Wednesday, 21 September 2011

Are toll roads bad for New Jersey?

This is the question raised and answered by Bob Ahler. Bob joined an ad-hoc commit-tee called Citizens Against Tolls, whose primary goal was the elimination of tolls on the Garden State Parkway.
Those of us working in the road pricing world have to face opponents to tolling regularly. Of course many of the concerns about tolling are quite legitimate issues about whether the money will be used for what is intended, or misunderstandings about how a system may work. People don’t generally like paying for something that is, to them, free otherwise. Given most roads most of the time don’t have any form of direct charging (although fuel taxes form a kind of indirect charge), putting any form of pricing on a road is going to be controversial.

Once you get beyond highly politicized debates about tolling it is worthwhile to understand what arguments are made against it, and so I though it would be worthwhile reviewing Bob Ahler’s series on tolling in New Jersey in the Cape May County Herald (not that it was easy to find all of the articles as they weren’t linked in a series and there are two "fourth articles" and a sixth as well as a final article).  The ones I found are numbers 1, 2, 3, 4, 5 and 6, oh and another 3rd!

All in all there is a lot of interesting history in his articles, but his anti-toll position doesn’t seem unassailable. I thought the best approach would be to go through his conclusion point by point.  He starts:

With the high cost to collect tolls, additional driving times, wasted gasoline, additional pollution, unsafe toll plazas driving conditions, loss in matching federal highway funds and the subsidy paid by drivers on toll roads, the only conclusion that can be reached is that tolls do not serve the best interest of New Jersey citizens. 

It is therefore recommended that tolls be eliminated from all roads, thus saving $522 million a year. Lost revenues can be made up from a 7.2 cent per gallon increase in the state gasoline tax, thus insuring that road upkeep funding is the same for all roads in New Jersey.

So he proposes eliminating tolls and increasing fuel tax. So everyone pays more, rather than letting people using some roads pay for those roads. Except of course, not everyone pays the same. Fuel efficient vehicles pay a lot less, except that they don’t actually consume less “road” than others. However, it is his financial claims of a saving that don’t bear close scrutiny, especially since around a quarter of these “savings” are “travel time” savings which can be gained by fully free flow tolls. Let’s go one by one: 

The following is a list of toll elimination benefits:

• Savings of over three hundred million dollars a year in toll collection costs.

Now it is true that collecting tolls costs more than collecting fuel tax. Indeed, collecting taxes on basic commodities is always cheaper than billing people for what they use. It would probably be cheaper to charge telecommunications, cable TV and broadband through a tax on electricity, but would it result in better services if such systems were provided by a government monopoly reliant on politically driven funding? I doubt it. Toll collection costs can be brought down. EZPass is one way to do it, but a more concerted effort to move to fully electronic free flow and learning lessons of competitive utilities can do a lot more. This is Bob’s strongest argument, and it is up to the toll sector to show it can collect tolls more efficiently. What he completely fails to even acknowledge is that fuel taxes are a poor proxy for road use, as they can’t reflect wildly differing geographical costs, variations in demand and supply, nor do they reflect well the marginal costs of road use by the heaviest vehicles. 

• The in-flow of $75 million a year in matching federal highway funds.

What this demonstrates is that, if true, the Federal government is not neutral on states that toll. He appears to consider that if tolled roads were untolled, they would gain federal funding support, but that also requires matching funding from the state. I advocate that tolled roads that fuel tax payers use should get funding from the fuel tax paid in using those roads, that would eliminate this distortion and reduce tolls.

• Without toll plazas, there would be less traffic congestion, resulting in less wear and tear on vehicles, a reduction in gasoline usage and a reduction in air pollution.

Don Shula Expressway, North Texas Tollway Authority, Maryland County Connector, Toronto 407, Melbourne Citylink etc etc. Toll plazas are unnecessary for tolling and eliminate all of these concerns. Next!

• Driving on the Turnpike, the Parkway and the Expressway would be safer and more of a pleasure since drivers would no longer have to contend with competing traffic in the selection of a toll lane.

See above. Next!!

• Lengthy and cumbersome entrance and exit lanes could be replaced with shorter and more efficient clover-leave ones.

See above. Next!!!

• The location of entrances and exists would be based on the needs of traffic instead of toll plaza revenue generation consideration (sic)

Electronic free flow tolling can enable this too.

• Drivers would no longer be encouraged to change their driving habits by clogging up adjacent roads in order to avoid toll roads. All roads would therefore be funded in the same fair and efficient manner, thus spreading the cost equally among all drivers.

A road that is clogged is badly priced, so should be subject to pricing that matches demand with supply. Fuel tax may be financially efficient, but it is not economically efficient or fair, nor does it spread costs equally. Indeed, why is spreading costs equally fair? Why should users of an expensive major facility be subsidised by other motorists? The diversion issue is reasonable, but it is an argument also for network wide road pricing, which I believe would give Rob apoplexy.

• The elimination of subsidies paid by tolls.

The thesis here is that toll roads are priced far higher than untolled roads and some of the money is used to subsidise the other roads. A fair point, as tolls should be set at efficient rates related to the infrastructure costs concerned, and demand and supply. On some roads this means a healthy surplus, or a profit. Yet fuel tax offers exactly the same thing. Some heavily used roads generate lots of fuel tax revenue, and others generate little. So why are tolls particularly singled out for this argument?

• The lowering of the operating cost for trucks, thus eliminating the need to pass toll costs on to customers.

Well, only for the trucks using toll roads. He wants to increase fuel tax on everyone everywhere in the state, which puts up their costs. Wouldn’t they pass that onto customers?

• The elimination of the temptation by elected officials to sell or lease toll roads to meet current budget requirements.

He means, to retire some debt or fund some other infrastructure. The argument presented as to why this is “bad” is that the new owners would increase tolls. That can be limited by specifying conditions in a concession of course, which is more effective a limit than it could be under state ownership (as politicians can’t constrain themselves as easily as they can constrain the private sector). Why is state ownership of all roads a good thing in and of itself, unless this is an ideological argument?

• Although the need to eliminate tolls appears to be obvious, there could be pressure against doing so by those having a vested interest in the continuation of tolls. It will therefore take a politically courageous person to eliminate road tolls in New Jersey, one who seeks to run an efficient and fair highway system, so that we can say that we do not have tolls on roads in New Jersey.

Politically courageous? Well it would be popular, except for the need to increase fuel taxes and find the money from somewhere else. The vested interest in the elimination of tolls comes from those who pay tolls, and nobody else. Others would have to subsidise them. The vested interest in keeping them comes from everyone else would avoids having to pay for the roads tolled, and the staff. The former is a big enough group to listen to!

All in all, the argument against tolls rests on an antiquated view of tolling technology, combined with high operating costs and poor pricing. There are cases where tolls don’t make sense, but these often are new roads where the case for the road itself was very poor indeed. Unviable toll roads are often unviable roads. Other cases are those where the benefits to non-users are substantial and come from the diversion of traffic onto the new route. Bypasses being a clear example, where having all through traffic bypassing a built up area, reduces congestion, pollution and accidents, but tolling such a route may dramatically cut those benefits, which when monetized, more than make up the value of toll revenue.

I don’t believe toll roads are bad for New Jersey. They may be run more efficiently with new technology, business processes and commercial imperatives. However, they generate net revenue for the roads concerned that would otherwise have to come from fuel tax. Consider the elimination of tolls on the crossings into Manhatten to think about the effects of that on congestion, and the pitiful fuel tax revenue one would get from the increase proposed. Quite why rural motorists should pay more to make up revenue from those driving into Manhatten is unclear. As fuel tax revenues become ever more difficult to obtain, the likelihood is that tolls will be considered more frequently, but the real benefit comes from better pricing to manage congestion, and send signals to road users and governments spending money on roads, as to how to respond.

Almost all of the economy functions according to price signals, and is the better for it. Roads can be too, as long as the transaction costs involved in tolls are more than offset by the better investment and usage decisions that such signals can help inform. An overly simplistic view of tolls is that they are just another way for the government to make money, but I consider them to be a way to efficiently price infrastructure and everything that comes from that – and this is where debate on tolls should reside. In economics, not politics.

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