Transportation Systems Casebook/Tolling

Summary

The United States Interstate highway system, formally established in 1944 and funded in 1956, has evolved over many decades and grown to more than 46,000 road miles. While the Interstate system only accounts for one percent of the nation’s total highway mileage, it carries 24 percent of all highway traffic. The Interstate system as authorized by the Federal-Aid Highway Act of 1956 (as amended) took nearly 50 years to complete and cost over $130 billion.

The prohibition on Federal-aid highway tolling started with the Federal Aid Road Act of 1916. In 1956, Congress favored a tax-funded Highway Trust Fund rather than tolls to finance construction of the Interstate system. However, there has been increased interest in toll financing in periods when Federal funding has been limited. Due to the insufficient funds in the Highway Trust Fund and political resistance to raising taxes in recent years, interest in tolling has only continued to increase.

This case study provides an overview of the proposal to expand Interstate system tolling, including a timeline of key events, actors, and a brief history of the Interstate system’s evolution, while examining the most recent policy proposal by the Administration as well as the benefits and drawbacks of expanded tolling.

Background

The evolution of the Interstate was a long process. During the late 19th century, the Office of Road Inquiry -- the Federal Highway Administration's (FHWA’s) early predecessor -- was established as demand for new and better quality roads grew. The first Federal Aid Road Act was passed by Congress in 1916, establishing the Federal-aid highway program and apportioning funding to States, with a 50/50 Federal/State match requirement, for construction of rural roads. In the late 1930s, President Franklin Delano Roosevelt wanted to develop a national road network and initially thought it should be a “self-liquidating” system financed in part by tolls, meaning that the tolls would help pay for the cost of the roads in order to not adversely affect the Federal budget. His interest prompted Congress to ask the U.S. Bureau of Public Roads (as FHWA was then called) to review options for developing and funding a road network. The resulting report, Toll Roads and Free Roads (1939), argued against using toll financing to build an inter-regional system because most corridors would not generate enough toll revenue to retire the bonds issued to finance them. The report recommended a toll-free express highway network.

However, the Pennsylvania Turnpike, a toll road, was an instant financial success when it opened in 1940. Based on Pennsylvania’s model, many states planned or built turnpikes after World War II, often in corridors that had been designated as part of the Interstate system in 1947. These roads were built without any Federal funding.

Years later, President Eisenhower also wanted a self-liquidating national toll highway network; however, his advisors proposed a toll-free network based on bonds to be repaid by gas tax revenue. Similar to the Toll Roads and Free Roads report, President Eisenhower’s advisory committee determined that most corridors would not have enough traffic to pay for the bonds by tolling. Thus, policy moved away from tolling before the establishment of the Interstate system. The Federal-Aid Highway Act of 1956 established the program to build the Dwight D. Eisenhower National System of Interstate and Defense Highways (the Interstate). This Act established the Highway Trust Fund (HTF), a source of gas tax-generated revenue dedicated to funding construction of the new Interstate system.

Rendering of a future Interstate highway

Congress considered several options for the existing or planned turnpikes in designated Interstate corridors. One option was to pay off the bonds or to give the States credit for the cost of the turnpikes. Construction of parallel toll-free expressways was also considered. Ultimately, Congress decided to incorporate the turnpikes into the Interstate System rather than spend money on payback plans or build parallel highways that would divert money from other areas that needed Interstates. This is the reason some segments of the Interstate have toll facilities.

Because the Interstate was paid for by Federal gas tax revenue through the HTF, a provision was established to prohibit tolling. Existing tolls on the turnpikes that were incorporated into the Interstate system were permitted to remain in operation, such as those on the Pennsylvania Turnpike and Florida’s Sunshine State Parkway. Today, there are almost 3,000 miles of toll roads in the Interstate system, largely on the East Coast. Since the 1990s, some special programs have allowed states greater flexibility for tolling the Interstate, primarily for new construction, expansion projects and to use road pricing for congestion management (for example, High Occupancy Vehicle lanes). The Moving Ahead for Progress in the 21st Century Act (MAP-21) further expanded tolling by easing requirements that states get Federal approval in those cases, but it maintained the basic principle of no tolling of existing toll-free Interstate capacity.

Nearly 60 years since the Interstate was established, many of these highways are in need of rehabilitation, maintenance and reconstruction. As vehicle fuel efficiency increased and the Federal gas tax remained the same (18.4 cents per gallon) for over 20 years, the HTF has become depleted to the point of near-insolvency. Since 2008, Congress has transferred $54 billion to the HTF from the Treasury general fund, with an additional transfer of $10.8 billion in July 2014. The Federal government and states are searching for funding and innovative financing mechanisms to pay for the maintenance, repair and reconstruction of the aging Interstate system and other transportation infrastructure. In the current political environment, increasing taxes to generate revenue has been a non-starter; however, states are increasingly seeking alternative funding mechanisms, such as expanded tolling.

Timeline of Events

• 1893 – The Federal government establishes the Office of Road Inquiry as demand for new and better roads grows.

• 1916 – The first Federal-Aid Road Act establishes the Federal-Aid highway program and allocates funding for construction of rural roads.

• 1939 – The Bureau of Public Roads, FHWA’s predecessor, sends the report Toll Roads or Free Roads to Congress. The report highlighted the need for an inter-regional highway system and recommended against toll roads.

• 1940 – The Pennsylvania Turnpike, the “Granddaddy of the Interstate” is completed. This brand new toll road is a major success and exceeds traffic forecasts. It was the first modern toll highway and many other states started to emulate its model after World War II.

• 1944 – The Bureau of Public Roads submits the Interregional Highways report to Congress recommending an express highway network with no tolls, which would be built under the Federal-aid Highway Program. Congress authorized the Bureau to work with States to designate the network.

• 1947 – First designations of the Interstate system.

President Eisenhower Receives Interstate Financing Report from Advisory Committee, 1955

• 1956 – On June 29, 1956, President Eisenhower signed the Federal-Aid Highway Act which provided for a national highway system designed to be tax-supported through establishment of the Highway Trust Fund. This network came to be known as the Dwight D. Eisenhower National System of Interstate and Defense Highways.

• 1963 - The last of the toll roads that was planned before the Federal-aid highway system was legislated opens to travel.

• 1973 – President Nixon signed the Federal-Aid Highway Act of 1973. One provision of the Act was for Interstate Withdrawal/Substitution. Under this provision, at the request of a Governor and local governments in urbanized areas of more than 50,000 in population, the Secretary could withdraw an Interstate segment if it was determined that the segment was not essential to completing a unified and connected Interstate system and state officials assured they would not build a toll road in the corridor. State and local officials could use an equivalent amount of substitute funds for mass transit projects, including rapid rail systems. (This alternative option was extended to highway projects in 1976.)

• 2005 - SAFETEA-LU clarifies some aspects of the operation of HOV facilities and provides more exceptions to the vehicle occupancy requirements for High Occupancy Vehicle (HOV) facilities. It also authorizes States to create High Occupancy Toll (HOT) lanes. Specifically, States can charge tolls to vehicles that do not meet the established occupancy requirements to use an HOV lane if the State establishes a program that addresses the selection of certified vehicles and procedures for enforcing the restrictions. Tolls under this section may be charged on both Interstate and non-Interstate facilities.

• 2008 – The first transfer of Treasury general funds is made to the Highway Trust Fund.

• April 2014 – The Obama Administration's GROW AMERICA Act, the most recent surface transportation reauthorization proposal, is submitted to Congress by USDOT. The Act contains a provision that would "mainstream two existing tolling pilot programs, providing States additional flexibility to apply for authority to toll existing Interstate highways in order to make improvements or to manage congestion." The requests must be approved by the USDOT Secretary based on specific criteria.

• Summer 2014 – The Highway Trust Fund is projected to be insolvent in August. In July, Congress authorizes a $10.8 billion transfer of Treasury funds to the HTF. The policy debates about how to fund transportation continue.

• August 2014 – President Obama signs the Highway and Transportation Funding Act of 2014, which extends MAP-21 programs and the Highway Trust Fund through May 2015.

Maps: Interstate Highways & Toll Facilities

Interstate Highway Map

The Interstate highway system network contains about 47,000 miles of road.

National Highway System Map

The National Highway System (NHS) has 5 categories of roads: the Interstate highway system; high-priority corridors (including some existing Interstates); the non-Interstate portion of the Strategic Highway Corridor Network (STRAHNET); the Strategic Highway Corridor Network connectors; and other arterial highways. The Interstate system comprises about 30% of the NHS.

The National Conference of State Legislatures (NCSL) produced a map showing toll facilities in the U.S., including road, bridge and tunnel toll facilities, and the type of operating entity. These include tolls on and off the Interstate system. NCSL determined that “42 states, the District of Columbia and Puerto Rico have some form of tolling authorization or facility. Of those:

• 28 states and Puerto Rico have toll facilities operated by statewide entities.
• 14 states have toll facilities operated by regional entities.
• 20 states and Puerto Rico have privately operated toll facilities.
• 9 states and the District of Columbia authorize tolling but have no state or regional toll facilities at this time.”

Annotated List of Actors

President Franklin Delano Roosevelt – Interested in building a transcontinental road network and initially pondered financing it through tolls.

President Dwight D. Eisenhower – Authorized the national Interstate highway system and funding for its construction in 1956.

FHWA – Administers Federal-aid Highway Program funding to States.

USDOT – Submitted the Obama Administration’s surface transportation authorization proposal, the GROW AMERICA Act, which includes a provision to allow States to expand tolling of the Interstate system with approval of the USDOT Secretary.

Policy Issues

Tolling has both advantages and disadvantages. It is seen as a way to help provide funds for repairs, replacement, and new construction of the roadways. However, in order to provide enough funds, there would have to be a significant expansion of roadway tolling in the United States. Technology allows for more efficient collection, such as electronic tolling, in order to maximize the use of the highway and decrease delays in travel time. Some of the proposed tolling approaches, such as using transponders and license plate cameras that connect wirelessly to operation centers to ensure the transactions, have caused controversies among the public, and raised fears about invasion of privacy. However, there could be other ways to ensure data security if a similar system is implemented.

The main arguments in regards to the issue include the following:

Pro's

• Public-Private Partnerships: Attracting business of the private sector to create public-private partnerships, given the high levels of traffic in many highways of the Interstate Highway System. The revenues from tolls could be used to fund improvements and capacity expansion.

• Funding for reconstruction: Many of the Interstate System highways and bridges are over 50 years old and need to be rebuilt at high cost. Since the Highway Trust Fund has not been sufficient to keep up with the cost of maintaining infrastructure, tolling can be a way to rebuild what is needed.

• Congestion mitigation: Dynamic pricing could be used on urban Interstates in order to price according to the time of the day and the amount of traffic, which can help in reducing congestion and providing the necessary funds to the maintenance/reconstruction needed for urban Interstates.

• Route options: Tolling provides drivers with more options, such as the choice of paying for the benefits of using a tolled facility with a more direct route or choosing a different route, which may take longer to reach a destination.

• Earlier repair and reconstruction: Tolling of the Interstate Highway System would allow for sufficient funds in order to repair/reconstruct the facilities at an earlier date than they would be by using Highway Trust Funds.

• Electronic toll collection: Electronic collection leads to significant declines in the operating costs of toll facilities and reduces congestion at toll booths.

In summary, advocates in favor of tolling propose that it can create a revenue source for infrastructure projects, can serve as a tool to address congestion, provide drivers with reliability of travel time, help with fuel consumption by maximizing gas mileage in free-flow, and use the highway to its full efficiency.

Con's

• The issue of double taxation, since Interstate highways were originally built with funds from taxes.

• Not all Interstate highway system facilities are suited to tolling, since many highways do not have high traffic volumes; therefore, it would not make sense for the private sector to invest since the return will not cover the costs and not generate profit.

• Tolls may negatively affect interstate commerce.

• Toll facilities require higher costs to operate.

• Tolls impact low-income drivers and do not give everyone an equal opportunity.

• There are unresolved issues, such as tolls at state borders and violation of interstate commerce clause, and different rates of tolling for Interstate and In-State toll users.

• Tolls affecting businesses located at Interstate highway exits.

• Tolls can cause traffic diversion

• Tolls can impact Supply-Chains

Current Law

Title 23 of the United States Code (highways) states a general prohibition of imposing tolls on Federal-aid highways. However, Title 23 and other statutes also specify exceptions to this general rule by describing special programs, which allow revenue from tolling to support highway construction, as well as the use of of road pricing to better manage congestion. In order to implement tolls on a Federally funded facility, the public authority must qualify for toll authority under one of the following main four Toll Programs:

Mainstream Tolling Programs

The following two programs have no restrictions on the number of projects or the number of States receiving tolling authority. These programs do not require States or local public agencies to have a tolling agreement with the FHWA before imposing tolls.

Section 129 (General Toll Program)

Under this program, Congress allows imposing tolls on new highways, new lanes added to existing highways (as long as the number of existing toll-free lanes remain the same), reconstruction of highways (non-Interstate only), reconstruction or replacement of bridges or tunnels, and capital improvements to existing toll facilities.

Section 166 (HOV/HOT Lanes)

Section 166(c) of Title 23 allows tolling for vehicles that do not meet the occupancy standards to use high occupancy vehicle (HOV) lanes; these lanes as often referred to as high occupancy toll (HOT) lanes (including Interstate facilities).

Toll Pilot Programs

Since 1991 there have been tolling programs allowed on a pilot basis through different highway authorization acts. The number of slots available have been limited for each program. An application and execution of a toll agreement with FHWA is also required from project sponsors in order to be authorized to impose tolls under these programs.

The two pilot programs are:

Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP)

This program allows the conversion of a free facility (Interstate highway) to a toll facility only if tolls are the only way to obtain the funds needed to reconstruct and rehabilitate the facility. There is a limit of three projects and they have to be in different States. There are strict guidelines that states must adhere to and all programs must be approved by the FHWA. As of January 2014, the three states and areas identified for this program are I-95 in North Carolina, I-95 in Virginia, and I-70 in Missouri. Though the program was authorized in 1998, it has yet to be fully implemented, largely due to political pushback.

Value Pricing Pilot Program (VPPP)

This program allows for tolls to be imposed on existing toll-free highways, bridges, and tunnels, as long as variable pricing is used to manage demand. There is a limit of 15 value pricing programs that can be allocated to state or local agencies; seven out of the 15 programs have been exclusively allocated to States that already have agreements for tolling using this program. The rest of the vacant programs have been reserved temporarily for State agencies currently pursuing other activities that are eligible under the program (value pricing studies and value pricing projects that are non-tolled) If agency holds a slot, it has unlimited number of value pricing projects that can be implemented under that slot.

There are other restrictions and specifications to the use of toll revenue and operational performance requirements stated under the above mentioned programs.

Tolling the Interstate Highway System is only part of the larger problem of the need to upgrade the U.S.'s transportation infrastructure, and the many barriers faced, which include: political figures unwilling to identify new infrastructure funding sources, using traditional funding models that are no longer effective (gas tax), a planning system that operates in stove-pipe-like systems between different levels of government, and different industries with different ideas and goals competing against each other.

GROW AMERICA Act

A four year, $302 billion surface transportation re-authorization proposal developed by the Obama Administration that was released in April 2014. The proposal would give states more liberty in deciding whether to impose tolls on their Interstate highways, require all new tolling plans to have the approval of the U.S. Secretary of Transportation, and require repairs of existing roadways and bridges to have priority over other expansion projects.

Narrative of the Case

For several years, the U.S. government has sought ways to increase revenue needed to pay for transportation infrastructure. Recently, lawmakers have given this issue a more serious look as the Highway Trust Fund (HTF) is on the verge of insolvency. Since the inception of the Interstate highway system, the Federal gasoline tax has been the primary means of funding highways and tolling has been prohibited. With the gas tax no longer able to adequately fund the HTF, the question becomes, what else can be been done to finance U.S. Interstates? One plan that has recently been discussed is expanding tolling on Interstate highways, however, this proposal is fairly controversial and may be difficult to achieve.

Electronic Toll Lanes

As mentioned earlier, one of the main reasons Interstate tolling has not been implemented in most states is political opposition. There are several different opinions, both for and against the proposed expansion of Interstate tolling. Critics of the plan have stated that “tolling existing interstates is extremely inefficient, creates bloated government bureaucracy, increases business and travel costs, and diverts traffic from tolled interstates onto local roads, accelerating road degradation and causing serious safety concerns.” Others have voiced concern that tolling would cause double taxation since a gas tax has already been paid by drivers at the pump. The placements of toll facilities are also a source of debate. Depending on where the tolls are placed, “states may very well be tempted to toll the parts of their highways that are most likely to be used by out-of-towners.” Further, "Interstate tolling tends to get support from the political center, while lawmakers who lean heavily to the left or the right have been the biggest opponents… liberal Democrats oppose it for populist reasons, arguing that it’s an onerous fee that low-income Americans can’t afford, while hardline conservatives oppose it as just another expensive government-imposed fee.”

Supporters of Interstate tolling say that roads are never truly paid for and are in constant need of repair. Tolling roads is another way to generate much needed funds to make the constant repairs needed year after year. As for drivers avoiding highways in order to avoid paying tolls, one study found that “despite the financial reasons for having toll systems in place, it is important to recognize that people do not appear to change their driving behavior in response to tolls.” Work by Calfee and Wintson (1998) and Calfee et al. (2001) estimated how much automobile commuters were willing to pay to reduce travel times. Using a variety of assumptions about travel conditions and how toll revenues would be spent, the authors found that commuters did not value savings in travel time. James Corless, the Director of Transportation for America also said, “When people understand where the dollars are being spent, the direct impact to their lives, they support paying their fair share.” Whether you are for or against Interstate tolling, the fact remains that the funds generated would provide some of the much needed revenue to keep U.S. Interstates operational for years to come.

Conclusion

As discussed throughout this case study, funding for transportation infrastructure has not kept pace with demand for construction and maintenance over the years for a variety of reasons, including more fuel efficient vehicles that generate less gas tax revenue, and a Federal gas tax rate that has remained stagnant since 1993. The funding debate continues, and there will always be opposing ideological viewpoints. However, the common goal of all sides – regardless of their opinions on the role of government or the best funding mechanisms – is for the U.S. to have an expansive, well-connected transportation network in a state of good repair to support the national economy, access to employment and social connections. Tolling the Interstate is one component of this much larger debate and may be one of a variety of viable funding options. However, there is a ways to go until tolling existing Interstate capacity becomes more politically palatable and several areas that remain to be addressed in this debate, including the topics in the discussion questions below.

Discussion Questions

1. Do you think tolling the Interstate is politically feasible?

2. What challenges will States face in adding tolls to the Interstate?

3. What alternative funding mechanisms would you recommend to shore up the Highway Trust Fund?

4. How will tolling the Interstates affect the interchange-oriented businesses that may experience significantly decreased traffic if commercial facilities are allowed on the highways?

Additional Readings

The Future of Toll Roads in the U.S., The Diane Rehm Show (radio segment) - http://thedianerehmshow.org/shows/2014-10-22/future-toll-roads-us

The Future of Toll Roads, Eno Center for Transportation (radio segment) - https://www.enotrans.org/news/the-future-of-toll-roads

How to Toll Every Interstate Highway in America - http://www.governing.com/blogs/fedwatch/gov-how-to-toll-every-interstate-highway-in-america.html

Value Added Tolling, The Reason Foundation - http://reason.org/files/value_added_tolling.pdf

Alliance for Toll-Free Interstates, House Committee on Transportation and Infrastructure Testimony - http://www.tollfreeinterstates.com/sites/default/files/Committee%20on%20Transportation%20and%20Infrastructure%20Testimony%202014_0.pdf

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