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The future of U.S. toll agencies

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Toll roads constitute 8.2% of U.S. limited-access highway lane miles (25,500 lane miles out of 312,000). That relatively small fraction includes some of the highest-volume major highways, such as Florida’s Turnpike, the Indiana Toll Road, the Illinois Tollway, the New Jersey Turnpike, the New York Thruway, the Ohio Turnpike, and the Pennsylvania Turnpike. Adding high-occupancy toll lanes and express toll lanes brings the total to 27,400 lane miles. Most of these toll facilities are owned and operated by public-sector toll agencies, but a fraction of them have been financed and are operated via long-term public-private partnership (P3) concessions.

What are the prospects for these tolled facilities if or when the United States replaces per-gallon fuel taxes with per-mile charges? In my policy work, I’ve heard it asked more than once, ‘If every road has direct user charges, why would we need toll agencies?’ I also posed that question in a presentation at an International Bridge, Tunnel and Turnpike Association (IBTTA) conference in Denver in 2022, but it did not generate much discussion.

Toll financing of major highway infrastructure provides an important array of benefits. The first is guaranteed ongoing maintenance (stewardship of the asset), thanks to covenants in long-term toll revenue bond agreements. Nothing comparable applies to non-toll highways, whose maintenance is typically at the mercy of state legislators who may prefer prioritizing funding for new projects with ribbon-cutting ceremonies and publicity rather than funding what’s vital but viewed as boring maintenance. Hence, America’s extensive bridge and highway deferred maintenance problem.

Second is a robust commitment to users-pay/users-benefit, where the users of roads pay for them and receive the direct benefits of maintenance, repair and expansion. Only toll facilities refer to those who drive on the toll roads as customers. On all other roadways, state departments of transportation and legislators refer to them simply as users. That’s accurate because state transportation departments’ real customers, who provide the departments’ funding and whom DOTs must satisfy, are state legislatures.

Third, tolled facilities can finance their own reconstruction and capacity additions, assuming they are managed in a way that can persuade bond buyers to provide new bond financing for such projects (which buyers will do if the toll projects make engineering and financial sense). This also applies to equity investors who provide part of the financing for long-term public-private partnership toll highway projects.

I first realized that this country would have to transition to a propulsion-neutral source of highway funding after serving on a Transportation Research Board special committee that concluded in 2006 that the fuel tax was not sustainable. While about a dozen states have carried out one or several pilot projects to test various ways of implementing mileage-based user fees (MBUFs), also known as road user charges (RUCs), the idea still does not have broad popular support from drivers or legislative support. 

The public widely believes that a new mileage-based user fee, or RUC, would be an additional tax on driving rather than a replacement for the declining gas tax. Many drivers are also predictably concerned about having the government, or ‘Big Brother,’ in their cars, tracking when and where they travel. Others believe rural motorists will be losers as they shift to MBUFs because they often have to drive longer distances. This last point has been disproven in most of the MBUF pilot projects, which find that rural motorists would be made slightly better off than they are with gas taxes because, on average, they drive older, fuel-guzzling vehicles. But the first two problems—viewing MBUFs as an additional tax rather than a replacement for the gas tax and privacy concerns—require a significant, highly visible demonstration that they are false.

What I suggested at the IBTTA event is that instead of waiting and possibly being put out of business as an MBUF or RUC is implemented, the toll road industry should take the lead in implementing this change to MBUFs in a way that refutes the additional tax and Big Brother concerns.

Major toll roads could develop plans to restate their toll charges on a per-mile basis, asking their legislatures for any needed legal changes. They would also have to consult with their bondholders (and equity providers, in the case of P3s). The new per-mile rates would have to be structured to be compatible with their contractual commitments to bondholders and shareholders.

To demonstrate to toll road customers that the new per-mile toll would replace the fuel tax on these specific highways, the legislature in each affected state would have to provide refunds of the state gas taxes paid for the miles driven on the converted toll roads using MBUFs. This would be a tiny fraction of the total lane miles in the state.

For example, in Florida, the most-tolled state, its 3,445 lane miles of toll road are just 1.2% of its total roadway lane miles. That small amount of refunded fuel taxes could be thought of as an investment in overcoming the concern that a per-mile charge would be an additional tax.

If handled properly by public officials, the Big Brother concern should not be a problem since the large majority of those using today’s toll roads already use all-electronic tolling such as E-ZPass or a state-level equivalent, and this form of road charging is now widely accepted.

Once a state’s toll roads are converted, the next step in the transition to per-mile charges would be much larger: extending the same model to the rest of the state’s limited-access highways. Federal Highway Administration statistics show that vehicle miles of travel nationwide on limited-access highways is about one-third of all state vehicle miles traveled, so converting the remaining limited-access highways to per-mile electronic tolling would require a much larger amount of state fuel tax refunds. But the trade-off for legislators and state DOTs would be that the state fuel tax would no longer be needed for future maintenance and reconstruction of the limited-access highways. That would permit the remainder of the fuel-tax revenue to be reserved for all the remaining highways until further consensus can be achieved to convert them also, a decade or more later.

The toll industry has two choices. First, it can continue the status quo, despite the inevitable question: ‘When all roads are charged for, why do we need toll agencies?’ Or, second, the toll industry can become the pioneer implementer, taking the first significant step in converting to per-mile charges, helping state transportation departments show motorists there’s a customer-friendly way to begin the transition away from unsustainable gas taxes—and remaining relevant into the future.

A version of this column first appeared at Public Works Financing.

The post The future of U.S. toll agencies appeared first on Reason Foundation.


Source: https://reason.org/commentary/the-future-of-u-s-toll-agencies/


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