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An Argument for Fee-based Roads (long)

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  • turpin
    I ve been noodling on these issues, and this is the result .. An Argument for Fee-based Roads The problems of urban sprawl typically are attributed to free
    Message 1 of 40 , Apr 1, 2002
      I've been noodling on these issues, and this is the result ..

      An Argument for Fee-based Roads

      The problems of urban sprawl typically are attributed to free
      enterprise run amuck, for which the recommended palliatives are
      better government planning, public transportation, and raising the
      consciousness of the citizenry. "Smart growth" is supposed to reign
      in greedy builders. Money poured into public transportation will
      provide alternatives to expressways. And once people understand the
      harm of automobile culture, they will choose saner forms of transport.

      This presentation of the problem is mistaken in every aspect. The
      problem is real. Traffic congestion is real. Sprawl is real. The
      sickness of the social infrastructure is real. And we need to solve
      this problem. But we won't solve it so long as it is discussed in
      inaccurate fashion.

      1. The Most Heavily Subsidized Form of Transportation

      There is a sense in which a car is private transportation. It
      provides a private space not shared with strangers, locked and hidden
      compartments for what one carries, and goes where the individual
      driver wants, exactly to the driver's own schedule. For business, the
      same is true of trucks and trailers. In the remainder of this
      article, these are included in the broader notion of "automobile."

      Economically, though, it is a mistake to view cars and trucks as
      comprising a private system of transportation. Cars and trucks are
      useless without a road system designed for their use. This road
      system is built from the public coffer. It includes not only the
      roads themselves, and their visible lights, signs and signals, but
      also hidden components, such as computers to control the signals, and
      maintenance crews to keep all this in repair. It includes the street
      sweepers that keep the roads clean of debris in the summer, the snow
      plows that clear them in the winter, the asphalt trucks that repair
      the potholes, the backhoes that provide access to utilities
      underneath, and the workers that operate all of these, including the
      accounting and HR departments the workers require.

      The public subsidy of this transportation system does not end there.
      Every state has a public safety department that licenses drivers,
      inspects vehicles, and polices the roads. Every large community has
      ambulance services, emergency rooms, and trauma care units that tend
      to the injuries caused on the roadways. Every city has local police
      and courts that handle the legal matters resulting from accidents on
      the roads. Of course, the ambulance, emergency rooms, local police,
      and local courts also handle problems unrelated to automobile
      traffic, and so it is only some large fraction of their costs that
      are related to this transportation system.

      No other transportation system is so heavily subsidized, not planes,
      not sea transport, and not even the much maligned train. Cars may be
      private, but the roadways and related infrastructure on which they
      depend are very much public, not only in shared use, but more
      importantly, in how they are funded. The simple truth is that we have
      a vast, public transportation system, and it is the automobile.

      2. What Harm Does Subsidy Do?

      It is easy to see the harm in subsidy when everyone pays for the
      benefit of a few. It is less obvious when the payors and
      beneficiaries include most the population. But the problem with
      subsidy is not just that one group benefits at the expense of the
      public generally. It is also that it distorts the decisions that
      people make, and causes tremendous misallocation of resources. If,
      each year, a few thousand dollars of your tax money goes to the
      public road system, you cannot get that back by driving less. It is
      already spent, no matter how much or how little you use it. From each
      individual's viewpoint, the road system is "free." Economically, the
      more accurate description is that this is already sunk cost, and the
      marginal expense of driving is the relatively small cost of buying a
      car and filling it with gas.

      In this context, cars are tremendously convenient and even economic.
      Why live in the city, when suburban houses are cheaper and more
      spacious, and the marginal cost of commuting is so low? Why bother
      moving close to where one works, when moving is an expense and a
      hassle, and the future of where one works is uncertain? Why *not*
      drive to the store, when you already have a car and the gas burned is
      so inexpensive? Why not drive a little further out to find the goods
      and services more cheaply, since it more than makes up the marginal
      costs of driving? The aggregate of these decisions made by millions
      of individuals drives where businesses decide to locate, what kind of
      housing builders offer, and these increase even further the perceived
      demand for roadways, justifying even further public expenditure on
      them, which increases the need to drive, without further increasing
      its marginal expense to the individual. And thus our urban and
      suburban infrastructure is created, built on the base of a
      transportation system that is much publicly subsidized. And given
      that driving then is made so important to individuals, and that they
      spend so much time in cars, it makes sense for them to purchase
      bigger and more expensive cars, until these come to resemble mobile
      abodes, small homes away from homes.

      Suburban sprawl is subsidized in more than the roadways. Phone and
      electric utilities have long been regulated, so that the cost of such
      services in outlying regions is not much more than its cost in
      cities, despite a much greater disparity in cost. Both federal and
      state governments have also directly subsidized a variety of projects
      to bring utilities and services to outlying regions, under the
      general rubric of improving quality of rural life. One has to wonder,
      though, what is rural about spreading cities to every canyon and

      And finally, besides the direct subsidy of roadways, there is the
      indirect subsidy of external costs imposed on others. This manifests
      mostly in air and water pollution. It is harder to account for these
      costs, but they are nonetheless real.

      3. A Simple First Step

      When you find yourself stuck at the bottom of a hole, the first thing
      to do is stop digging. Very simply, the public costs of the car
      transportation system should be borne by its users, in rough
      proportion to their use, so that their individual decisions reflect
      its cost.

      The simplest way to do this is to roll all the public costs of cars
      into a fee placed on each gallon of gasoline. This would be difficult
      to do state by state, because people would drive across state lines
      to find the cheaper gasoline, creating a race to the bottom. Yet most
      of the funding occurs at the state level. The solution is to leverage
      the funds provided federally, tying them to mandated regulation on
      how the roadways are funded. This is the same mechanism the federal
      government uses to pressure the states in other car-related matters,
      such as the minimum age for drinking. A federal law could mandate
      that all federal spending on transporation would come from a federal
      fuel fee, and that only those states that implement a similar rule
      internally are eligible for federal transportation dollars. All the
      direct costs described above should be covered, including appropriate
      fractions of local EMS, police, courts, and trauma care. This fee
      ultimately would raise the price of a gallon of gasoline to several
      dollars. Such fee could be phased in over a period of years.

      The chief argument for this is simply one of fairness and economic
      efficiency. We have created a huge system of transportation funded
      from the public purse, that gives its users no feedback on its
      incremental cost. This leads to overuse, and to ever increasing
      demands on the public purse. Overuse is especially pernicious, given
      that some of the costs are unaccounted externalities.

      There are several possible objections to this. The pure libertarian
      would argue that all roads should simply be made private. I think
      this impractical, and will not further address it. Conservatives will
      point out that states are unlikely to decrease their other taxes,
      simply because those taxes no longer have to fund automobile
      transporation. There is some truth in this complaint, but it refuses
      to address the tremendous harm caused by the public subsidy of car

      The greatest opposition will come from individuals and businesses who
      are heavily reliant on cheap car transportation. Their strongest
      argument will be that this represents a sea change in the rules, on
      which they have based investment decisions. The rebuttal is that
      phasing in this change will give them time to adapt, but the rules
      need to change, because they have too long enjoyed a free ride on the
      public teat.

      There will be tactical argument around the form of this fee. Why
      should it be a straight charge per gallon? What about the cases where
      this does not directly reflect usage? And perhaps that is worth some
      dickering. But regardless of form, the cost of the roadways is
      something that needs to be shifted from general tax revenues to a
      fee. The law should think forward to a time when alternative fuels
      are available, so that the fee is also applied to them.

      4. The Benefits

      With no other policy change besides this, cities will become more
      compact, automobiles will become fewer and more fuel efficient,
      people will more often walk or bike, businesses will more
      conveniently locate themselves, neighborhood groceries, bars,
      restaurants, and services will multiply, pollution will lessen,
      natural habitat will increase as rural areas are less encroached by
      sprawl, parking lots will become fewer in number and smaller in size,
      homes will be designed with less focus on the garage, and alternative
      modes of transportation will be expanded and more used. This will all
      result simply from people making individual decisions on the basis of
      their personal budget, having to bear the actual costs of their
      transportation choices, and from businesses responding to the changed
      demands of their employees and customers. Because people will walk
      and bicycle more, they will pressure their city governments to design
      public spaces for this purpose. Private builders will also
      accommodate to this.

      At the national level, there will be decreased demand for gasoline at
      the wholesale level. This will decrease global oil prices, and less
      the strategic importance of foreign oil reserves.

      Fees are particularly beneficial to the poor, or to put it another
      way, taxes are particularly hard on the poor. No one can avoid taxes,
      and while the poor pay less tax in absolute dollars, they often pay
      more than their share. The sales tax is famously regressive. (More
      accurately, it is called a retail tax.) Every renter pays property
      tax indirectly in their rent. The person today who does not drive
      still has to pay for the vehicular roadways. But people have direct
      control of the fees they pay. In a fee-based system, the person who
      does not or cannot drive avoids paying for the roadways, except for
      whatever portion of bus fares and taxi fares that go to this.

      Every change has its victims. The auto industry will be hurt by
      decreased demand for automobiles. Auto related businesses will also
      decrease. Gas stations will be replaced by small neighborhood
      businesses. This is good for the new business owner, but bad for the
      former gas station owner. The ultimate justification for this change
      is that those who are hurt are precisely those who are unfairly
      benefiting from the existing public subsidy.

      5. Allocation

      Cities currently bear a heavy burden maintaining "their" roadways,
      typically from property tax revenues. In fact, a cities roadways are
      more used by suburbanites who commute home, and escape city taxes,
      than by urban residents whose driving demands are less. Given a fuel-
      based fee, states would have to decide how to allocate it to their
      cities. A significant advantage to a fuel-based fee is that it is
      geographically collected, so it is reasonable to allocate to cities
      on this basis.

      Of course, states will have to allocate some of the fee to
      themselves, to maintain highways and for state-based costs, such as
      licensing, the state DPS, etc. Each state will have to develop policy
      with regard to how fees are split between it and its cities, and how
      road expenses are similarly divided. While this is a significant
      problem in public allocation, it is no worse than what the current
      system presents.

      6. What About the Progressives?

      Or: Why is this issue not pressed more, in national politics? Part of
      the answer lies in popular support for the automobile. The long
      development of this transportation system makes it difficult for
      people to imagine how alternatives might work as well or better. The
      fact that it is subsidized by sales and income taxes causes them to
      ignore the cost they are paying. The automobile industry has done an
      excellent job of portraying itself as a bastion of free enterprise,
      rather than as handmaiden to a public system.

      Sadly, many political groups labelled "progressive" are complicit in
      this distortion and suppression of the issue. Indeed, any attempt to
      make the public cost of car transportation fee-based may haveto
      overcome resistance from progressive sentiment.

      Many of the politically progressive persuasion do not want to view
      this problem as a failure of -- as the inevitable result of --
      massive public subsidy. Like the automobile industry itself, they
      prefer the view that car transportation is a result of free
      enterprise, which they oppose. Correctly viewing the car and its
      infrastructure as a public transportation system, massively
      subsidized, requires them to reframe the kinds of arguments they

      Urban planners and proponents of public transporation -- meaning, a
      different kind of public transportation -- have a natural affinity
      for active government planning, and a distrust of economic
      mechanisms. The often misunderstand economics. (Only a massive
      misunderstanding would let anyone think our current transportation
      system is private!) I say this not to criticize urban planning. In my
      view, there is an essentially public element to cities that requires
      it. But I also believe that policy should be informed by economics.
      The first step to correct a public boondoggle is not more public
      programs, but to end the boondoggle. Once automobile use pays its own
      way, we might find that so many private alternatives emerge, that
      public transportation is not so big an issue as we imagined. Cities
      will change their nature to reflect the better pricing information,
      and people who then walk and bicycle more will demand public spaces
      for these modes of transport, which public space fortunately is much
      cheaper to build and maintain than vehicular roadways.

      The progressive misunderstanding of economics extends to how they
      view people. When a progressive thinks of someone driving a car a
      quarter mile to pick up a quart of milk, they are appalled by the
      global consequences of this kind of decision, multiplied a million
      times over. They don't understand that this is the natural and
      inevitable consequence of the low marginal cost of driving, as seen
      by the individual. Progressives mistakenly believe that political
      awareness is the way to get people to think globally and act locally.
      The economist knows that this is futile, and that pricing mechanisms
      are the way to get people to act locally, without them having to
      think globally. When the global cost of each additional mile of
      driving comes from is the driver's pocketbook, then their decisions
      will change.

      7. Is This Realistic?

      Americans love their automobiles. But to date, there is little
      economic understanding of our transportation system. If this message
      can be spread, it can get support from economists and people whose
      politics is swayed by economic argument.

      Cities are a primary beneficiary of a fee-based road system, since
      they would no longer have to maintain "their" transportation system
      purely from property and sales taxes that suburbanites avoid. Cities
      should also favor a reduction of other subsidies for sprawl.
      Suburbanites, of course, will oppose this change, since they are the
      primary beneficiary of this public subsidy.

      Progressives SHOULD favor fee-based roadways. It touches on many
      issues near and dear to their heart: automobile culture, city
      architecture, public spaces, dependence on foreign oil, pollution,
      etc. In the ideal world, progressives would be spear-heading this
      policy change, uniting economists, cities, and urban residents. But
      progressives have been stymied by their unwillingness to understand
      the economic nature of the problem, and to apply economic argument. I
      hope this changes, and that they do become the vanguard for
      controlling the automobile, not by fighting for unproven forms of
      public transportation, but by opposing the massive public subsidy the
      current system requires.

      I. A Small Addendum on Pricing Mechanisms

      Anyone with economics training will recognize that a fuel-based fee
      introduces its own distortions, since it inherently favors fuel
      efficient vehicles, regardless of the cost they impose to the public
      roads and infrastructure. In some sense, a mileage based fee,
      adjusted for the type and weight of vehicle, would provide a
      more "neutral" pricing mechanism.

      The issue of pricing mechanisms can get quite involved. An important
      question is: What is the cost and consequence of the mechanism
      itself? Fuel-based fees will encourage people to find sources of fuel
      that are free of the fee, either through black markets, or by
      diverting fuels not intended for vehicle use. This is a problem even
      with the current gasoline tax. Many a gallon of heating oil is poured
      into the tanks of diesel vehicles. A mileage based fee, conceivably
      collected each year when the vehicle is registered, would increase
      the number of vehicles that are not registered, would create a market
      in counterfeit registrations, and lead to massive odometer fiddling.

      I suspect a fuel-based fee is the better alternative, requiring less
      administrative overhead, and likely easier to enforce. To the extent
      that it punishes fuel inefficiency, this serves other policy goals,
      and somewhat addresses the external costs of pollution. But there may
      be good reasons to base the fee on mileage. Or otherwise. My primary
      argument is not over the exact nature of the fee, but that fee-based
      roadways are preferable to public subsidy.
    • J.H. Crawford
      ... I m with you up to this point. ... We ve had more than enough experience with elevated transport systems to decide right now never to build another one of
      Message 40 of 40 , Apr 8, 2002
        Louis-Luc said:

        >It's relative...
        >Knowing there is an environment spoiled with cars, and
        >an underground city filled with life (Montreal Underground Network), I
        >prefer the subway way over the
        >bus, because you can ride it and walk through the underground city for hours
        >(or repetedly for days), without knowing cars even exist.
        >However, in a city with no car, or where car drivers yield to human-powered
        >traffic both in theory and 100% in practice, then streetcars or buses become
        >much more attractive, because you don't have the stress of walking through
        >car traffic when you ride them and walk in the city.

        I'm with you up to this point.

        >The ideal is a monorail:
        >- it runs in the air (over street level) NONONONONONO!!!!!
        >- it frees the street for human uses true
        >- when you ride it, you see outdoors, true, but not at eye-level
        >but I think it's more vulnerable to the weather than a metro. probably so

        We've had more than enough experience with elevated transport systems to
        decide right now never to build another one of the damn things. It's
        true that newer technology is better in this respect than older stuff,
        but it will never be acceptable. (Well, ok, some breakthrough in materials
        that allowed the construction of spider-web thin supports for the tracks
        (or whatever) might change the picture somewhat, but it still is not
        the right way to do it. If you need above-ground transport, trams are
        the way to go. If there's too much traffic from the trams to be acceptable,
        then you HAVE to build a metro, no matter what the cost. If there's that
        much traffic, the cost is not unreasonable (per rider).)

        -- ### --

        J.H. Crawford Carfree Cities
        mailbox@... Carfree.com
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