Toll Story

As the United States struggles to revive its ailing surface transportation network Stacey Sheppard asks what the future holds for America’s interstate highway system.

“The movement towards effective and practical solutions that will allow the US to address its infrastructure shortcomings in surface transportation is long overdue”

The nation's vast surface transportation network is in a very poor state indeed. The 2009 Infrastructure Report Card issued by the American Society of Civil Engineers awarded America's roads a D-, denoting a less than poor condition. Crumbling and overstressed highways are the victims of consistent funding shortfalls and the need to rebuild and modernize the 50-year old highway system becomes more acute with every year that passes.

Construction, operation and maintenance of the 160,000 miles of roadway that makes up the National Highway System (NHS) has traditionally been financed by the Highway Trust Fund (HTF), which was established by the Highway Revenue Act of 1956. This Act authorized that revenues from certain highway-user taxes could be credited to the HTF to finance the highway program.

Historically a combination of gas tax, diesel tax, and tire tax has been used to achieve the funding needs. However back in 2006, Jack Basso, Director of Management and Business Development at the American Association of State Highway & Transportation Officials (AASHTO), gave a presentation entitled The Future of the Highway Trust Fund in which he stated that the HTF was running out of money and that there would be a deficit as early as 2009. Sure enough in 2008, Congress had to rescue the fund with an $8 billion cash injection and the future remains bleak.

A major cause of the shortfall in the HTF is the decline in revenues generated by federal and state gas taxes. According to Greg Cohen, President and CEO of the American Highway Users Alliance, one of the main problems with the gas tax is the fact that it is too low. "The gas tax is not indexed to inflation so it has been at a flat 18.4 cents per gallon since 1993. Many years have passed and as inflation has increased along with the cost of materials and construction, the gas tax has been unable to keep up with the need. Our view would be that if you were to index the gas tax to inflation as well as to fuel efficiency in vehicles, gas tax should go up."

Something that is serving to further exacerbate the decline in gas tax revenue is the economic situation coupled with the nations drive to become less dependent on fossil fuels. As the economy has slowed down, so has mileage driven and improved technology has resulted in more fuel-efficient vehicles, which means that gas tax revenues are now fairly stagnant.

The resulting funding shortfall has spurred much debate as to how the US is going to find alternative sources of revenue to plug this gap. In July this year, Jack Basso, gave a speech at the American Chamber of Commerce Executives' Annual Convention entitled The Future of Infrastructure in which he stated that the gas tax remains viable for 20 years, but that it would need to be increased by five to eight cents per year over the next five years, after which it should be indexed to inflation. He also recommended that, in the long-term, alternatives to the gas tax need to be implemented by 2025.

Truth be tolled
What these alternatives should be is the main point of discussion and mainly revolves around the introduction of market mechanisms. Michael Replogle, Global Policy Director at the Institute for Transport and Development Policy, sees paying for road use as a possible solution. "Tolls are likely to play a growing role both for finance and operational management of highways in the US. This is appropriate and polls show that the public often sees tolling as a fairer way to pay for highways than gas taxes," says Replogle. "Many environmental and transportation advocates agree that new road capacity should be priced and managed and that it is time to begin a phased transition to time-distance-place road user charges."

Cohen agrees that toll roads will play an important part in bridging the funding gap. "At the moment, toll roads are really the only way that we could build new major roads in America. There simply is not enough funding through the gas tax to build major toll-free roads the way there used to be," he says.

Director of Transportation Policy at the Bipartisan Center, Emil Frankel, is a strong advocate of user-fees and believes that what is needed is a shift to more directly user-related fees as a way of stimulating improved performance in the system. "There is currently a prohibition against tolling of the interstate highway system. I strongly advocate that this prohibition be removed so that states and metropolitan regions could impose tolls," he says. "I believe that the federal government should be permissive so that if states and localities want to make greater use of tolls and user-related fees, they should be allowed to do so."

One of the main concerns with tolling the highway system seems to revolve around weather tolls should be used purely for new construction or whether they can also be placed on existing free federal highways that have been built with federal funding.

Highway robbery?
Tolling existing federal highways has been seen as a band-aid solution by many opponents who claim that this strategy is merely a double taxation of the same asset. Ronald Utt, a senior research fellow at the Heritage foundation and expert on transportation policy, sees how some people could view it in this way. "You could argue that you've already made the investment and you have paid for it with your gas taxes. But at the same time you could argue that all those payments have already fully depreciated because the interstate highway system was largely completed in the early 1980s," he says.

Replogle points out that many opponents of tolling - especially truckers - argue that tolls are double taxation and that this is the result of state DOTs and road builders telling a story for half a century that gas taxes pay for the roads. But he is quick to add that this story is not entirely true and that a lot of general tax revenue has been used in the past to support local roads and broader transportation system costs.

Others believe that the idea of tolling being a double taxation is entirely unfounded. "The issue of double taxation is a total straw man," says Frankel. "It is true that federal gas taxes or state bonding have paid for the construction of interstate highways, but if a road has to be completely rebuilt and restored or expanded or replaced, nobody has paid for that."

The concerns of the Highway Users Alliance are understandably more user related. Greg Cohen says: " Our group and others are very concerned about slapping tolls on existing roads that were paid for with taxes. The problem here is that both citizens who've made their housing and work decisions and companies that have their logistics operation based on existing roads would be completely held hostage to a plan to put tolls on those roads."

Despite the concerns regarding the tolling of the highway system most observers are in agreement that new sources of revenue will be needed, whether this comes from tolling or other means of monetizing the system. Earlier this year the National Surface Transportation Infrastructure Financing Committee published a report in which it detailed its recommendations for a move away from motor fuel taxes and towards a more direct federal mileage-based taxation.

Pay-as-you-go
Robert Puentes, a senior fellow and Director of the Metropolitan Infrastructure Initiative at the Brookings Institution, believes that a Vehicle Miles Travelled (VMT) tax is more a long-term solution due to the technological issues involved in imposing such a system. However he does see benefits in such a system including a better allocation of revenues, costs and resources.

For Ronald Utt however, a mileage tax simply mimics a gas tax. But whereas the fuel tax is inexpensive to collect as this is done at the wholesale level and then simply passed on, he points out that if a mileage tax were introduced the fees would need to be collected from individuals and the administrative complexity and the cost of this would be substantial.

The idea of a VMT tax certainly doesn't appear to be quite as controversial as that of imposing tolls on existing free federal highways however. Cohen is of the opinion that a VMT tax would gain greater support from the American public than the imposition of tolls. This is because everyone would be subject to these user fees and not just people who live near certain major roads so the system of VMT is in fact fairer.

However a mileage tax will also encounter problems as Cohen explains: "Of course here we have great concerns about privacy and whether or not the government is following you around. Sometimes those concerns are not rational but I think that pilot testing those approaches in limited areas to gage public acceptance and to make sure that privacy concerns are taken care of is a prerequisite." 

Value for money
"Value pricing" has been suggested as an alternative method of generating the much needed revenue for the highway system. The introduction of High Occupancy and Toll (HOT) lanes, which are free to transit and ride-sharers, but also to solo drivers for a variable toll based on current congestion levels in the HOT lanes, has gained a lot of support.

Cohen highlights the fact that the conversion of under-utilized High Occupancy Vehicle (HOV) lanes to HOT lanes has the potential to be a great success in the US. He believes that under-used HOV lanes could operate more effectively through the addition of non-high occupancy vehicles that pay a toll.

Many observers see the expansion in the use of HOT lanes as a path to the introduction of "congestion pricing". Replogle says: "HOT lanes are a reasonable way to introduce congestion charging strategies into regional travel markets to demonstrate the concept. But HOT lanes are not effective as a long term strategy." He goes on to explain that congestion charging makes a great deal of sense and enables corridor operators to manage demand to prevent the routine loss of up to half of road through-put capacity that occurs during peak demand when traffic is in stop-and-go conditions. "Experience from around the world, from places like London, Stockholm and Milan, shows that the public will accept the tolling of previously free roads if they see they are getting a better performance and expanded travel options," says Replogle.

On the flip side of the coin, there are many people who believe that implementing congestion charging in the US, similar to that in London for example, would not be successful. "I don't think congestion pricing will work here except potentially in New York, San Francisco and possibly Washington DC, because I just don't think that businesses would stay within an area that is tolled," says Cohen. "Here there are so many different cities competing for business that if a medium-sized city was to impose a cordon price around its downtown area it's very likely that the businesses would simply move outside the cordon area or to a different city that doesn't have the pricing structure."

For Ron Utt, the congestion charging system in cities like London is less than desirable. "The London congestion is extremely high for what you're getting and there is no other option." He sees this option as far more discriminatory than the use of HOT lanes for example. At least with HOT lanes highway users have access to a free option as long as they are willing to accept a lower quality service in terms of speed and congestion levels.

Whichever option is adopted to increase funding for the modernization of the highway system, the question remains as to how the implementation will be funded. Increasingly cash-strapped states are considering public-private partnerships as a means of generating the needed finances.

Robert Puentes believes this is a viable solution to the funding shortfall, but at the same time he is of the opinion that it is a lot to lay at the feet of the private sector and that by no means should the private sector be called upon to play the primary role in filling the funding gap.

The same is true for Replogle who believes that the P3 approach can be a valuable tool to help finance, develop, operate and foster innovation in transportation systems. But at the same time he says that they can be used to do both good and bad things. "They should not be used simply to deal with public entity cash-flow problems. They should instead be considered for improving operation of existing roads, transit systems, parking, bicycle and pedestrian systems and overall system management infrastructure," he explains. "If P3s are used simply to build more roads faster or to cash-out the present value of publicly owned infrastructure with long-term leases to solve short-term budget woes, they will move us away from sustainable transportation."

The movement towards effective and practical solutions that will allow the US the address its infrastructure shortcomings in surface transportation is long overdue. However the momentum that is now building will be welcomed by not only those who are actively involved in transportation policy, but also but the highway users themselves.

"Over the last ten years we've seen a substantial change within the transportation community," says Frankel. "This has moved from academia and scholars to transportation professionals and transportation executives. The last important hurdle is elected officials. Whether it is going to be accepted by Congress and whether Congress will allow these programs to go forward at the state and local level remains to be seen." 

For whom the road tolls
If any of these funding systems are approved by Congress, the next step will be ensuring that they have the support of those who use the highways. For Cohen the major issue here is the public's distrust of the government. "There's a great deal of concern that politicians would try to make roads into cash cows for a variety of government purposes, some involving highways, but some potentially involving a diversion to non-highway purposes," says Cohen.

For Ron Utt, one way to gain public acceptance is to ensure that whatever system is imposed is fitting for the area. "The serious congestion tends to be isolated in a relatively small number of metropolitan areas like New York, Washington DC, Los Angeles and Houston. The rest of the country has no congestion that is anywhere near this and so the idea of coming up with a national program in which everybody pays a higher premium, in some cases for problems that don't exist, will not sit well," explains Utt. "This is the fundamental flaw of trying to implement a national transportation policy in the United States. What I think is the best solution is to continue to devolve more and more investment and financing to regions and allow them to determine what the optimal solution is and what revenues should be used to pay for them."