A report published earlier this year confirms, in tremendous detail, a very basic fact of transportation that’s widely disbelieved: Drivers don’t come close to paying for the costs of the roads they use. Published jointly by the Frontier Group and the U.S. PIRG Education Fund, “Who Pays for Roads?” exposes the myth that drivers are covering what they’re using.
The report documents that the amount that road users pay through gas taxes now accounts for less than half of what’s spent to maintain and expand the road system. The resulting shortfall is made up from other sources of tax revenue at the state and local levels, generated by drivers and non-drivers alike. This subsidizing of car ownership costs the typical household about $1,100 per year—over and above the costs of gas taxes, tolls, and other user fees.
While congressional bailouts of the Highway Trust Fund have made this subsidy more apparent, it has actually never been the case that road users paid their own way. Not only that, but the amount of their subsidy has steadily increased in recent years. The share of the costs paid from road-user fees has dropped from about 70 percent in the 1960s to less than half today, according to the study.
There are good reasons to believe that the methodology of “Who Pays for Roads?” if anything considerably understates the subsidies to private vehicle operation. It doesn’t examine the hidden subsidies associated with the free public provision of on-street parking, or the costs imposed by nearly universal off-street parking requirements, which drive up the price of commercial and residential development. It also ignores the indirect costs that come to auto and non-auto users alike from the increased travel times and travel distances that result from subsidized auto-oriented sprawl. And it also doesn’t look at how the subsidies for new capacity in some places undermine the viability of older communities.
These facts cast new light on the widely agreed-upon belief that increasing the gas tax is politically impossible: What the reaction to this hike really signals is that drivers don’t value the road system highly enough to pay for the cost of keeping it in operation and maintaining it. Drivers will make use of roads, especially new ones, but only if the cost of construction is subsidized by others.
The conventional wisdom of road finance is that there is a shortfall of revenue—that the country needs more money to pay for maintenance and repair and for new construction. But the huge subsidy to car use has another equally important implication: because user fees are set too low, and because, in essence, people are being paid to drive more, there is excess demand for the road system. If roads were priced to recover even the cost of maintenance, driving would be noticeably more expensive, and people would have much stronger incentives to drive less, and to use other forms of transportation, such as transit and cycling. The fact that user fees are too low not only means that there isn’t enough revenue, but that demand is too high. One value of higher user fees would be that they would discourage excessive use of the roads, lessen wear and tear, and in many cases obviate the need for costly construction projects.
And these subsidies to car travel have important spillovers that affect other aspects of the transportation system. There’s a good argument to be made that part of the reason that subsidies to transit are as large as they are is that motorists are being paid to not use the transit system, in the form of artificially low prices for road use and parking.
There’s another layer to this point about roads not paying for themselves: Most of these calculations are done on a highly aggregated basis, and look at the total revenue for the road system and the total cost of maintaining the road system. What the study doesn’t explore is whether particular elements of the road system pay for themselves or not.
Take, for example, air travel. Airlines don’t simply look at whether their total revenue from passengers covers the total cost of jets, crews, and fuel (although the stock market pays attention to this). Airlines look at each individual flight and each route, and examine whether the fares paid usually cover the cost of providing that service—when not enough passengers use a route, they discontinue service (as many small market cities know all too well). While this calculus is routine and well-accepted in air travel and the private market, it’s absent when it comes to funding public roads.
The Frontier Group/U.S. PIRG study also significantly understates the economic cost of the transportation system. Their analysis looks only at how much is actually being spent to maintain and expand the current system. This is problematic for two reasons. First, there’s abundant evidence that the government isn’t spending enough to keep roads in good condition, which means there’s a growing hidden cost in higher future repair bills. These hidden costs are accumulating and not reflected in what users pay now. Second, nothing is being done to recognize the economic value of the existing road system: The replacement cost of the current road system—what it would take to rebuild the existing asset—is likely on the order of tens of trillions of dollars. Current road users get free use of that inherited, paid-for (but depreciating) asset. Again, this is unlike other forms of transportation: Just because United Airlines may have long since paid off the purchase price of a 737 doesn’t mean that they won’t charge flyers for for using that asset.
The bigger question is whether new roads—additional capacity—pays for themselves. Does the volume of traffic using a new bridge or additional lanes of freeway capacity pay for the road they use in their road taxes? New projects are so expensive—it’s roughly $100 million or more for a mile of urban freeway—that road users who pay the equivalent of 2 to 3 cents per mile of travel in gas taxes (depending on the tax rate and vehicle fuel efficiency) never contribute enough money for the public to recoup the costs of the new capacity.
The surprising evidence from road-pricing experiments is that the revenue gathered from tolled lanes often fails to cover the costs of even collecting the tolls and operating the toll-collection system—which means they never come close to paying for the roadway. (To be sure, tolling improves the efficiency of use of the freeway—traffic flows more smoothly, capacity is increased—but the tolls don’t pay for constructing, or even maintaining, the pavement). But again, the highly visible toll-collection mechanism, like the very visible gas tax, creates the illusion that user fees are paying the cost of the system.
As the public-transportation research organization TransitCenter demonstrated in a report, “Subsidizing Congestion,” the $7.3 billion federal tax break for commuter parking encourages additional peak-hour car commuting, which has the effect of causing greater congestion. The systematic under-pricing of roads has the same effect: Taxpayers subsidize car use through higher taxes, and also face greater congestion than they would if road users paid their way.
To be sure, these same questions can be raised about public-transit, biking, and walking projects. And for transit projects, close financial scrutiny is far more common than for roads. A key difference with these other forms of transportation is that they arguably come with bigger social benefits—lower congestion, less pollution, and greater safety. They also make transportation available to those who don’t own or can’t operate a motor vehicle.
The problem with the subsidies currently propping up driving is that they’re often hidden: If they were made more explicit, policymakers would likely rearrange their priorities. The problem of pricing roads correctly is one that will grow in importance in the years ahead. It’s now widely understood that improvements in vehicle fuel efficiency and the advent of electric vehicles is eroding the already inadequate contribution of the gas tax to covering road costs. The business model of companies such as Uber and Lyft likewise hinges on paying much less for the use of the road system than it costs to operate. The problem is likely to be even larger if autonomous self-driving vehicles ever become widespread—in larger cities it may be much more economical for them to simply cruise “free” public streets than to stop and have to pay for parking. The root of many existing transportation problems—and the problems to come—is that the prices are all wrong.
This post appears courtesy of City Observatory.