Texas Backlash Against Tolling

Guest Blog by Robert Poole, Searle Freedom Trust Transportation Fellow and Director of Transportation Policy at the Reason Foundation

Ten years ago Texas was emerging as the nation’s leading venue for tolling and public-private partnership highway projects. With strong political support, Texas DOT was tapping the private sector to finance, build, and operate both all-new toll roads and express lanes added to congested freeways, and the state’s legacy toll agencies were expanding their networks in Dallas and Houston.

But the politics has recently changed. Last fall in his successful run for governor, Greg Abbott and running mate Dan Patrick campaigned for increased highway investment, but with no new toll roads. That position had popular support, according to survey results released last September. The Texas A&M Transportation Institute’s Texas Transportation Poll found that although 64% supported increased transportation funding, they also ranked “building more toll roads” as the least desirable of 15 alternative ways of helping “solve transportation issues” in the state.

In his State of the State speech last month, Gov. Abbott presented his plan to add $4 billion a year to transportation funding “without raising taxes, fees, tolls, or debt.” His three proposals were (1) use the new revenues from the voter-approved tax on oil and gas production (Proposition 1), (2) end some of the diversion of state highway funds to other uses (but not the constitutional diversion of 25% of fuel tax money to public education), and (3) enact a constitutional amendment to dedicate half the existing sales tax on motor vehicles to transportation. Only the first of these is already law; the other two depend on legislative action.

As if on cue, three North Texas legislators have filed nine bills aimed at phasing out toll roads and toll lanes in Texas. Several of the bills would legislatively designate more sales tax revenues for the state highway fund and prohibit highway fund money to be spent on toll projects. Another would require tolls to be removed once the initial construction costs have been repaid (which would undercut both system financing as used by toll agencies like NTTA and the revenue stream for companies building projects under long-term concession agreements).  Another would require TxDOT to give legislators a plan by next year for converting all existing toll roads into free roads within 30 years. Yet another one would prohibit TxDOT from adding tolled managed lanes to any existing highway. Finally, two of the bills would politicize decisions on toll projects, by requiring the approval of local elected officials for any new toll projects, including separate approvals of the study, design, and construction phases.

Both the governor’s position and this set of bills reflect right-wing populist agitation that has been building over the past decade. Ironically, what those people want to return to is socialized, politicized highways funded by taxes rather than user fees--preferably taxes paid by someone other than road users, such as oil and gas companies. They also want highway project selection to be done by politicians rather than by transportation professionals using benefit/cost analysis and value-for-money studies.

This agenda represents a threat to both toll concessions (P3s) and to government toll agencies. For toll concessions, prohibiting any state highway money from being part of a project’s financing package would mean that very few proposed concession projects would pencil out, given the enormous real-world costs of complying with myriad environmental and other regulations. And requiring tolls to be removed once initial construction debt is paid off leaves no room for a return on private-sector equity investment. For the growing array of local/regional toll agencies in Texas, prohibiting system financing would undercut long-established, sensible financial models used to build and operate an expanding system of toll roads.

More broadly, these proposed shifts away from the users-pay/users-benefit model are exactly the wrong direction to take in surface transportation. That principle is very sound, and is used for all our other infrastructure services, such as electricity, natural gas, water, cable, telephones, etc. You pay in proportion to the services you use, and the provider is able to cover its capital and operating costs from the ongoing stream of user fee revenue. Nobody would dream of saying that you should no longer have to pay an electric bill once the latest power plant’s construction bonds had been paid off!

Longer term, the shift away from the user-fee principle will make it that much harder to make the eventual transition from per-gallon taxes to per-mile charges as the basic highway funding source (mileage-based user fees). Increased use of tolling, especially on the limited-access portion of the highway system, is an important step in the larger transition to mileage-based user fees, as recognized by the Transportation Research Board in 2006 and the National Surface Transportation Infrastructure Financing Commission in 2009.

I hope the P3 community and the public-sector toll agencies in Texas will realize their common interest in defending managed lanes, toll financing, and delegation of the details of project selection and management to transportation professionals, rather than their politicization. The future of highways in Texas—and the nation—is at stake.