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Interstate Tolling: Financing Reconstruction and Shifting to Mileage-Based User Fees

Interstate Tolling: Financing Reconstruction and Shifting to Mileage-Based User Fees. by Robert W. Poole, Jr. Director of Transportation Policy Reason Foundation http://reason.org/transportation bob.poole@reason.org. Why the current interest in tolling?.

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Interstate Tolling: Financing Reconstruction and Shifting to Mileage-Based User Fees

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  1. Interstate Tolling: Financing Reconstruction and Shifting to Mileage-Based User Fees by Robert W. Poole, Jr. Director of Transportation Policy Reason Foundation http://reason.org/transportation bob.poole@reason.org

  2. Why the current interest in tolling? • Large and growing highway funding shortfall; • Vehicle miles traveled have increased 10X as fast as highway lane-miles; • Little or no political will to increase fuel tax rates; • Surveys show people prefer tolling to tax increases, for new roadways.

  3. Interstate funding shortfall Annual total Shortfall Current $20.0B -- Sustain $24.3B $ 4.3B/yr Improve $43.0B $23.0B/yr Source: FHWA 2010 C&P Report, 2009 $

  4. Interstate system investment estimates • Rebuild 233 interchange bottlenecks: $128B • Add HOT networks in 19 most- congested metro areas: $139B • Reconstruct and modernize long-haul Interstates, starting with key truck routes: $1.5-2.5 trillion?

  5. Advantages of tolls over gas taxes • Tailored to the cost of each road • Fairness: those who benefit pay • Self-limiting: roads only • Source for adding capacity when needed • Ensures long-term maintenance • Can be used to control congestion

  6. Advantages of gas tax • Lower cost of collection (assumed) But • Forthcoming Reason study estimates cost of all-electronic tolling (AET) can be as low as 5% of revenue collected. • And . . . that real cost of fuel tax collection approaches 5% of revenue.

  7. 21st-century tolling • Permanent funding source • No toll booths; all-electronic • Variable rates (if congestion) • Inflation-adjusted • No impact on state bond rating • Highways as network utility; tolls as utility bills.

  8. Value-added tolling principle • Don’t put tolls on “existing” highways. • Do use tolls where you add value for highway customers: • New highway • Major capacity additions • Major reconstruction • A reconstructed highway is not “existing capacity.”

  9. Political feasibility? • NCHRP Synthesis 377, public opinion & tolling: • Public wants to see value • Public prefers tangible rationales • Public cares about use of revenues • Public learns from experience • Public uses knowledge & information • Public believes in equity and fairness • Public wants simplicity • Public favors tolls over increases in taxes, for needed highway projects.

  10. Wisconsin Interstates tolling study (value-added tolling) • $26B cost to reconstruct and modernize 743-mile system. • Assumed baseline toll rates of 5¢/mi. for cars and 20¢/mi. for trucks. • Rural Interstates: NPV of revenue =110% of NPV of costs • Urban Interstates: NPV of revenue = 71% of NPV of costs.

  11. Rural Typical Sections for Scenarios 3 and 4 (Also used for HPV configuration analysis) Urban Typical Sections for Scenario 3

  12. Interstate & expressway tolling as first phase of MBUFs • Conventional view (Big Bang approach) • GPS box in every vehicle • Program led by federal government • Drawbacks: Big Brother, very high cost • AET for Interstates and expressways: • Use current low-cost AET • Equip on/off-ramps only; charge per mile • Fund reconstruction of most important highway infrastructure

  13. Role for public-private partnerships (PPPs) • Especially suited to major projects (mega-projects) • Significant risk transfer to concession firm: • Construction risk • Completion risk • Traffic & revenue risk • Incentive to design to minimize life-cycle cost, not initial cost • Proper maintenance assured, long-term • Growing U.S. as well as global track record.

  14. Track record of PABs and TIFIA loans on PPP toll projects Four tolled mega-projects financed during credit-crunch years: • Capital Beltway (VA): June 2008 $1.9 billion • I-595 (FL): March 2009 $1.6 billion • N. Tarrant Express (TX) Dec. 2009 $2.1 billion • LBJ I-635 (TX) June 2010 $2.8 billion Total: $8.4 billion

  15. Needed reforms beyond MAP-21 • Remove limits on number of reconstructed Interstates with toll finance. • Retain current limits on use of toll revenues (supported by highway user groups). • Retain recently expanded TIFIA loan program. • Remove the $15B cap on tax-exempt private activity bonds (PABs). • Facilitate true nationwide AET interoperability.

  16. Conclusions • Large increase in highway investment to modernize Interstates and expressways. • Tolling is a better user fee than fuel taxes. • Value-added tolling is politically feasible. • Reconstruction is not “tolling existing highways.” • Congress should open the door to expanded tolling, in the reauthorization bill.

  17. Questions? Contact information: http://reason.org/transportation Bob.poole@reason.org

  18. Frequently asked questions • Isn’t tolling “paying twice? Not if project can’t be afforded via fuel taxes. • Isn’t a toll the same as a tax? Not if it’s a true user fee, used only for the toll project. • When do the tolls come off? Never. Will be needed for proper maintenance and eventual reconstruction.

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