Our troubled major highways Chronic congestion on the freeways Ongoing problem of deferred maintenance Large backlog of unfunded major projects Project costs exceeding benefits Declining and unpopular fuel taxes

What are the underlying causes? Symptom Cause Congestion Lack of pricing Deferred maint. Cheap design, low political priority Backlog Little long-term financing Boondoggles Politics vs. economics Funding battles Fuel tax seen as just a tax

A better system would: Use pricing to manage traffic. Charge customers for what they use. Select projects with B>C, positive ROI. Minimize life-cycle costs, not initial cost. Finance major projects via revenue bonds.

What has just been described? Public utilities such as: Electricity Telephones Natural gas Cable/satellite Water supply

How are highways different from the other utilities? All the others are businesses. Customers pay the business directly, based on how much they use. Pricing depends on services chosen. Major projects financed, based on customer revenue streams. Projects show positive ROI, or won’t get financed. Proper maintenance essential, or customers complain, go elsewhere, etc.

Major highways as businesses? Could be companies or toll agencies. Charge per mile driven. Add capacity when/where needed. Decide projects based on ROI, not politics. Treat people as customers, not “users”.

This is not a pipedream: Private turnpikes were common in 18th century Britain and 19th century USA. Investor-owned toll highways common today in France, Italy, Spain, Portugal. Investor-owned expressways in Brisbane, Melbourne, & Sydney—and Santiago, Sao Paulo, Mexico City Investor-owned toll facilities in Canada, U.K.

U.S. is a late-mover, but has begun using long-term toll concessions Beltway and I-95 express lanes near DC LBJ (I-635) express lanes in Dallas Indiana Toll Road & Chicago Skyway PR 22 in San Juan I-595 express lanes in Ft. Lauderdale and I-4 under way in Orlando $36 billion worth of projects financed thus far.

These are public-private partnerships (P3s), not “privatization” Single team to design, build, finance, operate, and maintain: 35 to 70 years. Similar to electric utility franchises. Financed by debt and equity. Long-term agreement details performance requirements, penalties. Guaranteed long-term maintenance. Good fit for mega-projects.

Economic vs. political incentives Weeds out projects with B<C, poor ROI. As long-term “owner,” company designs project to minimize life-cycle cost. Customer/provider relationship makes design customer-friendly. Tolling/charging policy negotiated in advance. Termination and handback provisions protect the state and customers.

Where does the money come from for highway P3 mega-projects? U.S. and global infrastructure investment funds U.S. and overseas pension funds U.S. and global debt markets Tolls as the revenue stream The problem is not enough good projects, not a shortage of funds!

How to begin the transition Build on need to change from per-gallon to per-mile funding. Make the per-mile charges true user fees, paid to the highway provider. Start per-mile charging with Interstates, as easiest to transition. Introduce charging based on need to finance Interstate reconstruction.

We need to replace existing Interstates Pavement is wearing out. Numerous bottleneck interchanges. Not enough lanes for projected growth. No dedicated truck lanes (for LCVs, platooning, autonomous trucks). Poor services.

Vision: 21st-Century Interstate System Full-depth reconstruction of pavement. Lane additions based on long-term VMT growth projections. Replacement of bottleneck interchanges. Guaranteed maintenance. Dedicated truck lanes in 10 to 20 multi-state corridors. Improved on-line services.

Funding alternatives New federal program, via large increase in fuel taxes Diesel tax increase dedicated to Interstates Tolls replacing fuel taxes for Interstates, to support revenue bonds

#1 New federal program Highway Trust Fund now includes 108 separate programs. Constituents of each will fight for “their share” of any large federal fuel tax increase. Only a small fraction would go for 2nd-generation Interstates.

#2: Dedicated diesel tax increase Unfair to trucking, since all Interstate users would benefit. Unfair to non-freight trucks (dump trucks, garbage trucks, etc.) NCFRP Report 15 found unintended consequences, revenue losses.

#3 Long-term financing based on per-mile electronic tolling All users pay; all users benefit. Up-front financing means completion decades sooner. Easy to include truck lanes and improved services. 45 of 50 states toll-feasible* *Reason Foundation “Interstate 2.0” study, 2013

Trucking industry concerns Nationwide inter-operability of electronic tolling Cost of toll collection vs. fuel taxes Confidential routing and billing Cost to use vs. today’s cost On-Interstate services Protection from revenue diversion

Nationwide ETC inter-operability Bestpass and PrePass Plus already provide this. Both are ATA-endorsed providers Single nationwide transponder Single monthly invoice for each truck

Cost of electronic toll collection Fuel tax collection cost estimated as 1-2% of revenue. NCHRP Report 689 says somewhat higher, factoring in evasion and other factors. 20th-century cash tolling used 20-30% of revenue for collection costs. All-electronic tolling for cars approaches 5% of revenue. For trucks, PrePass Plus charges $5/month/truck for consolidated billing service. If truck paid $300/month in tolls, that is 1.67% of revenue.

Confidential billing and routing information Guaranteed by Bestpass and PrePass Plus systems. Both serve trucking exclusively, rely on trust by their customers.

Pass-through of tolls to trucking customers Not yet common, but likely to evolve. Bestpass now offers “Toll Rebilling for Commercial Fleets.” Web portal enables toll statements for specific customers. ATA needs to make the industry aware of this.

On-Interstate services for trucks Refueling (LNG, H2, other new fuels) Re-charging for electric trucks Safe overnight parking, with electricity hookups Large opportunity for truck stop industry Need to remove federal ban on “commercial” rest areas.

Cost to use 2nd-generation Interstates will be higher Current fuel tax rates too low to support $1 trillion revamp of system. Enabling legislation should prohibit “double taxation,” via rebates of fuel taxes incurred for miles driven on toll-financed 2nd-gen. Interstates. Question is: What is the value of 2nd-gen. Interstate vs. status quo?

Protecting customers from revenue diversion Need federal + state statutes to limit toll revenues to capital & operating costs of the revamped Interstates. Begin tolling after a segment is rebuilt. Require rebates of fuel taxes incurred for driving on revamped Interstates. No revenue diversion means less traffic diversion.

Conclusions Major highways are failing, due to a flawed funding and governance model. Major highways should be reconfigured as network utilities, paid directly by customers. First big step could be toll-financed reconstruction and widening of long-distance Interstates. Trucking industry should come to terms with this as the best available alternative.

References Robert Poole, “Interstate 2.0,” Reason Foundation, 2013 Daryl Fleming, “Dispelling the Myths: Toll and Fuel Tax Collection Costs,” Reason Foundation, 2012 Robert Poole, “Truck-Friendly Tolls for 21st-Century Interstates,” Reason Foundation, 2015 All available online at reason.org

Questions? Contact information: https://reason.org/topics/transportation Bob.poole@reason.org