ACCC/AER Regulatory Conference presentation on road reform

Last Thursday I presented to the annual ACCC/AER Regulatory Conference in Brisbane, Australia.  The ACCC is the Australian Competition and Consumer Commission, which is Australia's anti-trust authority and consumer protection agency, the AER is the Australian Energy Regulator (which regulates the wholesale gas and electricity markets).  The presentation was about road reform, more specifically about whether roads could be transformed into regulated utilities, similar to energy and telecommunications networks.

The differences between roads and other networks are palpable, not least because roads are often funded directly by government, rather than from revenues collected from road users.  Even if road users pay taxes or fees related to road use (such as fuel tax), the relationship between what is charged and what is spent on the network is often weak.  Rarely are the road managers involved in setting the rates charged by those using the network they manage, nor is there much input from those who pay into what is spent on the network.

In some cases, road networks are managed by a very traditional government agency, which is primarily incentivised to lobby for more money, has budgets determined entirely by a political process, and is dominated by a culture of engineering and bureaucracy.  This is a vast contrast from utility networks, which are increasingly subject to competition, but more importantly bill their customers directly and decide themselves how to spend that money on maintaining, renewing and expanding network capacity.  Some use price to incentivise changes in demand, such as more off-peak utilisation.

In part this is historical, but it is also because roads are ubiquitous and such a dominant part of modern infrastructure.  Roads usually provide access to land, not just for motor vehicles, but for pedestrians and bicycles.  Roads range from having purely arterial to purely access functions, and some roads are not for motor vehicles at all.  They are also corridors for other utilities, such as pipelines and cables, and provide locations for street furniture ranging from postboxes to street lights to seating.  Yet none of that means that roads should just be treated as a public good that "everyone" pays for, not least because wear and tear is a function of the use of motor vehicles, particularly heavy vehicles.  Furthermore, there are often challenges around congestion, safety and route security and resilience due to external factors ranging from weather to earthquakes and flooding.  It isn't "everyone" generating demand for road capacity at peaks, or bridges that can withhold higher axle weights.  Roads are used by businesses to deliver goods, provide services and attract customers.

Road reform internationally

The result of a system that resembles that of other elements of government is that roads are often suffering from a lack of funding for basic maintenance let alone new capital spending, but also the political system tends to prioritise high profile, politically noticeable projects over mundane but essential maintenance.  The political system may be reluctant to increase charges on road users.  Rarely are politically rationed services seen as being exemplary in service to the public.  However, the big impacts of having an unreformed system are seen in systematic congestion (because prices mean demand exceeds supply), poor standards of maintenance in parts of the network and network gaps (such as mass restricted bridges) that hinder the efficiency of users.  Furthermore, the responses to these problems are often ad-hoc, or to focus on increasing the attractiveness or reducing the price to users of alternatives, rather than the problems of a network that isn't managed for users, paid for by users and priced to reflect cost.

So my presentation is here it runs through where others have embarked on major structural reform, with case studies of Austria, England (not the UK) and New Zealand.

In the context of road pricing, Austria's motorway network funds itself, through heavy vehicle charges based on distance and light vehicle charges based on buying access by a number of days.  England still has non-hypothecated charges on ownership and fuel, but will soon be hypothecating Vehicle Excise Duty (equivalent to registration fees elsewhere) to fund Highways England.  New Zealand has mass/distance road user charges for heavy vehicles and light diesel vehicles, fuel tax for petrol and LPG powered vehicles only and registration fees, all of which are hypothecated to fully fund state highways and on average, half fund local roads (and public transport subsidies).

New York Times asks what should revenue from tolls be spent on

The New York Times has published an interesting series of opinion pieces on the question of what to do with revenue from toll roads (apologies this was in October 2012, but still relevant).  

Sam Staley, who many will know, and who is associate director of the DeVoe L. Moore Center at Florida State University, proposed the discussion.  It is, in my view, one of the most neglected questions in this sector.

The motivation for the question is how there are discussions in Ohio about using toll road revenue to pay for highway projects unrelated to the toll roads, and the well known debate about using revenue from the Dulles Toll Road to cover half of the capital cost of a metro urban railway line.  

The views express should be read entirely, but in summary there is:

- Sam Staley.  Proposing that toll revenues should be used to maintain and enhance the tolled facilities, including new tolled lanes, rather than be seen as just another revenue source, as it is a form of direct user pricing and should reflect that.

- CW Marsella (consultant) . Proposes that toll revenues should pay for transit components of a corridor if that is part of the overall project that includes the toll road.

- Todd Litman (executive director, Victoria Transport Policy Institute). Proposes that some toll revenue be spent on public transit, suggesting that peak only congestion charging can be used for this.

- Lexer Quamie  (policy counsel for the Leadership Conference on Civil and Human Rights).  Says that toll roads are bad for the poor, who shouldn't have to pay for roads.  Public transit should be paid for from general taxes.

- Edward Rendell (former Pennsylvanian Governor).  Proposes tolls shouldn't be used for public transit, it should be subsidised by other revenues.

UK government confirms road pricing and privatisation off the agenda for now

I noted last week that the latest Budget from the UK government seemed to indicate that there will be no reform of Vehicle Excise Duty (a tax on owning a vehicle), now it is confirmed by the Transport Secretary (Minister) Patrick McLoughlin in today's Financial Times (registration needed) that road privatisation is off the agenda  (Also reported in the Daily Telegraph).

He has stated a categorical "no" to national road pricing, saying "I’m not looking at ways of taking more money off the motorists. I think the motorist has been hit hard over time".

He also said that road privatisation, whilst not ruled out, simply cannot be implemented before the next General Election in 2015.   It looks like a more modest reform is envisaged, to provide a longer term funding cycle for highways that avoids spending on roads being affected by annual budgetary cycles.  

The Financial Times report indicated:

the DfT’s options paper would focus more on finding ways to give road investment greater future certainty over capital investment and upgrades.

The "options paper" in expected in the middle of the year, and may include a more independent commercial structure for the Highways Agency, as a precursor to privatisation.

There may be more flexibility to use tolls, with the A14 project, discussed before on this blog, being the most talked about future toll road project.  

Comment

It isn't surprising that this has been shelved, as it has been clear that there is some complexity to the issue and how it was being approached.  However, it is disappointing that it seems to have to some fairly clear stumbling blocks.

It should be possible to commercialise or be well on the way to commercialising the Highways Agency, which sets it up to be partially or wholly privatised, either as a single entity, regional entities or even competing entities.  It should also be possible to ringfence funding for such a body (and to do the same for similar local authority entities), whether it involves formal hypothecation of highway taxes or not.  

However, the "elephant in the room" on policy is charging.  As much as increasing fuel taxes appears politically too difficult for now, it is more difficult to talk about tolling existing roads.

I've said before that any major reforms are going to have to involve certain key principles.  I suggest some of these are:

- Choice:  Motorists must be given the option of paying directly for road use or continuing to pay as they do now.  Only by having it as an option will there be incentives to get service, pricing and costs right.

- Link between prices and costs:  This barely exists now in the rates of VED for heavy vehicles, but needs to be a rational relationship between the long run infrastructure costs of sustaining the network and developing it, and those road users who should bear those costs.   This means charge setting being rational, but also money from direct charging going into roads (and I suggest some money from existing motoring taxes going into them as well).

- Commercially driven dimension to prices:  Not only should prices be driven by costs, but also commercial incentives to attract motorists to paying directly rather than through fuel and ownership taxes.  That's why any new entities need to be given maximum freedom to incentivise direct tolls.   That can be moderated by OFT application of competition law, to avoid excessive rent seeking by highways companies, but then if there remains choice, the risks of this can be reduced.

- Decentralisation and competition in retailing of road charging:   A national road pricing scheme should never be considered, for the same reason there isn't a national air fare system or national telecommunications fee system.  People should be able to go to different retailers of access to highways, and buy packages of services.  This means having a structure that will allow this market to develop, as it has in Ireland for toll roads.

- Respect of privacy:  Initially, those concerned about privacy would simply stay on the current motoring taxes, but new options should include ways of paying for road use that also respect this.  That must be the answer to concerns about people's movements being tracked.  However, also having some protocols around use of data on movements and respecting privacy of account data will be critical.

- Quality of service:  Most discussions about road pricing involve the "how" and "how much", with little about getting value for money.  A commercialised structure should change the culture of highways management to be service oriented, and be committed to delivering high standards of service for paying customers. Indeed, you do not need tolls to introduce this, although they will help.

Finally, there needs to be some conscious thought about what motoring taxes are form, rather than the implicit "they are just general tax revenue" presumption that Treasury has taken.

Ownership taxes, after all, impose modest barriers to car ownership, but are a third best way of adjusting for the point that fuel tax poorly reflects marginal infrastructure costs imposed by HGVs above 8 tonnes or so.

Fuel taxes can be argued as being carbon taxes, and taxes on noxious emissions, and taxes to recover infrastructure costs, as well as general revenue taxes.  It would help transparency and acceptance of reform if levels for all of these were spelt out.

Road pricing inevitably means motorists buying a service from a provider of such a service, at a price that reflects the fixed and marginal costs of that provision (plus a factor for profit or the opportunity cost of capital depending on governance structures).   It is difficult to envisage it going anywhere until the management and relationship of roads with users becomes a little closer to that of other regulated utilities.

Congestion pricing or using congestion as a policy

Alan Davies on Crikey writes about the Australian Professor on Global, Urban and Social Studies, Dr Paul Mees of RMIT (Royal Melbourne Institute of Technology), who is critical of road pricing because he believes that the reduction of congestion encourages motorists to drive further.  He cites Vancouver as a city that has used congestion as a tool to encourage mode shift and discourage car commuting, although as Davies points out, Mees has not demonstrated a causal relationship between that professed policy and the reduction in commuting times that is reported for Vancouver.  There could be a multitude of reasons for this around changes in land use patterns.  Besides that, Vancouver itself is not happy with congestion as a sustainable policy tool, as is seen by its own consideration of road pricing, primarily to raise extra revenue but also driven by the objective to positively reduce congestion.

Dr Mees has a firm reputation amongst followers of the "New Urbanism" philosophy of transport and urban planning, and has been strongly critical of much public policy around transport in Australia.   He adopts the familiar line that generally supports more publicly funded public transport and opposes increasing road capacity, because he sees this as a formula for long term behavioural change.  However, he is unusual in also not being supportive of road pricing, because he believes that improving the standard of service for road users is a negative, in terms of encouraging mode shift and behavioural shift more generally.   I have found that many advocates of increasing usage of public transport, walking and cycling tend to support more urban road pricing, for reasons that appear to be fairly obvious.  However, it is worth examining his perspective.

This line of reasoning seems superficial, as of course any form of road pricing that charges for congestion, does two things that "just letting congestion get worse" does not do.  For a start, if motorists have to consider the price of a trip before they undertake it, they are more likely to reconsider whether to undertake the trip in the first place. You see fuel taxes are essentially pre-payment for future trips, and are not seen as payment for using the road, just an incidental expense of driving.  Secondly the mere point that pricing improves congestion is because some motorists have been priced off of driving at that time.  To look only at those remaining on the roads, whilst ignoring those who are no longer driving at peak times, seems rather odd.

The fact that those paying get a better trip is good because they will have paid for it. Mees seems to implicitly treat all those driving as undertaking trips which should be deemed as less valuable than those taking public transport.  I am unsure how he can sustain such a broad generalisation over those using the roads, particularly since I would guess that in any city with congestion charges, he would no doubt advocate the net revenues from those motorists get used to support other modes.  He is in no better position than anyone else to know why a vehicle is on the road, after paying a charge, it could be due to the origin, destination, the time sensitivity of the trip, the driver or passenger being elderly or disabled, or indeed it could be freight. It is all very well pontificating that the freight is being affected by private motorists, but congestion imposes costs upon freight without there being alternatives except changing time of travel.  Professor Mees also seems to suggest that it is fairer to have people deterred from driving because conditions are poor rather than because they unwilling to pay what essentially is something akin to the marginal costs they impose on other motorists by driving.   Queuing isn't seen as a fair way of rationing most goods and services in a modern liberal democratic mixed capitalist economy, so why should it be so for roads?   Particularly when queuing in traffic is not just about wasting time, but about wasting fuel and emitting pollution as you do so!  It is also worth noting that traffic congestion imposes other costs on those dependent on emergency services.  Lives get lost when ambulances and other emergency vehicles are stuck in congested traffic.  Congestion pricing wont eliminate that problem, but it demonstrates that congestion isn't a good thing, it is the breaking down of the efficient use of a scarce and expensive piece of infrastructure.

In addition, what of the traffic for which a mode shift is impossible (e.g. most freight) or so expensive in terms of time, comfort (and price) that it is impracticable (e.g. commutes that would require multiple public transport interchanges or to sites that are too remote for public transport to be viable)?  

I understand Mees wanting to promote mode shift for commutes, where that is viable, but congestion is not a policy tool that is economically or environmentally positive.  Congestion pricing is about applying the widely used price mechanism to roads, so that demand can reflect supply, and so encouraging others who would otherwise drive at certain roads at certain times to either not drive, drive at different times or take different routes.   

Efficient pricing of roads does make driving more attractive, but only at times and places where it is usually now congested for those willing to pay.  It means that a scarce resource, road space, is valued by those using it, and the evidence from all cities that have introduced even a fairly blunt form of pricing is that it can encourage people to consider the number of trips, the timing of trips and their modes.   Of course, it will mean some of those priced out of the peaks drive anyway, at other times, but this means better utilisation of existing road capacity (without having to build more) and is more fuel efficient and environmentally friendly (as it will be in free flow traffic).

Finally, Mees makes much of what he sees as the importance of rail based transport or dedicated rights of way for public transport to offer a real competitive alternative to private motoring, but many people rely on buses operating on conventional roads and congestion makes them even less attractive than driving.   Road pricing can relieve roads sufficient for bus journey times to become reliable and, when compared to driving and paying the price to use the roads, more competitive.  Motorists comparing an unpriced drive plus parking to a bus fare, both in congested traffic, to a priced drive plus parking and a bus fare, in free flowing traffic, are more likely to make a different choice, bearing in mind that in many cases, it is simply impractical to build a grade separated rapid transit system or dedicated bus ways.

Allowing traffic in cities to sit congested, wasting time, keeping buses and trucks stuck with cars, wasting fuel, emitting far more noxious pollutants than with free flow traffic, is not a responsible policy from either economic or environmental perspectives.  It takes an overly general view that all motorised road transport is negative and should be "punished" by allowing it to essentially fail, when it fact it involves many people and businesses undertaking activities of value to them.   Pricing the roads efficiently will mean those who value road space the most will get to use it, at that time, whereas others may drive at different times, mode shift or simply decide that the trip wasn't important enough in the first place.

The strategy by many cities to simply continue to subsidise more supply of public transport, refuse to supply road capacity and hope that this carrot and stick approach is enough, has proven not to be enough.   Singapore, Stockholm and now Gothenburg have all made significant dents in traffic congestion thanks to pricing, and a similar impact has occurred in central London, albeit it is less discernible because of the reallocation of road space to other modes. Road pricing alone is not enough in itself, but to deny that it works and to claim traffic congestion and the waste it ensues is positive is quite irrational.

Recycling congestion pricing?

A grand bargain for roads?

Ron Davis at the Huffington Post argues that there is an economic case for congestion pricing, but that the claimed equity concerns can be addressed by simply recycling the revenues.  In other words, he sees congestion pricing not as a way of replacing existing motoring taxes or raising new revenue, but that the benefits of congestion reduction (and reduced emissions) in and of themselves make it worthwhile to introduce it on a revenue neutral basis.

He said:

The total annual tolls collected should be equal to highway spending (currently $160 billion). The same sum should be granted to taxpayers, divided equally among them. Any money the government collects from tolls gets taken out of taxes.

Hold on, so if the amount collected should be equal to spending on highways, then why return it to motorists?  Doesn't this mean that existing taxes continue to be spent on roads?

Yet there is some sense in what he is arguing.  

He says there should be a tax credit to everyone equal to revenue from congestion pricing, to offset the cost, so that those who pay congestion pricing would already have the money and could choose to drive at peak time, or drive at other times (or not drive at all) and keep some of the money.

He suggests US$800 per head be given to everyone, and the congestion reduction benefit from congestion pricing would be enormous:

Congestion pricing would save between $40 billion to $50 billion per year. $40 billion could pay for 100,000 teachers, an aircraft carrier, a 5% corporate tax cut, a $10,000 check to the million poorest Americans and food for over 3 million starving kids in poor countries for a year. All at once. This savings estimate excludes the economic waste from stop and go traffic. If staggered commute times lowered the economic cost of traffic jams from $130 billion per year by just one-third, the combined savings over a decade would be over $800 billion.

In effect, what he is proposing is to recycle congestion pricing as a new tax.  However, he isn't explicitly proposing that it replace existing ones, but instead keeping existing taxes to pay for roads, whilst congestion pricing would be simply a tool to reward those who don't drive at peak times, but penalise those who do.

It would work, to reduce congestion, but it would be preferable to replace existing taxes instead.  Far better to have motorists pay no additional tax on fuel or vehicle ownership, and then only pay when driving at peak times, rather than keep paying such taxes and then get a refund from a new tax.

Still it is a useful idea.   Far too often arguments against congestion pricing are linked to it being a new tax, and to raise additional money to spend on transport projects.  This shouldn't be the only use of congestion charging, because the key benefits are in improving the utilisation of the network, reducing delays, reducing emissions, encouraging use of the network at other times and usage of other modes.

It's quite plausible and could be economically efficient to create a congestion charge that simply raises money that is then credited to everyone who drives, although it still raises the question of how efficiently one raises funds to pay for the infrastructure costs in the first place.

Atlantic Cities considers VMT, but doesn't look beyond the Atlantic

Eric Jaffe at Atlantic Cities concludes that Vehicle Mileage Tax (distance based road user charging or mileage based usage fees depending on your preferred choice of terminology) is a good idea which is technically viable, which surprises me, although he got there after making a bunch of mistakes and also did the usual “if it didn’t happen here it doesn’t count” narrow-mindedness of thinking no one else in the world has thought of it before Americans have. Yes, even ignoring the truck weight/distance taxes already in four states, the Swiss has been doing this electronically since 2000. At some point American journalists might notice.

So what was his train of thought?

The article says that a field study by the University of Iowa showed it could work. Perhaps fair enough (although the distance measurement is arguably not the biggest issue), but there are real operational systems in the world today in several countries, which is probably a better indicator that something works than a university field study. 

He also claims that “Mileage data can be captured via GPS”, which would be a surprise to any engineer who worked on GPS. GPS is a system that purely takes signals from satellites to measure the co-ordinates of a specific device. No GPS satellite captures anything, at all. However, GPS devices can be adapted to record and measure distance, but let’s not keep making the tired mistake of thinking GPS satellites pick up anything from people’s handsets on the ground. The “Spy in the Sky” myth keeps needing to be swatted. 

He rightly points out that a system can be integrated with fuel purchases so that payment of VMT can offset payments of gas tax (Oregon’s trials proved that), although the accounting involved is a little more complex than that. 

The article then highlights how VMT is likely to reduce driving, largely because motorists become acutely aware of the cost of each trip as it is taken. This is intensified if pricing varies by time of day and location. Fairly basic acceptance of the pricing principle of course, but it also should recognise that at some times and places it could be cheaper than paying a gas tax.  I suspect that it isn't what he has in mind, but it's important to give both sides of this.

However, he concludes with some concerns, such as how VMT “does nothing to encourage green cars”. Yet again, the Atlantic Ocean remains a psychological barrier to understanding reality. In Germany, its “VMT” type truck tolling system does just that, by having differential pricing according to the emissions rating of vehicles. It is entirely possible to do that for cars, and in Germany it has incentivised changes in the truck fleet towards lower emission vehicles. 

Another concern raised is VMT “creates a rate-equity debate with rural and possibly even suburban drivers who lack reliable transit options”. A debate yes, but who argues that fuel taxation is unfair to those in rural areas or without other modal choices? Shouldn’t the argument be about paying for what you use, not relating to extraneous factors? How prices are set needs to be based on economics. 

Finally he says “any mileage system would also need to consider how much of its intake should go toward public transportation”. Yes, what is done with revenue is critically important, but that is a wider debate. Better road pricing could conceivably abolish the need to subsidise public transport altogether, but this article wasn’t really about economics.

In conclusion, the article is positive as it throws into the mix of public discourse support for an idea that is highly controversial and seen by many as “just another tax” due to the high level of distrust of government in the US. However, it would be helpful if it had been able to address some key myths around privacy and promoted a shift towards more equitable and efficient pricing of roads – linking what is charged to what is used and spent on them. For now, I fear it will polarise those who argue for less tax against those who simply want to restrain car use for environmental reasons – with little or nothing about economics.

The only way there will be public support for such a major change in how people pay for roads is if they can be convinced that they will be better off with a change, and it will be fairer overall.  This article didn't make that case, it made the case that it can be done, not enough for the case that it should be done.

Slate "gets it" on road pricing

Matthew Yglesias, business and economics correspondent at Slate magazine makes the point, in a pithy and simple to understand article, that:

"slow progress in transportation quality isn't really a technological issue. The reason we have traffic jams is that road access isn't priced properly."

He says quite rightly, that both roads and parking being underpriced, means people go to congested central cities and circulate looking for parks, causing congestion.  It isn't because there is a lack of technology to do smart and intellligent pricing of roads or car parks, but because of a lack of political will to apply economic instruments.

Policy challenges of VMT in the USA

Dr. Travis Dunn of D’Artagnan Consulting* has prepared an interesting presentation (that he gave at the recent IBTTA Symposium on Mileage-Based  User Fees and Transportation Finance) on some of the challenges US policy makers when considering a shift from fuel excise taxes to distance based charging for road use (commonly referred to as VMT or Vehicle Mileage Tax**) .

He makes some fascinating points (sources in his presentation): 

- From 1994 to 2010, the real value of the Federal gas tax has declined by over 40% compared to the Highway Purchasing Price Index (the cost of paying to maintain and build roads). It has not increased in nominal terms since 1994. It is US$0.04/litre (US$0.184/gallon);

- At the state level, 18 states have also not increased their State gas taxes in nominal terms since 1994, 2 have reduced them (Connecticut and New Mexico) others have increased them. The average across all states is an increase of 2.8c/gallon since 1994. This roughly equates to a decline of around 25% in real terms, but obviously some states have seen far higher declines, and a few (notably North Carolina and Washington) have kept up pace with inflation and some. 8 states index their own gas taxes to inflation;

- Vehicle fuel efficiency has improved by around 15% in terms of gallons per mile since 1994, although it had declined between 1994 and 2004 by around 7%, this has been more than reversed from 2004 onwards. 

From this, he concludes that the timing for VMT to replace gas tax has been since that rise in efficiency, as it is a combination of inertia in indexing gas tax to inflation and the increased fuel efficiency of the fleet that is putting pressure on state and federal budgets dependent on these hypothecated taxes. 

He concludes there are a few more fundamental policy points: 

- Whilst VMT protects revenue from erosion due to reductions in fuel consumption per vehicle mile, it does not protect it from inflation. VMT will still need to be increased to offset that;

- Federal gas tax already means a complex set of cross subsidies between states. Four states get less than 90% of what they contribute in Federal gas tax (Texas, South Carolina, Utah and New Jersey), whilst 17 states get more than 110% of what they contribute (DC gets nearly five times what it pays, Alaska gets nearly four times). VMT may mean states are likely to want to keep the revenue they generate, and perhaps it means rates might vary from state to state;

Yet if VMT was introduced to replace gas tax, the picture would change, assuming funding stayed the same. Texas would gain by paying $411 million less than it does now (reflecting its fuel consumption is high relative to distance travelled). Florida would lose by paying $510 million more than it does now (reflecting the opposite). 

Obviously there are other dimensions that Travis doesn’t take into account, which could help mitigate this, primarily because discussion of VMT has been as a straight replacement for gas tax.   However, as a tool it can be used to significantly improve pricing, after all vehicles already pay differently according to fuel consumption, which reflects weight, topography, road network and demand conditions.

I'd argue some of the minimum components of VMT should be:

-    VMT shouldn’t be a flat rate for all vehicles, because gas tax isn’t. It would be highly preferable to match VMT to also reflect weight, so that whilst cars pay a common rate, trucks and buses would pay more to reflect the greater wear and tear they impose on roads, and the capital requirements for highway structures to be built to cope with such weights.   Other taxes (such as tyre taxes and registration fees) that may be proxies to reflect this would need to be taken into account, and adjusted downwards if desirable;

-   VMT should reflect geographic variations in cost.  Even if there is a federal VMT, it seems reasonable to be cost oriented by having VMT rates that could vary from state to state because costs vary.  As long as this is oriented towards cost recovery, it should be less controversial, but it ought to also mean revenue raised in one state is spent in that state (or on routes approaching it). 

-  VMT at the interstate level can be varied to reflect recovery of the costs of major new capital works, replacing conventional tolls.

His whole presentation is here (PDF), it's worth a look through.  If you have any questions, his contact details are at the end.

Obviously it is a long way to go before VMT will be rolled out on a wide scale replacing existing taxes, but the challenges driving the concept are here now and unless some of the key dimensions of the current system and what VMT will bring are understood, it will difficult to move forward and the current problems will simply get worse.   Travis's presentation raises just some of those issues, which highlight the obvious but often ignored point that the existing system produces "winners and losers", another system will change who they are - the bigger challenge is making sure whatever comes ahead, that VMT can be seen as being fair.

Marxist position on tolling

For the weekend, I thought this article, apparently based on a Marxist view of economics (but I would not dare suggest it is a particularly authoritative one), would be a curiosity.

It is written by Irvin Jim, General Secretary of the National Union of Metalworkers of South Africa.  I wont bother rebutting the arguments made here, since they are well off my scale of having anything to do with economic efficiency, but are all about “from each according to his ability, from each according to his means”. 

 

He advocates highly progressive income tax as a way to pay for roads. Draw your own conclusions of the logical consequences of such an approach on demand for road use and cross subsidies from those who use roads the least to those who use them, wear them out, congest them and pollute from them the most.

Fitch ratings compares viability of different types of toll roads

Reuters reports on the view of Fitch ratings of different types of tolling as an investment risk, in the UK context (but with some applicability more generally.  It gives a useful insight into how investors view toll road projects, in separating them between those that offer new routes (and so offer a consistent saving and become the long term preferred route) and those that bypass congestion (and are dependent upon conditions on untolled route):

We would expect toll roads built to relieve congestion to have a weaker credit profile than toll roads built to service a new route. As "peaker facilities," they benefit more from rises and suffer more from falls in traffic volumes. At times of economic growth, when overall traffic volumes in a particular transport corridor rise, growth on the free road is constrained by congestion. Most of the growth is therefore captured by the toll road. When the economy weakens and overall volumes fall, toll road traffic in turn experiences a greater contraction. Toll-free travel may also be more attractive in a downturn.

This volatility, which we call the "corridor leverage effect", has been seen for example in Spain, where a relatively large number of toll roads have competition.

In the managed lane system that has been developed in the U.S., drivers can choose between toll and free roads in the same transport corridor based on real-time estimated travel time information and dynamic pricing. Managed lanes feature higher revenue volatility. We therefore only see managed lanes as viable in heavily congested areas.

I am more bearish than that about managed lanes, as the congestion needs to not only be severe, but consistent over long periods of the day to help make such lanes viable.   It is notable that toll lanes have only been seen in the USA and Israel so far, and the former in most cases simply to get more utilisation out of poorly used HOV lanes.

Bloomberg editorial supports tolls and road pricing to fix US federal highway funding crisis

Bloomberg has published an editorial suggesting various approaches to address the looming bankruptcy of the US Federal Highway Trust Fund.  The Fund is facing a crisis because most of its revenue comes from a US$0.184 per gallon tax on fuel (for those of us in the metric world it is only U$0.04 per litre).  As that tax has not increased since 1993, a combination of inflation and improving fuel efficiency has eroded revenues to the point where additional funding is claimed from other sources to try to bridge the difference.

The three main political proposals to address it are all fundamentally flawed. The President wants to use savings from reduced defence spending to transfer to expenditure on highways.  Not exactly sustainable and in effect a subsidy from all taxpayers (and future taxpayers whilst the US remains in budget deficit) to highways.  It is unlikely this could buy more than a few years in any case.

The Senate has proposed a tax on imported vehicles and to raid another trust fund set up to fix leaking underground storage tanks.  This is even more esoteric and unsustainable. 

The House of Representatives bill proposes ending the funding the Highway Trust Fund provides to urban mass transit (to make the Fund last a bit longer) and to get funds from royalties for future oil drilling projects.   It also proposes abolishing "earmarks" (dedication of specific funds for specific projects in Federal legislation, effectively bypassing any processes of appraisal and comparison for such projects).  Again, whilst the first part might buy some time (and raise another issue), the second seems an odd cross subsidy.   However, opposing earmarks is gaining increasing support.

Neither of the main political parties advocates an increase in fuel tax, so the obvious answer is blocked.   The Bloomberg editorial proposes some alternatives which appear to be off the radar at the Federal level, but strongly advocated by some states and think tanks:

- The long term solution proposed is distance charging (vehicle mileage tax or VMT in US parlance), which is widely considered to provide the platform for optimal forms of road pricing.  However, although the article wrongly thinks the technology doesn't exist to do it (it does and it is being used today), the big issue is rolling it out for all vehicles.

- In the shorter term, the article proposes greater use of tolls and congestion pricing, as is already being seen.  

- It also advocates more PPPs for new capital works and governance reform to reduce bureaucracy.

It is good to see more media coverage of the need to develop long term solutions to highways funding in the US.  VMT is an obvious option to replace fuel taxation, but it may be that more private investment could be the way to facilitate that as well.   What's important is that a rational debate proceed on this issue, but it is telling that the level of political debate on this issue remains extremely short-term focused, indicating that neither major party is willing to really move substantively on doing something to make highways financing in the US at the Federal level truly sustainable (and yes, one way to do for the medium term would be to inflation adjust fuel tax every year, although that would not address the issue of improving fuel efficiency and alternatively fueled vehicles).

News shorts: Bristol, Toronto, Atlantia and two articles mentioning pricing

Bristol

The Daily Telegraph reports that the UK city of Bristol is proposing a levy on parking spaces at workplaces in the city to help fund a bus rapid transit system. The intention is that it can raise £27 million from 10,000- 12,000 parking places. The charge would be effectively a tax of £1 a day imposed on owners of the parking places. Whilst it is driven by revenue, it is also hoped it will encourage a switch to public transport. The bus rapid transit system is estimated to cost £194 million, with £15 million to come from existing local authority funding sources and the remaining £152 million would come from a grant from central government if approved.  The programme this is being considered under was the same one Manchester was seeking to gain funding from if it had voted for a congestion charge (workplace parking levies are seen as a form of demand management like congestion charging).  Whether this controversial measure actually proceeds in Bristol is unclear, although Nottingham has managed to introduce it.   This isn't a form of road pricing, it is a tax on parking, so isn't strictly within the remit of this blog.

Toronto

The big transport issue in Toronto today is the battle between the Mayor and the Council over spending on public transport improvements.  He wants a new light rail line to be underground.  The Council disagrees.  However, one of the options under consideration to pay for any of this is congestion pricing according to the Globe and Mail.

Missouri

TV station KOMU reports that Missouri Senator Mike Kehoe is sponsoring a bill to turn I-70 into a toll road. The story says tolls would charge US$0.10 – US$0.15 a mile with the intention being to fund at least US$2 billion renewals on the road.


North Carolina


Trucking website Landline reports on concerns that tolling I-95 in the state would raise far more revenue than is needed for the proposed reconstruction and upgrade of the highway.

According to documents provided by the state, tolls would last for 40 years and bring in approximately $30 billion. That is nearly double the combined $4.4 billion in reconstruction costs plus the $10 billion to $12 billion in ongoing lifecycle maintenance of the roadway.

This suggests a bit more effort is needed to demonstrate what will happen with revenue beyond that forecast or whether tolls will be adjusted to avoid this.

Atlantia

Bloomberg reports that Italian toll road owner Atlantia has signed an agreement with freight operator Gavio SpA for Gavio to buy Atlantia’s share in construction firm Impregilo (which owns concessions in Argentina and Brazil). It also includes an option to buy Atlantia’s Turin- Savona toll road.  This follows the drop in Atlantia's credit rating which parallels concerns about demand on its main asset - Autostrade - which owns and operates most of Italy's national toll motorway network.  Atlantia is driven in part to expand its shareholding in South American toll roads by gaining control of its subsidiary.

Bloomberg also reports "Gavio’s Societa Iniziative Autostradali & Servizi (SIS) toll-road unit will shift its 45.765 percent stake in Autostrade Sudamerica, which controls Chile’s Autopista do Pacifico motorway, to Autostrade per l’Italia for 565.2 million euros...Autostrade per l’Italia will also buy a further 8.5 percent of Autostrade Sudamerica from Mediobanca SpA (MB) for 104.6 million euros, Atlantia said."

Greenbang claims congestion pricing is traditional

Greenbang claims to be the "smart technology website" so it is understandable when it published an article about a future using intelligent transport systems (although not called that) to better manage traffic.  However to say that in respect of congestion "the traditional response has been to build new roads, expand mass transit or institute congestion pricing" is a little off the mark.  Build new roads and expand mass transit, yes.  However, is congestion pricing traditional?  Maybe in Singapore, as it has been around in one form or another since 1975, but when the number of cities that have implemented it remains less than 10, it is hardly "traditional".  Whilst congestion pricing isn't the silver bullet to congestion, no single policy measure is likely to be more effective, and given the lack of widespread lack of implementation in part because of concerns around cost and technological complexity, I would have thought Greenbang could do better embracing congestion pricing rather than dismissing it (especially since no city other than Singapore has really introduced a sophisticated congestion targeting form of congestion pricing across a network).

New York Times writes about HOV to HOT lane conversions


An interesting article has been published in the NYT about a few of the implementations of HOV to HOT lane conversions in the US.  It writes about the Atlanta I-85 dynamic HOT lanes and moves in California and Virginia to remove the toll exemption for first generation hybrid vehicles.

Alternative approach proposed for US highways funding and charging

With the US President announcing a $476 billion bill to spend money on transport infrastructure (including, bizarre as it is to those of us who happily operate in a world of commercialised airports, air traffic control systems and pipelines, taxpayer funding for those), the question has arisen as to whether this is the best way to meet the needs of US road users in the near future.  This blog doesn't exist to consider wider transport funding and resource allocation issues, but the approach proposed by the President (and also essentially represented by the separate bills in both houses of Congress) is to increase the separation of the relationship between users of the highway network, what they pay and what is spent on them.

Edward Glaeser, Professor of economics at Harvard, has written at Bloomberg of a different approach across a wide range of issues.  The suggestions of his include:

- Embracing user pays:  "User fees support the maintenance of aging infrastructure. Like all prices, they allocate scarce resources to the people who value them most. Perhaps most importantly, as (Adam) Smith emphasized, user-fee financing discourages white elephants, because projects that can pay for themselves are practically guaranteed to deliver plenty of value."  He supports funding highways through electronic tolls, or failing that, make sure fuel taxes are sufficient to fund highways.  One argument being "we shouldn't be bribing anyone to drive" by diverting general tax money into highways.  He has a point, the real argument should be how one pays.

- Implement congestion pricing: "If you have a scarce commodity, whether groceries or roads, and you insist on charging prices below market rates, the result will be long lines and stock outs, like those that bedeviled the Soviet Union decades ago. Yet U.S. roads are still running a Soviet-style transport policy, where we charge too little for valuable city streets. Traffic congestion is the urban equivalent of a stock out."  Quite simply it is about ensuring a scarce resource is used more efficiently.  What you do with the money is another point, and another debate.

He also argues that the federal government role should be reduced in favour of the states, that maintenance funding should not only be a priority but THE mandatory priority for expenditure on roads, promoting public-private partnerships (with tolls) and pushing for buses ahead of rail (he also wants the Port Authority of New York and New Jersey to be split, largely to promote airport competition).

It is abundantly clear that the politics around the Highways Trust Fund has failed and that the "business as usual" approach of raking in money from whatever taxes exist to dish out funds for highways based on politically/bureaucratically defined criteria, has not delivered.

Road pricing can help put the US highway system on a sustainable financial footing to deal with deferred maintenance and with congestion pricing, it can mean more efficient usage that saves time, reduces emissions, reduces fuel consumption and sends signals as to where future investment should be placed (and helps defer expansion of capacity).   The timeline needed to do this is long, and it cannot be led by a grand Federal Government project.  It requires innovation, devolution and a diversity of approaches that can be harmonised and be interoperable.  

However, beyond anything else it needs motorists to be convinced that it will deliver them positive results.   It isn't about technology, it is about delivering value. 

National road pricing in the UK - a different approach

The argument for road pricing in the UK has long been compelling. From the Smeed report in the 1964 which said that charging vehicles according to use, varying by time and location could generate up to £150 million (in 1964 values), to the 2004 Road Pricing Feasibility Study which concluded that a national road pricing scheme could generate over £10 billion p.a. in benefits, policy makers and (in private) politicians have been convinced of the merits of road pricing.

The difficulties of road pricing at first were technical. Even though the Smeed Report made leading edge proposals to develop technologies that had barely been conceived of at the time, road pricing was, until the 1990s, about manual tolls. Given most of the benefits that have been identified come from reducing congestion, that obviously would never work.

Modern computing and telecommunications technologies changed all this. So road pricing in the UK went through four distinct phases:

1. Local body empowerment: Local authorities were given the right to introduce congestion charging schemes, with the unprecedented requirement to spend net revenues on local transport schemes. Durham was first (with a tiny historic centre scheme), closely followed by London (where Ken Livingstone was elected Mayor promising to introduce congestion charging). Edinburgh foolishly asked the public about a more complex scheme, and in a referendum saw 74% vote no. Then despite studies in several cities, interest waned. Local authorities decided politically that it would be too unpopular to charge motorists more, even if the money raised could be spent on improving transport networks.

2. Lorry Road User Charging (LRUC): Treasury through HMRC started a programme to introduce a national road pricing scheme for lorries. They were to be charged on all roads, by distance. Countervailing this would be a reduction in annual vehicle excise duty and fuel tax. The initial focus was to raise revenue from foreign vehicles, but the business case started to fall apart when the volumes of foreign vehicles turned out to be small, and there were grave fears that the scheme would face a massive cost blowout. Issues around the procurement approach and risks of complex large government led IT projects saw the scheme scrapped.

3. National Road Pricing/ Transport Innovation Fund (TIF): The official line was that LRUC was being rolled into a national road pricing programme that would include cars. However, the LRUC programme was suspended and the programme shifted to the TIF. TIF essentially linked increases in local government transport funding to an introduction of congestion charging. Councils were being incentivised to introduce local road pricing schemes. The thought was that if several major cities introducing congestion charging, it will be more commonplace and be a step forward towards national road pricing. However, few local authorities were up to it. Manchester’s authorities were convinced, but foolishly decided to hold a referendum which saw nearly 79% vote no. Again Mancunians didn’t like what looked like central government telling them they had to swallow a new tax in order to get money for an improved tram network, especially at the same time as government was starting to bail out financially troubled banks. In the end, the TIF programme wound down as the Manchester failure was followed by Cambridge suspending interest. A online petition against road pricing “signed” by 1.8 million people showed the depth of feeling against road pricing by this time.

4. LRUC Mk. II and tolls: With the change in government after the 2010 election, the Conservative/Liberal Democrat coalition agreed to a modified version of LRUC, which looks like being a version of the time based vignette systems that operate in some countries on the Continent. Investigations into that option are underway now, but appear likely to involve a cut in annual vehicle excise duty in exchange for lorry owners having to pay an annual, monthly, weekly or daily charge to access at least the trunk road network. Meanwhile the government is considering the use of tolls to help fund new roads where viable. Not exactly radical.

It is fair to say that the idea of national road pricing in the UK is political poison. The chief problem is that motorists don’t trust government to treat them fairly. The UK has one of the highest fuel taxes in the world, and up till this year would increase fuel taxes above the rate of inflation since 1993. This extra revenue was not used to improve roads, in fact the backlog of major road projects (identified by the RAC Foundation in the “Keeping the Nation Moving” report) is as much as £10 billion, whilst potholes have become commonplace as maintenance gets neglected. In such a climate, motorists are suspicious that a new road pricing system would mean they pay more, and not get any reductions in existing taxes. That is one simple reason why most politicians do not talk about it. It doesn’t help that the main reason given for considering road pricing is to reduce congestion, which, rightly is interpreted by motorist as meaning “you’re going to price me off the roads”.

A few more toll roads is a good thing, and there is certainly scope for that. The proposed LRUC vignette system will generate a small amount of revenue from foreign lorries and be a very small step forward, but no more than that. Furthermore, no city will introduce a new congestion pricing scheme in the next few years. Even London has recently closed the Western extension to its congestion charging scheme, and shown little real interest in any expansion of the current scheme. I propose a very different approach.

Pricing is a tool used almost always by commercial entities selling goods and services. It isn’t just used to manage demand or recover costs, but sends signals to service providers as to where to invest. The price signal informs both consumers and producers, whereas the main emphasis has been on the former, not the latter. It is also best established as a dynamic instrument , so that it varies as demand (and supply) changes.

However, roads are not provided in a commercial environment in the UK. Trunk roads are the responsibility of an executive agency of the Department for Transport, other roads are up to local authorities. The investment programmes of all of these are subject to political decisions, as are the funding programmes. There is virtually no link between revenue from road users and what is spent on roads. There is no customer relationship between these agencies and motorists. It is a classic central and local government delivered monopoly. Not a structure conducive to either the efficient setting of prices (or responses to prices and demand) nor to offering a service to customers.

That’s why I propose (as summarised in today’s CITY AM newspaper in London) that motorways, trunk roads and A Roads in the UK be transferred from such bodies to commercial companies, with shares held by central government and local government. These arms length companies would initially be funded through an independent purchasing authority (which would be responsible for a set amount of revenue from existing motoring taxes) which would buy road services on behalf of motorists. That authority would prioritise buying well maintained roads, then buying improvements that are valued the most by motorists. The road companies would be independent from politicians and would bid for funds from the funding authority.

However, what about road pricing? Well the road companies would be entitled to commission new roads in partnership with the private sector (which could offer finance) that could be tolled, providing an independent source of income. More importantly, road companies could start to contract directly with motorists. That would involve motorists being able to get refunds from at least part of existing motoring taxes, and paying directly to the road company, probably by paying according to distance, weight, time and location. As the roads companies would seek to receive revenue directly from users rather than a bureaucracy, they would target regular users first, like lorry and bus fleets, taxi fleets and others. There may be multiple service providers selling road pricing packages, but any motorist would only need one contract. The Irish model of multiple companies offering compatible tolling accounts to use on different roads could be one approach. Perhaps new vehicles could be sold with the default option of a road pricing contract offered by the retailer.

What are the benefits? For a start no large government IT programme. Road pricing would be introduced by commercial companies incentivised to get it right, to be operationally efficient and to be customer oriented. Secondly, it would be customer led. As customers would be opting into road pricing, they would do so only because they perceived a benefit in doing so. That could be accelerated if government continued to raise existing taxes. Thirdly, it would enable pricing to inform investment as well as demand. It would be driven by companies seeking to optimise service to road users, not only in traffic management but investment.

Yet there are obvious disadvantages. Until very large numbers of vehicles are on road pricing systems, congestion management will remain difficult. Although nothing about this option would stop congestion charging being introduced on specific roads. There may be concern about monopoly pricing, yet there could be regulatory oversight to avoid such risks. Finally, it would prove difficult to be certain that road pricing would develop as policy makers expected.

However, what is the alternative? The only way I see road pricing advancing significantly in the UK is for motorists to get something in return. It cannot be on top of existing charges, primarily because these are already more than three time what is spent on the infrastructure and above reasonable estimates as to externality costs. I cannot see central government being able to set up a customer service payment system for over 30 million vehicles, dynamically set and adjust prices on the entire road system efficiently or effectively. It doesn’t do it for airlines, telecommunications companies, supermarkets or even fuel, electricity or gas.

Ultimately road pricing is about moving roads from being seen as the tragedy of the commons to being like a service that road users buy, and decide whether or not to use (or when or where to use) based on price, service quality and their alternatives. In the UK, I believe that the size and complexity of doing this is such, that the only way of doing it effectively and efficiently, is to break up the task and to incentivise those who run roads into encouraging motorists to want to pay for road use that way.

Kauffman Foundation article proposes privatised roads with road pricing

Robert E. Litan, Vice President of Research & Policy, Kauffman Foundation has written an article published by the Huffington Post where he proposes a new approach to highway management and funding.

The article criticises the Obama Administration’s approach by saying how it neglects pricing:

the overall plan presumes that the first answer to congested roads and bridges is always new construction, when we know that roads, like electricity and telephone lines (more about them soon), are used most heavily in peak periods, but are almost always uncongested in off-peak hours. If congestion were priced to reflect this variation in demand, then economic activity would shift to different times of the day so that traffic is smoothed out. Yes, this would mean varied and staggered work hours at many locations, and yes for this and other reasons, congestion pricing is not wildly popular with the public. Yet, this is largely because voters have not been confronted with the choices involved.

Quite right, but of course any move towards better pricing is more complex than just building something, and so requires more sophisticated debate than politicians are often willing to undertake.

He think that voters need to be told either taxes go up or congestion pricing can be introduced, and that they might be more convinced of the merits if the choices are presented like that:

the initial evidence on high-occupancy-toll (HOT) lanes indicates that motorists in all income groups value the option of paying a toll to get to their destinations faster.

Yes, although extending the principle to currently untolled roads is always more difficult. However, he believes the wider solution is privatisation, because the private sector is better able to apply efficient pricing:

Relative to governments, privately owned infrastructure is likely to be more efficient and innovative because private owners have much stronger incentives to reduce costs and respond to users' preferences to maximize profits.

private owners are likely to encounter less opposition to congestion pricing than governments, since customers are used to paying for premium service from other types of private businesses (such as airline and train travel, credit cards, and so forth). Moreover, private firms are likely to apply congestion pricing to cater to users' varied preferences for speed and reliability -- for example, offering a few lanes with high tolls and little delays and lanes with lower tolls and more delay.

From a social perspective, greater use of congestion pricing provides a signal to help insure that only truly essential infrastructure projects are built.

This is perhaps one of the more neglected points, besides reducing congestion and being a new source of revenue, congestion pricing can help signal what new investment should occur. The other advantage of private ownership is innovation.

The challenge is dealing with concerns over monopoly power, and how local streets are part of public space, unlike other network utilities. Issues that will need addressing, but they are not reasons to dismiss Litan’s points outright.  He acknowledges this:

It is also possible that the experiments may reveal that governments may need to regulate the prices of some transportation links where drivers or fliers have few alternatives, but this should be the exception, not the rule, since price regulation introduces its own distortions (especially when it is based on a measure of costs, since this is likely to lead to gold-plating).

Sophisticated pricing is something many of us are used to in a multitude of areas of life, there is no reason to presume that eventually roads may well be treated the same way.

Litan is optimistic:

A new private industry, one centered around the ownership of roads, bridges, airports, and other formerly publicly owned facilities is thus waiting to be born, if policy makers at all levels of government will do everything they can to birth it with carefully designed experiments in selected cities, as a precursor to making this national policy.

Climate Action gives congestion charging a qualified tick

The Climate Action website (associated with the UN Environment Programme) has published an article by Alan Bouquet reviewing congestion charging.   Given the website's primary interest is reducing CO2 emissions, it understandably take a fairly limited view of congestion pricing as a tool, but I am glad that it is promoting it as a positive.  Given congestion pricing simply reduces traffic flows on congested routes by pricing some vehicles off the road, it is understandably popular with those seeking to reduce use of cars.

The article states the obvious ways of introducing congestion charging as:

• A cordon area around a city center, with charges for passing the cordon line
• Area wide congestion pricing, which charges for being inside an area
• A city center toll ring, with toll collection surrounding the city
• Corridor or single facility congestion pricing, where access to a lane or a facility is priced.

The cordon and toll ring examples aren't exactly different, and it ignores multi-zonal or distance based pricing - the option with the best potential to target roads with optimal pricing.  

The negatives it cites are that it is "not equitable" (but doesn't explain why), that it "puts a burden on neighbouring communities" (only if it is a blunt badly designed cordon), that it "affects retail businesses and the economy and is another form of tax" (which can be true if badly designed and if the revenue collected is not wisely used).

The article claims there are "many unanswered questions". These are worth testing:

"Significant investment in public transport is required to offset the loss of commuters using cars. For the system to work, viable alternatives must be in place"

I disagree. For a start not everyone priced off the roads at peak times are commuters, but people who can travel at other times. Secondly, it can price people onto other routes and to other destinations. Estimates in London are that a third of motorists changed time of travel or route (some simply avoided driving through the centre), a third changed mode and a third didn't travel at all (combining multiple trips into one trip). Public transport needs to be able to operate more efficiently and meet increases in demand, but often it is also underpriced as well. Congestion pricing raises the bigger issue as to addressing the fundamental pricing problems in urban transport.

"The funds raised from the charge are not always put back into improving transport, which is a major criticism of the scheme."

Given there are only three major schemes (Singapore, London and Stockholm), this criticism is only valid in Singapore, but isn't a big issue there. The funds could be used to offset other motoring taxes quite legitimately. It does help for money raised to be used to improve transport or reduce other taxes, rather than simply be a windfall.

"The process of charging raises inequality questions. Middle class and high earners are more likely to be able to afford the charge, possibly raising unemployment among the lower classes."

This is why part of revenue raised should be used to offset cutting other taxes, which can address this. However, any charge which raises unemployment is poorly designed indeed.

"Referendums on whether to implement charging or not, like in Stockholm, show that those outside the city are against the charge, while those in the city are for it."(sic)

There have been three referenda on congestion charging. Stockholm's result was as described, but in Edinburgh and Manchester the vote was overwhelmingly negative, with majorities against across the board. That statement has little validity.

The article concludes that congestion charging can work "it also enables a cleaner flowing city, if implemented with masses of investment in alternative methods of transport."

However, that is a narrow way of looking at congestion pricing. It is only partially about promoting mode shift, but also significantly about time and route shift. Congestion pricing can enhance the viability of existing services, and can justify improvements, but it requires a deeper investigation of impacts than simply assuming mode shift.

Huffington Post's shallow critique of privatising toll roads

The online rag, Huffington Post, has published an article by Dave Jameson that claims to dish out lessons to Ohio regarding the proposed privatization of the Ohio Turnpike. Unfortunately, it offers nothing new besides the old fashioned left wing political clichés that find suspicion in the private sector involvement in the road sector, but offer no credible or rational answers to the problems besetting US land transport policy.

I've written three times (here, here and here) about the Ohio Turnpike privatisation concept, which I believe has merit.

It damns the privatisation of the Indiana Toll Road because the price has gone up. Presumably if it was cheap and congested, and badly maintained, it would criticize that as well. So much of the US highway infrastructure is crumbling and has bottlenecks, you might think there would be some pause for thought about the quality of service on the Indiana Toll Road – which doesn’t come for free.

It engages in mindless xenophobia saying the profits go to “overseas investors”, you know those people who when they are Americans in other countries making money, are heroes and entrepreneurs, but when they come to the US and invest in infrastructure, are horned devils out to rip Americans off. Those Australians and Spanish after all, how dare they? I don’t doubt Jameson would be upset if both countries shut out US exports or companies.

Jameson does point out the state did gain US$3.8 billion, of foreign cash, for the lease on the road, and that there are claims Indiana got paid above the odds for the road. All good, but then he says it is “too early to tell” if it was a good deal. Hopefully Indiana has invested the money wisely then.

Yet he contradicts himself  in his article to suit his obvious opposition to the idea. He claims “No one knows how expensive it might get” which presumes that the owners would want to choke off demand, which is absurd. However, it is easy to tell how expensive it might get because he tells you “The road's leaseholders can now raise the toll annually at one of three rates -- at a flat two percent, at the percentage increase in the consumer price index or at the percentage increase in gross domestic product -- whichever is highest.”  Yet does he know how expensive fuel is going to get, or bread?

So you see in Indiana the state set a limit on how much the tolls can be increased. However the real discipline is the price mechanism, something Jameson doesn’t quite understand.   The incentives on the owner are to maximise revenue, which means balancing price with demand.

He quotes a Professor saying “they are going to regret that”, but then let’s look at the wider picture. There is a crisis in highway funding in the US, as politicians have been unwilling to raise fuel taxes to pay for it on the one hand, have been happy to divert fuel tax revenue onto other projects with the other, and have mismanaged highways to the extent that bridges collapse. He doesn't have a solution to the chronic failure of the current system.

Jameson asserts about privatisations that “they can place a considerable burden on taxpayers two or three generations from now”. How? When they get the road back for free having been well maintained and fully operational the whole time, and able to be privatised again?  If a state foolishly leases out a toll road with no conditions, it could be returned needing much maintenance, but that can be fixed by having conditions on the concession about maintaining minimum service standards.   It is a lease after all, not a sale.

He quotes an Oregon Democrat politician as saying “One of the most basic things government does after public safety and law enforcement is infrastructure”. Does it? In much of the world privately owned roads are the norm, as in France, Italy and Spain. Almost all US railroads are privately owned, and the entire electricity and telecommunications infrastructure are privately owned.

Continuing with the choir he has assembled, he quotes Ohio Congressman Tim Ryan (D) who says “It’s a quality roadway, and I think we really risk an increase in tolls and a decrease in quality if this thing gets privatized.... To me it's another example of pure ideology, where everything that government does needs to be abolished or privatized”.

Hold on. Where has there ever been a decrease in quality seen in privately owned highways? Isn’t it just pure ideology to say that the private sector owning and running a road will mean prices go up and quality down? Besides, who in Ohio is saying sell all of the roads?

Jameson then says “The private sector may or may not manage highways better than state governments”, but does he investigate examples? No. He wouldn’t look overseas of course, given that he thinks foreigners are the devil incarnate, but is the Indiana Toll Road badly maintained? No.

The one useful example he brings is “when fees on the toll road were temporarily waived for safety reasons during a serious flood in 2008, the state ended up reimbursing the toll operators for lost revenue. Had the state not leased the road, the waiver would have cost it nothing.” Sounds concerning yes?  However he is wrong. The state would have been the toll collector so would have foregone tolls it otherwise would have collected, oh and it wouldn’t have had U$3.8 billion in cash from the lease.  It would have been preferable for this to be born by the leaseholder, but that is a lesson in contract negotiation, not a reason to throw out the proverbial baby.

Give Jameson his due, he finally interviews the well known tolling advocate Robert Poole who says of the Ohio Turnpike “I see a road that will need major reconstruction in the next decade or two.... Given that the toll road industry has a very good track record of financing and building, I think [privatization] is an acceptable alternative to look at."

Indeed.  Roads cost money.

Opposition to the temporary privatisation of toll roads is largely ideological. As long as a good price can be gained, and the road is handed back in good condition, the incentives exist for such a road to be well managed, for tolls to be at levels to ensure the road is well maintained, and can even manage congestion.

Dave Jameson’s article engaged largely in an ideologically driven beat up which isn’t bore out by experience. Privatising toll roads is an option, if done well it can deliver major benefits for motorists and the government involved, as well as profiting the new owners. I thought in the USA that people selling good quality services at a profit to willing buyers was what the country was all about?

RAC Foundation revisits the acceptability of road pricing for the UK

Background to UK pricing

A motorists’ advocacy group isn’t typically known for advocating road pricing. Most motorists are suspicious of being told it is “good for them” to have to pay to use a road, although they will grudgingly accept a toll on a new road, as the price to pay for a new route. As long as the old route is untolled, they are happy.  

However, roads are priced almost everywhere, just not very well and certainly not directly. Fuel taxes almost universally serve as a proxy price for road use, one that is “prepaid” in that a motorist pays a tax, with the fuel, before using the roads. This is grudgingly accepted because of its simplicity, but motorists have long been suspicious that the money collected isn’t well used. Why? Because they see the state of the roads they use.

In the UK, most towns and villages have plenty of potholed local streets, because of a lack of maintenance by local authorities, who themselves blame government for not giving them enough money for it. Motorists in the UK know they pay just under £0.58p a litre in fuel tax (US$0.94 a litre or around US$0.206 a gallon). Many also know that none of that money is hypothecated (earmarked) for spending on roads, but that the government spends around one fifth of what it collect on fuel tax on roads. Understandably, they think they are getting ripped off.

However, the real crippler for mobility on roads in the UK is congestion. Sir Rod Eddington undertook a comprehensive review of transport policy for the last government, and stated that congestion cost the UK economy between £10-20 billion p.a. (US$16-$32 billion) in lost time, productivity and wasted fuel. Given the current fiscal position of the UK economy, there is no remote chance that government will support road construction to address much of that (nor is there likely to be public appetite for the necessary road building in built up areas). Furthermore, while public transport delivers mobility on some major corridors, the potential for mode shift without radical changes in pricing, is marginal indeed. Again, given expansion of public transport tends to rely on subsidies, the government funding potential to do more than is currently approved is limited. Certainly, the business case for a new high speed rail line is not based on mode shift from road to rail.

Investigations and studies into road pricing in the UK were substantive in past 10 or so years. The London congestion charging scheme has been lauded worldwide, and the British government was on the cusp of introducing a nationwide distance based road pricing scheme, on all roads, for all trucks (called Lorry Road User Charging (LRUC)), until the project was cancelled due to Treasury fears of risk around cost and technology of large government IT projects (among other reasons).

The previous government’s embrace of road pricing saw it move emphasis towards incentivising local authorities to replicate the success of London with the Transport Innovation Fund. In essence, councils would get new money for public transport and roads if they also introduced road pricing (or workplace parking levies). However, that fell on its face when Manchester foolishly decided to put the idea to a referendum, and grossly mishandled the public relations. A nearly 4-1 majority against congestion charging in Manchester saw the deathknell of new congestion charging schemes for some years, along with the recession and financial crisis. 1.8 million people signed an online petition against national road pricing, as the public revolted against the idea of a new tax.

Quite simply, most British motorists didn’t trust politicians to introduce road pricing without reducing other taxes (and neither did politicians make it clear that would happen), and most didn’t trust that the money would be spent on roads. Even the devolved Scottish government abolished tolls on all of the roads in its territory.

The only light in the road pricing world in the UK has been the Conservative/Liberal Democrat coalition government that has been progressing a time based (vignette) lorry road user charging system, whereby it is expected that trucks will pay to use the road network on a daily, weekly, monthly or annual basis, and there will be countervailing reductions in annual Vehicle Excise Duty (known in other countries as annual vehicle licensing/registration fees).

RAC Foundation goes out on a limb

The RAC Foundation is one of the UK's leading motoring advocacy groups. The RAC Foundation’s Director, Professor. Stephen Glaister, is a renowned transport economist and has a long background in influencing transport policy in the UK. He was on the Transport for London board for eight years, and was a member of the National Road Pricing Feasibility Study steering group. He has long been an advocate of road pricing, so it is not surprising that he commissioned Dr. John Walker, (another renowned expert on Intelligent Transport Systems, with a particular emphasis on the technology behind road pricing) to prepare a report called “The acceptability of road pricing”. I recommend you download it here (PDF), because there is a wealth of useful information in it, and I can’t start to do justice to it all (or comment on it).

Dr. Walker seeks to break through the political morass of road pricing to find a way for it to be acceptable. The key points he made were:

- Road pricing has to be equitable, compared to the alternatives. Paying for what you use isn’t inherently unfair, but helping those less fortunate may be seen as fair;

- Revenue neutrality is important. For road pricing to replace existing taxes so that government doesn’t collect more than it does at present, or for any revenues to be invested in improving the transport system;

- It shouldn’t have high overheads. One of the chief concerns is that it will be administratively complex and inefficient to collect;

- People need to be convinced that it will work. Education and demonstration projects are essential to do this.

He points out that in London, congestion charging is now accepted, given Ken Livingstone was re-elected as Mayor after introducing it, and Boris Johnson as Mayor whilst abolishing the Western extension, has no interest in abolishing the original central charging area. In Stockholm, a demonstration project saw a referendum on congestion charging narrowly pass, whereas today it reportedly has 70% support.

He also notes that while Stockholm had a major expansion in bus services before congestion charging, the mode shift did not occur until afterwards. In other words, simply supplying more public transport is not sufficient in itself.

Perhaps the most important conclusion he reaches is that previous estimates about the costs and risks of introducing wider road pricing systems in the UK are now obsolete. Technology and the implementation of systems elsewhere has reduced the cost and the risks of road pricing. He believes costs need to be looked at again, with some piloting done to confirm it.

He believes such piloting could enable LRUC to be started again, and that another comprehensive study, like the ROCOL study of 1999, be commissioned, to review how to introduce road pricing.

A key proposal is that any future introduction be undertaken with rebates of fuel tax. That is a critical way to drive acceptance, as people will understand they are getting something back.

In short, any further progress will depend on giving motorists a reduction in the current taxes they pay.

Some of the interesting statistics he quotes include how 67% of freight tonne kms shifted go by road (second is water, covering coastal shipping and inland waterways with 20%, rail is a distant third with 9%). 84% of passenger kms travelled (excluding pedestrians) are by car or taxi, with rail far behind on 7% and bus on 6%. In short, roads are by far the dominant mode of domestic transport, even a doubling of rail passenger and freight trips will not change this.

My analysis

Walker’s thesis is compelling. He is quite right that it does not seem impossible to gain public acceptability, but to do so requires motorists to be convinced that road pricing will benefit them. The chief barriers to that come down to:

- Disbelief that road pricing will reduce congestion;

- Lack of trust that the money collected will be used to improve the network;

- Lack of trust that other taxes will be reduced to compensate.

His paper includes some summary costings for a potential nationwide LRUC scheme based on distance of between £200 million and £1.3 billion (US$324 million-US$2.1 billion). More interesting is that a more recent public opinion survey indicated the three biggest reasons to oppose road pricing are:

- “it would cost more” (which could be addressed by rebates of other taxes);

- “too much tax paid already” (ditto);

- “things are fine as they are”.

He believes there should be more demonstrators. I agree this would be helpful, but there have been several demonstrations and other than those who are part of the “road pricing community”, their results have been almost invisible on a wider basis. The odds of a second congestion charging scheme in the UK in the next five years are very low, the LRUC vignette system likely to be introduced will do little to demonstrate anything (besides the government’s appetite for low risk, but low impact options) and anything more will need money to prove something beyond technology. In my view, the technology isn’t the issue – it is proving to people that behaviour will change and positive results can be gained for road users.

However, I don’t agree with his idea of some sort of nationwide pilot of ANPR (automatic number plate recognition) based charging. Simply because it will be unlikely to achieve anything in terms of demonstrating value to the public, and will unnecessarily raise fears about “tracking” and “privacy” which will louder than the genuine public concern about it.

I think it would be preferable to pilot a system whereby people chose to pay by distance instead of paying either annual vehicle excise duty (road tax), or/and part of the fuel duty. Such a system would need to be about private motorists, and may duplicate part of the pilot trial undertaken in Oregon some years ago. It would be intended to show how road pricing can be introduced in a “revenue neutral” cost effective way, and demonstrate that it isn’t simply about getting more money.

Beyond that there needs to be a debate about the future of raising revenue from motorists. Part of this can be driven by the ever decreasing yields from fuel tax because of electric and ultra fuel efficient vehicles, but it also needs to be about changing the relationship between the motorist and government in the UK. At the moment most motorists feel taxed a lot (and they are), and they see the state of some road maintenance, and congestion at bottlenecks, and wonder what value they get from it. The truth is, the road transport sector has for years been a windfall form of easy taxation, which governments have used to pay for anything but transport. That wont be quick or easy to fix, but what can be done is to have a closer relationship between what is paid and how roads are funded.

People accept that they pay for what they use in electricity, gas, water and telecommunications. They know that what they pay for, pays for the networks and services they get, begrudgingly at a profit for the owners. The networks almost always function to expectations as a result. In some cases they willingly pay less or more at different times due to demand.

Conclusions

I believe that the future for the UK has to come from freezing existing motoring taxes and providing motorists with options to opt out of them. In the meantime, surely the most obvious demonstration project would be to hurry up with converting the Dartford Crossing barrier based tolling system, with electronic free flow tolls and peak time charges. As long as new capacity is being progressed, with the cashflow from tolls, this ought to be a simple test case as to how to make tolls become more publicly acceptable on an existing road.

The RAC Foundation’s support for road pricing hasn’t gone done well among some motorists, but its courage in pushing for a rational, sensible discussion and to seek to address the key issues behind it, is welcome. If only all motorists’ organisations could soberly read this report, instead of writing ignorant insane rants that are technologically illiterate.

and think a bit more about how road pricing can produce positive results for motorists as a whole, rather than remain wedded to the Soviet style central planning approach to road funding and taxation that is the norm in most of the developed world.   As Dave Hill of th Guardian writes - Conservatives should have no opposition to road pricing, as it is a market based mechanism.  However, as in politics all too often, perception is more important than principle.