The anti-toll opposition's naive notion of 'ring fencing' a new fuel tax - the sad American experience: An op-ed for a S African newspaper

August 26, 2012

2012-08-26: An op-ed written for a South African newspaper, by Peter Samuel: Many critics of tolls simply don't want to pay for a using a road. They want a free ride. But modern highways with their elaborate bridging and interchange ramps, their vast pavements and their wide right-of-way are extremely expensive to build, especially within a built-up area where the acquisition of land is so costly and controversial.

Someone has to pay for that. A demand for a free ride is therefore a crude cry of you-pay-for-me.

Wayne Duvenage of the (South African) Opposition to Urban Tolling Alliance (OUTA) deserves credit for going beyond this, saying that instead of the e-tolls the SA government should impose "a ring-fenced fuel levy increase."

This is an established way of financing non-tolled roads here in America under which fuel tax revenues and sometimes driver and motor license fees are "dedicated" to a special 'highway trust fund' which the government distributes to favored projects. Such a model has been used at both the state and the federal level here in the US for several decades.

But anyone suggesting that South Africa emulate the United States in this should look at the discredit into which the dedicated or 'ring fenced' fuel tax model has fallen here.

Ring fencing may work with animals on the veldt but politicians and special interests are not 'ringed in' for a day. They go under, around, or straight through well-intentioned but feeble financial 'fencing' arrangements.

One of their first moves is to say that a broader multi-modal perspective is needed. And so 'highway trust funds' became 'transportation trust funds.' That means that highways have to compete with very expensive rail projects, urban  rail transit, as well as a plethora of jogging trails, historic canals, parking, bus transfer stations. Now these "trust funds" initially dedicated to highways get milked to support a whole collection of non-highway projects such as subways, light rail transit, environmental mitigation, development, civic improvements, you name it, they find a way to take the motorists $s.

And then these fuel tax funds have been used to "leverage" borrowing so as to bring the benefits of favored projects more quickly - called in financial jargon GARVEE bonds for Grant Anticipation Revenue Vehicles. So increasingly present day motorists' fuel taxes are paying interest on past borrowings. Diminishing amounts are left after debt service for the purposes for which they were initially promoted.

Politicians are competitive animals who subsist by flexibly courting different constituencies, interest groups and campaign supporters against rivals. As often as not it goes against their interests to live up to promises they have made. And the selection of projects by a politically driven government - even without outright corruption - will rarely bear much relationship to that recommended by benefit-cost analyses or return on capital. And so we have widespread public skepticism about government's ability to pick "winners" or build needed projects efficiently. And there are "bridges to nowhere" scandals here in the US on a regular basis.

For all these reasons increases in the 'gas tax' - 'fuel levy' in S African - has become deeply unpopular in the US.  No political party will support it, so the rates of the tax have ossified. Increasingly in America roads are either toll financed or supported out of general budgetary appropriations. The 'trust fund' approach is collapsing.

Former US Secretary of Transportation Mary Peters and chairman of a Congressionally appointed revenue study commission wrote: "Raising fuel taxes in the existing financial and planning environment would be wasteful because our current (tax funded) transportation infrastructure system is neither performance driven nor accountable. Only a handful of States currently utilize benefit-cost analysis and rampant earmarking at the Federal level has continued to erode the returns on U.S. highway investments." Report of the National Surface Transportation Policy and Revenue Study Commission, 2008, p62.

Surveys show American public support for toll financing is twice the support for use of tax financed funding. People know where their money is going when they pay tolls - they can be collected from users of a facility that has been funded - whereas fuel tax money gets spread around promiscuously.

The problem of fuel tax funding is compounded by a dwindling financial yield. Improvements in fuel efficiency by regular cars and trucks mean they use less fuel for a given kilometers and with less fuel consumed the fuel tax or 'levy' yields less. Alternative fuels as in electric vehicles or compressed natural or liquified gas vehicles of course pay no fuel tax.

I'd guess OUTA will have a hard time persuading the 60% of South Africans who live outside of the Gauteng metro area that it's fair that they should pay the 'fuel levy' needed for the Gauteng highway improvements.  Many of them will travel more kilometers and consume more fuel in a year than people whose lives are within the Gauteng metro area. Hit by a fuel levy as proposed by OUTA these country folk who hardly use the Gauteng expressways could end up paying more for the highway improvements than those within Gauteng who benefit from them.

Similarly the fuel levy will get drivers within Gauteng area who stick largely to local roads if their location and travel routes just aren't served by the improved highways. Every time they fuel up they'll be paying the same levy as those who benefit.

Charging those who use the expensive expressway is really the only fair way to finance it.  Users are the ones who get the benefits - the quicker and more dependable ride, the greater safety and convenience of the overpasses and underpasses versus traffic lights and other at-grade intersections, the more compatible mix of traffic and the like.

Every departure from the principle of charging the user for the use of the road  (a toll) gets you into problems of unfairness.

There's are other problems with using a fuel tax for financing major urban highway works. It doesn't offer the opportunity to tailor the pricing to traffic conditions on the road and to manage it in so as to gain maximum benefit from it. No place in the world can afford to build networks of urban highways wide enough and dense enough to accommodate free flow traffic for free. And even if they could afford it the construction would require unacceptable taking of homes and communities.

High quality urban highways are therefore expensive not only in their cost to build but also in the 'opportunity cost' of other lost uses. In the end the only way to ensure such expensive highways don't clog up with excess traffic is to manage them with a toll that varies according to the density of traffic and prices out the less valued trips - for times when the road has capacity. And with tolls the profitability of a given road will provide an objective, non-political measure of where capacity enhancements are needed, and how much investment is justified.

Motor vehicles enable a higher standard of living and quality of life when they have modern managed highways. Naive notions of 'ring fencing' politicians' taxes won't fly. paragraph 243 p83

ADD-ON: Rob Bain, a highway financing consultant based in England did a PhD in which he looked at the history of British road funds. He emails us this timeline:

1920 British government establishes a 'dedicated' road fund

1926 First 'raids' on the road fund for non-roads uses

1937 de-linking of road fund from revenues as spending and funding are made a government budgetary decision

1955 road fund formally abolished

A road fund is "just too tempting for politicians," he writes and "They can't keep their hands out of it."

TOLLROADSnews 2012-08-26  ADD-ON Aug 28 08:30

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