Sunday, June 10, 2012

How to Pay for Roads

I want to thank everyone who drives a gas-guzzling SUV forpaying for the roads I drive on. You basically subsidize my ability to drive on smooth, high-speed expressways. Why? Simple: you have to fuel up more oftenthan I do, so you pay more in gas taxes. I drive a small, fuel-efficient car,so I seldom refuel.

Everything I said in that paragraph is a lie. If any of itwere true, our roads would be well-funded and maintained, because small carsremain less popular than big vehicles. We wouldn’t get the sensational mediastories about bridges collapsing due to poor maintenance or a lack ofinspections. And we certainly wouldn’t have Congress continually passingextensions to existing spending plans that so clearly fail to get the jobdone. 

Funding for road maintenance and construction is dependenton fuel taxes that are assessed at the federal and state levels, with thelatter varying state by state. These taxes seldom go up because politicians tendto enjoy being re-elected, or so I’ve noticed. No matter how well the economyis doing, the voters rarely tell their politicians they want taxes of any kind tobe raised. In a recession, those same voters tend to reach for their pitchforksand torches at the first hint of a tax rise. 

But surely there’s enough money coming in now, you say. Wejust need to cut costs to make those static tax dollars go farther, right? Well,you’ve forgotten about inflation. Even a little inflation makes those taxdollars slowly decline in value, so a dollar today isworth less than a dollar back in 2000. Inevitably, the tax revenues can’tkeep up with the costs to maintain and build roads, or anything else such astransit or pedestrian improvements.

That’s why some of the braver politicians are proposing newways to fund transportation. The proposals are a varied bunch, but few haveadopted widely because raising revenue is so often equated with tax increases. Hereare a few being bandied about, along with my own take on the positives andnegatives (with apologies to a certain spaghetti western).

  1. Sell off transportation assets to private companies and let them charge tolls:
The Good---Imagine you could get a toll road built quicklywithout the need to issue state bonds or raising taxes to finance construction.With this option, a private company or consortium finances and builds the road,then collects a portion (or all) of the toll revenue. The Capital Beltway innorthern Virginia is getting newlanes thanks to this sort of arrangement with Fluor and Transurban, two of the biggest playersin the major project arena. The lanes have many names: high-occupancy tolllanes (HOT lanes); Lexus lanes, as some would deride them; or Express Lanes, asthese companies recently re-branded them.

The Bad---Fluor-Transurban hope to make a lot of money offthe project, but there remains a risk of failure if the costs of using thelanes are too high. The tolls are variable, so a bottleneck caused by overusecould cause a spike. Plus, some users can get in them for free if they have twoother people in the car and possess a special kind of EZ-Pass transponder. Iftoo many vehicles ride for free in the express lanes, the tolls willautomatically go up thanks to the resulting congestion. 

The Ugly--- If financial failure occurs, the state takesover the lanes. Unfortunately, the state also gets saddled with the maintenancecosts. This is not as remote a possibility as it might seem, if you look atwhat is happening in the state of Pennsylvania. The Pennsylvania TurnpikeAuthority is, by some measures, broke thanks to spiraling debt costs and astate legislature that insists on taking out a large chunk of revenue. Thissegues to another idea being promoted for alternative funding, which is…

  1. Create a lockbox for transportation funds:
The Good--- This would prevent the grabby hands of electedofficials from pulling out funds from the transportation budget, or from tollroads, to spend on whatever pet project they are fixated on. 

The Bad--- It’s hard to get these measures passed in a downeconomy. Alaska recentlytried and failed to pass a transportation infrastructure fund. Part of thereasoning behind it was to create an alternative to declining federalwillingness to pay for Alaskan infrastructure. Unfortunately for this measure,other interests in the state were competing for those same state funds andprevailed.

The Ugly--- Legislatures have a tendency to find a wayaround these restrictions. In 2011 sevenlegislatures operating under these restrictions managed to circumvent them anddivert transportation dollars to other projects. In Texas the law requires that25%of the gas tax dollars go to the Permanent School Fund to provide help forthe public education system. Luckily for Texas schoolchildren, this diversionof funding to make their schools better hasn’t yet resulted in problems for thebridges the school buses cross (though one conservativethink-tank did caution that Texas highway standards are slipping). 

  1. Index gas taxes to inflation:
The Good---If nothing else, this will ensure that federalgas tax, frozen in place for nearly 20 years, would be able to keep up withescalating costs. Inflation is a natural product of a growing economy (pricedeflation is a hallmark of a depression), so it will be ever-present. Indexinga tax means that politicians do not have to take the unpopular step of castinga vote to raise a tax. It simply goes up as much or as little as inflationdictates, rather like a cost of living adjustment for social securityrecipients. It doesn’t hurt that making a gas tax more effective means thatboth resident and non-resident drivers end up paying the same for use of theroads. 

The Bad---Voting for an inflation-indexed gas tax can bespun by a political opponent as voting for a tax increase. That’s why thisapproach hasn’t taken off any better than a simple increase in the tax.

The Ugly---As fuel economy standards rise, the consumptionof gas declines. That means less gas tax revenue. The funding shortfalls maycontinue.

  1. Tax drivers according to the mileage they drive:
The Good---Taxing vehicle miles traveled (VMT) is thought ofas a way to spread the costs around according to who is inflicting the mostwear and tear on the roads. Someone commutes 50 miles roundtrip to work eachday is clearly using the roads more than someone who drives 10 miles roundtrip. 

The Bad---Part of the purpose of this tax would be to removethe loophole enjoyed by hybrid, alternative fuel, and electric cars that usethe roads, but obviously don’t pull up to a gas station much (or at all). Thatmight make sense from a fairness standpoint, but this measure would punishthose who don’t use petroleum-based fuel. The continued use of this fuel isoften cited as a keycomponent in the rapidly-accelerating growth of greenhouse gases in theatmosphere. This growth is typically thought to be closely linked to the observed rise inglobal temperature levels. That seems like a steep price to pay for extratax revenue.

The Ugly---Rural users would take a big hit under thisscheme. Distances between where people live and where they shop, work, or gethospital care can be large, which would mean a high tax burden for those whoseincomes lag behind those of more urbanized areas. This could accelerate theemptying out of small communities throughout the American Midwest, where wholetowns are being abandoned today. Oh, and let’s not forget the problem ofenforcement. Would the government, whether federal or state, insist that youdeclare your odometer mileage or where you’ve driven? It’s a little hard to seeTea Party politicians going along with that.

  1. Borrow the money via bonds:
The Good---With the money in hand, construction can begin.Essentially, the government can borrow against expected future revenues to getthe infrastructure improved. That, in turn, helps to ensure those futurerevenues, as deteriorating roads and bridges can act as a cap on growth.

The Bad---Those bonds cost money in interest payments.Borrow too much and you end up spending tax revenues on paying interestcharges. 

The Ugly---The state of Pennsylvania found out the hard waywhat happens when bonds are embraced to closely. In the 1970s thetransportation program froze as thoroughly as the countryside in the westernhalf of the state in the winter when these costs outstripped the state’sability to service them. Projects across the state were shut down andmaintenance was deferred on what had been completed. One eerie remnant of thisperiod is the so-called “GoatPath Expressway,” which had many of its bridges completed and embankmentsgraded, but remains an unpaved grazing area for local farmers’ livestock. 

So, now that you’ve seen the options, what do you prefer?Check out the poll and vote. Comments are welcome!


  1. It's also worth noting that Wisxonsin had their state gas tax tied to inflation, but recently stopped the practice.

    1. Yes, unfortunately in the current political environment, increasing revenue to make necessary fixes is political difficult. There's a large group of voters out there who still believe there's such a thing as a free lunch.