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LTC, Annual Forum, For Whom the Road Should Toll: The Future of Toll Roads and Road Pricing in California, 05/02/2008, Martin Wachs
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LTC, Annual Forum, For Whom the Road Should Toll: The Future of Toll Roads and Road Pricing in California, 05/02/2008, Martin Wachs


Martin Wachs, Director Transportation, Space and Technology

Martin Wachs, Director Transportation, Space and Technology

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  • 1. “Making Big Changes from Small Change”Martin Wachs, Director Transportation, Space & TechnologyThe Leonard Center Second Annual TransportationForum: The Future of Toll Roads & Road Pricing in California
  • 2. Financing Strategies Should be Central to Regional, State, and Federal Policy • The way we price and charge for transportation affects demand and traffic flow (e.g. parking, tolls, taxes, fees) • The most effective ways of managing transportation flows and environmental and energy impacts relate to pricing and charging • Planning in general involves forecasting of demand as though flows are independent of prices and charges • Debates about financing systems take place AFTER planning their characteristics instead of being integrated with capital planning; this leading to inadequate attention to both efficiency and equity • The use of tolls on major roads is good policy and not merely a source of revenue
  • 3. Local Streets & County Roads• Financed largely by property taxes on residential and commercial land . . . and ought to be . . .• Most benefits come from “access” to property: postal delivery, ambulance, fire, police, water, sewer, telephone service• Access gives value to property & value should be “recouped”• Local streets & county roads carry tiny % of all traffic but are most of the surface area of the system
  • 4. History of Highway Finance• Local streets and county roads: transportation finance: 90%++ of system• State highways bankrupting states in 1915-25 period; fastest growth of autos and roads ever . . . led to innovation of “user fees”• Tolls most desirable user fee, in principle• Motor fuel taxes and various “car taxes” adopted as “second best” but workable
  • 5. History of Highway Finance• Motor fuel taxes enormously popular• Supported by wide variety of constituencies• Adopted in every state by 1940• Federal motor fuel tax in thirties• Fundamental finance mechanism for Interstate System in fifties
  • 6. Uniqueness of User Fee Finance• User fees in USA became associated with “trust funds” and non-diversion constitutional provisions in many states• Elastic definition of user fees allowed expansion to transit and to environmental mitigation in many states• “Hypothecation” not common worldwide
  • 7. Local Public Transit• Was mostly privately provided• Gradually failed over decades• Public acquisition and operation• Financed largely by local general funds• Federal & state support mostly from fuel taxes
  • 8. Financial Crisis Because Population growing Traffic growing faster than population User fee revenue is falling Road condition is deteriorating Congestion is worseningFeds & states are devolving responsibilityto local government
  • 9. Crisis is here now Unable to fund standard maintenance much less system expansion or environmental improvements For first time ever less than half of state transportation expenditures from user fees Governor’s bond issue initiativeFederal Highway Trust Fund andState transportation fund are bothapproaching zero balance whilelegislators oppose increase inuser fees
  • 10. Motor Fuel Taxes: “User Fee”• Usually expressed as “Cents per Gallon”• Must be raised by act of legislature; Federal and California fees not raised for fifteen years!• Revenue does not rise automatically with inflation as does income tax or sales tax• Improving fuel economy lowers revenue per mile of driving• Revenue declining precipitously in relation to VMT
  • 11. Motor Fuel Taxes Less Popular Now• Still largest source of revenue for transportation capital expenses and operations• Viability waning because – Opposition related to high price of fuel – Inherent contradiction for government – Dramatic growth sought in fuel efficiency – Ultimate replacement of petroleum based fuels for GHG policy reasons
  • 12. Motor Fuel Tax Lagging: Federal Fuel Tax Changes, 1957-2007Cents per gallon Federal Fuel Tax in 1957: 3.0 Equivalent Tax; End of 2007: 22.0 Federal Fuel Tax End of 2007: 18.4 Difference: 3.6
  • 13. Motor Fuel Tax Lagging: State Fuel Tax Changes, 1957-2007Average of Fifty StatesCents per gallon State Fuel Tax in 1957: 5.7 If adjusted for Inflation; End of 2007: 42.0 Actual Current Fuel Tax: 22.0 Difference 20.0
  • 14. Changes in Vehicle Fuel Economy 1970 1980 1990 2000Fleet MPG 13.5 15.9 20.2 22.010-yr. MPG Change 2.4 4.3 1.8% change 17.8 27.0 8.9MPG Change since ’70 2.4 6.7 8.5% change since ’70 17.8 49.6 63.0
  • 15. Projections of Highway and Transit Account Balances Through 2012Source: Report of the National Surface Transportation Policy and Revenue Study Commission – Transportation for Tomorrow, December 2007, Volume II, Chapter 5
  • 16. Percent Change in Self-Help Taxes Compared to Gas Tax
  • 17. Recent Public Policy Recommendations: Raise theMotor Fuel Taxes in Short Term & Evolve New Forms of User Fees over 10-20 Years • Hudson Institute: “2010 & Beyond: A Vision of America’s Transportation Future” (2004) • American Transportation Research Institute: “Defining the Legacy for Users: Understanding Strategies & Implications for Highway Funding” (May 2007) • National Academies of Sciences & Engineering: “The Fuel Tax & Alternatives for Transportation Funding” (January 2007) • National Surface Transportation Policy and Revenue Study Commission: “Transportation for Tomorrow” (January 2008) • National Academy of Public Administration: “Financing Transportation for the 21st Century” (January 2008)
  • 18. Elected Officials Responses• Do not raise motor fuel taxes – in fact lower them!• President Bush threatens to veto transportation bill if it raises gasoline tax by even one cent per gallon (2005)• Secretary Peters authors “minority report” to Federal Commission (January 2008)• Governor Schwarzenegger opposes state gasoline tax increase and favors long term bonded indebtedness - bonds approved by voters in 2007• John McCain (April 2008) suggests suspending gasoline tax collections from Memorial Day to Labor Day; and Hillary Clinton (April 2008) joins in
  • 19. Other Sources of Funding are Growing • Local option transportation sales taxes – most dramatic of all alternatives, especially in CA • Increased use of tolls: but nationally only 6% of transportation revenue • Congestion pricing and HOT lanes (SR95 and I-15) but only a few demonstration projects • Increased borrowing through bonds • Public Private Partnerships: few cases; much talk
  • 20. Local Option Sales Taxes• Most popular and fastest growing• Majority or supermajority (in CA) vote of public required• Sunset date; reauthorization required• Lists of projects or categories of spending• Implementation by local governments
  • 21. Change Is Happening Quickly• 44 transportation finance ballot measures in U.S. in 2002; 47 in 2007 (steady pace every year)• Most for a single county• A few regional in nature; even fewer statewide• 80% were sales taxes• A few property taxes• A few local gasoline taxes• A few bond issues along with current taxes
  • 22. Issues Raised by LOSTs• Move away from user fee philosophy• Sales tax is broad based tax• More regressive than alternatives• Consistency with regional transportation plans• Project delivery• Local authority and responsibility• Flexibility versus specificity• Salience of issue of “trust”
  • 23. Growth In Borrowing For Transportation • Like a home mortgage • Particularly attractive in states with much “through traffic” where toll revenue is lucrative • Must repay capital plus interest . . . roughly doubles the cost • Access to capital markets
  • 24. Potential For Borrowing Limited • Projects having positive cash flow • Challenges of public transit • Costs of interest and risk
  • 25. Some Major Factors Have Changed• Revenue is falling so dramatically from traditional method of taxing motor fuels . . . need for revenue may be more important in practical terms than efficiency goals of pricing• Propulsion technology is reducing the long term viability of fuel taxes as a surrogate for tolls; alternative user fees needed if user fees are to be viable
  • 26. Back to the Future?• Underlying issues are similar to 1920’s . . .• Revenue shortages• User fees seem reasonable & appropriate• But now . . . tolls easier to collect, electronically• Fuel tax promises to be less useful in the future
  • 27. Progress in Past Decade• Facility pricing in the USA vs. area pricing in Europe• HOT lanes . . . SR 91, I-15 and growing• Proving efficiency and effectiveness of electronic toll collection . . . also building public acceptance of tolls• Prospects growing in many metro areas
  • 28. HOT (High Occupancy / Toll) Lanes• Concept: where excess HOV capacity exists, allow single occupancy drivers to pay tolls to use lanes – Tolls vary with demand to keep lanes free-flowing – Transit can also use• Experience to date – I-15, SR-91, Houston, Denver, Minneapolis – All reduce delay, reduce uncertainty – Optional nature reduces political resistance – viewed as providing additional travel choices• Implementation challenges – Most HOV lanes in LA at capacity – Little available ROW for constructing new lanes• Implementation strategies – Up HOV limit from 2+ to 3+ – Convert existing free lanes to priced lanes
  • 29. Cordon Congestion Tolls• Concept: charge drivers a fee to enter congested area during peak hours• Experience to date – London, Singapore, Stockholm – Uniformly effective. London example: • 33% reduction in auto trips into zone • 15% VMT reduction within zone • 21% increase in travel speed within zone • 33% reduction in bus schedule delays • 19% reduction in GHGs • > €125M / year net revenues• Implementation challenges – Not optional – increased equity concerns – Local retailer concerns – LA is polycentric – no obvious central charging zone• Implementation strategies – Focus on high traffic areas (LAX, Ports, downtown) – Invest revenue in improved transit to reduce equity concerns
  • 30. What Does the Future Hold?• Few North American applications for area pricing like in London• More applications to facilities• Most applications will be on new capacity• Specialized facilities: HOT lanes, bridges, bottlenecks, truck-only lanes
  • 31. Equity is hotly debated• Current system is regressive yet is assumed not to be in most debates• Tolls are perceived to be inequitable yet prove not to be in many empirical analyses• The demon you are familiar with is more tolerable than the unknown• SR 91 survey results and operating experience shows that “Lexus Lane” fears were exaggerated
  • 32. Experiments in Electronic Tolling
  • 33. Already in Use for Truck FeesThroughout Europe; Trials in the USA for Passenger Vehicles • Atlanta • Twin Cities • State of Oregon • Seattle
  • 34. Political/Public Acceptance: The Privacy Issue• Fear – With all this on-board technology, is Big Brother watching?• Fueled by press misrepresentations: – LA Times quote: “tracking devices send a signal to a GPS satellite following the car”
  • 35. Is It Possible to Envision Future Policy?• Motor fuel tax losing its effectiveness after 90 years• Local tax measures are interim measures and possibly longer term for public transit• New user fees, using distance charges and GPSS on new highway capacity & eventually to replace fuel tax• Political preference now for substitution of general taxes and borrowing• User fees more feasible than at any other point in time and more equitable and efficient than general taxes; remains to be seen whether they will continue to be a dominant mode of transportation finance
  • 36. Which Way Do We Go?