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Do roads pay for themselves?

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Garl B. Latham

Ruminations of a foaming professional.

Do roads pay for themselves?

  • Comments 31

 

Recently, the Texas Department of Transportation, a.k.a. "TXDOT," republished a three year old study which confirms what most of us have known all along: our system of roadways costs us plenty!

These highways and byways not only cost us in the form of lost time due to traffic congestion and personal injury. They're not only costly because of  increased dependence on foreign oil and inefficient land use patterns.  It's not just the fact that auto-centrism is the largest single cause of environmental pollution and decreased productivity.

No; we've finally had an avidly pro-pavement D.O.T. publicly admit that the most basic form of societal cost - the capital requirements for design, construction and maintenance of these facilities - far exceeds the total tax receipts allocated toward these highway systems!

In fact, the subsidy ratio (or, in the case of roads, the "Asset Value Index") for TXDOT's infrastructure makes Amtrak's taxpayer-supported needs absolutely pale in comparison! It is estimated that gasoline taxes would need to be six times higher than they are today just to bring revenue in line with expenditures.

In other words, the average cost of one gallon of gasoline in Dallas would instantly jump from today's approximate of $2.50 (for regular grade) to an outrageous $4.35!

Even then, there are several assumptions being made, chief among them the idea that folks would be willing to pay any amount just to get another fix of petrol. But, that assumption was blown to bits the last time gas hit four dollars! It's as if our transportation "leaders" had never heard of the price elasticity of demand!

Still worse economically is the concept of "green" automobiles. Lower the need for petroleum products through hybrid technology (or eliminate it with all-electric cars) and see what happens to our highway budgets! Yet, many in Austin and Washington continue to pretend that, since people "love" to drive, everything in our power needs to be done to maintain the rubber-and-concrete status quo.

So, what else can be done?

Are our elected officials correct when they intimate that nothing else can be done?

Conversely, is it possible to develop a completely different approach to the game whilst maintaining public support?

I sincerely believe I know the answer! Unfortunately, things will need to get a lot worse before they begin to get any better, 'cause governments tend to address symptoms over root causes.

In the meantime, read it and weep!

So far, the current study hasn't been posted to the internet; however, the original blurb can be accessed at this U.R.L.:

http://www.keeptexasmoving.com/index.php/enews/57?theme=print

...and a Houston article regarding TXDOT's work can be found at:

http://www.houstontomorrow.org/livability/story/txdot-no-road-pays-for-itself/

 

I transcribed the following from the "Keep Texas Moving 'e-Newsletter'." No attempts were made to correct grammatical errors.

 

Published by the Government and Business Enterprises Division at the Texas Department of Transportation 
 
20 November 2009 issue 
 
Article title: "Do Roads Pay for Themselves?" 
 


A major feature in the public debate about toll roads has been the issue of when or whether a road has been "paid for." To better understand this discussion, it is helpful to ask two questions: 
 
1. What is a traveler paying for when he or she pays state gas tax at the pump? 
 
State motor fuel tax is collected from all over the state and goes into a single pool of revenue - about one quarter of which goes to fund education, and about three-quarters of which goes to the state’s highway fund, where it is spent on transportation uses and some non-transportation functions of government. 
 
Then the state receives federal funds as the state’s share of the federal fuel tax; about 70 cents of every gas tax dollar Texans send to Washington comes back for road use. 
 
The significant point here is that historically the fuel tax paid in any locality of the state is unrelated to the road projects in that locality. Every fuel taxpayer in the state paid something for any given road - which leads to the next issue. 
 
2. When is a given road actually "paid for?" 
 
Just like your car, it never is. You may have paid the note, but maintenance and fuel costs go on as long as you own the vehicle. Once a road is built, maintenance and rehabilitation costs last its entire life, generally about 40 years. 
 
The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly "paid for." 
 
Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues. 
 
The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section. The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates. 
 
The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs. If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be "paid for" only if the ratio were 1.00, when the revenues met 100 percent of costs. Another way of describing this is to do a "tax gap" analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs. 
 
Applying this methodology, revealed that no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon. 
 
This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less. 
 
To conclude, in the SH 99 example, since the traffic volume for that road doesn't generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment. The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state's transportation needs. 
 

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  • More government blather obviously intended to support maintenance of the status quo, Garl. This so-called cost-benefit "analysis" doesn't begin to deal with a truly fundamental issue: do we need more highway capacity at this particular point, and if so, are there alternatives?  The so-called tax gap is typical of the rhetoric from those interests that obviously believe in alchemy.  They would have the rest of us believe that dross can be turned into gold, and because that can be done, we don't need no more stinkin taxes.  Perhaps we should just do nothing and watch the country, including Texas, grind to a halt.  The railroads, don't forget, can build their way out of congestion as long as they have continued access to capital markets, which they will have in any free-market pricing.  If government tampers with rail pricing, then all bets are off.

  • This article does not make sense.  If the roads are not paid for, who is out the money?  I believe that the point that is not said is that the state motor fuels tax does not cover the cost of the roadway network.  This is not news.  It is not clear if the author was stating that the total fuel revenues, state and federal, covered the costs of some of the highways or not.  But, as everyone already knows, tax moneys from other tax sources, sales taxes, property taxes, and income taxes, are used to pave and maintain roadways.  Then there are the exise taxes on other items, motor vehicle specific and not.  There is a tax on the "rubber" in each tire sold, on lubrication oil and on other fluids and materials needed to operate autos and trucks.  And, of course, there are the fees and taxes paid to register the vehicle.  All of this is to say that the system was set-up to susidize the roadway system from all areas of government revenue, not just the fuel taxes.  This hides the true cost from the average driver quite well.

    Is there a solution?  Perhaps an honest audit of each level of government that is involved in roads and highways would make the costs more evident and believable.  Such an audit should not try to over-simplify the results.  The IRS's statement on how much it allows as a deduction for business use of a private auto only scrathes the surface.  Few people realize that the first foot travelled in a year probably costs more than the next half of the miles travelled that year, combined.  Consider how much fuel and repair could be purchased by the annual car payment, the registration, and the insurance fees for an auto.  But these are paid "up front", before the vehicle ever reaches the road.

    This doesn't address the main purpose of the roadway network.  The street or road in front of each home or business is almost universally that property's access to the world.  Few have direct access to rail or water, and even fewer have direct access to an aircraft out their doorways.  Even in New York City where many can forgo an automobile, the individual must usually walk on a public sidewalk on one end, the other, or both ends of a trip by transit.

    My point is not that the situation is hopeless.  Rather, it is that the solutions are not to be found in reports of studies that are written in bureaucrateze.  We need straigt answers and the ability to size each of our modes of transportation to the size of the value it contributes to the overall economy of the country.  Fewer cars and trucks and more economically sound highway construction and maintenance will probably come about.  But to make this work, we all need numbers that really mean something.

  • I believe that our common law background recognizes the right to use roads adjoining our land, and our obligation to suppor them through taxes (or, in olded days, by working of them).  What is in question is the limited access regional and national roads.  

    I do not believe that these roads "pay for themselves" because they are exempt from property tax as contrasted to parallel railroads, which have to recognize the value of their land in the rates they charge in order to pay the taxes.

    The Texas DOT study apparently touches on another aspect of whether the current rates of motor fuel tax are appropriate by using a 40-year life for roads.  Much of our Interstate system is at or beyond this age and we hear that the state and Federal governments are "hamstrung" in their ability to fund maintenance because of taxpayer resistance to raising the (20-year old) motor fuel tax rate.  

    Toll roads may be the only way politicians can keep their promise to never raise taxes and still find money to perform maintenance to the existing network of roads.

  • If you believe a toll on a previously "free" highway is not a tax, I've got a bridge in Arizona that I'm sure you will want to buy.  All the demagogue politicians who prattle about never increasing taxes should be condemned to sitting in the worst of rush-hour traffic on the highways that don't get properly maintained or expanded.

  • The American 'RAIL' -ROADS- paid for themselves...

    after they built the worlds finest infrastructure, the grandest railway stations & terminals, the most powerful stream  electric and diesel locomotives, the moast elegant and comfortable passenger coaches, the most efficient railway post office---etc...

    Todays 'roads' are petro-puppets of OPEC...

  • Railstiesballast summarizes this discussion in one phrase.  "I think..."  The problem is that no one actually knows exactly.  And the announcement for the Texas DOT study does not give sufficient details to help anyone know, either.

    In my prior post, I did not intend to indicate that there was something wrong with my property taxes going to maintain the cul de sac in front of my home.  I just was trying to indicate that the Texas report (and most other reports that I have seen) does not help in figuring how much of my tax, and which tax I pay, goes to that cul de sac and how much of which goes to I-10.  

    Moreover, the Texas report announcement only indicated that one highway probably cost many times the amount of taxes collected on the fuel burned by vehicles traversing that highway.  Following that logic, we could only justify a few highways.  Those highways would need to climb up mountains on very steep grades to burn maximum amounts of fuel.  And, of course, no highway lanes could be justified to bring the vehicles back down the mountain, unless there was a toll charged.  Absurd? Yes, but that is what conclusions would logically come from the nearly non-existent information that these press releases for studies provide.  

  • Try this, RailroaderWhoRemembersThings:  the federal gasoline, diesel and vehicle excise taxes go only to support construction and maintenance of federal-aid highways, those with U.S. and Interstate highway numbers.  State collected taxes are all over the lot; some states divert to non-highway purposes, while others have constitutional provisions that require that the money collected be spent on state highway systems.  Most cul-de-sacs and other local streets are supported by plain old general revenue taxes collected from property owners.  That is one reason some of us can confidently and accurately say that the subsidies for streets, roads, and highways is considerably greater than shown by most budget documents.  With regard to the Interstates, the most reliable studies I have seen show that they are pretty much pay-as-you-go, but that the 18-wheelers don't come anywhere close to paying their proper share and that they are effectively subsidized by overcharges of light truck users, while the private auto pretty much pays it proper share and is neither subsidized nor subsidizes anyone else.  And now you know why the big truck lobby doesn't want to ever have to deal with a ton-mile tax or any other taxing mechanism that just might assess them with their proper share of highway costs.  I'll bet your cul de sac doesn't require repaving every four or five years nor a sign requiring trucks in excess of 30,000 gvw to stay in the right lane.

  • Larry, I do not disagree with anything that you wrote.  But I understand that the term "subsidy" means, to most taxpayers, that moneys that they paid to government that they expected would be used for one purpose are actually used for another.

    My primary problem with the press release is that, in citing only one example in the Houston Area and addressing only the one source of revenue, the Texas state tax on highway fuels, the study does not effectively answer their own question, nor does it truely expand understanding much.

    I believe that most of us expect that our general property taxes will support keeping a serviceable road out at the end of our driveways.  We expect that we will pay something in the cost of the lot upon which our home is built to have that road put in place before the house is built.  This meets our expectations and would not be understood by most people as a "subsidy".  Of course the Texas press release does not mention this source of funds.

    It is the other sources of funding and the "all over the lot" spending of the moneys generated that really fuel my desire for an audit.  The audit would need to be done state by state and, in most states, locality by locality, for the data to be applicable everywhere.

    The real answer, unless there are many government agencies in receivership in Texas, is that the roads are getting paid for.   We do not know from what pocket, we do not know how much is being spent and we do not know if the work is done with appropriate efficiency.  But we do know that it is being paid for or the bankruptcy courts would be finding out for us why the bills are not being paid.

    I think the two of us really just need someone to take the other side to argue.  Now, this is just one-upmanship in presenting reasons why the press release was a waste of money.

  • I cannot speak to Texas, but here in Colorado we have a badly deteriorating infrastructure - both bridges and highways - and a loony bunch of politicians who promise to cut state funding even more than it already has been cut.  I just hope the lot of them are driving n the elevated portion of I-70 through Denver when it collapses.  I cannot apeak for anyone else, but I have no problem understanding what a subsidy is and when something is being subsidized.  I also think most citizens who take the trouble to vote do, too.

  • RailroaderWhoRemembersThings:  Larry lays awake at night  (alone) devising "one-upmanship" responses to anything anyone writes.   Get used to it.  

  • Jim, the engineer (he claims) doesn't seem to like my response to RailroaderWhoRemembersThings.  But like so many people who only can complain and never seem able to offer any constructive thoughts, he doesn't spell out what his unhappiness is about.  Jim appears to be doning nothing but trying to start an argument between two other people.  Sorry, Jim, but it won't work.  I have no problem with Railroader... and I don't believe he has any with me.  I guess that leaves you as the problem.   Have a nice day.

  • Larry - you mean to tell me that section of I-70 east of I-25 HASN'T collapsed yet?  I figured it would have dropped sooner than the I-35 span over the MS River in Mpls.

  • Nope; still standing.  The state has poured a lot of maintenance money into keeping it up, but is saying now that it's remaining life is almost nil.  Of course, the state hasn't the money to replace it.  Meanwhile, our anti-government ideologues are planning to put a measure on the ballot next year that would roll back vehicle registration fees that were increased just this year to provide an expanded flow of funds for highway and bridge maintenance.

  • Note to Railwayist:  I've been doing a pretty good job of ignoring you lately and you have helped by posting fewer comments than usual.  For that, I thank you.  You really should study your economic history, though, because the reality of railroad construction is somewhat different from the idealized version you present.

    Railwayist: The American 'RAIL' -ROADS- paid for themselves...

    Yes and no.  In the East, most railroads were franchised and their construction subsidized by coastal cities that wanted to ensure their role as centers of commerce for imports and exports.  In the West, many lines were built with the help of land grants that encouraged their construction.  Some grants were repaid, others were not.  Railroads paid for themselves?  It all depends on how you measure and how you use words.

    Railwayist:  after they built the worlds finest infrastructure, the grandest railway stations & terminals, the most powerful stream  electric and diesel locomotives, the moast elegant and comfortable passenger coaches, the most efficient railway post office---etc...

    And your point is?

    Railwayist: Todays 'roads' are petro-puppets of OPEC...

    So you say, but I see no evidence to support these outrageous statements in your posts.  A little economic history - hell a little knowledge of economics - might serve you well, Railwayist.  The issues being discussed at this blog site are important enough without a continuous litany of shameless sloganeering.

  • The plot thickens!

    This year, on April the 29th, Benjamin Ross, President of the Action Committee for Transit, testified before the U.S. House Committee on Oversight and Government Reform. His testimony (and data-filled appendices) is available for your inspection:

    www.actfortransit.org/.../2009Apr29TstMetro.pdf

    A few of the highlights include the fact that, based upon a ratio of user fees* to expenses, Maryland's portion of Washington D.C.'s Metro system financially outperforms the state's highway network!

    [*In the case of transit, "user fees" can be defined as passenger revenues ("farebox recovery") while, for roadways, user fees include gasoline taxes, vehicle registration fees and toll revenues.]

    For Maryland's portion of Metrorail, passenger revenues cover 32% of costs, and direct federal aid accounts for 16.6% of receipts.

    For Maryland's highway programme, total user fees cover 19.8% of costs, and federal aid takes care of 18.3%. In addition (and please take a moment for this to sink in!), "NON-USER [emphasis mine] tax revenues equal 26.5% of the invoice!

    We still must develop a uniform, comprehensive national transportation/energy/environmental policy! The U.S. needs to decide, in advance, where we wish to go and how we'd like to get there.

    In the meantime, other modes are FINALLY losing their presumed financial edge. Not only are all forms of passenger transportation beneficiaries of the taxpayer's involuntary generosity, but our own steel wheels and steel rails are proving themselves to be quite the bargain!

    Garl