A major battle is under way over “Reauthorization,” the legislative contest to reshape federal highway and transit aid for the next six years. Most of us recall 1991’s ISTEA, and 1998’s TEA21. Now they are trying to settle the legislation for FY-2004 (which begins Oct 1 this year) to FY-2009. The Bush administration proposes a $190 billion federal-aid highway program for the six years Fiscal... MORE
A major battle is under way over “Reauthorization,” the legislative contest to reshape federal highway and transit aid for the next six years. Most of us recall 1991’s ISTEA, and 1998’s TEA21. Now they are trying to settle the legislation for FY-2004 (which begins Oct 1 this year) to FY-2009.
The Bush administration proposes a $190 billion federal-aid highway program for the six years Fiscal Year-2004 through FY-2009. It begins with $29.4b and ends with $33.9b for an average of $31.7b/year. This is a 13% increase on the average level of TEA21, and represents an annual increase of about 2%. The Bush plan is in line with the expected yields of the present rates for the gasoline, diesel fuel and truck sales taxes that fund the highway program. The Bush program for highways, with transit added, is for $247b versus TEA21’s $218b, and goes from $39b in FY-2004 to $43b in FY-2009 for an annual average of $41b.
The Senate’s budget resolution provides $206b for highways and $46b for transit, which means $34.3b/year for highways, about 10 percent more than Bush. Senators with a special interest in transp – Bond, Byrd, Inhofe, Jeffords, Murray, Reid, Sarbanes, Shelby – are moving to those numbers to $312b total highways plus transit, or $43b/yr average for highways. They don’t specify how they would fund the program, but some substantial fuel tax increases would clearly be needed.
The way-out big spender crew are in the House where Transp committee chairman Don Young and the minority leader Oberstar have proposed a $375b program, 72% larger than TEA21. That Young whopper program – which starts highway aid at $50b and
goes to $60b by 2009 - is financed by increasing fuel taxes by 5.4c/gal immediately and then increasing them annually with inflation after that to garner an extra $12b/year average. It also requires an extra $7b/yr in other revenues.
Senate transportation leaders are not quite as extravagant in the program they propose but it is not far short. So long as the war in Iraq is unresolved it seems unlikely any such big-spending plans based on higher fuel taxes will be seriously considered in the budget committees. And indeed their chances look small beyond that, since there is a strong aversion to imposing higher taxes.
But what is bad for free roads is good for tollroads. The worse the budget situation the more any new road projects are likely to be toll-financed.
Kennedy initiative
Congressmen Mark Kennedy (Repub MN) is most active in proposing to use tolls rather than higher gas taxes to fill the gap between highway needs and available tax revenues. Deadset against any increase in fuel taxes, he is gathering allies for a bill to loosen restrictions on tolling in order to fill some of the highway construction needs with toll-based funding.
The Kennedy bill provides for:
• tax-exempt status for investor toll projects
• freedom for local governments to develop toll projects
• ending the blanket ban on tolling on interstates
• US Government support for developing toll express lane networks (RPPI plan - see ps305)
(Contact: Mark Morrison 202 225 2331)
AASHTO’s Ponzi scheme
AASHTO the venerable state highway officials lobby group deserves the booby prize for this Reauthorization round’s wackiest proposal – a so-called Transportation Finance Corporation (TFC.) First mentioned a year ago, AASHTO proposed TFC as a way to have a whopper federal aid grant program without raising any extra revenue, based on the political premise that any increase in fuel taxes is a “non-starter.” The TFC would issue 20-year tax credit bonds. First problem: there is very little market for such bonds. They need to be approved by the IRS. The IRS dislikes them and few have been approved. Second: the notion of longterm bonds as tax credits makes little sense because taxes due and tax rates are so difficult to forecast. They are therefore a very expensive way of raising capital. Second problem: they diminish the tax take of the government so they have to be offset by cuts in government spending, increased taxes, or they produce a larger deficit. Fatal flaw to AASHTO’s TFC: there is no new revenue stream to support the borrowing! Nothing. Zero, zilch.
So how would the bonds be repaid? AASHTO says about two-third of the proceeds would be used for increasing non-repayable grants to the states – a fatter federal aid program. A portion of the proceeds however would go into a so-called “sinking fund” supposedly to retire the debt. But there is no way the interest yield on one third of the borrowings can service the whole debt.
Critics of the AASHTO scheme have been too kind. The TFC idea has been raised a number of times by AASHTO officials to the amazement of many listeners, most of whom are too polite to comment.
We’ll say out loud what the don’t-quote-mes are saying off the record: the TFC is a Ponzi scheme, a classic scam in which a heap of money is raised by borrowing, and highwaymen live high off the hog. The investors are first paid out of capital. Then at some point – preferably when the present AASHTO officeholders have moved on – the con become apparent and the TFC prostrate themselves begging for a huge federal bailout, or else like an Enron, it goes whoosh, down the tube.
Fortunately this AASHTO scheme is going nowhere. TFC has no support in the Congress, and none from any other lobby groups. Even among inside-the-beltway free lunchers this one is the subject of sniggers.
Bush Admin proposal
The Bush Administration is proposing small liberalizations of the law on tolls on the interstate system. A draft of the Administration’s proposed Reauthorization legislation would delete parts doesn’t propose any change to the basic Title 23 USC par 301 historic bar on new tolls generally that remains in the law from 1956, or the par 129 bar on new tolls on the interstates. But it proposes widening the scope of two existing pilot programs. And its wording provides for private sector participation in these.
The Interstate Pilot Program for example contains the condition that tolls can only be imposed when it has been demonstrated they that “could not otherwise be adequately maintained or functionally improved without the collection of tolls.” [TEA21 Sec 1216 (b)] The Bush Administration’s draft bill calls for striking out this clause, and adding a more positive clause in its place. The law would then read: “The Secretary shall establish and implement an Interstate System reconstruction and rehabilitation pilot program under which the Secretary, notwithstanding sections 129 and 301 of title 23, United States Code, may permit a State to collect tolls on a highway, bridge, or tunnel on the Interstate System for the purpose of reconstructing and rehabilitating Interstate highway corridors. (C) An analysis demonstrating that financing the reconstruction or rehabilitation of the facility with the collection of tolls under this pilot program is the most efficient, economical, or expeditious way to advance the project.” (23 USC 129)
The list of selection criteria for the interstate toll program are also eased. At present the Secretary of Transportation must establish that the state “is unable to reconstruct or rehabilitate the proposed toll facility using existing apportionments.” [4(a)] In its place the Secretary only has to have a state’s analysis that financing with tolls is “the most efficient, economical, or expeditious way to advance the project.”
The present law requires the Secretary to determine that the proposed toll facility has traffic and revenue to justify tolls. [4(b)] The proposed law would simply allow tolls if the road “needs reconstruction or rehabilitation.”
Proposed for complete deletion is a sub-paragraph which says the Secretary must determine that the toll plan “takes into account the interests of local, regional, and interstate travelers.” [4(c)]
These are not large changes. The interstate toll program remains a pilot program allowing only three projects to be approved. However the liberalization may encourage some proposals. The demanding conditions written into the present law have discouraged states from applying.
Perhaps a more important move is to mainstream “value pricing” or variable tolls. The 15-project limit Value Pricing pilot program 1998 to 2003 would be replaced by an unlimited approval for variable toll rates on the interstate system with some conditions. Toll revenues can be used for a variety of purposes including debt service, reasonable return on investment capital, and for operational costs, maintenance, reconstruction, resurfacing, restoration or rehabilitation. Beyond that the revenues can be used any Title 23 federal aid projects. Toll rates will have to “vary by time of day, as appropriate, to manage congestion or to improve air quality.” [(c)(i)] Tolled single occupant vehicles will be permissible in HOV-lanes as part of a variable toll pricing program.
[NOTE: This does not satisfy the requirements of the Poole-Orski HOT networks proposal. It would require all light vehicles to be eligible for tolling. See www.rppi.org/ps305.pdf]
The Variable Toll Pricing Program in the draft Administration bill provides for federal grants with the federal share up to 80 percent of costs. Eligibility will depend o the state or other public authority providing:
• a description of the congestion or air quality problems being addressed
• goals and performance measures to be used to gauge the project’s success
• other information required by the Secretary
The proposal repeals the existing pilot program for value pricing projects but requires the USDOT to continue monitoring programs already established. USDOT will also be required to monitor the projects approved under the new unlimited arrangements and to report to the Congress on the effectiveness of variable tolls within five years.
NOTE: About 2,500 miles of the interstate system have tolls, but their construction almost all dates back to before 1956. This includes the big interstate turnpikes and tollways in the Midwest, and on the east coast. In 1956 tollroads like the Ohio Turnpike (I-80/90) and the Massachusetts Turnpike (I-90) were “grandfathered” into the approximate 40,000-mile system. Since 1991 tolling has been permitted “notwithstanding” the continuing general bar under two pilot programs but with highly restrictive conditions that have ensured little has been implemented.
US Law on tolls unworthy relic
US law continues to demean toll financing. Title 23 US Code Chap 3 Sec 301 - is titled "Freedom from tolls." This terminology "Freedom from..." treats tolls as if they were some kind of disease. Tolls are a sensible, straightforward price for the use of a scarce commodity, namely roadspace. Tolls have an honorable history. Tolls financed the country's first great cross-state expressway, the Pennsylvania Turnpike, and many other great national roads such as the New Jersey Turnpike, the Garden State Parkway, the Tollways of the Chicago area, the New York State Thruway, the major highways of Massachusetts, Maine, New Hampshire, Delaware, Oklahoma, and Kansas, the great trucking route between Philadelphia and the mid-west through Pennsylvania, Ohio, Indiana, Illinois. Tolls have financed construction and maintenance of most of the nation's great crossings, including such national icons as the Golden Gate Bridge, the San Francisco Bay-Oakland bridge, and the George Washington Bridge, the world's busiest bridge, and most of the crossings between the boroughs of New York City that allowed Manhattan to be linked to Queens, Brooklyn, Long Island and the rest of America. Tolls have financed all the great tunnels such as the Lincoln, Holland, Queens-Midtown, and Brooklyn-Battery in the nation's largest metropolis, three tunnels in Boston, two in Baltimore, one in Hampton Roads VA. Important toll facilities exist in about half the states of the Union.
Tolls generate about $5.4 billion a year or 6.7% of total highway user charges as defined by the USDOT. Tollroads constitute about 4,900 miles of the 56,000 miles of interstates and other freeway and expressway standard highways in the US – about 9 percent.
Roads and their bridges and tunnels have to be paid for one way or another, and tolls are an eminently sensible and fair way of paying. It is unworthy that US law should perpetuate this kind of demagogic and derogatory titling for a legitimate means of road payment that has produced wonderfully productive results for the nation.
"Freedom from tolls" is unacceptable terminology in highway financing law. IBTTA and others should make removal of this wording a priority.
Obstruction
Section 301 reads: "Except as provided in section 129 of this title with respect to certain toll bridges and toll tunnels, all highways constructed under the provisions of this title shall be free from tolls of all kinds."
State and local authorities, that initiate and operate roads, should have the discretion whether they choose to levy tolls, or use taxes, or for that matter, if they franchise road operations. This general presumption against tolling of roads contained in Sec 301 is wrong and should be removed from Title 23 USC.
Sec 129 titled "Toll roads, bridges, tunnels, and ferries" maintains the presumption that citizens of the states need to be protected against tolls authorized by responsible state and local authorities but says (a) (1) (C) that the (US) Secretary (of Transportation) "shall permit" federal participation in "reconstruction or replacement of conversion of the (untolled) bridge or tunnel to a toll facility." But there are a long list of conditions for the US Secretary's permission. (D) similarly says the US Secretary "shall permit" reconstruction of a toll-free Federal-aided highway to a toll facility, but perplexingly, in parentheses, excludes "a highway on the Interstate System" from something the Secretary can in general permit.
There is no extant rationale for this legal and regulatory straitjacket. The interstate system was formed to start with out of a mixture of tollroads and non-tolled roads in fairly equal proportions. Key segments of the interstate system remain tollroads and indeed over half the toll revenues of the country are collected on interstate facilities. New toll facilities (for example I-285 in Greenville South Carolina) have gained interstate designation.
Why if tunnels, and bridges, and non-interstate federal-aid highways can tap into toll revenues for reconstruction, and if these can, at state initiative, be converted from free to tolling, why cannot interstate highways themselves? No reasoning is on record for this exclusion of interstate highways in Sec 129 (a) (1) (D).
The unwarranted presumption against tolling is reflected in some comic provisions of Title 23. The Territorial Highway Program under Sec 215, which provides US support for roads in Virgin Islands, Guam, American Samoa, and the Marianas. Sec 215 (c) (2) requires that as a condition of getting US support for roads in these territories the Governor of such territories agree the territory "will not impose any toll, or permit any toll to be charged for use by vehicles or persons of any portion of the facilities constructed or operated under the provisions of this section." Identical anti-toll boilerplate crops up also in the Sec 218, Alaska Highway financing, and Sec 212 for the Inter-American Highway. The US Government quite sensibly requires a local commitment to maintain the road facilities it funds or helps fund in these places. But it then, very stupidly, blocks a logical way for the local government to fund that maintenance - with tolls. No reasoning beyond a blind dislike of tolls can be advanced for these anti-toll provisions.
One would hope that the US Government has little interest in whether or not the government of Guatemala imposes a toll on the Inter-American Highway in, say Huehuetenango, or whether the Mariana Islands have tolls rather than taxes. To explicitly try to prohibit tolls on roads or bridges, especially when tolls could help maintain or expand those roads and defer the need for further US assistance, in these remote places is absurd.
A kind of caricature of the Bumbling Yankee Imperialist?
Mumbo-jumbo
There are other complex provisions in current highway law that don’t prohibit tolls but tie them up in convoluted legalisms and bureaucratic departmental permitting that seem designed to discourage tolls. Consider this bit of legal mumbo-jumbo: "Sec 119 Interstate Maintenance Program Sec 119 (2) Toll roads. - The Secretary may approve a project pursuant to this subsection on a toll road only if such road is subject to a Secretarial agreement provided for in section 129 or continued in effect by section 1012(d) of the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991 (105 Stat 1939) and not voided by the Secretary under section 120(c) of the Surface Transportation and Uniform Relocation Assistance Act of 1987 (101 Stat 159)."
Remember, US law leaves it entirely up to state and local governments how and what kind of fuel taxes, license fees, sales taxes, weight-distance truck charges, special district taxes, developer contributions, vehicular property taxes, and other levies they impose for funding roads. U.S. law asserts no interest in these non-toll road user charges. Yet, as we have seen, U.S. law asserts all kinds of controls over whether or not, and under what conditions, tolls are charged within the states (and territories, and aid recipients in Latin America.)
If tolls, locally imposed, are at least as legitimate a funding mechanism as local taxes, then US law should logically leave it to the discretion of states and local governments when, whether, and what kinds of tolls are levied for supporting roads. Tolls should be left as an option to be exercised at local initiative, just as are other levies by governments answerable to local voters for the results.
Strangely – if contradictory provisions in law are to be regarded as strange – these remaining old anti-toll provisions in Title 23 USC are matched by a number of pro-toll provisions in recent sections (for example Sec 183 Secured Loans) designed to encourage innovative financing. Toll revenue is explicitly mentioned as a legitimate revenue stream for servicing debt incurred for road projects. One section recognizes the value of a toll revenue stream and even implies it should be a factor in favor of projects.
This inconsistency between different parts of Title 23 makes no sense and should be cleaned up in the Reauthorization. Tolling should be recognized as a legitimate means for states and local communities to finance and manage the roads they need.
1956 thinking lingers
The bias against tolling that lingers in important sections of federal highway law goes back to 1956 and the very beginnings of the Interstate Highway system. The major proposition in 1956 was that the Interstate Highway System should be fully financed by the fuel taxes and made totally free of tolls. It was claimed then that a 1c/gallon increase in the gasoline/diesel tax would finance, not only the construction of 30,000 odd miles the new interstates as free roads, (about 10,000 miles were already built) but also pay off the debts and de-toll the 2,500 miles of tollroads within the interstate system. This promise was political salesmanship on behalf of the 50% increase in the federal gas tax passed in 1956. There was never any realistic possibility of federal funds stretching to de-toll the tolled sections incorporated into the interstate system. The 1956 Federal Aid Highway Act simply made provision for retirement of tollroad debt, and for de-tolling, but it laid down no schedule. No money was ever appropriated, and there was no de-tolling under the federal Act. (There were isolated de-tollings done at purely state initiative, as in Connecticut.)
There are now no serious proposals to de-toll any of the toll segments of the interstate highway system. Everyone has long ago forgotten that part of the 1956 legislation. The fuel tax is struggling to produce the revenues needed for maintenance and improvements for presently free roads. It is time to move on. It makes sense to reshape the law to accept tolling as a full and legitimate method of financing roads, perhaps with the details to be decided at state or local government level. (NOTE: Sections of this are included in a Heritage Foundation paper, and in a posting on the RPPI website.) TRnews 2003-06-15
