Wednesday, October 31, 2007

Paying for Our Roads

Right now, vehicle transportation infrastructure gets its user-fee financing from a few major sources:

Gas taxes
Road tolls
Residential parking permits
Vehicle registrations

The public belief is that gas taxes pay for road maintenance and road building of everyday roads – despite the fact that gas taxes haven’t been raised in the US since 1991.

The belief is that highway tolls pay for the building and maintenance of highways on which they are charged. Parking permits and registration fees are seen as mechanisms by which taxes are extracted for no good reason.

We can assume that people don’t like taxes. They don’t much like user fees. And they really don’t like what they perceive to be unfair or “double counting.” Nor do they relish falling unexpectedly into rivers, experiencing increasingly extreme weather patterns and brush fires, significant rises in sea level, or extraordinary species loss.

Unfortunately, the reality is that our transportation infrastructure is grossly underfinanced no matter what the public thinks.

We aren’t covering even basic levels of safety and standards for good repair. We don’t have funding for expansion. We don’t charge the real cost of parking. We don’t charge for congestion. We don’t charge for tailpipe emissions. We don’t charge for contributions to global warming. We also don’t charge for a large number of other externalities (adverse health effects; other air pollution, etc.)

A thoughtfully designed user fee system encourages the behaviors we want more of. With adequate revenue sources and drivers paying closer to real costs, better quality transportation alternatives would be both in high demand and fundable! impacting frequency and quality creating a virtuous cycle.

People will choose to drive (and own a car) on a much more rational basis because the costs of driving and owning a car will be overt and highly variable.

  • Drive more, pay more.

  • Drive less, pay less.

  • Drive a fuel efficient car, pay less.

  • Drive during off-peak times, pay less.

  • Shed the unused car stored on the street, pay less.
We’ll be doing more of our car errands at once; we’ll be sharing rides (GoLoco); we’ll be choosing to walk, bike, take transit when they prove to be cheaper than taking the car.

As we know, words matter. What happens when we adopt a tax and call it “congestion charging”? The public will assume that this tax covers the negative impacts of congestion and that its goal is to reduce congestion (by shifting travel to other time periods and by funding alternatives). If we are truly charging for congestion, then fees should be based on square footage occupied by vehicle (or a simple and effective proxy) and actual congestion on that road (such pricing systems are currently used in HOT lanes in California). In other words, vehicles are charged when the road they travel on is congested, irrespective of precisely what time of day it is, or exactly which geographic line is crossed. [OK, I do understand political necessities, I’m talking about policy here.]

Congestion charging should not be muddled with fuel efficient vehicles (which should not get confused with the word “hybrid”), or take into account the number of people within the vehicle (buses, taxis, and trucks should all pay the same rates based on physical footprint on the road). A congestion charged applied to a full bus and divided among 60 people comes out to a trivial amount, and a car with one person in it on an empty street – even if its 10am on a Tuesday -- should not be paying a congestion charge.

What's with incenting people to choose fuel efficient cars? Or taxing "SUVs" more than others to drive within the congested area? Everything! Fuel efficient cars still take up space and make the highway congested; SUVS should and will pay more than small cars inasmuch as they take up more space. If we start encouraging people to think that congestion taxes address all sorts of things, we will have a real battle when we need to increase fees to address financing needs.

The future holds the following requirements, so let’s plan for them.

Road Pricing. As we move toward fuel-efficient cars and alternative fuel cars, the already inadequate revenue generated under our current system of taxing by the gallon will become even more inadequate. A solar powered car still needs a road to drive on and still generates wear and tear yet wouldn't pass a gas tax. An appropriate way to get at wear and tear is based on vehicle weight. Vehicle weight and vehicle footprint can be generally related to each other, so the same piece of information can be used for both congestion pricing and road pricing. Taxing by the gallon is necessarily on its way out; taxing by the mile is the obvious solution. When we go to road pricing, we have to immediately drop gas taxes. No double counting, we’ll lose the public’s confidence. The system must appear fair and transparent to the public – as long as we don’t muck up the messaging of what our intentions are!

Carbon Tax or Tailpipe Tax. Some time in the near future, we are going to buckle down and address transportation’s contribution to global warming. In the US, transportation produces 33% of CO2 emissions. Our personal cars alone produce 20%. Cap and trade systems might be the right approach for power plants and heavy industry, but they have no effect on the 33% of emissions produced in the transportation sector.

I weary of hearing about hybrids and dual-fuel vehicles as the answer, and deserving of special treatment. We need to be outcome focused, not marketing focused. Cars that actually produce fewer CO2 emissions should get credit (a 5 year old Honda civic gets better mileage than almost every hybrid on the market, and offers close competition to the Prius. Several SUV hybrids get worse mileage than the average car in America today). A simple solution would be to add a per mile carbon tax based on type of car engine; a more complex solution would be to monitor what is actually coming out of the tailpipe. In the immediate term, we'll apply a carbon tax to gas.

So what would this look like in the future? A layering of taxes per distance traveled, with congestion pricing taxes being applied when appropriate.

What might we expect once we have installed in every vehicle the ability to bill per mile traveled?
  • Car insurance rates by the mile. Drive less, less risk, pay less

  • A portion of car lease payments by the mile. The value of a car is determined by fixed depreciation costs and the number of miles traveled. Leases will have fixed and variable costs.

  • On street residential parking and private parking rates by the hour and time of day, as well as weight (proxy for physical footprint taking up curb space). If you park in a neighborhood with high demand for on-street parking, you will be rewarded for getting rid of a car rarely driven, or freeing up that space for daytime business use.

And then what?

People will buy cars based on stickers that tell them what they can expect for road and carbon taxes per mile. Fuel efficient cars, space-efficient, and alternative fuel cars will be in high demand.

No individuals should feel they are unfairly bearing the burden because of their unlucky proximity next to arbitrary congestion pricing boundaries, or easily tolled highways that subsidize others. Poor workers with no good alternatives to driving can receive subsidies directly from their employers; car expenses can be shared through ride sharing; quality alternatives will now be demanded by a larger fraction of the population rather than being relegated to a problem of the poor.

What are the alternatives?
Bridges that fall into the river when cars drive over them. A system where one out of every four or five dollars earned pays for a car with no available options. A mixed up revenue plan that is not outcome focused and in which revenue shortfalls or outcome shortfalls are politically impossible to correct because people believe they have already paid and have already done their part.

1 comment:

Anonymous said...

Hello, I read your comment on the "city room" blog on nytimes. Bravo! (I, "Scott Ogawa," also posted) Your point about still charging buses is right on target. In fact, I love your entire blog. Are you an economist by training?

I think congestion pricing will catch fire once it starts working in a couple of American cities - the biggest hurdle will be convincing politicians to hand over pricing policy to technocrats.

Please email me (sogawa at gmail) if you know of any way to actively support congestion pricing.