Friday, 2 May 2014

US Federal Government to allow tolling of existing Interstate Highway capacity

In the United States, the Interstate Highway network has long been a source of pride.  One of the few really grand Federal Government projects that didn't involve defence or space that large numbers of average Americans regularly use.

Whilst it is an interstate network, unlike national highway networks seen in other countries, it is not managed by a single agency.  The name "Federal Highways Administration" (FHWA)  sounds like a body that would undertake this role, but rather the states take responsibility for looking after the parts of the Interstate network within their jurisdiction.  The FHWA oversees the allocation of Federal funds for this purpose, as well as Federal funds for other highways within states.  The FHWA also sets standards for highways, sponsoring research on highways and transport management.

Funding comes from the Highway Trust Fund, which is itself funded from hypothecated Federal fuel taxes, currently US$0.184 per gallon (US$0.048 per litre) for petrol and US$0.22 per gallon (US$0.064 per litre) for diesel.  It also receives tax revenue from a tax on tyres, a sales tax on trucks over a certain size and annual heavy vehicle tax.

It is well known that given that the fuel taxes have not been increased in 21 years, a combination of inflation and increasing fuel efficiency has eroded revenues to the Highway Trust Fund in real terms.  The shortfall is over US$10 billion a year, so that general Federal funding has been to subsidise plug the gap.  The approach being to use Federal legislation to authorise spending, and then worry about the revenue afterwards.

Of course, the Federal Government has reflected problems at the state level, with some states facing similar deficits on their own highways, they have chosen to use tolls to assist with funding highways.  Texas and Florida are notable for this, but many other states have done so too.  

Tolls on Interstate Highways were restricted to new capacity, being brand new roads or additional lanes on existing ones.  Now The Hill reports that the Obama Administration is willing to allow states to toll existing lanes to help fund projects.  The Transportation Bill that has been introduced into Congress would remove that blanket restriction, meaning that states may be able to charge existing roads as long as there are improvements to the highway corridor.

Associated Press reports:

The administration plan would let states toll interstates to pay for repair or replacement of the highways. Many interstates, built to last 50 years, are past their life expectancy and in need of more substantial repairs than simple repaving. States would also be allowed to introduce "variable tolling, tolls that change according to the time of day or traffic conditions. The tolls are designed to encourage more drivers to carpool or use public transit in an effort to relieve congestion.

So it appears that large-scale maintenance/renewals and improvements can all be justification for tolling, and on top of that tolling that varies by time of day to reflect demand.  This is a significant step forward and represents perhaps the single most worthwhile transportation policy measure that the Obama Administration has introduced.

The IBTTA has understandably applauded the move in a press release.  It should mean more tolling, and as such tolling where it can work.  That means places where the traffic volume can generate enough revenue, and the alternative untolled routes are significantly inferior, so tolls wouldn't divert traffic onto them (I can assume State DOTs can get the modelling for that right)

Is it enough?

It will mean more innovative states can move forward in cases where tolling is viable, and it will help to plug the gap in funding between Federal funding and the cost of projects.  Texas, Florida, Virginia may be expected to be at the forefront of this.

However, I think it wont be enough over the medium term.  There is a need for more flexibility, and it may be presumed that states will take advantage of tolling existing interstate highways to address imbalances in their own networks (which may include other tolled routes), but what it should allow is for projects on roads with high volumes of traffic to proceed if demand is relatively inelastic to the introduction of tolls.

However, the more fundamental issue remains, that tolling can't always be introduced, so a new approach is needed.  That leads you down paths of supplementing or replacing fuel (and the antiquated tyre taxes) with distance based charging (VMT), or simply stepping back from the government deciding how to charge for a service and consider reform of governance.  

That could mean putting the Interstates into a series of corporations, owned by the Federal Government, regulated by the states, and entitled to toll all road users, as well as being able to bid for the (decreasing) amount in the Federal Highway Trust Fund.  That would mean competition in ideas for raising revenue, including not just from users, but in managing property beside highways and for highway development.

That would give them more flexibility, and it ought to progressively wean them from Federal fuel taxation. Now I know there are ideological problems in the US with government adopting the efficient, accountable and transparent model of a company to operate government owned services (there are few such qualms in the rest of the developed world), but these should be overcome by emphasising that the Interstate Highway network should be about its users.  To do this, giving the manager of the network autonomy and responsibility for charging and funding the highways will help incentivise reductions in cost, asset management and optimising expenditure on maintenance and improvements.

These are areas where the US has long looked behind the rest of the developed world.  I recall a discussion with a former US colleague years ago where the idea of introducing asset management systems for highways was considered novel and he was wondering how anyone got started on such a thing.  I pointed out it was commonplace in some other countries, and in Australia and New Zealand this had been around since the early 1990s.  It is still rare in the US.  It is that sort of reform that will make a difference, but it is unclear if the incentives are in place to encourage this.

An alternative would be to privatise the Federal Highways, allowing them to be tolled whilst dropping the Federal fuel taxes, but that is bound to be a step too far.  Although Americans might find this fanciful, it is exactly what happened in Japan, and a rather roundabout form of this happened in Austria, with the government selling the motorway network to a government owned corporation.  It is quite feasible to privatise the Interstate Highway network into a series of companies, with the FHWA acting as a regulator of standards and even economic regulator if that was seen to be necessary to avoid rent-seeking by such companies.

However, allowing states to be innovative around tolling the Interstates could deliver significant benefits.  It shows that new Secretary for Transportation, Anthony Foxx, has some strategic nouse.

It also indicates that the likelihood the Federal fuel tax will be increased is next to nil.

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