Dispelling the Myths: Toll and Fuel Tax Collection Costs in the 21st Century
The time to embrace electronic tolls as a primary source of highway funding is now!
By Daryl Fleming and Robert Poole
Reason Foundation
(reproduced with permission)
"Since completion of the Interstate Highway System in the early 1990s, America has continued to rely mostly on motor fuel taxes at the federal and state levels to meet the need for maintaining the U.S. highway system. This worked well for some time as traffic (measured by vehicle miles traveled) routinely increased a few percent every year. However, these user tax rates have not kept pace with inflation, and recent large increases in the price of fuel and a lagging economy have reduced traffic growth rates the last few years. Since 1982, money from the Highway Trust Fund (HTF) has also been diverted to pay for transit and other non-highway projects. Hybrid vehicles and Corporate Average Fuel Economy (CAFE) standards have also eroded this source of revenue by making cars more fuel-efficient. Meanwhile, annual traffic growth over the last three decades (prior to the recent economic downturn) has led to major recurring congestion on most urban corridors during peak periods, emphasizing the need for new and expanded roadway facilities. In addition, many highways are aging and in serious need of reconstruction. Clearly, the U.S. highway funding mechanism must change.
A number of alternate revenue sources exist. Prior to the Federal Aid Highway Act of 1956 that enabled development of the Interstate highway system, tolls played a major role in the development and maintenance of many major inter-city highways. But the introduction of federal fuel taxes and the HTF refocused major highway funding away from tolls. Fuel taxes were also a much easier and, at that time, less expensive means for collecting revenue than tolls. But advances in toll collection technology have significantly reduced the costs of toll collection. First introduced nearly three decades ago, electronic toll collection (ETC) is now nearly ubiquitous on U.S. toll roads and bridges. Since the early 1990s we have also seen the development of open-road tolling (ORT), which allows transponder-equipped vehicles to bypass toll booths at highway speed, and more recently all electronic tolling (AET) has eliminated the need for toll booths altogether by eliminating cash toll collection at the roadside.
AET has reduced the direct operating costs of toll collection. In addition, AET has eliminated the secondary costs of manual toll collection such as traffic hazards at toll plazas, traffic congestion (and related emissions and fuel consumption), noise and consumptive land use. Nevertheless, though tolling technology and toll collection have become much more efficient, the conventional wisdom prevails: Toll collection costs are disproportionately larger than the costs of collecting fuel taxes.
This study challenges this conventional wisdom. It addresses the lack of reliable and uniformly reported data on the costs of collecting both fuel taxes and tolls, and the inaccurate and misleading information reported by those with a vested interest in sustaining fuel taxes and resisting greater use of tolls. This study analyzes recent data on the costs of collecting motor fuel taxes. Since several toll authorities are transitioning from manual or ORT to AET, this study compares data on toll collection costs from three toll agencies already operating in a fully AET environment to provide a common baseline. It also addresses collection costs for potential U.S. mileage-based user fee (MBUF) programs.
Since AET is a relatively new concept for toll collection, this study presents the basic AET operations plan and business model. It also identifies the principal factors that affect toll collection costs in an AET operating environment, including functioning frameworks that, when implemented with best practices, enable the operator to keep collection costs to a minimum. As well, it explores a number of opportunities to further reduce the cost of toll collection. Though every toll facility operation may not be able to employ all of these methods, the additional methods discussed can be used when the political will exists to further reduce collection costs.
The most significant ramifications of this research on major transportation policy issues include:
The results of this research demonstrate that with existing technology and a proper operating framework, the costs of collecting fuel taxes and the costs of collecting tolls for an urban corridor can be very similar. In fact, when all the costs of collection are considered in both cases, the cost of collecting tolls in some toll operations today may actually be less than the total costs of collecting motor fuel taxes.
In addition to giving toll operators the ability to significantly reduce their collection costs, AET enables the operator to manage congestion through value pricing—a powerful tool to combat congestion, pollution and related social costs. The benefits of AET are difficult to overestimate. This study does not extend its scope to address second-order benefits of congestion management such as lower health care costs related to decreases in pollution, increased regional productivity or improved quality of life, but examining the straightforward direct benefits is compelling enough. Simply, major expressways that do not use tolling incur an opportunity cost due to their inability to manage congestion and its effects. AET is thus a powerful tool to manage problems beyond simply generating revenue.
The clear advantages of AET are not an indictment of previous policies; AET is simply an enabling technology that was not previously available. An apples-to-apples comparison of the collection costs of motor fuel taxes vs. tolling via AET shows that tolling is as efficient a tool to collect revenue for our roadways as motor fuel taxes—and, in some cases, it may be more efficient. Once the possible traffic-management benefits of using AET (or the opportunity costs of retaining motor fuel taxes instead of using AET with a value-pricing toll schedule) are considered, AET is a much more cost-effective tool for collecting revenue for expressways.
The policy implications of this research are significant. This work demonstrates that 21st-century all electronic tolling is already a viable alternative to motor fuel taxes as a highway user fee. In particular, toll collection costs in the vicinity of 5% of the revenue collected are entirely possible today using proven methods and technology. From the road user’s perspective, 21st-century tolling offers the opportunity to charge for use of a specific highway, when it is used, and by the type of vehicle being operated. As with paying one’s water bill or electric bill, the toll customer pays a user fee for the service provided. From the highway operator’s perspective, AET provides much more flexibility to price the entire vehicle mix than do motor fuel taxes. When implemented with a value-pricing toll schedule, AET can also be used to manage traffic—offering significant benefits that motor fuel tax programs cannot provide. And since tolls are not tied to fuel efficiency, the continuing progress in this area of technology will not diminish revenue, as with fuel taxes. Moreover, the fact that tolls are typically restricted to paying for the facility being tolled (and therefore far less likely to be diverted to non-highway purposes) increases their credibility as a true user fee. This direct linkage is likely to be viewed by highway users as fairer than other pricing programs and less susceptible to manipulation by elected officials.
The time to embrace electronic tolls as a primary source of highway funding is now. Though the viability and benefits of AET were first demonstrated in the late 1990s, we are just now seeing the broad adoption of AET in the United States—approximately 15 years later. This suggests that, even if a better technology for a mileage-based user fee were on the immediate horizon (which does not appear to be the case), the toll systems installed today would require at least one major systems upgrade before this new technology is proven and ready for broad implementation. Therefore, waiting for further technology to offer additional efficiencies in per-mile charging would offer few benefits at a significant cost and needlessly delay the transition from fuel taxes to 21st century tolling."
PDF of the complete study is available for download: http://reason.org/news/show/myths-toll-and-gas-tax-collection
Reason Foundation
(reproduced with permission)
"Since completion of the Interstate Highway System in the early 1990s, America has continued to rely mostly on motor fuel taxes at the federal and state levels to meet the need for maintaining the U.S. highway system. This worked well for some time as traffic (measured by vehicle miles traveled) routinely increased a few percent every year. However, these user tax rates have not kept pace with inflation, and recent large increases in the price of fuel and a lagging economy have reduced traffic growth rates the last few years. Since 1982, money from the Highway Trust Fund (HTF) has also been diverted to pay for transit and other non-highway projects. Hybrid vehicles and Corporate Average Fuel Economy (CAFE) standards have also eroded this source of revenue by making cars more fuel-efficient. Meanwhile, annual traffic growth over the last three decades (prior to the recent economic downturn) has led to major recurring congestion on most urban corridors during peak periods, emphasizing the need for new and expanded roadway facilities. In addition, many highways are aging and in serious need of reconstruction. Clearly, the U.S. highway funding mechanism must change.
A number of alternate revenue sources exist. Prior to the Federal Aid Highway Act of 1956 that enabled development of the Interstate highway system, tolls played a major role in the development and maintenance of many major inter-city highways. But the introduction of federal fuel taxes and the HTF refocused major highway funding away from tolls. Fuel taxes were also a much easier and, at that time, less expensive means for collecting revenue than tolls. But advances in toll collection technology have significantly reduced the costs of toll collection. First introduced nearly three decades ago, electronic toll collection (ETC) is now nearly ubiquitous on U.S. toll roads and bridges. Since the early 1990s we have also seen the development of open-road tolling (ORT), which allows transponder-equipped vehicles to bypass toll booths at highway speed, and more recently all electronic tolling (AET) has eliminated the need for toll booths altogether by eliminating cash toll collection at the roadside.
AET has reduced the direct operating costs of toll collection. In addition, AET has eliminated the secondary costs of manual toll collection such as traffic hazards at toll plazas, traffic congestion (and related emissions and fuel consumption), noise and consumptive land use. Nevertheless, though tolling technology and toll collection have become much more efficient, the conventional wisdom prevails: Toll collection costs are disproportionately larger than the costs of collecting fuel taxes.
This study challenges this conventional wisdom. It addresses the lack of reliable and uniformly reported data on the costs of collecting both fuel taxes and tolls, and the inaccurate and misleading information reported by those with a vested interest in sustaining fuel taxes and resisting greater use of tolls. This study analyzes recent data on the costs of collecting motor fuel taxes. Since several toll authorities are transitioning from manual or ORT to AET, this study compares data on toll collection costs from three toll agencies already operating in a fully AET environment to provide a common baseline. It also addresses collection costs for potential U.S. mileage-based user fee (MBUF) programs.
Since AET is a relatively new concept for toll collection, this study presents the basic AET operations plan and business model. It also identifies the principal factors that affect toll collection costs in an AET operating environment, including functioning frameworks that, when implemented with best practices, enable the operator to keep collection costs to a minimum. As well, it explores a number of opportunities to further reduce the cost of toll collection. Though every toll facility operation may not be able to employ all of these methods, the additional methods discussed can be used when the political will exists to further reduce collection costs.
The most significant ramifications of this research on major transportation policy issues include:
- The cost of collection for motor fuel tax revenues is significantly greater than the widely believed figure of 1% of the revenue collected.
- The cost of collection for all electronic tolling is significantly less than most historical toll collection cost data suggest.
- Toll collection cost data from toll operators that have taken full advantage of AET technology and its basic business plan are an indicator of what toll collection costs can be if deployed in a new framework on a much broader scale.
- Cost data for some AET operations in the United States demonstrate that the net collection costs of an AET operation can be in the vicinity of 5% of the revenue collected for a $5.00 toll (or 8% of revenue collected for a $2.00 toll).
- When AET service fees are priced correctly, the (low) cost of tag (transponder) transactions is the best overall indicator of AET collection costs.
- Toll collection costs can be reduced beyond those already demonstrated by toll road operators using AET.
- Keeping the AET operations plan simple will reduce toll collection costs.
- An AET solution for mileage-based user fee charging could be implemented cost- effectively on limited-access corridors today.
- Waiting for further improvements in technology before starting the shift in the funding of major highways from fuel taxes to all electronic tolls is unwarranted.
The results of this research demonstrate that with existing technology and a proper operating framework, the costs of collecting fuel taxes and the costs of collecting tolls for an urban corridor can be very similar. In fact, when all the costs of collection are considered in both cases, the cost of collecting tolls in some toll operations today may actually be less than the total costs of collecting motor fuel taxes.
In addition to giving toll operators the ability to significantly reduce their collection costs, AET enables the operator to manage congestion through value pricing—a powerful tool to combat congestion, pollution and related social costs. The benefits of AET are difficult to overestimate. This study does not extend its scope to address second-order benefits of congestion management such as lower health care costs related to decreases in pollution, increased regional productivity or improved quality of life, but examining the straightforward direct benefits is compelling enough. Simply, major expressways that do not use tolling incur an opportunity cost due to their inability to manage congestion and its effects. AET is thus a powerful tool to manage problems beyond simply generating revenue.
The clear advantages of AET are not an indictment of previous policies; AET is simply an enabling technology that was not previously available. An apples-to-apples comparison of the collection costs of motor fuel taxes vs. tolling via AET shows that tolling is as efficient a tool to collect revenue for our roadways as motor fuel taxes—and, in some cases, it may be more efficient. Once the possible traffic-management benefits of using AET (or the opportunity costs of retaining motor fuel taxes instead of using AET with a value-pricing toll schedule) are considered, AET is a much more cost-effective tool for collecting revenue for expressways.
The policy implications of this research are significant. This work demonstrates that 21st-century all electronic tolling is already a viable alternative to motor fuel taxes as a highway user fee. In particular, toll collection costs in the vicinity of 5% of the revenue collected are entirely possible today using proven methods and technology. From the road user’s perspective, 21st-century tolling offers the opportunity to charge for use of a specific highway, when it is used, and by the type of vehicle being operated. As with paying one’s water bill or electric bill, the toll customer pays a user fee for the service provided. From the highway operator’s perspective, AET provides much more flexibility to price the entire vehicle mix than do motor fuel taxes. When implemented with a value-pricing toll schedule, AET can also be used to manage traffic—offering significant benefits that motor fuel tax programs cannot provide. And since tolls are not tied to fuel efficiency, the continuing progress in this area of technology will not diminish revenue, as with fuel taxes. Moreover, the fact that tolls are typically restricted to paying for the facility being tolled (and therefore far less likely to be diverted to non-highway purposes) increases their credibility as a true user fee. This direct linkage is likely to be viewed by highway users as fairer than other pricing programs and less susceptible to manipulation by elected officials.
The time to embrace electronic tolls as a primary source of highway funding is now. Though the viability and benefits of AET were first demonstrated in the late 1990s, we are just now seeing the broad adoption of AET in the United States—approximately 15 years later. This suggests that, even if a better technology for a mileage-based user fee were on the immediate horizon (which does not appear to be the case), the toll systems installed today would require at least one major systems upgrade before this new technology is proven and ready for broad implementation. Therefore, waiting for further technology to offer additional efficiencies in per-mile charging would offer few benefits at a significant cost and needlessly delay the transition from fuel taxes to 21st century tolling."
PDF of the complete study is available for download: http://reason.org/news/show/myths-toll-and-gas-tax-collection
Interstate 2.0: Modernizing the Interstate Highway System Via Toll Finance
The 20th-century fuel tax cannot deliver a second-generation Interstate highway system, 21st-century all-electronic tolling
See more at: http://reason.org/news/show/modernizing-the-interstate-highway#sthash.V3Zzcn45.dpuf
The 20th-century fuel tax cannot deliver a second-generation Interstate highway system, 21st-century all-electronic tolling
See more at: http://reason.org/news/show/modernizing-the-interstate-highway#sthash.V3Zzcn45.dpuf
IBTTA Campaign for the Tolling Industry
Why is a positioning campaign needed for the tolling industry and IBTTA?
The toll industry is one of the keys to funding transportation infrastructure. Tolling is a vital means to enhance mobility and the quality of life in communities around the world. The positioning campaign begins with the assumption that the health and future prosperity of the tolling industry depend on the perceptions of those who have the greatest opportunity to influence public policy affecting our industry. For example, when American Trucking Associations President Bill Graves recently debated IBTTA’s Pat Jones, he listed several reasons why he believes the expansion of interstate tolling is bad for America. Among his top reasons, he said:
What will the positioning campaign accomplish?
In January 2012, the Strategic Plan Action Team met to define specific outcomes of the positioning campaign so that we can focus our resources effectively and efficiently. Among the outcomes of this campaign, we seek to: 1) Remove state prohibitions on tolling and 2) Remove the federal ban on tolling interstate highways. The outcomes of this campaign include:
To advance these efforts, IBTTA will build alliances with organizations that see tolling as one of the main ways to fund infrastructure, provide mobility and promote quality of life.
January 2013 Announcement: IBTTA Launches National Campaign to Elevate Tolling’s Role in Transportation Funding: “Moving America Forward” Awareness Campaign Seeks to Amplify Benefits of Tolling and Solidify Credibility as Funding Option for Policymakers http://www.ibtta.org/files/PDFs/FINAL%20National%20Campaign%20Intial%20Release_letterhead.pdf
Tolling in Brief (Facts Sheet): http://www.ibtta.org/files/2013/PDFs/TOLLING%20IN%20BRIEF.pdf
IBTTA Media Page and Newsroom: http://www.ibtta.org/contentnoleftnav.cfm?ItemNumber=6550&navItemNumber=3895
IBTTA Press Releases: http://www.ibtta.org/News/content.cfm?ItemNumber=2426&navItemNumber=3931
Please contact IBTTA Executive Director and CEO Pat Jones at pjones@ibtta.org or (202) 659-4620 ext. 21 to discuss your specific involvement in this effort. Please refer to the attached document for details of this campaign.
The toll industry is one of the keys to funding transportation infrastructure. Tolling is a vital means to enhance mobility and the quality of life in communities around the world. The positioning campaign begins with the assumption that the health and future prosperity of the tolling industry depend on the perceptions of those who have the greatest opportunity to influence public policy affecting our industry. For example, when American Trucking Associations President Bill Graves recently debated IBTTA’s Pat Jones, he listed several reasons why he believes the expansion of interstate tolling is bad for America. Among his top reasons, he said:
- Toll agencies have a history of questionable rate setting and spending practices and the lack of accountability at both the political and operational levels is a well documented concern.
- Tolls are an inefficient means of collecting funding for road construction and maintenance compared to the fuel tax.
- Tolls promote traffic diversion which reduces safety because of additional miles traveled and greater opportunity for accident exposure.
- Tolls reduce trucking industry productivity because they are a disincentive to use the most cost efficient routes.
- Tolls may be a barrier to the freedom and mobility that many Americans have grown to cherish and may be particularly cost prohibitive for low income Americans.
What will the positioning campaign accomplish?
In January 2012, the Strategic Plan Action Team met to define specific outcomes of the positioning campaign so that we can focus our resources effectively and efficiently. Among the outcomes of this campaign, we seek to: 1) Remove state prohibitions on tolling and 2) Remove the federal ban on tolling interstate highways. The outcomes of this campaign include:
- Educate state and local elected and regulatory officials who are regularly engaged in transportation discussions to ensure that they understand the fundamental concepts of tolling and road user charging.
- Develop a consistent, well-defined message about tolling and road user charging.
- Create a compendium of tolling success stories.
- Demonstrate the reliability and predictability of toll roads.
- Establish a political environment in which decisions about tolling are made at the state and local level.
To advance these efforts, IBTTA will build alliances with organizations that see tolling as one of the main ways to fund infrastructure, provide mobility and promote quality of life.
January 2013 Announcement: IBTTA Launches National Campaign to Elevate Tolling’s Role in Transportation Funding: “Moving America Forward” Awareness Campaign Seeks to Amplify Benefits of Tolling and Solidify Credibility as Funding Option for Policymakers http://www.ibtta.org/files/PDFs/FINAL%20National%20Campaign%20Intial%20Release_letterhead.pdf
Tolling in Brief (Facts Sheet): http://www.ibtta.org/files/2013/PDFs/TOLLING%20IN%20BRIEF.pdf
IBTTA Media Page and Newsroom: http://www.ibtta.org/contentnoleftnav.cfm?ItemNumber=6550&navItemNumber=3895
IBTTA Press Releases: http://www.ibtta.org/News/content.cfm?ItemNumber=2426&navItemNumber=3931
Please contact IBTTA Executive Director and CEO Pat Jones at pjones@ibtta.org or (202) 659-4620 ext. 21 to discuss your specific involvement in this effort. Please refer to the attached document for details of this campaign.
| the_campaign_for_the_tolling_industry--how_can_i_get_involved.pdf |