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It's Time to Take a Fresh Look at Highway Tolls
Commentary
(Innovation Briefs, Vol. 14, No. 3, May/Jun 2003)

The House and the Senate have agreed to a final budget resolution that would provide a program level of $280.8 billion for highways and transit over the next six years ($231.6 billion for highways and $49.2 billion for transit). The budget resolution is a first step in the congressional budget process which will ultimately guide federal funding levels for surface transportation in both the coming year and over the life of the next multi-year surface transportation authorization.

The budget version originally passed by the House contained $254 billion, and the Senate version $311.5 billion. The House-Senate conference split the difference. The resolution also provides for a "reserve fund" which would allow for authorization levels to be increased above the limits set in the budget resolution if means can be found to increase receipts into the Highway Trust Fund.

The program level of $281 billion over the next six years is expected to be met from gas tax receipts (projected to average approximately $40 billion annually, according to Congressional Budget Office testimony before the House Subcommittee on Highways and Transit, March 20, 2002), augmented by several "revenue enhancements." These include shifting the 2.5 cent tax on ethanol now going into the General Fund to the Trust Fund (already included in the Administration's budget proposal for FY 2004); crediting the Trust Fund with the 5.3 cent-per-gallon tax for ethanol; reducing fuel tax evasion; and drawing down a portion of the accumulated Trust Fund balance (the Trust Fund currently amounts to over $22 billion and is expected to grow to over $26 billion by the end of 2004).

However, reaching the six-year reauthorization goal of $375 billion advocated by the congressional transportation leaders would require a more ambitious strategy. The most obvious approach would be to seek an increase in the motor fuel taxes, as advocated by some transportation interests. Each additional penny would generate approximately $1.9 billion per year. However, the Administration and congressional leaders appear to have ruled out this option. Two other options still under consideration are to restore trust interest to the Trust Fund, and to index the gas tax to inflation.

Renewed Interest in Highway Tolls
But the largest unexplored revenue potential lies in a greater use of highway tolls. Admittedly, charging people for using roads they think they already have paid for is a losing strategy. However, if motorists received something of value in return, and if the extra revenue were dedicated to relieving traffic congestion, the public might take a more positive view of tolls.

That is the underlying premise of several initiatives currently under consideration as part of the reauthorization process. The first is a bill sponsored by Rep. Mark R. Kennedy (R-MN) which would give the states authority to collect fees from individual motorists for the use of new highway lanes (which the bill calls "fast lanes"). The fees would be used to finance construction of the fast lanes and could be employed for debt service, reasonable return on investment of any private financing, and the operation and maintenance of the fast lane facilities.

A similar though somewhat more ambitious proposal has been advanced by the Reason Foundation in its report HOT Networks: A New Plan for Congestion Relief and Better Transit. The proposal, endorsed by diverse interest groups, including the AAA, Environmental Defense and the New Democrats' Progressive Policy Institute, envisions creating metropolitan-wide networks of toll lanes that would serve as guideways for express buses while providing a faster and more reliable travel option to individual toll-paying motorists. Electronic variable tolls would maintain free-flowing traffic in the priced lanes even during peak hours. The study estimates that up to $2.9 billion could be raised annually from the tolled road networks in just the eight most congested metropolitan areas - enough to underwrite nearly 70 percent of the cost of building out the premium lane networks in those cities (see, "HOT Networks: An Idea Whose Time May Have Come," Innovation Briefs, March/April 2003).

A related proposal by the Reason Foundation would create a system of interstate toll TruckWays. This would allow the trucking industry to make use of longer and heavier rigs than are allowed on most Interstates. The proposal contends that separate truckways would enable truckers to haul several times more freight, resulting in substantial productivity gains. These gains, in turn, would make it worth while for freight haulers to pay a toll. To avoid the "double taxation" argument, rebates of fuel taxes could be granted to TruckWay users, computed by an electronic toll collection system. The proposal has won support from the American Trucking Association. Congressman Don Young, chairman of the House Transportation & Infrastructure Committee, praised the idea and is expected to include provisions along these lines in the reauthorization legislation (see, "Toll Truckways: Toward a Model 21st Century Freight Highway System," Innovation Briefs, Sep/Oct 2002).

An ambitious proposal - to toll the entire Interstate Highway system - has been advanced by William G. Reinhardt, the respected editor/publisher of the newsletter, Public Works Financing. Under his proposal, toll rates would be set by law to fund the maintenance cost of the existing Interstate system, but not the capital replacement or expansion costs. Reinhardt contends that the proposal is politically and technically doable. He draws an analogy to Germany's recent decision to toll trucks over the entire autobahn system ("A Way to Survive the Perfect Storm: Toll the Interstates," Public Works Financing, November 2002).

The Administration also sees a wider role for highway tolls and proposes to broaden their use. Its draft reauthorization proposal would authorize States and public authorities to toll "any highway, bridge or tunnel, including facilities on the Interstate System, to manage existing high levels of congestion or reduce emissions in nonattainment areas..." To be eligible, the tolls "must vary in price according to time of day, as appropriate, to manage congestion or to improve air quality" (Sec. 1615(b), Variable Toll Pricing Program).

An Idea Whose Time Is Coming
Charging for access to highway facilities that offer a higher level of service in the form of faster, more reliable travel, is an idea whose time, we believe, is coming. Not only would tolls provide badly needed revenue to supplement existing gasoline tax receipts, but toll-paying motorists and businesses for whom reaching a destination or delivering merchandise on time is of critical importance could have "travel insurance" in the form of a congestion-free trip. Other users would also gain because regular lanes would become less congested as some of the traffic switched to the toll lanes. Experience from California's HOT lanes suggests that large numbers of motorists of all income levels would be willing to pay to use congestion-free toll lanes as travel on metropolitan highways becomes increasingly slower and more unpredictable. By giving States authority to experiment with new pricing approaches, tolls could be introduced flexibly where they make sense and are politically viable.
In the upcoming surface transportation reauthorization, Congress will have an opportunity to make this vision a reality. At a time when the need for transportation capital investment greatly exceeds traditional sources of funding, a wider use of tolls would give America's metropolitan areas congestion relief without the need to raise gasoline taxes.

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