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Can Tolls Really Fund Road and Infrastructure Expansion?

Tolls can be a better solution for financing roads and taking liabilities off taxpayers.

August 12, 2021

Last week, I covered the folly of the proposed $1.2 trillion infrastructure bill now working its way through Congress. One problem with it—besides just coming at a time of extreme national debt and inflation—is that it would require large taxpayer sums to fund projects that are based more on political opportunism than economic viability. In this piece I’ll propose an alternative: that the new infrastructure, rather than being funded through tax increases, should pay for itself through user fees. Plenty of infrastructural projects can operate under this model, but here I’ll focus on roads.

Roads in the U.S. do not currently cover their costs, leading to continual financing gaps and political maneuvering to raise money. Currently, interstate highways are financed through gas taxes, ostensibly as a user fee. However, it’s an indirect, broad-based mechanism, and does not come close to covering the interstates’ full costs. As the Public Interest Research Group notes

“Nearly as much of the cost of building and maintaining highways now comes from general taxes such as income and sales taxes (plus additional federal debt) as comes from gasoline taxes or other ‘user fees’ on drivers…General taxes accounted for $69 billion of highway spending in 2012.” 

This is partly because cars have become more fuel-efficient, lessening the revenue stream. And gas taxes have not kept up with inflation. As the CBC notes, “if the combined 1993 PBT and motor fuels tax rate of 22.84 cents per gallon had kept up with inflation the rate would now be 39.9 cents per gallon, 55 percent greater than the current combined rate of 25.7 cents per gallon.”   

Moreover, the money that is used often goes for roads that are over-engineered, poorly located, and rife with other planning flaws. To name one example, a 2016 report by the Congressional Budget Office found that a substantial share of federal highway spending goes to road expansion, rather than to maintenance. Even small-scale road projects—traditionally the domain of state and local spending—now beg for federal funds too, since there are revenue shortfalls at those levels of government, too. As the Citizens Budget Commission found while analyzing New York state, “a greater portion of New York’s share of the National Highway System has pavement considered ‘Rough’ or ‘Very rough’ than the rest of the country, 18.5 percent to 10.3 percent, respectively.” 

Rather than allocating road money via the political process, and in a way requiring constant taxpayer subsidy, a better method is user fees—namely electronic tolls that reduce transaction costs by photographing license plates or in-car transponders, and billing drivers digitally or by mail. The projected revenue outlay would help determine whether a road should be built—and whether certain existing ones are really worth maintaining. 

Federal officials are aware of this idea. The Trump administration’s proposed infrastructure bill was far less costly than the current one, in part because it was more focused on user fees, particularly for roads. This year’s Republican infrastructure counter-proposal also contained support for additional user fees. 

To their credit, some Democrats also support fees. Transportation Secretary Pete Buttigieg floated the idea of a vehicle miles traveled assessment, although he quickly walked that back as it set off a political firestorm from both left and right (however, the infrastructure bill does include a “pilot” of such a fee). And the fact sheet for President Biden’s plan states that one financing source could be “public-private partnerships, private activity bonds, direct pay bonds and asset recycling for infrastructure investment.”

Some state governments, working under the public-private partnership model, provide a case study for how road tolls could work, with such projects being built in California, Pennsylvania, Florida, and elsewhere. In 2017, Maryland’s governor announced plans for toll-based highway widening that would be partially privately funded. And Texas is the grandaddy of the concept, as it leads all states by far with 40 roads that are either fully or partially tolled. 

While visiting the state recently, I drove on a half-dozen of these roads. They were all well-maintained, and none of them had manned toll booths, instead, reading my out-of-state license plate and billing me remotely despite not having a transponder—in a process known as “open-road tolling.”

Nonetheless, tolls face blowback in Texas as anywhere else. In 2008, then-Governor Rick Perry’s plan to allow private contractors to build toll roads brought objections about, among other things, the conversion of formerly free lanes into toll lanes, and foreign ownership of this critical infrastructure. Critics note the outright failure of toll roads in other states. In 2016, the firm Cintra filed for bankruptcy due to expenses from Texas’ SH-130’s construction. In San Diego, the South Bay Expressway project was taken over by local transportation authorities following the late 2000s financial crisis. In Virginia, the tolling concessionaire Transurban has sustained losses on its toll lanes in the D.C. suburbs.

Privatization supporters argue that these deals, bad as they may be for the operator, still take liabilities off the taxpayer. Baruch Feigenbaum, a transport analyst for Reason, writes that the San Diego toll road deal protected taxpayers and delivered results faster than a government-facilitated program would have, taking the long-delayed proposal from an idea debated by local governments to actual implementation. Then, of course, there are the dozens of toll roads across America that don’t fail, either profiting as stand-alone private entities or providing revenue streams for state governments. 

This is what I view as a strength of the PPP toll roads model. If such roads are in fact poor investments, the private sector will either avoid building them or cover the losses caused by them. If not, investors are providing infrastructure that ultimately gets paid for by those who actually use it. This market-based road model should be explored by Congress as they flesh out the details of an infrastructure bill that will otherwise create huge costs for the U.S. taxpayer. 

This article featured additional reporting from Market Urbanism Report content manager Ethan Finlan.