It
should come as no surprise that several members of
the Commonwealth Transportation Board have been
calling for a tax increase to fund construction of
new roads and other transportation projects.
The
CTB is one of the most powerful bodies in state
government principally because it dispenses billions
in tax funds every year.
One
alternative to raising taxes for new transportation
projects is to issue toll-backed revenue bonds, but
heavy reliance on toll financing would weaken the
CTB’s political clout and limit its discretion.
No public official relishes such erosion of power.
From
the consumer's perspective, tolls are preferable to
taxes as a funding source for new transportation
facilities for a number of reasons. The two key ones
are that toll financing promotes greater fairness
and efficiency.
When
tolls are charged, those who use the facility,
including out-of-state drivers, pay the cost of
construction, maintenance and operation. By
contrast, when taxes fund the project, all who pay
the taxes — even those who never use the project
— pay the tab. Users
of tax-funded projects are subsidized by those who
don’t use them.
But
doesn’t all of this balance out in the long run
because tax revenues that are earmarked for
transportation eventually get distributed throughout
the Commonwealth? That is precisely the shortcoming
of the tax-funding approach.
Whenever
projects are funded by taxes, decisions about how
the revenues are distributed tend to be based on
politics rather than on professional judgment. Every
taxpayer, every locality and every region demand
funding from those tax revenues at least equal to
what they contribute, regardless of the merits of
those demands.
Such
pork-barrel politics is incompatible with financial
discipline and efficiency. Projects that would not
be funded if the users had to pay the actual cost
are often funded under the tax-funding approach
because of political pressure to spread the revenues
around. The discipline involved in determining
whether and when to construct a toll facility is
simply not present in deciding whether and when to
construct a tax-funded facility.
Toll
financing generally involves pricing a benefit to
recover its actual cost. Those who put their money
at risk in a toll facility have a strong incentive
to anticipate all of the project’s costs and to
project its future use realistically. No such care
is taken when tax revenues fund the project. There
is no direct linkage between user benefit and cost.
It is easy to understand that a facility that would
never be undertaken as a toll facility might be
constructed if tax revenues are available to fund
it.
There
is another reason why charging users directly
amounts to good public policy. It makes both our
transportation system as a whole and our settlement
patterns more efficient and rational. We expect user
fees to be charged for public transit. Charging user
fees for all modes of transportation in a particular
region, including highways, makes economic sense if
for no other reason than it allows for effective
congestion pricing in that region and imposes a fair
burden on out-of-state users.
Roads
compete with transit. As more freeways are
constructed, transit alternatives become more
expensive and even unworkable. When consumers must
pay the actual cost of new highways through tolls,
they will incorporate that cost factor in their
decisions about where to live and work. We
shouldn’t expect this kind of thinking from the
CTB. The General Assembly is a different matter.
--
July 25, 2005
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