How and Why to Toll the Interstates that Need Reconstruction

Public Works Financing

Last month’s issue carried a piece by my long-time friend and colleague Alan Pisarski arguing against tolling on United States Interstates. He and I seldom disagree on transportation policy, but we do in this case. All five points he made are challenges to the idea of replacing the first-generation Interstates with much better second-generation ones. Here is my rebuttal.

Alan does not offer an alternative to the dismal status quo. Not only is our most important highway resource wearing out and undersized for the 21^st century; we also face the necessity of shifting from paying for highways per gallon of fuel used to paying for them per mile driven. A carefully-crafted, politically-feasible Interstate replacement plan can serve both of these goals. If we can succeed in replacing the 20^th-century Interstates with electronically tolled 21^st-century corridors, over the next few decades, up to 25 percent of all vehicle miles travelled (VMT) will have transitioned off the fuel tax to mileage-based user fees.

So how do we deal with Alan’s concerns? The “cash cowification of tolls” is real—but it is primarily practiced by about a dozen large legacy toll agencies. Any feasible toll-financed Interstate replacement program must restore what Alan calls the “virtuous triangle” among road owners, road customers, and bond-holders. Long-term public-private partnership concessions offer an important way to do this. But additional protections should be offered by the federal government that require any state that wants an exception from the federal ban on Interstate tolling to guarantee, by state law, that these new tolls be used only for the capital and operating costs of the replacement facilities.

Next, Alan raises the perennial concern about traffic diversion. That is a real phenomenon, since some people will prefer a “free” road of lesser quality to a priced road of superior quality. But this is a phenomenon that is quantifiable. When traffic and revenue consultants estimate diversion, they understand that there is a direct relationship between the level of tolls and the extent of diversion. Many toll rates in the Northeast are well in excess of what is needed to cover the capital and operating costs of those tollways. A way to summarize this point is that revenue diversion leads to traffic diversion. Customer-friendly tolling that is a pure user fee will minimize (but not eliminate) diversion.

There is also a difference between short-term diversion—when tolling is a new feature of a corridor, or when there has just been a large toll-rate increase—and long-term diversion, once people have gotten used to the tolled corridor and can appreciate the value it provides compared with lower-quality alternative routes. I note in passing that to the best of my knowledge, the major-tolled Interstates (e.g., Ohio Turnpike, Indiana Toll Road, Illinois Tollway, New York Thruway) do not have serious long-term traffic diversion problems.

Another way to reduce diversion comes from remembering that one of the purposes of a toll-financed Interstate replacement is to jump-start the transition to mileage-based user fees. In all the current mileage-based user fees pilot projects, the per-mile charge is instead of the fuel tax. And so it should be on these 21^st-century Interstates. All-electronic tolling makes it simple to include in each vehicle’s toll calculation a second calculation—the fuel-tax rebate due the vehicle owner for the tolled miles driven on the facility. A state agency such as the Department of Motor Vehicles could be in charge of disbursing the fuel-tax rebates, perhaps initially netting them against the coming year’s annual vehicle registration fee. And once the state’s non-tolled roadways are converted to mileage-based user fees, users of tolled Interstates would have their tolled miles each month subtracted from their total miles driven for purposes of their mileage-based user fees payment.

Alan also worries that the anti-highways lobby will prevent needed widening of Interstate corridors once they get congested, and will push for ever-higher toll rates to force a growing share of would-be highway users into alternative modes. That is a problem regardless of whether our 21^st-century Interstates are tolled. But this question will likely be answered differently in each part of the country. Even in liberal California, express toll lanes are being added to congested freeways in fast-growing counties such as Orange, Riverside, and San Bernardino, and even to a lesser extent in the San Francisco Bay Area. I also note the multi-billion-dollar expansion program of the Illinois Tollway system, responding responsibly to the growth of Chicagoland suburbs and exurbs.

Alan’s final concerns are regarding the federal government’s role. If states replace aging Interstates with toll-financed new ones, what is left for the federal government’s role in transportation? For one thing, a lesson from the reinventing government movement is the difference between “steering” (setting policy) and “rowing” (carrying out policy). There is still a useful (but far smaller) federal role in a state-led Interstate replacement program: primarily of renewed standardization for the system, continued research co-financed with state Department of Transportations, etc. And possibly providing financial assistance to those largely rural, mountainous states where toll-financed Interstate may never be feasible (e.g., Alaska, Montana, Vermont).

But he’s right to question the future usefulness of the federal gas tax. To the extent that states take the lead in replacing their 20^th-century Interstates and shifting from their own fuel taxes to mileage-based user fees, the declining value of the federal fuel tax may lead to its slow death. During the long transition period, however, it can remain a useful tool to encourage states to get moving on toll-financed Interstate replacement. Those of us who favor toll-financed PPPs for second-generation Interstates should insist that Congress continue to allocate federal fuel-tax revenues among the states in the same proportions as today. That way, states that choose the toll-financed course will be able to use their federal highway funding for all their other roads and bridges, while states that don’t will have to use their federal dollar for Interstates as well as their other roadways. That will be a strong incentive for states to choose the per-mile tolling option.

Is this a pipedream? I don’t think so. In December 2015, the national board of America’s largest highway user group AAA endorsed the value-added tolling principles proposed by Reason Foundation (and applied in the above discussion); they also endorsed the need to transition from per-gallon to per-mile. The truckers aren’t there yet, but they have yet to come up with a feasible way to pay for the $1 trillion Interstate replacement need that faces us today. In the face of a major need, eventually “something” beats “nothing.”

Robert Poole is director of transportation policy at Reason Foundation. This column first appeared in Public Works Financing.