DOT Finance

Reforming the User Fee Approach for Funding Transportation

» The rejection of Pennsylvania’s bid to toll I-80 was premised on the idea that road fees should only benefit users of that highway.

After a year spent lobbying states to develop “alternative” revenue sources for replacing the federal government’s rapidly shrinking budget for roads and transit, Secretary of Transportation Ray LaHood rejected Pennsylvania’s request to implement tolls on I-80, citing a law that prevents such funds from being used for anything but the roads where they’re raised. The ruling puts the state in a $500 million fiscal hole and will significantly affect transit agencies from Philadelphia to Pittsburgh, all of which had been hoping to take advantage of the new financing source.

The government’s interpretation of the law suggests that it will be difficult for any state to implement tolls on existing Interstate highways without a promise that it will use all revenues for the sake of the maintenance and upgrade of the road where money is charged. In no way does this prevent future roads from being built and funded through tolls, but it certainly suggests that the chances of being allowed to charge users new fees to drive on existing roads are slim. The law will have to be changed if Mr. LaHood wants to continue pushing for “different” ways to fund transportation — or the Secretary will have to recant and begin advocating a gas tax increase to fulfill Washington’s obligation to pay for infrastructure maintenance and construction, a step the administration has repeatedly said it is unwilling to do.

I’ll refrain from commenting here on the merits of tolls; I have suggested in the past that taking advantage of this revenue stream in metropolitan areas with poor public transportation links could result in a significant decline in mobility for the poor and lower middle class.

Nonetheless, today’s explicit vision of transportation funding, premised on the idea that “user fees” should pay for improvements and expansions, must be challenged. The assumption, promoted for years, that a gas tax-financed highway network “pays for itself,” is no longer accurate. Nor does it allow for society to transition easily from existing travel modes to more sustainable ones. Apart from the benefits and pitfalls of tolling, the idea that a new revenue source couldn’t be instituted in Pennsylvania because the funds raised won’t go directly back to those paying them is an antiquated manner of going about building future infrastructure.

The highway system that “pays for itself” — the foundation of the user fee concept — is the progeny of the federal government’s decision to use fuel taxes as the primary funding source for new roads. The system enforces the idea that people who drive should pay for the roads on which they travel by contributing every time they fill up. The problem with this idea is that it only applies to federally funded highways: All the other roads on which people travel to get to those highways are funded by state and local sources, often not user fees. So even in its heyday, the system didn’t “pay for itself.”

The gas tax system also cannot keep up with changing automobile propulsion technologies; people driving more fuel efficient or even zero emissions vehicles simply are not contributing to the costs of road construction. Thus not only the recent decline in federal government revenues but also the demand from Secretary LaHood for a new and different way to pay for projects, even while maintaining his insistence on the user fee approach.

More importantly for advocates of alternative transportation, the user fee system doesn’t work for transit and other non-automobile solutions because they are invariably subsidized by revenues originating from other sources. In other words, while some mass transit spending is user fee-based (the fares on buses and trains), most of it comes from elsewhere.

How can we continue to argue that the transportation system should be funded through user fees when a significant part of the network contributes nothing to the larger account? The fact that road users contribute all of the funds to Washington’s transportation account continues to be a political problem, since only 70% of overall spending goes back into roads. If the user fee theory is the guiding principle, how can that be justified?

I have argued previously that an expansion of income tax sourced general fund spending, already the money being used to shore up the federal transportation gap in the absence of a new transportation bill, would be the most appropriate, most socially equitable way to improve overall financing for all types of infrastructure spending.

But in order to move forward with a long-term reliance on such money, the political obsession with using user fees to pay for more roads and transit must come to an end. While the idea that roads “pay for themselves” may sound romantic, it results in a system that spends far too much on roads; it also provides the rationality for decisions such as the recent Pennsylvania one since based on user fees alone, it makes little since to transfer funds raised on I-80 to transit elsewhere.

We need a political shift: a new conception of how transportation is funded to meet new needs.

Image above: Roads and Railways, from Flickr user woodleywonderworks (cc)

20 replies on “Reforming the User Fee Approach for Funding Transportation”

First off, I don’t think this will make tolling of existing Interstates more difficult. The Federal law is pretty clear and this was a case of Pennsylvania getting greedy. Toll the road, use the tolls just for the road, and you’ll get approved. It’s the “cash cow syndrome” which Pennsylvania fell into which is exactly why the Federal law was written this way.

Second, from your post, you must think it’s fair for users of a given road to pay a toll which will fund roads and transit dozens of miles (perhaps over 100 miles, which is the case with I-80 and Philly) away.

We already get that with the gas tax. We don’t need the double-dipping.

100 miles is actually pretty close to home, by gas tax standards. For decades it’s been standard to collect gas taxes from urban and suburban drivers, and spend the money on rural highways thousands of miles away.

The laws against road user fees (defined extremely broadly: fuel truck inspection fees count as user fees) being used for anything but roads were passed in the 1910s, due to intense pressure from the AAA. Once there were small gas taxes, the AAA and other highway groups lobbied to keep them low, on the grounds that they’re already paying, so they shouldn’t pay more for roads. That was decades before gas taxes were ever used as cash cows for anything.

Personally, what I think is fair is that there should be an honest national discussion about how much rich regions should be subsidizing poor regions. Canada does it well – it expects the provinces to foot the bill for most programs, but has a federal program giving direct subsidies to the poorer provinces. The US instead buries the subsidies in military pork, farm aid, transportation bills, and grants, leading to misconceptions about who subsidizes who.

Froggie wrote:

Toll the road, use the tolls just for the road, and you’ll get approved.

Even that has a pitfall all its own.

If tolls can only be used for road uses, that’s all the money will get, regardless of whether there’s a need for widening a road.

Tod Litman of the VTPI had an interesting reference in one of his studies. He points out that highway construction is a diminishing return.

Highways’ maximum utility is realized when it is first opened. Then, each additional lane-mile results in more costs and decreasingly useful benefits.

I enjoyed the article. I believe many Americans need to know that the cost of road-building materials has more than doubled in the last 5 years and has significantly impacted the affordability of roads. Whereas cheap petroleum and cheap road-building materials accelerated economic growth in the USA for the last 5 decades, expensive petroleum and expensive road-building materials are accelerating our budget deficits today.

We’ve been paying for the roadway equivalent of the 12-course meal for decades. We can no longer afford this and instead of figuring out how to divert money from other areas of our budget, we should consider a road diet. We should not let roadway costs eat into the limited funds we have available for transportation, but rather should find more cost-effective ways of moving people around.

Seattle’s local politicians have been counting on tolling all the local interstate highways, starting with I-90 to pay for local state highway projects and local transit improvements. It will be interesting to see what ‘dampening effect’ this will have on the cash grab off the Interstates.

Without user fees to put a cost on using the infrastructure, roads and other methods of transportation suffer from the tragedy of the commons. If general tax funds are used to build and repair roads and there is no cost to drive on them, interstates will continue to be rammed with traffic in urban areas, and drivers will continue to drive 20 miles to Walmart on a Friday evening to “save” $20, even though the cost of congesting and mileage is twice that amount.

Because drivers usually only pay attention to the price of gas per mile (if they even consider that), most think nothing of driving 2 miles to “save” $1 dollar, even though the full cost of driving is between 50 and 100 cents per mile.

User fees by mile traveled, if instituted on highways and streets, will encourage people to walk to local shops, or ride a bike to the beach instead of driving and hunting for scarce “free parking”. Raising the cost of driving per mile will also make it possible to price public transit fairly.

If you are worried about the effect of these policies on the poor, students, families and the elderly, then we should advocate for subsidizes for these populations. Transit tickets are half-price for most of these groups. Employers could be encouraged to cover part of the cost of commuting (which would given them a reason to prefer local employees with shorter commutes, or to offer subsidized transit passes).

Taxes on gasoline and diesel also have the beneficial effect of reducing the price of oil. Since most of our oil will be imported in the future, every dollar we spend on it goes straight out of the country, to be invested by Saudi Arabia, Venezuela, Libya, Russia and other “friendly” nations . That is a huge drag on economic growth. Even if you don’t believe CO2 is a problem, or deny that oil is a limited resource, you probably don’t want the a huge part of the US economy exported to buy limited resources which could be replaced by local coal, nuclear or renewable energy. An tax on oil will be spent on the domestic economy, whether by maintaining roads, hiring bus drivers, or spending on education or healthcare. Half of every dollar on oil goes to foreign investors or nations, leaving our economy.

Now, I agree that transit should probably be subsidized by direct general taxes (on property, land value or income, perhaps sales or value added), rather than having a funding source that varies with the price of gas or the number of miles driven. But using road fees to provide transit in the same corridor as a highway, via rapid buses or an improved rail line, would also provide people with limited means a cheaper way of getting around. In the same way, parking meter revenue can be used to improve sidewalks, bike paths and transit stops in a commercial district, so local residents and business see the benefits of the parking fee.

Perhaps if Pennsylvania had agreed to spend the money on transportation improvements and public spaces along the freeway corridor, the toll would have been justified.

Joseph, using your argument of road fees providing transit in the same corridor, it would make more sense for PA to toll I-95 or the Sure-Kill to fund SEPTA. I-80 isn’t even close to Philly. With the PA Turnpike toll increases, one could at least make the argument that the Turnpike goes through the Pittsburgh and Philly areas. Not so with I-80.

BTW, agree 100% on your parking meter comment.

So what if I-80 doesn’t serve Philly? Pennsylvania funds things out of the general fund that only go to the rural parts of the state. So does the federal government. Dollars to donuts, Greater Philly and Pittsburgh are net state tax donors.

If I-80 wasn’t there the alternatives for traffic crossing Pennsylvania would be the Pennsylvania Turnpike or the New York State Thruway, I would think most people, including truckers, would be glad to pay comparable tolls to avoid the congestion on the PA Turnpike or NY Thuway.

It’s a real disappointment to see that the federal government didn’t approve this. It would have been a great way to reduce unnecessary trips and reduce vehicle miles traveled. It also would have provided much needed funding for roads and transit. I mean the gas tax isn’t funding even the upkeep of roads so some new revenue sources are needed. I really don’t get it considering the governor and state supported it.

I was thinking though why not do something like put up tolls use the toll money just to upkeep I80 and then take the money that would have been used for I80 and put it elsewhere.

Brandi, that’s what many people are wondering. And had Pennsylvania requested just that (I-80 tolls would go to just I-80), it would have been approved. True, it wouldn’t be the “cash cow” that Pennsylvania was banking on, but the gas tax money they use on the Interstate could then be applied elsewhere, and they’d have gotten SOMETHING out of it. Instead, they gambled for the whole dinner plate. And lost.

It was an almost perfect tax from the politicians’ point of view: Most of the users of I-80 are probably from New Jersey, New York, New England, Ohio, and points west. How delicious it would have been for the out-of-state drivers to be subsidizing transit for Pennsylvania citizens. But it is not to be.

Now residents of the state’s big cities will continue to subsidize out-of-state drivers on I-80.

They where talking about using new tolls to pay to widen sections of Interstate 81 in Virginia. I thought that was a good idea in that the toll money collected from the users of the highway that would pay for the muti billion dollar project to widen it. What they could also do to prevent dubet from growing on these tolled highway widening projects is to break up these maga projects into smaller highway widening phases which could be better funded from the highway tolls then trying to spend all their time begging for money from vdot or the highway fund. I think tolls collected on highways though should go back to that same highway or it’s general area.

A strange idea I thought of to build sidewalks and bike paths and try to attack Obesty in the US would be to place a small $0.01 to $0.05 cent tax on eather fast food places that seem to be poping up like weeds in the suburbs and use the tax money from this fast food junk food fund to start a sidewalk and bike path trust fund to pay for new sidewalks and sidewalk repair and possiby funds for parks and playgrounds.

The real problem is that there is no logical reason that some Interstates are tolled and others are not — they’re casualties of history. So in the Northeast we have tolled Interstates built as turnpikes before the Interstate system and the associated rules of the toll-free era were established, and newer toll-free Interstates running through less populated areas. Why is the PA Turnpike (I-76 and its associated arms I-276 and 476) tolled yet I-80 is not? There’s no good reason for the disparity, and the lack of tolls has encouraged the sprawl of Northern New Jersey into Northeastern Pennsylvania (yes, believe it or not a not-insignificant number of people now commute from the Poconos to North Jersey and even NYC).

Federal rules still allow tolling when it acts as congestion pricing to reduce pollution in non-attainment areas, though, right? And in those cases, they could use the toll revenue for other forms of transit nearby? I haven’t been able to get clarification on that. Thanks.

The HOT lanes in Miami resulted from conversion of one HOV lane and addition of one new lane by taking some of the shoulder and reducing lane widths on the remaining lanes. There was also a bit of scandal in that they did not include entrance/exits to the HOT lanes in North Miami that were included in the original plans presented to the community. That made the lanes effectively a high-priced funnel for Broward commuters to/from the Miami CBD (except the lanes stop a bit short of actually reaching the CBD). The funding for transit in that plan is miniscule, with most of the revenue siphoned off for other highways via the Miami-Dade Expressway Authority. They also cut off highway access to Golden Glades from the south, which is a major transit hub – unless you’re in the HOT lanes. Other urban areas would be wise to study the good and bad lessons from that example.

As for funding transport in general – I’d like to see more tolling, especially on any new capacity and where it is used to maintain free-flow conditions that significantly benefit freight. The feds should immediately bump the gas tax up to 20c (from 18.4) to restore trust fund solvency and give MPO’s authority to levy an additional 5c so they could decide on local project priorities and fund them quickly without all the federal politics. By keeping this additional funding contained to urban areas, the money would be sure to get spent there and it could reduce rural resistance to using gas taxes for urban transit. MPO’s should also be investigating parking fees since the cost of parking at the destination is one of the most significant determinants of transit demand.

Another thing to explore is shifting the gas tax from a per-gallon tax to a sales-tax type percentage on the price. That tends to be more volatile, but with proper accounting and reserve policies, it would have a few advantages. First, when there is a spike in prices like 2008, more money would be available and could be shifted into transit operations. Secondly, it aligns the transport/environmental/national security/trade balance goals. The current per-gallon mechanism means DOT needs to see increased gasoline sales to get additional revenue, but with a percentage fee, they would be less reliant on sales and would instead have the better incentive to let gas prices rise over time, thereby discouraging demand and incentivizing transit more. It would also be easier to play the political game of lowering the percentage fee when prices get too high and raising it back up when they go lower. That could even be built in to the tax. It would moderate the impact of price fluctuations, although that could obfuscate the market pricing mechanisms role in matching supply and demand. Even with that change, We probably would still need additional sources of revenue if hybrids and pure electric cars really start to account for a larger market share of vehicles.
Transit also needs a big incentive to move towards electric, and alternative fuels, so we aren’t crippled by fuel price volatility again. The Dept of Defense just issued a report saying they expect petroleum shortages to return by 2015. Given the lifespan of our vehicles, we are already behind schedule to transition.

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