Value-Added Tolling and Interstate Modernization

The largest opportunity for toll concession P3 projects is a several-decade effort to rebuild and modernize the Interstate highway system

I’ve received a lot of feedback on last month’s column suggesting that by far the largest opportunity for toll concession P3 projects is a several-decade effort to rebuild and modernize the Interstate highway system. The most common reaction is enthusiasm for the idea, but with great concern about its political feasibility.

“Interstate tolling” has been proposed numerous times, sometimes by state officials who envisioned the toll revenue as a large new funding source for their overall transportation program. These efforts have all failed, generally after all-out opposition from the trucking industry, which portrays such an effort as “putting up toll booths on the Interstate” and as “double taxation.”

The sad thing is that those charges ring true of most such proposals. When Pennsylvania tried to use the existing federal pilot program that allows three states to each reconstruct a single Interstate using toll finance, its plan for I-80 envisioned large annual surpluses to spend across the state, for non-tolled highways and urban transit systems alike. Both of its attempts were rejected by the U.S. DOT because they violated the provisions of the pilot program, which specifies that the revenues be used only for the reconstruction, operation, and maintenance of the Interstate in question. Moreover, no such state proposal has ever addressed the “double taxation” point by offering rebates for the fuel taxes paid on the tolled highway-even though this would be easy to do with today’s all-electronic tolling systems.

Most of the extensive media coverage of the Reason Foundation’s Interstate 2.0 study referred to our proposals as “putting tolls on the Interstates.” That phraseology feeds right into the trucking industry’s position that implies charging people to use something they already use for free. And since that is likely to be the view of the average American knowing only a bit about the idea, it’s easy to understand why AAA and its state affiliates have never embraced Interstate modernization financed by toll revenues.

But let’s step back and think about this situation. Truckers (ATA) and motorists (AAA) are the customers of the highway system. What kind of sense does it make to ignore what customers think and try to cram a new highway funding approach down their throats? A far better strategy is to take their concerns seriously and offer them something better than they are getting now.

And that is the idea behind the “value-added tolling” concept incorporated in Interstate 2.0. There are four key components of the concept, as follows:

  1. Tolling on a corridor will only begin after the facility has been reconstructed and modernized (lane additions if needed, interchange bottlenecks revamped, etc.). This is a standard principle in public utility economics-a utility cannot include a new facility in its rate base until it is “used and useful,” rather than while it is under construction.
  2. Toll revenues will replace fuel taxes on the rebuilt corridor, to avoid “double taxation.” That means the all-electronic toll system will calculate rebates based on the estimated fuel consumed by a particular class of vehicle for driving the tolled miles in question.
  3. The replacement facility will offer not only smoother pavement but also less congestion, since it will have enough lanes to offer Level of Service C on rural corridors and LOS D on urban corridors, higher standards than state DOTs use today.
  4. Tolls will be kept modest, by a guarantee that the revenues will be used only for the capital and operating costs of the Interstates in the state in question.

These principles have never been offered to highway users in previous tolling proposals. If properly communicated to motorists and trucking organizations, I believe they can at the very least neutralize opposition, if not gaining outright support.

Ironically, the greatest pushback may come from state DOTs, which may object to points 2 and 4 on the grounds that “We need the money!” It’s quite true that state DOTs are struggling with flat (at best) federal funding and unsustainable state fuel tax revenues going forward. So that is an understandable response. However, if incorporating the above provisions makes the difference in gaining enough support to actually do toll-financed reconstruction, a state DOT will be faced with the choice of accepting those points and ensuring its Interstates can be rebuilt and modernized with toll financing–or having no good way to afford such a program.

State DOTs need to do the math on this. For automobiles, fuel taxes bring in about one cent per mile, whereas the Interstate 2.0 proposal uses 3.5 cents per mile as its baseline toll rate, and that rate is CPI-adjusted going forward. Hence, a state that implemented toll-financed reconstruction and modernization would still be way ahead in terms of revenue even after granting a penny a mile rebate to motorists.

The bipartisan tolling amendment that almost made it into the Senate version of MAP-21 last year was consistent with the fourth point above. The other three points could be adopted by state enabling legislation after consultation with highway user groups. All we really need in the next reauthorization is to mainstream the existing three-state tolled-reconstruction pilot program by (1) expanding it to all 50 states and (2) extending it to all the Interstates within a participating state. The first provision will increase the likelihood that at least one pathfinder state will figure out a politically viable way of gaining legislative and public approval to implement the idea. And the second provision will enable a state DOT to lay out a 20-year program to reconstruct all its Interstates with toll finance, with the most-needed projects done first but everyone knowing that “their” Interstate would be modernized in turn.

Robert W. Poole Jr. is the Searle Freedom Trust Transportation Fellow and Director of Transportation Policy at the Reason Foundation.