Thursday, 15 September 2011

Washington State Initiative 1125 - good intentions marred by unrealistic complexity

According to The NewsPaper, there will be a vote in November in Washington State, USA, on Initiative 1125. The referendum will require a yes vote for a negative proposition that “no revenue in the motor vehicle fund or toll fund could be used for non-transportation purposes”. Now it looks on the face of it like a great initiative for motorists, particularly since it avoids diverting such revenues to top up other funds. However, when you get into the detail it contains some flaws.

The proposals are:
- “Prohibit state government from diverting gas taxes and toll revenues in the motor vehicle fund or other funds to the general fund or other funds and used for non-transportation purposes”. 

Now I can go along with that, given it is about specific funds and revenues from road users. The case for diverting such funds for non-transport purposes is weak in an environment of publicly owned conventional toll projects. Indeed, it might strengthen the case for tolls. 

- “Prohibit state government from transferring or using gastax-funded or toll-revenue-funded lanes on state highways for nonhighway purposes”. 

This is not exactly grammatical, but I infer from it that it means not allowing revenue raised from toll lanes or indeed gas tax on state highways to be spent for “non highway” purposes. If it means not spending on other roads, I wouldn’t be supportive of that because there are plenty of instances where it is sensible to cross subsidise parallel routes, feeder routes or bridges over major highways. This is clumsy and its objective isn’t clear.  I am unsure as to what it adds to the above provision, other than confusion.

- “Require tolls to be dedicated to the project they’re paying for, ending such tolls when the project is completed, and only allowing tolls to be used for purposes consistent with the 18th Amendment to the Washington Constitution. Tolls on a project must be spent on that project and may not be diverted and spent on other things (allowing tolls to be imposed on anyone and spent on anything stops them from being tolls and makes them into de facto taxes)”. 

This is where it really gets unstuck. The myth that a road is ever “paid for” and that after the initial capital expenditure has been recovered, no more capital ever need be put into the road. It’s nonsense. The surface, road furniture and the like regularly need replacing and renewal, the base layers will eventually need renewal, and bridges will as well. Only the land and the earthworks for the original right of way are “permanent”, the rest of the road needs regular injections of capital. So this doesn’t exactly reflect economic reality. If it said tolls should be based on recovering the long run costs of capital and operating costs of the road, I’d be more inclined to agree. However, to confine tolls in time does not make sense. The counter-factual is not that “tolls be imposed on anyone and spent on anything”, but that they be introduced on a network basis. 

How would a system like the German truck tolls manage under this? Revenue from the entire motorway network and some highways would need to be directed to the exact roads charged in proportion to the revenue raised? No other utility network is that precise. Rail, telecommunication and electricity network providers engage in pricing that reflects network costs and spend money across a network, not just revenue raised on individual components, although there may be some review of costs and revenues at such levels where it makes sense. I understand the purpose, but I don't think it is economically efficient or reflects economic reality, but rather a widely held misperception that treats roads unlike any other capital assets. 

It is tempting to stop politicians using tolls as an easy tax to divert from motorists, but it also doesn’t make sense to be ridiculously prescriptive in ways that don’t reflect good economic principles. I can understand imposing a restriction on a hypothecated fund to spend money on roads, and for tolling to be related to the costs of the roads tolled, and be spent on the network of the entity tolling. However, to restrict time and purpose of toll revenue spending is unduly restrictive. For example, toll revenue needs to be spent on running the toll system itself, or may be spent on a common toll system for multiple roads, which may be in breach of the third proposal. While I am no great fan of tolling be used to fund public transport, I am also not a fan of tolling being prescribed to specific conditions that would limit it scope inefficiently.

It’s a shame. It is good to have public engagement on these issues, but it would be wrong for this initiative to pass, because it is better to sacrifice improvements in one area to avoid a significant deterioration in the law on tolling in another.

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