Toll Collection Cost Comparable with Fuel Tax Collection Cost, Finds New Reason Study

Conventional wisdom says that fuel taxes are the most efficient way to pay for highway use, costing only 1% of the revenue collected to administer. By contrast, conventional wisdom says collecting tolls eats up 20 to 30% of the revenue collected. But a new study from the Reason Foundation says both of those beliefs are wrong. The real cost of collecting revenue via fuel taxes is actually about 5%, and 21st-century all-electronic tolling (AET) can cost as little as 5% of the revenue collected.

The principal author of the study is Daryl S. Fleming, PhD, PE. Dr. Fleming has been helping implement electronic toll collection for nearly 25 years, both as a toll operator and consultant. He and one of his three co-authors helped develop the world’s first AET system, implemented 15 years ago on the then-new Highway 407 electronic toll road in Toronto.

Dr. Fleming and colleagues critically analyzed three recent reports that assessed the costs of collecting highway revenues via tolling. All three were primarily backward-looking, thereby capturing costs that are rapidly disappearing as toll facilities shift from cash to electronic tolling. They also identified and studied in some detail three U.S. toll operators that have pioneered all-electronic (cashless) tolling. Despite all three being small agencies, they were able to achieve the low costs of collection that might be expected of much larger agencies that can spread fixed costs over a larger volume of transactions. Extrapolating their findings to larger toll roads, they estimate that AET can achieve a cost of toll collection as low as 5% of the revenue collected, using streamlined business models.

Fleming and colleagues also used information from a recent National Cooperative Highway Research Program report (and other sources) to re-estimate the cost of collecting highway revenue via per-gallon fuel taxes. Thanks in part to new information on fuel-tax evasion and exemptions, as well as a detailed review of tax and other costs hidden within the fuel-delivery supply chain, they estimate that the true cost of fuel-tax collection is close to 5% of the revenue collected.

These findings have major implications for the future of highway finance and funding. Some of the concerns over shifting from increasingly inadequate per-gallon fuel taxes to a per-mile charging system has been the assumed much-higher cost of charging by the mile. The authors suggest that, for the limited-access highway system (i.e., urban expressways and major highways such as the Interstates), it would be feasible today to begin the conversion from gasoline and diesel taxes to AET. This would not require any equipment in the vehicle other than a standard transponder (such as the E-ZPass transponder in the Northeast and Midwest). That would be a major first step toward a possible broader shift to per-mile charging on other roadways.

The full study, Dispelling the Myths: Toll and Fuel Tax Collection Costs in the 21st Century, is here (.pdf) and a summary is here.

Reason’s transportation research is here.