CALIFORNIA:Report Recommends Move to Tolls

September 24, 1999

CALIFORNIA:Report Recommends Move to Tolls

Originally published in issue 42 of Tollroads Newsletter, which came out in Sep 1999.


Subjects:financing of roads tolls vs taxes


Agencies:Caltrans CPRC University California UC


Sources:California Policy Reserach Center

Therefore, tolls should play an increasing role in funding highways in California, according to a major report from the Calif Policy Research Center (CPRC), a unit of the Univ of Cal. The 142-page report with 8 authors led by Jeffrey Brown and titled “The Future of Calif Highway Finance” says that gas and diesel tax revenue – the largest single current funding source – is bound to continue to decline. Greater fuel efficiency of gasoline and diesel powered vehicles erodes the tax. The adoption of various ‘alternative’ power sources such as fuel cells, natural gas and electricity will also erode the fuel tax base. Political resistance is very high to any increases in the gas tax per gallon, in part because it is levied at the federal and state level. Moreover the legislators have exacerbated the highway funding problem by loading environmental mitigation costs onto highways without providing any new sources of revenue to pay for them.

The report says there is “overwhelming agreement in the literature that prices paid for use of the highway system (now) are not related closely enough to the costs...” While social cost pricing is impractical because of the vagueness of estimated costs “it is quite feasible to move in the direction of that ideal through policies like charging tolls based on the level of congestion.” (p9)

The authors examine a vehicle-mile-traveled (VMT) tax and reject it on the grounds that (1) fraud would be too difficult to prevent, (2) that there are enormous problems assessing out-of-state traffic, and (3) because of almost zero political support. They deplore the resort by CA counties to sales taxes to fund roads on the basis that this has no relation to either costs or needs, is regressive in its incidence, and is in no sense at all a user fee. Moreover in CA sales tax ballots require a creation of a list of projects to be funded. That list is usually politically determined, rather than needs-based, and assures the construction of poor projects.

And they find the California weight-class tax system for heavy vehicles has the perverse effect of encouraging overloading of vehicles and therefore damages pavement. Bond financing unconnected to a revenue stream is another short-term expedient: “It is all too easy for officials to promise popular projects without specifically committing the tax revenues needed to (support) the bonds.”

The report calls for a recommitment to the principle of user fees in general, and in particular they find toll financing makes sense for new capacity.

Caltrans seen as dud

CPRC says that there is a tide of cynicism against state government in general and especially derisive attitudes towards the state DOT, Caltrans. The agency is regarded by the public as one of the most ineffectual state agencies. (Certainly it is maintaining that reputation with electronic toll efforts dragging on endlessly in the Bay area – TRnl)

The report says that it may become easier in future to gain county or regional support for action on highways. Local officials are seen as accountable and responsive by comparison with state officials. Term limits are also making it harder for state elected officials to gain the specialized knowledge needed in an area such as transport. All tax increases in the state are now submitted to popular ballot vote, the legislatures lacking the confidence to act alone.

One observation is that government policy in CA is “negotiated, not formulated” and therefore tends to be compromise among compromises. Another is that highway finance is a history of interest groups attempting to shift the costs of their favored projects onto the backs of other parties, while minimizing how much of others’ project costs they carry. In earlier decades Caltrans did attempt to develop lists of projects that showed positive benefit-cost ratios to allow some objective needs assessment, but it has not done that since the late 1980s.

CA would not qualify for World Bank loans! Caltrans currently makes no systematic assessment of state highway needs, neither on the basis of engineering standards nor on the basis of what projects may be economically warranted. The authors express some amazement at this state of affairs which they suggest may be due to the lack of interest of state politicians in such procedures. Objective needs assessment after all can get in the way of the trading in favors (‘pork’) that is the stuff of political government.

The CPRC team says that rather than attempt to rebuild needs assessment at the state level it may be best to encourage this to be done at the local level, within counties and metropolitan planning organizations. Caltrans would work to define inter-regional needs, and perhaps to oversee standardized methodologies to be applied in local jurisdictions.

ET ends bane of toll plazas

Tolls are favored because with the advent of electronic tolling much of the political and economic case against them has disappeared, the report says.

“A well designed toll system can add greatly to the efficiency of the transport system. Tolls are a very good user fee since they can be precisely linked to distance traveled (VMT). Further if toll rates vary over the course of the day so that they are highest during the rush hour, they can reduce congestion by spreading travel over a longer period of time. They are preferable to VMT fees... The biggest perceived liability of tolls is that they are not popular... tolls are (seen as) ‘double taxation’ because the roads have already been paid for through fuel taxes. However tolls have proven to be a publicly acceptable method to finance new facilities... A key reason for the recent interest in toll roads is that new technologies allow for the elimination of that age-old bane of tolls, the toll booth. Toll booths are problematic because they both inconvenience motorists and entail high administrative costs.” (p77)

Seen as another advantage is that toll roads will be “attractive investments to the private sector” and can therefore draw on capital unavailable to a state agency.

“The capacity to reduce congestion and spread trips over time so that facilities are well used for a longer period of the day is one of the biggest advantages of variable (tolls) and something that no other finance mechanism achieves.” (p77)

“Another advantage of toll-based transport finance is that to the extent that tolls are used only to fund self-financing facilities, they may impose a useful financial discipline on investment decisions. By choosing to finance only those projects that have a reasonable expectation of repayment through tolls, the state can generally be sure it is investing in projects that will be well used. Our current system which doesn’t directly relate financial costs and benefits, lacks such discipline.” (p78)

The only serious drawback of toll roads, the report finds, is their tendency to divert traffic onto lower quality free roads.

The report has some historical notes: a major push was made in the state legislature back in 1937 to use tolls to build new highways in CA. It was defeated the report says with arguments citing the high cost of collecting tolls then (20% of revenue vs less than 1% collection cost for the gas tax). Another push for tolls in 1947 ran into strong opposition from Caltrans which saw toll roads as dispersing power and detracting from its authority. Auto clubs also weighed in against toll collection on the grounds that toll plazas were a nuisance to motorists. (Contact CPRC 510 642 5514

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