Commentary

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.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.