Austin Contrarian

Ben Wear and a colleague have run another experiment comparing SH 130 to I-35.  The trip around Austin on SH 130 was 22 minutes faster than the trip straight through town on I-35.  This even though I-35 was not particularly congested during their experiment.  Wear averaged 70 mph on SH 130; his colleague, 50 mph.  (I-35 was nine minutes faster in the first experiment, but this was before SH 130 had been linked to I-35 via a limited-access highway.) 

I admit I'm surprised SH 130 was so much faster.  But I am not surprised by this:

Texas 130, so far, is falling short, revenue-wise, of what were already modest expectations from TxDOT.  For the six months ending Feb. 28 , revenue for the road was $1.6 million.  That's about 12 percent under expectations.  Traffic, however, is nearly 18 percent above projections.

The relative absence of 18-wheelers, which pay four times what a car does, could partially explain that anomaly.  I have seen very few of them on my three rush-hour trips on Texas 130.  I-35, on the other hand, as anyone who drives it knows, remains choked with big rigs.  Andrea's passenger counted more than 225 on I-35 during their drive; I saw less than a dozen.

Most truckers apparently don't think the time-versus-money tradeoff is worth it.

TxDOT is charging truckers too much money to save too little time.  Truckers have to pay $25 in tolls and an extra $12 or so in diesel to save 22 minutes, which means truckers must value their time at more than $100 per hour to make the switch.  They obviously do not.  And so I-35 continues to be clogged with big rigs while SH 130's faster lanes remain virtually truck-free.

Under a rational congestion-pricing system, drivers are charged for causing congestion, not for avoiding congestion.  TxDOT's pricing system is the precise opposite.

Frequent commenter trza pointed me to this op-ed by Kay Bailey Hutchison in Thursday's San Antonio Express-News.

Tolls are unpopular, I know, and she's running for governor, but this is particularly discouraging:

Recently, there have been renewed calls for tolls on highways that have already been built and paid for with federal tax dollars. I believe taxing Americans twice for the same asset is fundamentally unfair, and I oppose any effort to place tolls on existing interstate highways.

Gas taxes do not cover the cost of roads. But I understand the fairness argument.  Suburbanites invested in their homes on the assumption they'd have a free ride (or drive); charging tolls changes the rules.  Perhaps worse, the state doesn't want to toll all existing roads, only some of them.  Tolling my road but not yours seems arbitrary.

A major feature in the public debate about toll roads has been the issue of when or whether a road has been “paid for.” To better understand this discussion, it is helpful to ask two questions:

1. What is a traveler paying for when he or she pays state gas tax at the pump?

State motor fuel tax is collected from all over the state and goes into a single pool of revenue—about one quarter of which goes to fund education, and about three-quarters of which goes to the state’s highway fund, where it is spent on transportation uses and some non-transportation functions of government.

Then the state receives federal funds as the state’s share of the federal fuel tax; about 70 cents of every gas tax dollar Texans send to Washington comes back for road use.

The significant point here is that historically the fuel tax paid in any locality of the state is unrelated to the road projects in that locality. Every fuel taxpayer in the state paid something for any given road—which leads to the next issue.

2. When is a given road actually “paid for?”

Just like your car, it never is. You may have paid the note, but maintenance and fuel costs go on as long as you own the vehicle. Once a road is built, maintenance and rehabilitation costs last its entire life, generally about 40 years.

The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly “paid for.”

Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues.

The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section. The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates.
The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs. If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be “paid for” only if the ratio were 1.00, when the revenues met 100 percent of costs. Another way of describing this is to do a “tax gap” analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs.

Applying this methodology, revealed that no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon.

This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less.

To conclude, in the SH 99 example, since the traffic volume for that road doesn't generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment. The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state’s transportation needs.

That's from TxDOT itself.  Since few Texas drivers are willing to pay $2.22 in taxes per gallon, this begets the question, Why does TxDOT continue to build roads that no one is willing to pay for?

TxDOT is pushing tolls, of course; its implicit contention is that drivers are willing to pay for roads through tolls.  

A large chunk of the population hates tolls and believes TxDOT consists of a bunch of rotten, dirty liers.  They will dismiss this analysis out of hand.

But if it's wrong, why?

I've been pushing congestion pricing on this blog for a couple of years now.   I've argued ad nauseum that variable congestion pricing would get traffic flowing at the least cost, and would enhance general welfare better than the continual and counterproductive expansion of highways. 

To be honest, though, I need to disclose the practical problems with congestion pricing.

Economists first began lecturing traffic engineers about congestion pricing 40 or so years ago.   The conversation's gone something like this:

Economist:  "You guys need to stop building roads to alleviate congestion.  If you price the roads right, you can eliminate congestion and enhance overall welfare." 

Traffice engineer:  "I hear what you're saying, but we don't know how to implement congestion pricing."

Economist:  "It's easy.  Just charge a high enough price to get traffic flowing."

Traffic engineer:  "But we don't know how to do that."

Economist:  "What's not to understand?  Just charge a high enough price to get traffic flowing."

Traffic engineer:  "You don't understand.  We don't know how to figure out what that price is and we don't know how to communicate that information to drivers in time for it to do any good and we'd have to price other roads in order for the system to work and we don't know how to price networks.  Plus, everyone hates tolls and I like my job."

Economist:  "I'm sorry.  I wasn't listening.  I'm working on an interesting paper on the Herfindalh-Hirschman index and models of stochastic processes in hyperbolic discounting."

Traffic engineer:  "Whatever."

The traffic engineer goes back to work widening roads.

Here's the information problem:  The optimal congestion toll should be set just high enough to achieve free-flow (45 mph) traffic.  But if the toll is set too high, it will induce too many drivers to shift to other times, routes or modes of transportation.  That's bad, too (at least if you ignore other externalities like pollution.)

Traffic engineers can generally predict the high-demand days, but there's a fair amount of randomness in traffic patterns.  Some days an unusually large number of drivers just happen to drive to work at the same time.

The optimal toll therefore should be variable -- the greater the demand, the higher the toll.  But that's very hard to implement as a practical matter.  How do we get would-be drivers the information they need to make timely decisions?  There's no point in raising prices on drivers once they've entered the road; raising prices can no longer influence their behavior (except perhaps to launch them into a homicidal rampage). 

Price changes might affect the behavior of drivers who are about to enter the highway.  But they are just a fraction of the drivers targeted by congestion pricing.  Congestion prices are also intended to shift drivers' time of travel and mode of transportation.  That requires getting them the price in advance, in real time (via the internet, for example).  But that, in turn,  creates a real risk of herd behavior.  If the posted price is high, most drivers will respond by taking alternate routes or leaving too late.  If the posted price is low, drivers will rush to their cars to take advantage of the low tolls, creating a sudden surge in demand and unnecessary spikes in prices.  There's a sort of Heisenberg uncertainty principle at play.

There are other practical problems.  For example, charging tolls might hurt businesses that have based their investments on the assumption that roads would remain free.  Pricing's impact varies industry by industry, and consumer by consumer.  The Oregon Transportation Commission has commissioned several white papers examining some of the practical problems.

Most experts therefore assume that the best pricing system will be a second-best system, like cordon charges or charges fixed by time of day.  These systems erode some of the advantages of congestion pricing but, in my opinion, are still vastly superior to the unpriced alternative.  London, for example, has had good success with its cordon-pricing system.  (See VTPI's case study here.)

And congestion pricing is still very new.  We've had the technology for electronic toll collection for only a few years; congestion pricing isn't feasible with toll booths.  Let's experiment and get some data.  I'm confident the engineers will eventually develop effective models.  But there will be some glitches at first, and we'll need some patience.