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Commentary

Time for States to Finance Their Own Roads?


     
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Some may take pleasure at the passage of the long-delayed $286.4 billion highway bill, which releases for road projects about 65 percent of the funds paid by road users into the federal Highway Trust Fund. However, for those who believe that road users are entitled to the roads they are forced to pay for, this bill raises two questions:

  • Might there be better ways to finance and supply roads?
  • How could the obstructive profligacy of the U.S. Congress be terminated?

Before the present century, the difficulties of paying for roads made it hard for the private sector to supply them. Despite enormous obstacles, however, by the nineteenth century private companies provided 10,000 miles of toll roads in the eastern United States. They rendered good service before being put out of business by the technologically superior railroads.

The twentieth century saw the development of the internal combustion engine, and with it the possibility of financing roads by means of dedicated fuel taxes. Only governments could raise such taxes and—surprise, surprise—many discovered that road users could be taxed without the tiresome restriction of the revenues having to be spent on roads. As a result, road users in all countries lost control of the revenues raised by central governments in road-use charges.

However, help may be on the way. The development of electronic vehicle identification allows accounts to be recognized electronically and automatically debited, without vehicles having to stop to pay tolls. In the twenty-first century it has become as easy to pay directly for road use as for electricity and telephone calls, and it is no longer necessary to finance roads out of tax revenues that only governments can collect.

These developments are of profound significance to the financing, pricing and even ownership of roads. Road owners, whether private firms or government agencies, can now charge directly for the use of their roads, both to recover costs and to finance the expansion needed to eliminate excessive and growing congestion. Roads can be operated as firms, and sold or leased to private investors: Chicago recently leased its Skyway toll road for $1.8 billion and a Texas plan would allow private firms to build the Trans-Texas Corridor for $1.2 billion in exchange for the rights to collect tolls for 50 years. Oregon is running a pilot program to test the practicability of imposing mileage charges for road use in place of fuel taxes.

Unfortunately, such arrangements cannot be introduced on a large scale so long as payments by road users must be sent to the federal government, which uses about one-third of them for non-road purposes; imposes cost-raising standards and regulations; and subsidizes “recipient” states (such as Alaska, Hawaii, New York, Pennsylvania, and the District of Columbia) at the expense of “donor” states, (such as Arizona, California, Colorado, Florida, and Texas). Because of the diversions to non-road purposes, and the increased costs associated with federal requirements, road users in most of the recipient states also lose out as a result of federal financing.

Attempts to phase out the federal financing of state roads have drawn negligible congressional support. The latest proposal for change is the Surface Transportation And Taxation Equity Act (STATE Act), introduced as House bill HR1097 by Rep. Scott Garrett (R-NJ). It allows states to opt out of the federal system and to free themselves from the taxes, regulations, and allocations associated with it. If implemented, the STATE Act would destroy the federal financing system, because the withdrawal of the donor states would leave no revenues to subsidize the recipient states. For this reason Congress is unlikely to support the STATE Act.

That officials in the capital city should determine expenditures on major roads across the country might have been acceptable in the Soviet Union but makes no sense in the United States, where investment in other infrastructure services is determined by consumer demand and profitability. Legislators in Arizona and Colorado have already passed resolutions urging all states to opt out of the present system. Dissatisfied road users in other states should demand that their U.S. Congressional representatives support the STATE Act; end the current indefensible system; and enable all states to finance their roads in accordance with the voluntary market payments made by their road users.


Gabriel Roth is a transport and privatization consultant and a research fellow at the Independent Institute. He is the editor of the new book, Street Smart: Competition, Entrepreneurship, and the Future of Roads.






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