Some Good—and Bad—Ideas for Funding Roads


What are we to make of the report of the National Surface Transportation Infrastructure Financing Commission, delivered on February 26? The main recommendations are two-fold: For the short term, increase the federal gasoline tax by 10 cents a gallon and the diesel tax by 15 cents a gallon, both indexed for inflation; and in the long term, phase out the fuel taxes dedicated to roads and replace them with fees based on vehicle-miles traveled (VMT).

These recommendations can go some way toward the objective of treating roads as assets in a free economy, with road users paying the costs of their trips, and road providers supplying the facilities for which road users are prepared to pay.

The first recommendation is equivalent to a gas tax increase of about 0.5 cents per car-mile, and would raise the federal tax to 28.4 cents per gallon, or about 1.5 cents per car-mile. There is a case for increasing the amounts payable for the use of some roads, but not for increasing the amounts payable in federal taxes. Increases by individual states would be more cost-effective, with competitive pricing by private providers ideal. Understandably, many state officials probably prefer a federal increase, to avoid the unpopular task of raising taxes themselves.

The second recommendation would require every vehicle to be equipped with a device capable, by means of GPS signals from satellites, of recording the distances traveled on different roads. At intervals, the total mileage traveled (but not details of individual trips) would be transmitted to billing agencies. Such arrangements are now in place in Germany (for trucks on the Autobahn) and are to be introduced in the Netherlands in 2011.

These systems are similar to the E-ZPass systems commonly used today, except that such systems would be best handled through private firms instead of government bureaucracies, and information about all trips would be gathered within vehicles, without the need for roadside sensors or gantries. Privacy is a prime concern, and methods have been developed to ensure that only mileage totals are sent to the billing computers. Privacy would be even further protected if the billing were done by competing private entities subject to civil liberties protections.

VMT fees have important advantages over fuel taxes as a way of paying for road use. First, the fees can be made to reflect the costs arising from the use of different kinds of vehicles. For example, vehicles with many load-spreading axles, which cause less damage to roads, can be charged lower fees. Second, VMT fees can be varied to take into account the specific locations and times of trips, as well as trip length. For example, travel in off-peak periods can be charged at lower rates than travel in the peak. Third, by enabling charges to be routed from road users to road suppliers, VMT charging enables roads to be provided commercially as easily as cell-phone service, eliminating the need for federal and state highway financing, as commercial services can be provided by private firms.

However, these advantages of VMT charges are nullified by the Commission’s recommendation for a single, nation-wide, federal VMT charge for road use estimated, for “illustrative purposes,” at 2.3 cents per vehicle-mile for cars, equivalent to a gas tax of 48 cents a gallon. Even worse is the recommendation that all the revenues be routed to Washington for Congressional allocation. This is as sensible as legislating that all payments for telephone use in the U.S. be sent to Washington, for disposition by Congress.

The Commission’s support for the federal financing of roads is unfortunate. Since the completion of the Interstate Highway System, the U.S. Congress has shown little interest in meeting the needs of road users, preferring to engage itself in the distribution of highway monies between the states, and in diverting Highway “Trust” Fund monies to non-highway uses. The vast majority of road users would benefit from the abolition of the Highway Trust Fund and the fuel taxes that support it, leaving highway funding to the states.

The states would then be free to explore more direct ways to fund their roads voluntarily from consumers. For example, by using GPS-based VMT charges, states could apply to roads the same principles used to pay for cell-phone service, with road users opening accounts with private road providers, and paying all their road bills in the manner of the E-ZPass payments we take for granted today.

In sum, the Commission’s report is good in parts. The recommendation to adopt VMT charging is excellent. But real reform in transportation financing cannot be expected until roads, which are too important to be left to the vicissitudes of politics, are brought into the market economy, and treated like food, water, telecommunications and other necessities.

Gabriel Roth is a transport and privatization consultant and a Research Fellow at the Independent Institute. He is the editor of the award-winning book, Street Smart: Competition, Entrepreneurship, and the Future of Roads.