Value-Added Tolling

Policy Brief

Value-Added Tolling

A Better Deal for America's Highway Users

The Interstate highway system is wearing out. Over the next two decades, nearly all of its 47,000 miles will have to be rebuilt, to make it serviceable for another 50+ years. In addition, several hundred major interchanges are horrible bottlenecks and need to be replaced with more modern designs, and some corridors need additional lanes to cope with growth, especially in truck travel. A major Reason study last year estimated the cost of Interstate reconstruction and modernization at $1 trillion.

That sum is far beyond what current federal and state highway funding can provide. Congress some years ago created a pilot program to let states attempt to reconstruct three aging Interstates using toll finance. Those would be exceptions to current federal law that bans tolling on existing non-tolled Interstates. Three states won slots in the pilot program, but so far have not gained political consensus on proceeding with any toll-financed reconstruction.

Highway user groups have been leery of opening the door to Interstate tolling, despite the lack of alternatives for Interstate reconstruction and modernization. They are afraid that state DOTs would jump at the chance to bail out all their highway and transit programs on the backs of Interstate highway toll-payers, rather than just rebuilding their Interstates. And Congress fears taking on the powerful trucking industry and its new anti-tolls coalition, even though many state DOTs are urging Congress to give them tolling flexibility.

Reason Foundation’s new policy brief, “Value-Added Tolling,” outlines a new way forward in this debate. It calls for tolling advocates to listen to highway users’ concerns and take them seriously in crafting a set of safeguards that would make next-generation tolling a true (and pure) highway user fee, not a cash-cow to solve a state’s overall transportation needs.

Two concerns still raised by the trucking coalition are being made obsolete by the technology of all-electronic tolling (AET). First is the legacy toll roads’ problems of congestion, emissions, and collisions at toll plazas. But all new toll roads and bridges (including rebuilt and tolled Interstates) will have no toll plazas at all, being designed from the outset for AET. The second concern is the high cost of toll collection; on legacy toll roads with cash and early forms of electronic tolling, collection costs ate up 20-30% of toll revenue, compared with 2 to 5% of fuel tax revenue needed for collection. But brand new toll roads, designed from the outset for AET and a streamlined AET business model, can achieve collection costs as low as 5% of toll revenue.

Four legitimate concerns of highway users are as follows:

  1. No value added, with tolling simply becoming an additional cost of a highway. That was evident in a number of previous state proposals to toll Interstates.
  2. Diverting revenues to other uses. A number of high-profile toll agencies (mostly in the Northeast) fund other highways, mass transit, canals, public buildings, and economic development out of toll revenues.
  3. Double taxation. On all current toll roads, users continue to pay existing fuel taxes in addition to the tolls.
  4. Diverting traffic to parallel routes. This is always true to some extent, but is much worse when toll rates are high in order to pay for more things than the toll road.

The Value-Added Tolling concept calls for a new model that would apply to newly tolled highways such as rebuilt interstates. Its aim is to make such tolling a true highway user fee, not a hybrid of toll and tax, and to respond positively to long-standing concerns of highway user groups. The five policies are as follows:

  • Limit the use of toll revenues to the tolled facilities;
  • Charge only enough to cover the capital and operating costs of the tolled facilities;
  • Begin tolling only when construction or reconstruction is finished;
  • Use tolls to replace-not supplement-existing fuel taxes.
  • Provide a higher level of service for tolled Interstates.

These policies are explained in some detail in the Reason study.

The Value-Added Tolling study has already begun to stimulate serious discussion among highway user groups. The study urges both sides in the debate over tolling-advocates such as state DOTs and tolling organizations as well as highway user groups-to consider whether these policies would provide a practical way forward to unleash needed investment in the trillion-dollar project of rebuilding and modernizing the Interstate highway system. Congress could make a start by expanding or mainstreaming the current pilot program to all 50 states conditional on the incorporation of Value-Added Tolling principles.