I did a recent post for CityLab: How to Make Mass Transit Financially Sustainable. The Auto/Highway System deserves similar treatment.
The first toll road in the US, the Snicker’s Gap Turnpike opened in 1786, connecting Alexandria, Virginia with its hinterlands. This set off an era of toll-road building, mostly for intercity routes, in the United States which lasted through the second half of the 19th century. Toll-roads were never very profitable, but often broke even, and were sponsored in many cases by local elites as a local economic development mechanism rather than with the intent of making riches. Local landowners would capture some of the benefits of the accessibility these new routes created, and in turn, helped fund them.
Still, most roads, and most streets were untolled, and not very improved. With the advent of the Railroad (the Baltimore and Ohio broke ground in 1829) providing much better service than animal-powered transport could, long-distance turnpikes began a decline, though turnpikes feeding into railroads remained in many places through the 19th century.
The turn of the 20th century saw the emergence of the automobile, and coupled with the Good Roads Movement (originated by the booming bicyclist community in the late 1800s), redefined surface transportation. Roads would naturally be more expensive if they had to be smooth, strong, and straight for cars, buses, and trucks. Local roads continued to be funded mainly out of general revenue (which is the property tax in most places). More important roads would be supported by state governments.
Since 1919, when Oregon first adopted the gas tax as a means of funding roads, the user pays principle has been an important foundation of transportation funding. We in the US have never had 100% user funding, local roads have generally been not user-funded particularly since the 20th century and the end of turnpikes. State and federal funding sources are mostly gas tax based now, with some other funding sources, but the share of gas tax has been dropping.
1956 Federal gas tax raised for the Interstate from 1 to 3c and established the Highway Trust Fund, which was essentially a Pay as you go funding mechanism for the Interstate Highway System. Later a Mass Transit Account was added which siphoned off road user funds to pay for transit projects.
Gas taxes were raised periodically (though not at the federal level since 1993 – though in 1998 funds were reverted from deficit reduction back to the trust fund), and the Highway Trust Fund has in recent years see spending in excess of revenue. This is not because the system is not possible to be financially self-sustainable, it is because politicians, don’t want to raise taxes, because everyone else – their constituents – (rationally) wants a free ride. The economic value created by roads is far in excess of the cost to maintain and operate them. Financial sustainability for roads is much easier than for public transit.
We have a set of funding problems.
- Wants exceed readily available resources.
- Wants (new projects) are preferred to needs (maintenance and operations of existing facilities, recapitalizing existing roads). This is referred to as “the Ribbon Cutting problem”.
- Needs are not met (especially on local roads which continue to deteriorate in many places).
- Revenues from traditional user fees are dropping (due to a combination of peak travel, better fuel economy, and slow electrification of the fleet).
- There is congestion because of an unwillingness to implement real traffic demand management (pricing), making the problem appear larger than it is.
- Then there is a longer term “problem”, which is a problem if you are in the industry, not for everyone else. Capacity needs are dropping (due to peak travel, automation (higher throughput, narrower lanes), car sharing, ride sharing, new vehicle types, substitution of telecommunications for transportation).
Below are 15 solutions, 7 of which are revenue-based, 8 of which are cost-based.
- Raise and Index the Gas Tax in the short-term to establish a baseline of user-based revenue that coincides with expenditures.
- Pay for local roads with Highway User Fees. Currently local road funding is dominated by general revenue (property tax). There is no reason these roads cannot be paid for with a state-level gas tax returned to local governments.
- Phase in the Vehicle Mileage Tax in lieu of the gas tax. Start with Electric Vehicles (EVs), which don’t pay gas taxes. EVs still few in number, still disproportionately owned by the rich. One day they will be commonplace and the gas tax revenue will really go to zero.
- Phase in time-of-day pricing, initially as an opt-in discount. This has the merit of both raising funds from the users who place the greatest stress on the system, and lowering demand during peak times.
- Implement a weight-distance tax for trucks. This both raises funds and encourages truckers to more efficiently manage their fleet considering infrastructure costs they impose.
- Depoliticize road financing decisions by taking them out of the hands of the Legislative Branch and are instead made by a more objective, less political public utility commission, so that decisions are made on technical rather than political grounds.
- Use a combination of tolls and various types of value capture to pay for the large capital costs associated with any new infrastructure. If the project cannot be financed from either users or direct non-user beneficiaries, it cannot be justified on economic grounds.
- Build and expand fewer roads. Demands are dropping already with peak travel, and will do more so once congestion pricing is implemented. Most roads are underused most of the time, so load balancing is better strategy than new construction. Make those roads smaller when they are built.
- Reduce the size of the network (gravelization, freeway abandonments, reallocation of road space to transit and bike lanes where appropriate, etc.)
- Maintain adequately the network that remains (Fix-it-first), thereby reducing longer term replacement costs.
- Reduce the number of layers of government: Treat road services as end-to-end systems managed by a single organization that can attain and exploit economies of scale.
- Reduce operating costs by replacing active management with passive or self-managing systems. For instance, we can replace traffic lights with roundabouts in many locations (though not everywhere, such as over-saturated intersections or where there are space constraints), and used shared spaces more often.
- Depoliticize road management decisions by taking road operations out of the hands of the Executive Branch so that decisions are made on technical rather than political grounds.
- Internalize the costs of various environmental externalities so that roads are not being implicitly subsidized by everyone who experiences the externalities they cause. Charge roads (and their users) directly for Noise, Air Pollution, Water Pollution, and Carbon Emissions, and any other measurable effect on which we can objectively place a price tag. This does not generate revenue for roads, but does lower demand and thus infrastructure costs.
- Charge the general sales tax on gasoline and other transportation inputs, on top of road user fees, for general revenue. This will put roads and cars on a more even basis with other goods, and avoid hidden subsidies. Similarly, charge roads for the land that they use, and charge annual property tax on that land. Again, this does not raise funds for roads, but by making road users pay their share, decreases demand.