The Interstates, America’s most important highways, are aging and most Interstates will need reconstruction and modernization over the next two decades. A growing number of states are considering toll-financed reconstruction of Interstates, but over 90% of all Interstates are currently not tolled. Elected officials are wary of motorist and trucking industry resistance to “adding tolls to existing highways,” even though a rebuilt Interstate costing several billion dollars would be a new highway, except for the right of way.
One way to address this problem would be for the state government to offer rebates of the fuel taxes attributable to the miles driven on the replacement Interstates, partly offsetting the cost of the new tolls on those Interstates. This would address the long-standing concern about “double taxation” on existing toll roads, in which highway users pay existing fuel taxes in addition to the tolls, even though the toll rates are intended to fully cover the capital and operating costs of the toll roads.
State departments of transportation (DOTs) may well be concerned about the loss of needed fuel tax revenue if they provide such fuel tax rebates. Due to ever-increasing federal corporate average fuel economy (CAFE) requirements on new vehicles and the growing market penetration of electric vehicles (EVs), state DOTs might oppose providing rebates, which would reduce the amount of state highway funds they have available to maintain and modernize their state highway systems.
The purpose of this policy study is to assess the feasibility of providing fuel tax rebates for miles driven on reconstructed Interstates financed by toll revenues.
To do this, the author built and analyzed a hypothetical but realistic model of a toll-financed rural Interstate reconstruction program that includes state fuel tax rebates. The final numbers compare the amount of state fuel tax revenues devoted to the rebates and the amount of toll revenue generated from the newly tolled corridors. The toll rates used were set so as to cover both the reconstruction and lane addition costs and the ongoing operating and maintenance costs of the rebuilt Interstates. Hence, in exchange for devoting a portion of its future fuel tax revenue to rebates, the state would no longer have to use any of its fuel tax money for the long-distance Interstate highways in its state. Their capital and operating costs going forward would be covered by the toll revenues, freeing the remaining fuel tax revenues for all of the DOT’s other roads.
In the Fixing America’s Surface Transportation Act, or FAST Act, of 2015, Congress asked the Transportation Research Board (of the National Academies of Sciences, Engineering, and Medicine) to convene an expert committee to analyze the future of the Interstate Highway System and make recommendations. The consensus study report, published in January 2019,1Renewing the National Commitment to the Interstate Highway System: A Foundation for the Future, Transportation Research Board Special Report 329, The National Academies Press, 2019,
https://nap.edu/catalog/25334/renewing-the-national-commitment-to-the-interstate-highway-system-a-foundation-for-the-future. concluded that most of the system had exceeded or would soon exceed its original design life and that much of it would need “full-depth pavement reconstruction.”
Some corridors would also need widening to cope with conservative estimates of future traffic demand, especially in truck freight. It estimated the cost of reconstruction and modernization at $1 trillion over a 20-year period. Although the report acknowledged the advantages of up-front financing via toll revenue bonds, it instead recommended a massive increase in federal fuel taxes in an effort to replicate the original 1956 pay-as-you-go annual funding on a 90% federal, 10% state basis.
Unfortunately, neither Congress, nor the Trump administration, nor the Biden administration has taken the report or its recommendations seriously. The huge infrastructure spending bills currently debated ignore the need to reconstruct and modernize the Interstates. Consequently, it will be up to states (as the owners/operators of the Interstates) to address this major investment need themselves.
In recent years, four states have funded large-scale studies of toll-financed Interstate reconstruction: Connecticut, Indiana, Michigan, and Wisconsin.
Legislative and/or state DOT interest in projects to rebuild or replace individual corridors or major bridges has also manifested in Alabama (I-10 bridge), Colorado (I-70), Louisiana (two I-10 bridges), Missouri (I-70), North Carolina (I-95), Oregon (I-5 and I-205), South Carolina (I-95), Virginia (I-81 and I-95), and Wyoming (I-80).
As of this writing, none of these projects has been implemented, generally due to concerns about tolling the replacement capacity (though Louisiana is underway on developing the first of its two I-10 bridge replacements as a toll-financed public-private partnership).2Eugene Gilligan, “Louisiana Shortlists Four Teams for Bridge P3,” Inframation News, 15 July 2021. Rhode Island implemented tolling of only heavy trucks to help fund replacement of deficient bridges on Interstates and some other highways.3“Rhode Works,” Rhode Island Department of Transportation, n.d., https://dot.ri.gov/rhodeworks/index.php.
The author of this policy brief has published several reports suggesting the need for a customer-friendly tolling policy.4Robert W. Poole, Jr., “Can Interstate Tolling Be Politically Feasible? A Customer-Friendly Approach,” Policy Brief, Reason Foundation, March 2018. The idea is to address highway user groups’ main concerns about tolling, creating a better value proposition for those who will benefit from much better Interstates going forward.
Here are the principal concerns raised by highway user groups, and proposed customer-friendly policies:
- Concern #1: Toll Roads as Cash Cows
Solution: Provide legal protection of new toll revenues so they can be used solely for the capital and operating costs of the newly tolled corridors.
- Concern #2: High Cost of Toll Collection Compared with Fuel Taxes
Solution: Employ all-electronic toll collection with strong incentives for prepaid transponder accounts to keep costs down.
- Concern #3: No Value Added for Highway Users Solution: Begin charging tolls on the corridors only aftert the replacement capacity is opened for use.
- Concern #4: Double Taxation (i.e., paying both tolls and fuel taxes on the same highway)
Solution: Provide rebates of fuel taxes that are attributable to the miles driven on newly tolled Intersate corridor.
The main focus of this policy study is the fourth of these, but the analytical approach assumes the other three policies as well.