LTM Lecture July 2010

The past and future of user-fee financing of motorways – 22 July 2010

A Lecture by Professor Martin Wachs at the London Transport Museum

The evening of Thursday 22nd July saw a special guest lecture by Professor Martin Wachs held as a joint event between RAND Corporation and the Independent Transport Commission. The event was kindly hosted by the London Transport Museum and delivered to over 50 guests from a wide range of fields.

Lecture Summary

Professor Wachs suggested that Road Financing faced similar obstacles in the US and Britain, though his lecture chiefly discussed the US situation. Wachs began by identifying a great crisis in current road financing on both sides of the Atlantic. For the first time since 1930 the US was unable to fund half its standard road maintenance from user fees. A stalemate had arisen whereby the Federal Highway Trust Fund was operating at a deficit, and yet Congress and the Obama Administration were opposed to the raising of road user fees. In the US, Road User Fees are overwhelmingly collected through fuel tax, and only a small proportion through toll charges.

To illustrate the problem, Professor Wachs explained the history of road user charging in the US. The huge growth rates in motor traffic and road building after the First World War came close to bankrupting states, and so the policy of user-fee financing was introduced. This was considered more equitable than general financing since a majority of citizens did not own a motor vehicle. The debate was framed as an either-or choice between collecting Tolls on the roads or introducing fuel tax. Although Fuel Tax was seen as second best in some respects, in others it had clear advantages, including low collection costs, the need for limited infrastructure expenditure, and being equitable since payment was proportional to distance traveled. After Oregon introduced the first state fuel tax in 1919, every state in the Union had adopted the measure by 1940.

Fuel Tax faces several difficulties as a source of funding in the future. First, the need to sell fuel to raise revenue contradicts government initiatives to reduce carbon emissions. Second, public opposition to fuel tax rises at a time of relatively high oil prices is strong. Third, the move by motor manufacturers towards highly fuel-efficient engines is reducing revenue raised. Fourth, alternatives to fuel tax will need to be found as and when electric vehicles become the norm.

The most suitable move, suggested Professor Wachs would be a gradual shift towards ‘Direct Vehicle Miles Travelled’ (VMT) fees, either through road charging or through direct vehicle mileage monitoring. This would overcome the problem of non-petroleum travel, maintain the principle of direct user-fee charging, and provide a degree of policy flexibility, since taxes could be gradated according to type of vehicle, time of day, or type of road. The infrastructure investment necessary to complete such a move meant that VMT financing could only gradually replace fuel taxation as a source of revenue.

RAND research had indicated that a number of issues needed to be resolved before such a move could take place. These included the need to test billing and accounting methods for collecting these fees, reducing the costs of infrastructure implementation, understanding the acceptable error rates in billing, dealing with ‘foreign vehicle’ use of the roads, and how to protect the privacy of citizens. Without careful consideration of these issues the risk of failure of VMT proposals remained high.

To sum up the policy challenges ahead, Professor Wachs made a number of recommendations for achieving this transition to VMT financing:

1. VMT charging schemes would need to be tested on a large scale first, over an entire state and with millions of users, before being implemented on a national scale.
2. VMT schemes should be an opt-in system: a measure that users would adopt as an alternative to fuel taxation.
3. There should be an open competition of ideas for viable VMT schemes.
4. The government should be prepared to invest heavily at the outset, with a probable sum of $250 million to $1 billion necessary.

Questions:

Questions from the audience focused on the differences between road financing system in the US and Britain. These differences indicated that the introduction of Direct VMT systems would be harder to accomplish in Britain than the US, particularly over the short term.

It was noted that the principle of user-fee road financing using hypothecated taxation had been abandoned in Britain, whereas it was still seen as an important policy principle in the US. The use of fuel tax revenues for general funding by the British government created a disincentive for the Treasury to abandon the present system of financing.

Fuel tax was observed to be relatively immune to abuse and fraud, whereas the vulnerability of Direct VMT systems was as yet unknown.

Population movements into urban areas suggest that city residents will use and benefit from the facilities much more than rural residents.

Further Information:

The above details of the talk will be posted on the ITC website. Professor Wachs’ talk was derived from ongoing work by RAND for the US Transportation Research Board. The following links may be helpful:

US Transportation Research Board:
Project: Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding

Professor Martin Wachs: Profile Page at RAND Corporation