The Emerging Threat to Toll Revenues

Tolls shouldn't become the new cash cow for surface transportation

The past year has witnessed huge gains in future market share for tolling and public-private partnerships. Dozens of HOT and Express Toll Lane projects are now in the works, the long-term concession model has made a powerful re-entry to the U.S. toll road market, and some $20 billion in new PPP toll road and toll lane projects are now in the proposal or development stage.

And the past six months have seen several major proposals for phasing out the fuel tax and replacing it with per-mile charges. First off the line was the August 2005 Hudson Institute book, 2010 and Beyond: A Vision of America’s Transportation Future. Next was the November 2005 National Chamber Foundation study, Future Highway and Public Transportation Financing, which called for completing such a transition by 2030. And in January 2006, the Transportation Research Board released the report of its special committee on the long-term viability of fuel taxes for transportation finance (on which I served), The Fuel Tax and Alternatives for Transportation Funding. It, too, recommended a longer-term transition to per-mile charging.

But there is a serious threat embedded within some of these calls for shifting from taxes to tolling. And that is the explicit call, especially from the Hudson Institute, to make toll revenues the new cash cow for all of surface transportation. That report says what America needs is a fully integrated transportation system. And “[t]he key for accomplishing this goal is to have the national, user-fee-supported highway network become a major funding source for all surface transportation activity, not just for roadways.”

The large and growing anti-auto/anti-highway coalition that some have called the “congestion lobby” has realized the potential of this approach. At transportation conferences over the past year or two, transit and environmental advocates who previously ignored tolling and HOT lanes are now all for these ideas—as long as some of the revenues (20% is often mentioned) are earmarked for transit subsidies.

But that “modest” amount is only the opening wedge, if anything like the Hudson proposal for a common pool of transportation money were ever realized. Funding projects that make good political sense but lousy economic sense is what drives the earmarking process in the current federal highway and transit program (see “bridges to nowhere”). Just think what would happen if every ridiculously wasteful small-town light rail project could get free federal money, along with the dreamers at Amtrak. What if maglev promoters and freight railroads could dip their straws into this honeypot, too? The incentives to waste resources on economically unjustified projects would overwhelm the needs of motorists and truckers for an expanded 21st-century tollway system.

To get a flavor of how far such a process could go, check out the recent proposal by Felix Rohatyn and Warren Rudman’s Commission on Public Infrastructure. They would create a National Investment Corporation to replace all current federal capital grant programs-for highways, transit, water and wastewater, Amtrak, etc. All such infrastructure-even public school buildings-would compete for funding from this NIC, which would issue 50-year, “self-financing bonds.” To be sure, we are reassured, only the highest-grade professionals would be making the judgments about which investments to make.

This is central planning writ large. And if we learned anything from the 20th century it is that central planning doesn’t work. Nobel laureate F. A. Hayek taught us that no centralized body of experts can possibly have sufficient local knowledge to make wise decisions. And Nobel laureate James Buchanan invented a whole field of study, public choice theory, that explains how politicians and government bureaucracies operate to advance the self-interests of individuals and interest groups, not some abstract public interest. So we should know better than to embrace grandiose central planning schemes, whether for all infrastructure or just for surface transportation.

We need serious debate on the future of highway finance, and intertwined with that is the need to rethink the federal role in surface transportation. Our TRB committee spent a great deal of time on that issue, and the report makes some very useful suggestions. First, in a world in which all major roadways are tolled, “Jurisdictions owning roads are likely to demand that mileage fee revenue be distributed accurately according to travel on each jurisdiction’s roads.” That calls into question the current federal function of redistributing fuel tax monies among states. Next, it suggests consideration of the idea of retaining highway user charges (tolls) for highways and developing “another dedicated revenue stream for transit” such as local sales taxes. Third, it suggests that federal and state roles be sorted out, with the federal role focused on compensating metro areas for the impact of interstate travel on their roads (e.g., trucks serving ports), while in return, “local governments would accept responsibility for funding purely local transportation services” such as transit. The report also notes that with value pricing on urban roadways, transit’s market share would likely increase, reducing its need for operating subsidies.

That kind of sorting out of local and federal roles in surface transportation makes a lot more sense to me than grandiose national schemes for hugely expanded cross-subsidies, all tapping into the growing pool of toll revenues. The TRB committee’s approach would allow the market to determine how much road capacity we’d have, based on how much motorists and truckers were willing to pay for.

The threat to tolling was spelled out by transportation researcher Alan Pisarski just before Christmas. In a private email, which I’m quoting with his permission, Alan said the following:

Today tolling holds a relatively “clean” place in highway finance, with a virtuous circle of operators/bondholders/road users holding each other in a market-based system of checks and balances. It is uncluttered with diversions and politicization. In our enthusiasm to expand its use, that which is its greatest virtue is at risk of being destroyed. Instead of the past 20-30-year slow destruction of the dedicated gas tax as a revenue device, it will happen in five or ten [with tolls] if we let it.

That’s a warning we enthusiasts for tolling and PPPs must take to heart.

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