Policy Study

Putting Customers in the Driver’s Seat

The Case for Tolls

Executive Summary

Highway tolls should not be viewed as a last-resort or temporary financing mechanism. Rather, this study argues that, for a number of reasons, tolls should become the payment mode of choice for 21st-century highways, gradually replacing fuel taxes.

Because operating costs are comparable with capital costs over a highway’s life, it is wrong to maintain that tolls should come off as soon as the initial capital costs have been recovered. And even on well-designed roads, pavement completely wears out after 30 or 40 years (the age of many U.S. freeways and Interstates) and must be replaced–often at much higher cost than it took to build the road originally.

Thanks to a doubling of average fuel economy since the 1950s (from14 miles/gallon to 28 mpg), today’s fuel taxes bring in far less revenue per mile driven than those of 40 or 50 years ago. According to the Federal Highway Administration, simply preventing the present highway stock from deteriorating would require an additional $8 billion per year in capital spending. And to keep pace with projected growth in population and travel, highway investment would have to increase by another $32 billion per year. To generate that level of investment would require massive gas-tax increases.

The alternative to major gas-tax increases is to selectively increase the use of tolling, for specific projects that will produce direct benefits to users. Already about 10 percent of major U.S. highways are operated as toll roads, and a number of fast-growing urban areas-including Dallas, Denver, Houston, Miami, Orlando, Orange County (Calif.)-have turned to toll roads to keep pace with their growth.

Tolls offer a number of advantages over gas taxes, including:

  • Fairness: only users of a toll road pay for it, and directly in proportion to their use;
  • Large Scale: a toll revenue stream permits large sums to be raised in the capital markets, making it possible to build large-scale projects in a short period of time;
  • Less Pork: having to prove to the bond market that a toll road is viable tends to weed out pork-barrel projects;
  • Greater Safety: the accident rate on toll roads is one-third less than on comparable free roads;
  • Better Maintenance: bondholders insist on legally enforceable requirements for proper ongoing maintenance, for which there is no counterpart on free roads;
  • Traffic Management: time-variable tolls (high at rush hour, low at off-hours) smooth out traffic flows, greatly reducing rush-hour congestion.

Much of the traditional opposition to tolling can be addressed with new methods and technology. Toll plaza congestion can be reduced (and later eliminated) via nonstop electronic toll collection. Fully automated toll roads, designed completely without toll booths, are in operation today in Toronto, Canada and Melbourne, Australia, and others are on the way. We need never build another toll booth or toll plaza, ever again. And we can begin now to phase out all existing toll booths and plazas.

“Double taxation” can be eliminated by giving rebates to toll road users for the amount of gas taxes they have paid for all miles driven on toll roads. Such programs already exist on toll roads in New York and Massachusetts. Electronic toll collection makes it easy to calculate and pay the rebate amounts. Eliminating this form of double payment should reduce opposition to expanded use of tolling, since drivers would then be paying either a toll or a gas tax-but never both.

States could encourage a shift toward greater use of tolling by enacting gas-tax rebate programs and also by enacting modern public-private partnership laws, under which private consortia can finance, build, and operate tolled bridges, tunnels, and highways. And Congress could encourage this trend by rewarding states for phasing out toll booths in favor of all-electronic tolling and by creating a level playing field in highway finance for toll road bonds. A positive tolling agenda of this sort ought to win support from highway users, taxpayer groups, and those environmental groups that strongly support the user-pays principle.