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? 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.

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 $

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?

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

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.

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.

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.”

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.

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.

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

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

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.

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

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.

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.

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

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.