Interstate Tolling: Financing Reconstruction and Shifting to Mileage-Based User Fees

byRobert W. Poole, Jr.Director of Transportation PolicyReason Foundationhttp://reason.org/transportationbob.poole@reason.org

Why the current interest in tolling?

Large and growing highway funding shortfall;Vehicle miles traveled have increased 10X as fast as highway lane-miles;Little or no political will to increase fuel tax rates;Surveys show people prefer tolling to tax increases, for new roadways.

Interstate funding shortfallAnnual total Shortfall

Current $20.0B --

Sustain $24.3B $ 4.3B/yr

Improve $43.0B $23.0B/yr

Source: FHWA 2010 C&P Report, 2009 $

Interstate system investment estimates

Rebuild 233 interchange bottlenecks: $128BAdd HOT networks in 19 most-

congested metro areas: $139BReconstruct and modernize long-haul Interstates, starting with key truck routes: $1.5-2.5 trillion?

Advantages of tolls over gas taxes

Tailored to the cost of each roadFairness: those who benefit paySelf-limiting: roads onlySource for adding capacity when neededEnsures long-term maintenanceCan be used to control congestion

Advantages of gas taxLower cost of collection (assumed)

ButForthcoming Reason study estimates cost of all-electronic tolling (AET) can be as low as 5% of revenue collected.And . . . that real cost of fuel tax collection approaches 5% of revenue.

21st-century tolling Permanent funding sourceNo toll booths; all-electronicVariable rates (if congestion)Inflation-adjustedNo impact on state bond ratingHighways as network utility; tolls as utility bills.

Value-added tolling principleDon’t put tolls on “existing” highways.Do use tolls where you add value for highway customers:

New highwayMajor capacity additions Major reconstruction

A reconstructed highway is not “existing capacity.”

Political feasibility?NCHRP Synthesis 377, public opinion & tolling:

Public wants to see valuePublic prefers tangible rationalesPublic cares about use of revenuesPublic learns from experiencePublic uses knowledge & informationPublic believes in equity and fairnessPublic wants simplicity

Public favors tolls over increases in taxes, for needed highway projects.

Wisconsin Interstates tolling study (value-added tolling)

$26B cost to reconstruct and modernize 743-mile system.Assumed baseline toll rates of 5¢/mi. for cars and 20¢/mi. for trucks.Rural Interstates: NPV of revenue =110% of NPV of costsUrban Interstates: NPV of revenue = 71% of NPV of costs.

Urban Typical Sections for Scenario 3

Rural Typical Sections for Scenarios 3 and 4(Also used for HPV configuration analysis)

Interstate & expressway tolling as first phase of MBUFs

Conventional view (Big Bang approach)GPS box in every vehicleProgram led by federal governmentDrawbacks: Big Brother, very high cost

AET for Interstates and expressways:Use current low-cost AETEquip on/off-ramps only; charge per mileFund reconstruction of most important highway infrastructure

Role for public-private partnerships (PPPs)

Especially suited to major projects (mega-projects)Significant risk transfer to concession firm:

Construction riskCompletion riskTraffic & revenue risk

Incentive to design to minimize life-cycle cost, not initial costProper maintenance assured, long-termGrowing U.S. as well as global track record.

Track record of PABs and TIFIA loans on PPP toll projects

Four tolled mega-projects financed during credit-crunch years:Capital Beltway (VA): June 2008 $1.9 billionI-595 (FL): March 2009 $1.6 billionN. Tarrant Express (TX) Dec. 2009 $2.1 billion LBJ I-635 (TX) June 2010 $2.8 billion

Total: $8.4 billion

Needed reforms beyond MAP-21Remove limits on number of reconstructed Interstates with toll finance.Retain current limits on use of toll revenues (supported by highway user groups).Retain recently expanded TIFIA loan program.Remove the $15B cap on tax-exempt private activity bonds (PABs).Facilitate true nationwide AET interoperability.

Conclusions

Large increase in highway investment to modernize Interstates and expressways.Tolling is a better user fee than fuel taxes.Value-added tolling is politically feasible.Reconstruction is not “tolling existing highways.” Congress should open the door to expanded tolling, in the reauthorization bill.

Questions?

Contact information:http://reason.org/transportationBob.poole@reason.org

Frequently asked questions1. Isn’t tolling “paying twice? Not if

project can’t be afforded via fuel taxes.2. Isn’t a toll the same as a tax? Not if it’s

a true user fee, used only for the toll project.

3. When do the tolls come off? Never. Will be needed for proper maintenance and eventual reconstruction.