Do Roads Pay for Themselves?

| 8 Comments

US PIRG has a new report, asking Do Roads Pay For Themselves? (and answering: "Setting the Record Straight on Transportation Funding")

As with most advocacy work, most of the facts are correct, the issue is in the spin. It is well known that "roads" do not pay for themselves, most local streets and roads are paid for from general taxes (esp. property taxes) and most roads are local (and most travel is local). The question is really 'do "highways" pay for themselves?', which the answer is much more difficult. Unfortunately the authors loosely interchange the terms "highways" and "roads" to suit convenience. They are different, they serve different purposes, and they are funded differently. If cars suddenly vanished, we would still need roads, just as we had roads before the advent of the automobile. They might be narrower, there might not be highways, but there will always be roads.

The authors have a heterodox history of the gas tax (but seem to emphasize the federal over the state, which is a common fallacy in all national transportation discussions, promoted by those based in Washington. If the federal government's role in transportation funding disappeared, it would take years to really notice out here in the country, since DC funds new projects, which would just stop being built, resulting in no change to existing infrastructure.)

The authors have an interesting take on the term 'user fee', suggesting that gas taxes aren't really user fees because (a) they were sometimes used for deficit reduction, (b) they are shared with other surface transportation (transit), and (c) they don't correspond with use. While I don't like either diversion, that doesn't mean that gas taxes aren't user fees, just that Congress can't avoid meddling. Just because gas taxes imperfectly measure use (i.e. it is proportionate to gasoline consumption instead of miles, it is assessed on travel on all facilities, not just highways), doesn't mean it is not highly correlated. It is a surrogate, as are most fees. They are charged only to users of motor vehicles (admittedly only those users who use fuel, but that is approximately all users at this stage of technology). It would be better if user fees (preferably tolls if transactions costs could be reduced, but gas taxes in the interim) covered all costs of operating and maintaining existing streets, roads and highways, so we could depoliticize the issue, and treat it like the public utility it is. It would be better if the charge could vary by location and time of day, it will eventually do so.

User fees as the primarily source of funding is certainly economically feasible (i.e. we could raise the gas tax and cover all the costs if we so chose in the US), but politically we are not there yet, as politicians still have a fear of being unelected.

Financing new roads and highways is a separate problem from maintaining the existing. They should not be conflated.

8 Comments

In October Kid's Prefer Cheese posted this blog post. Mystery of the Disappearing Streetcar Below is an excerpt of on of my comments. Seems appropriate to your Do Roads Pay for Themselves?.

I would also add the following lists of freeriders or less than 100% coverage of costs on the Roadway transportation network users:

1. Storm drainage -roads provide a key conduit to remove rain from private properties at no cost.

2. Potable water - water purveyors while paying for the piping do not pay for easements in public roads.

3. Sewage removal, Electrical Power, Telephone, Cable TV/Internet, Natural Gas - See justification in Potable water.

4. Bicycle and Pedestrian Facilities. These have no user fees that I am aware of being collected, yet are provided exclusive lanes and walkways.

5. Transit pathway - From highway ROW reserved for multimodal purposes that are finance from the highway trust fund and then used for commuter rail, high speed rail, transit lines, HOV/Bus lanes. In most cases it is the roads that most transit buses run on. The road/sidewalk provides the key first and last link between the bus stop and the destination.

It is also the road that takes the freight to and from the ship, barge, train allowing those modes to take advantage of their competitive advantage.

Let us not forget examples such as the infrastructure that is modified to accommodate other modes such as extra height on Harbor bridges to allow shipping.

If your are looking for subsidies, road patrons love them and compete for them vigorously with billions of dollars of examples. But if you are looking for truly multimodal the road and it's right-of-way are center stage."

PS: Thank you for all your great posts today.

I agree the article presents a simplistic view of the issue, we have no mode which "pays for itself". As Jason points out, a favorite mode of urbanists, cycling, has virtually no user fees.

The bigger trend for highways is very interesting to me though, the fuel tax allocated for highway purposes has not increased in over a decade and overall "user fees" are making up a decreasing share of highway funds. Is this decline in user fees happening for transit modes as well? Clearly "roads" provide other benefits besides moving cars, so if we can't have a mileage fee, what is the appropriate amount of "subsidy"?

Do you really think that we could raise the gas tax and pay for all new roads and maintenance for roads? MnDOT's 2009 Statewide 20-Year Highway Investment Plan estimated a $65 billion dollar need but only projected $15 billion in available revenue. Assuming half of that revenue projection comes from state taxes and fees on gas and cars (based on MMB's Budget Agency Profile of MnDOT), and assuming (as MnDOT does) that federal funding stays flat, those state taxes and fees would have to quintuple. Do you think that if gas cost $5 a gallon and you had to pay $400 a year for tabs, it might discourage people from driving? And then, of course, the fewer people driving would have an impact on the revenue, and the general fund would have to keep making up the difference.

This calculation is obviously napkin-quality and doesn't count the maybe $100m a year local governments spend on roads from property taxes, assessments, etc, but I think I made my point: the amount the gas tax would need to be raised to pay for road construction and maintenance would discourage driving, which would make it impossible to collect enough revenue and so on and so forth...

I do think you could raise the gas tax and pay for all operations and maintenance and repair and replacement of existing roads. While this would slightly reduce demand, there would be an equilibrium at this price sufficient to raise the revenue. The elasticity of demand with respect to gas price is relatively low in the neighborhood we operate in.

I agree MnDOT's wish list would be (and should be) out of reach, and they don't even think it is necessary judging by their current plans and statements. My comments on this are here:

Alex,

Mn/DOT's "investment plan" is not so much a needs statement as it is a wish list. The $65 billion figure is a shot in the dark, a number Mn/DOT pulled out of a hat that sounded large enough to get people's attention. It includes every possible project they ever wanted to build, plus enough new construction on metro area freeways to limit peak-period traffic congestion to some pre-determined standard (according to the results of some modeled scenario).

The more appropriate question would be to ask what is necessary to maintain our existing network in good condition, before any effort is made to spend money on new projects. I suspect this number is a lot closer to $15 billion than to $65 billion. If people don't want to raise gas taxes (or any other user taxes) and don't want to directly price roads (or public transit), they can live with the outcomes. This will mean road space rationing by queuing.

Some modest increase in the gas tax is probably necessary, at least at the federal level, to resolve the continuing shortfall in the Highway Trust Fund. But any politically feasible increase in this tax (assuming there is one) is not likely to be large enough to materially affect gasoline consumption, and hence gas tax revenues. Cyclical swings in retail prices swamp whatever effect a tax increase would have on the price.

Hmm - I tried to comment the other day but it must have gotten swallowed. Just wondering if you can point to any better estimates of need for transportation spending. MnDOT's plan is too high, but most agree that there is a need for more spending even on maintenance (anyway that is Minneapolis Public Works' excuse for not spending on transit, bikes or peds).

There are actually some very convincing economic arguments that have been largely forgotten, to the effect that roads create so many external benefits, there is a strong case to be made for funding at least part of their cost from general taxation revenue, or better still, from a kind of "betterment/capital gains tax" on property owners.
Geographic economics experts like Walter Isard, who died recently, point out that the "value" created by the provision of infrastructure, is reflected in rising land values, and the greater proportion of this value increase occurs in the densely agglomerated areas that are the DESTINATION of most "trips", especially the CBD. There is a strong case to be made that incumbent CBD property owners successfully "free ride" on the funding extracted from motorists.
In the recent Hudson River Rail Tunnel case, one study (RPA) estimated that if it were built, NJ properties would increase in value by $18 billion, and Manhattan properties by $36 billion.
The question that had to be asked, then, when Gov Christie rightly rid the NJ taxpayer of this millstone, why was there never any question of funding from the Manhattan end?

Financing new roads and highways is cheap things but the time is mostly important things before do that. Because it will takes years just to survey and locate the area. So that's gonna be cost time much higher than the funds. I think the best ways is educate people, tell them how their tax is important for public in the future.


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This page contains a single entry by David Levinson published on January 4, 2011 3:27 PM.

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