Choose Your Poison: Higher Toll Fees or Higher Fuel Taxes?

There’s a debate going on here in Boston that is a microcosm of a national issue. Simply put, Massachusetts is wrestling with how to pay for billions in unmet highway and bridge costs, as well as huge Big Dig debts. The Governor is proposing a big hike in toll fees, while the House Speaker believes raising the gas tax is a fairer solution.

Yesterday, the Department of Transportation announced that The Highway Trust Fund, the federal government’s primary source for financing highway, bridge and transit projects, took in $3 billion less than in Fiscal Year 2008. The main reason for the shortfall: Americans drove 90 billion fewer miles this year, due in part to the sharp rise in gasoline prices earlier this year. This is yet another example of the tradeoffs associated with “green” initiatives. Driving fewer miles reduces CO2 emissions, but it also reduces the amount of money that states and the federal government collect to build and maintain our roads.

The US Secretary of Transportation, Mary Peters, summed up the problem nicely in the press release:

“Our current approach [to finance transportation projects] has us encouraging Americans to change their driving habits and burn less fuel while secretly hoping they drive more, so we can finance new bridges, repair interstates and expand transit systems. We need a new approach that compliments, instead of contradicts, our energy policies and infrastructure needs.”

There was a great panel discussion related to this topic at the SMC3 2008 Summer Conference. Everyone was in agreement that the current system of funding transportation infrastructure projects was broken, but there were different opinions on how to fix it. The debate mostly centered on funding versus financing. Funding generally describes the current system, where money is collected via fuel taxes and vehicle fees. Financing generally implies an investment-centric approach, where private entities finance the building and maintenance of transportation projects (raising money from taxable debt market, banks, public share offerings, institutional investors, etc.) and collect toll fees. I am not an expert on this topic, but like most things in life, the “right” solution is probably a hybrid of the two approaches. I can tell you, however, that most of the carriers in the audience were against the “privatization of roads” approach. From their perspective, they’re currently getting hit with a double tax, a toll fee and a gas tax, and it’s not always easy to pass these costs on to shippers.

People in the logistics industry have been talking about our country’s “crumbling transportation infrastructure” for several years now, and not much progress has been made. I compare it to Social Security: every politician knows it’s broken, but it’s the “third rail” of politics, where there’s endless debate but little action taken. It will be interesting to see what happens under the Obama administration. As someone at the SMC3 conference said, the best we can hope for (regardless of who became president) is for transportation to be number five on the priority list, behind the economy, the wars in Iraq and Afghanistan, healthcare, and Social Security. With everything going on right now, cracking the top ten is probably a more realistic goal.

If you’re interested in staying informed of this topic (and you should be), visit the National Surface Transportation Infrastructure Financing Commission website. And if you have an opinion on which poison you prefer, or have a creative idea on how to avoid these poisons all together, let your representatives in Congress know…after you post your comment below.