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Rights and Wrongs of Interstate Tolling

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Rights and Wrongs of Interstate Tolling
The prospect of a $1 trillion federal infrastructure program has led to numerous hands out for pieces of the action. Some officials are presenting the mismanagement of their highway systems (“years of under-investment” in South Carolina; “crumbling roads” due to underfunding in Mississippi) as a reason why someone else should pay to upgrade their highways.
In sharp contrast, states with competent toll agencies—such as Florida, Illinois, Kansas, Oklahoma, New Jersey, Texas—have well-funded programs to extend and widen critically important Interstate highways and bridges. Not surprisingly, then, a growing number of governors and legislatures are looking anew at toll financing.

Last month Fitch Ratings issued a thoughtful report, “U.S. Interstate Tolling Merited but Warrants Caution.” Tolls are a quintessential user fee, assuming the proceeds are used to benefit those who pay them, notes Fitch. But its report acknowledges that “the current tolling framework across the U.S. seems to have no sustainable, policy-based rationale,” with cross-subsidies and little transparency to the citizen. And on nearly all toll roads, customers must pay tolls in addition to fuel taxes, leading to concerns about “double taxation.”
From my own reading and research, here are some of the problems with 20th-century tolling that will need to be addressed in order to build public and political support for something as bold as toll-financing the replacement of 20th-century Interstates with their 21st-century successors:

  • Toll roads as cash cows: The most blatant example is Pennsylvania’s infamous 2007 Act 44, which forces the Pennsylvania Turnpike Authority to diveret $450 million per year to the state DOT for roads and transit statewide, leading to large annual toll rate increases that are essentially a tax solely on Turnpike customers.
  • Temporary tolls: This is the 20th-century idea was that tolls are a necessary evil, to be removed as soon as the initial bonds are paid off. (This is about to happen in West Virginia.) That implies that a toll road does not need regular maintenance, future lane additions, and eventual reconstruction. With fuel tax revenue on a long downhill slide toward extinction, per-mile tolls should be part of the permanent replacement of per-gallon fuel taxes.
  • Sticking outsiders with paying tolls: “Border tolling” keeps cropping up in states considering Interstate tolling—e.g., last-decade proposals in Virginia and current discussions in Connecticut and elsewhere. Any such tolls would assuredly be shot down in federal court as discriminatory on interstate commerce grounds.

Fitch’s valuable report reminds us that any plan that broadens the use of tolling “will need to be perceived as fair.” And that means any new framework must demonstrate value for money to those asked to pay for improved replacement highways and bridges. Among other things, that means the “double taxation” concern must be addressed. Fitch notes that targeted credits and [fuel tax] rebates to offset inequities could be ways to address the perception of double taxation. In addition, “Tolling only at state lines will have adverse implications for travel and the perception of fairness.”

As I read news reports on current discussions of tolling involving governors and legislators, I’m worried by a lot of what I see. All too many public officials seem to be envisioning a program that would put tolls on Interstates in order to use them as cash cows for the entire state DOT’s under-funded budget. This idea has particularly colored many of the discussions in Connecticut and also seems to be West Virginia Gov. Justice’s rationale for keeping tolls on the West Virginia Turnpike for a few more years after the bonds are paid off—but only charging them at state borders!

A growing number of governors and legislators are eyeing the federal pilot program that permits three states to each toll-finance the replacement of a single aging Interstate highway. Discussions or studies that would lead to such an application are under way in Arkansas, Connecticut, Indiana, Michigan, Oregon, Pennsylvania, Wisconsin, and even Wyoming. As of now, there appear to be only two vacant slots in the program (assuming Missouri’s request for a six-month extension of its slot is granted by FHWA).

From what I read and hear in these states, few of their officials seem to understand that the pilot program requires all the toll revenue generated by the rebuilt Interstate to be used for the capital and operating costs of the Interstate in question, not spread around statewide. In addition to reading the language Congress agreed to (it’s the Interstate System Reconstruction and Rehabilitation Pilot Program), they should read Fitch’s thoughtful report. It offers wise counsel not just for Pilot Program applicants but also for longer-term use of toll financing for 21st century Interstates.

(This article first appeared in Surface Transportation News on March, 2017)
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