Tolling U.S. Highways
Released: 2016-08-26T00:00:00

Introduction

Since FY2008, federal highway user taxes and fees have been inadequate to fund the surface transportation program authorized by Congress. Although the 2015 surface transportation act addressed the revenue shortfall through FY2020 by authorizing the use of general funds for transportation purposes, the Congressional Budget Office (CBO) projects that after FY2020 the gap between dedicated surface transportation revenues and spending will average $20 billion annually. The search for revenue to fill this gap may revive congressional interest in tolling as a means of financing transportation projects without federal expenditures.

Although states are free to impose tolls on roads, bridges, and tunnels that have been built and maintained without federal assistance, federal law limits the imposition of tolls on existing federal-aid highways, especially on the Interstate Highways. This report explains current federal policies governing tolling and discusses issues related to increasing the use of tolls as a source of revenue for surface transportation projects.

A Brief History of Tolling on Federal Roads

In some states, mostly in the Northeast and the mid-Atlantic region, many of today's highways were originally toll roads, often built and operated by private investors. While tolling often made it possible to build or improve roads at minimal cost to taxpayers, many of these roads failed due to overly optimistic revenue expectations, inability to attract sufficient investment to pay for improvements, competing capacity, and toll avoidance and the related cost of enforcement. Over time, toll roads came to be regarded as obstacles to the free flow of commerce. When it established the forerunner of today's federal-aid highway program in 1916, Congress emphasized the principle that roads should be free. Section 1 of the Federal Aid Road Act (39 Stat. 355) provided that "all roads constructed under the provision of this Act be free from tolls of all kinds."

The Oldfield Act of 1927 (44 Stat. 1398) opened the door to tolls by permitting the use of federal funds to build toll bridges as long as they were operated by the states or their political subdivisions. However, the federal Bureau of Public Roads continued to oppose the use of federal funds on toll roads. Consequently, when states, mainly in the Northeast, undertook expressway construction in the decade after World War II, they built toll roads without federal aid. By January 1, 1955, there were 1,239 miles of completed "arterial toll roads" in the United States, another 1,382 miles were under construction, and 3,314 miles were being planned or studied. Many of these roads were on routes of the planned Interstate system. Although the Bureau of Public Roads supported the building of new Interstate Highways as free roads, it did recommend that existing toll roads that met its engineering standards and followed the routes of proposed Interstate Highways be incorporated into the new network.

The tolling prohibition was reiterated in the Federal-Aid Highway Act and Highway Revenue Act of 1956 (P.L. 84-621; 70 Stat. 374), which authorized 13 years of funding for construction of the Interstate Highway system, created the Highway Trust Fund (HTF) as the source of federal funds for state road construction, and raised tax rates on motor fuels to help fund it. The fuel and other highway taxes that were now dedicated to the HTF were seen as a close proxy for a user-payer system of financing federal-aid roads. The increased flow of federal funds, heavily weighted toward the Interstate Highways, effectively stopped the development of new toll roads by the states.

Thirty-five years later, the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240 ) opened non-Interstate federal-aid highways to tolling, but allowed existing roads or bridges to be tolled only after being reconstructed. This effectively linked tolling to capacity additions or road improvements. Both the 1998 Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 , as amended by P.L. 105-206 ) and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( P.L. 109-59 ; SAFETEA) allowed tolling on high-occupancy vehicle (HOV) lanes, established pilot projects for tolling of a limited number of Interstate system routes, and allowed limited use of tolls that vary according to the level of traffic, known as congestion pricing.

The Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ), enacted in 2012, reinforced the encouragement of tolls on HOV lanes and congestion pricing. It allowed new Interstate system routes or route extensions to be built as toll roads, but continued to block tolling of most existing Interstate Highway lane capacity. MAP-21 retained two pilot programs, one encouraging the use of pricing to control congestion and another allowing Interstate route segments in three states to be converted to tolling as part of their reconstruction.

The Fixing America's Surface Transportation Act (FAST Act; P.L. 114-94 ), enacted in December 2015, clarified that public authorities generally, as opposed to solely state agencies, may impose tolls on single-occupant vehicles using HOV lanes. It modified the TEA-21 pilot program allowing existing Interstate Highway segments in three states to be subject to tolls to finance reconstruction by providing that federal approval lapses if the selected states have not started construction within three years of approval. The law also included two provisions related to the setting of rates. One mandates that intercity buses that serve the public have the same access to toll roads and pay the same rates as public transportation buses. The other requires public authorities operating high-occupancy toll lanes (HOT lanes) on the Interstate system to consult with the metropolitan planning organizations concerning the placement and amount of tolls on the facility. Other than these changes, the FAST Act continued the general federal government policy of not regulating toll rates.

Current Law

Table 1 , below, briefly describes active federal tolling programs.

An important attribute of federal tolling policy is that all conversions of existing federal-aid highways, bridges, or tunnels to toll facilities require that the facility be reconstructed, restored, rehabilitated, or replaced (unless the conversion occurs under the Value Pricing Pilot Program). The decision to convert a free facility to a tolled facility must be made prior to completion of the qualifying reconstruction project. According to the Federal Highway Administration (FHWA), once physical construction is completed it is too late to make the decision to toll, unless an additional qualifying reconstruction or rehabilitation project is undertaken.

Financial Realities of Toll Roads

Whether it is built or operated by a government agency or by private investors, a toll road must have sufficient traffic willing to pay a high enough toll to cover construction, maintenance, and toll collection costs if it is to be financially successful. Most roads on the federal-aid system are not likely to pass that test. In rural areas, highways often do not have enough traffic to cover the cost of building toll-collection infrastructure and collecting tolls. While urban roads typically have more traffic, they may not be able to generate sufficient toll revenue to make the facilities self-sustaining.

Some publicly owned toll roads have been financially successful, generating sufficient revenue to pay for capital improvements and operations, and, in some cases, to contribute to the cost of other highway activities and even to public transportation activities. Other public toll facilities, however, have struggled. One recent example is the 8 miles of express toll lanes built by the Maryland Transportation Authority on I-95 north of Baltimore. In the seven months following their opening in December 2014, the toll lanes produced $6 million in revenue before operating expenses, far from enough to cover the cost of financing the $1.1 billion project. The state government has had to use other funds to make up the difference.

Recent federal policy has encouraged the use of tolling to attract private investment into highway and bridge construction, but a number of private toll roads have proven to be financial failures. The Pocahontas Parkway, an 8.8-mile-long toll road near Richmond, VA, that opened in 2002, has persistently been unable to service debt due to low traffic volumes; in June 2012, its private operator wrote off the entire value of its investment in a 99-year concession, and eventually transferred the lease to a new operator. SH-130, a 90-mile, four-lane toll road near Austin, TX, has had much lower traffic volumes than forecast when it opened in 2012, and the Texas Department of Transportation ended up subsidizing truck tolls in an effort to help make the privately owned project viable. Despite the subsidy, in March 2016 the toll road operator, SH 130 Concession Co., and two affiliates filed for Chapter 11 bankruptcy protection. Other toll roads that have sought bankruptcy protection include the South Bay Expressway in San Diego, CA, and the Indiana Toll Road.

All of these financial failures were public-private partnerships (P3s) that were formed based, at least in part, on overly optimistic forecasts of the revenue that would be provided by tolls. Their widely publicized difficulties have made investors more cautious about projects reliant on toll revenue. In some cases, private-sector investors have conditioned their participation in P3s on "availability payments," regular payments from the sponsoring government entity to the private entity. This reduces the risk to the private entity, but leaves the public entity at risk if toll revenue falls short of expectations.

Billing and Operating Costs

Using tolls to support transportation expenditures may be a comparatively inefficient form of funding because of high administrative costs. Collecting federal motor fuels taxes is estimated to cost about 1% of the amount collected. The process is administratively simple, because nearly all the federal fuels taxes are collected at the terminal "rack" from only 850 registered taxpayers nationwide, rather than at a large number of retail gasoline stations. The small number of collection points also facilitates enforcement.

The administrative costs of toll collection appear to be significantly higher than the cost of fuel-tax collection. Determining the true cost of toll collection is difficult because, as noted in a 2007 report for the Transportation Research Board, some costs are not readily identified in agencies' financial reports, such as a portion of general administrative costs and pension expenses attributable to tolling. Published figures thus likely understate true collection costs. Even so, at the seven agencies examined, the study estimated that toll collection cost from 16.5% to 92.6% of the amount collected.

Most toll facilities now collect a majority of their tolls from customer accounts that are debited when an electronic sensor detects a transponder in a vehicle passing beneath a gantry. In principle, the cost of operating an electronic tolling system should be much lower than the cost of manual collection, due to obvious personnel savings. However, many toll facilities continue to employ collectors to receive cash tolls. Those with no provision for collecting cash tolls normally bill drivers without transponders by mail at the address associated with the license plate on the vehicle, often at a higher rate to cover the cost of mailing the bill.

Recent financial reports from public agencies indicate that even with extensive use of electronic tolling, collecting highway tolls costs between 8% and 11% of the amount collected (see Table 2 ). The annual report of the New Hampshire turnpike system breaks out some of the costs of electronic tolling in detail, including bank and credit card fees (2.7% of revenue collected from the electronic system), fees paid to process electronic transactions (7.3%), and the in-vehicle transponders furnished to drivers (0.7%). The agency's total operating costs for electronic tolling in FY2015, not including enforcement costs and depreciation of the electronic tolling infrastructure, were 10.6% of revenues collected electronically.

Tolling and Highway Funding

Highway toll revenue nationwide came to $14.35 billion in FY2014, according to FHWA. While the amount of toll revenue has grown significantly in recent years, toll revenue as a share of total spending on highways has been relatively steady for more than half a century, in the range of roughly 5% to 6%. On average, facility owners collected $2.36 million per mile of toll road or bridge in FY2014, but revenue per mile varies greatly among toll facilities. All revenue from tolls flows to the state or local agencies or private entities that operate tolled facilities; the federal government does not collect any revenue from tolls. However, a major expansion of tolling might reduce the need for federal expenditures on roads.

There are three possible means of increasing revenue from tolling:

Increase the extent of toll roads. FHWA statistics identify 6,088 tolled miles of roads, bridges, and tunnels as of January 1, 2015, a net increase of 1,367 miles, or 29%, over 1990. These figures indicate that the extent of toll roads has been growing by 54.7 miles per year, on average, adjusting for the fact that some previously tolled roads have become toll-free. Toll-road mileage comprises only 0.6% of the 1,016,964 miles of public roads eligible for federal highway aid. While there may be many existing roads on which tolling would be financially feasible, proposals to place tolls on existing roads have encountered strong opposition in several states, including Missouri, North Carolina, Texas, and Virginia. The vast majority of mileage on the federal-aid system probably has too little traffic to make toll collection economically viable. Increase toll-road usage . In the aftermath of the recession that began in 2007, the number of vehicle miles traveled in the United States fell below pre-recession levels until 2014. In 2015, vehicle miles traveled increased by 3.5% over 2014. Despite this recent growth in travel, demographic trends and social changes, such as the increased popularity of center-city living among young people, suggest that personal motor vehicle use may grow more slowly in future years than it did in 2015. If that proves to be the case, higher traffic volume may contribute little to increased toll revenues in the long run. Increase the average toll per mile. Toll rates are often significant political issues at the state and local levels, especially when toll revenue is used for purposes other than building and maintaining the toll facility. Trucking interests frequently raise opposition to rate changes that increase truck tolls relative to automobile tolls. On publicly owned facilities, political concerns may lead to toll reductions, as occurred on bridges operated by the Delaware River Port Authority and the Maryland Transportation Authority in 2015. Where roads are operated by private concessionaires, the operators' contracts with state governments typically specify the maximum rate at which tolls can rise. Additionally, large increases can encourage motorists to use competing non-tolled routes.

These factors suggest that imposing tolls on individual transportation facilities is likely to be of only limited use in helping states overcome reductions in federal grants should Congress deal with the shortfall in motor fuels tax revenue by reducing the size of the federal surface transportation program. Further, some states, particularly those with low population densities, may have few or no facilities suitable for tolling. Tolls may be an effective way of financing specific facilities, especially major roads, bridges, or tunnels that are likely to be used heavily and are located such that the tolls are difficult to evade, but they seem likely to be less effective in providing broad financial support for surface transportation programs.

Tolling the Interstate Highway System

One way of estimating the revenue that could be raised by tolling the Interstate Highways is to assume that the public would pay the same average annual amount per mile, $2.35 million, as is raised on existing U.S. toll roads and bridges. In this case, tolling all Interstate Highways would be expected to raise roughly $112 billion per year. Of this, approximately $8 billion is already captured by existing toll facilities, leaving around $104 billion of new revenue. This would be more than enough to maintain and operate the proposed toll network. However, it is doubtful that this average could be supported over the entire length of the Interstate system. This is because a large proportion of current toll revenue is collected on heavily traveled roads and bridges in urban areas. The rural Interstates that account for a majority of Interstate Highway mileage carry far less traffic, and may be unable to produce so much revenue per mile. In addition, excessively high tolls could lead users to seek alternative routes. In cases where an Interstate carries little traffic, the costs of building and maintaining the toll collection system might be large relative to the revenue that could be realized.

One option for expanding tolling on the Interstates would be for Congress to require tolling only as Interstate system roads and bridges are rebuilt with federal assistance. As many of these roads are not in need of near-term reconstruction, the evolving Interstate system toll network would expand over time. The corresponding reduction in federal-aid highway program spending would also be gradual. To accelerate the conversion, bonds might be issued to fund construction costs up-front, with toll revenues from the newly rebuilt facilities then used to pay for the interest and bond retirement costs.

A less ambitious alternative would be to convert only the urban Interstates. Approximately 8.4% of the roughly 18,500 miles of urban Interstate Highways are tolled already, leaving over 17,000 miles of road available for conversion to toll roads. Assuming tolls would be imposed at rates that generate the current average of $2.35 million per mile, tolling the currently free urban Interstates might produce nearly $40 billion in annual revenue, nearly as much as the highway account of the HTF now receives from motor fuels taxes. However, it is doubtful that such a large sum could be realized once operating and collection costs are covered. Also, it is likely that some urban Interstate Highways will not generate sufficient revenues to pay for all their costs. There could, again, be concerns about cross-subsidization if tolls paid on urban roads were used to build and maintain toll-free roads elsewhere.

In recent years, federal funds obligated for projects on the 47,662-mile-long Interstate system have accounted for 27% to 32% of total annual federal-aid highway obligations, or about $11 billion to $12 billion annually (in 2014 dollars). Hypothetically, if all Interstate Highways could be instantly converted to a self-sustaining toll network and received no further federal funding, expenditures under the remaining federal-aid highway program would fall from an average of about $42 billion per year to around $30 billion. This would bring federal highway program spending more in line with motor fuels tax revenues. This assumes, however, that tolls could be set high enough to support all the physical infrastructure and operating costs of such a massive toll network, and also that drivers continued to pay federal motor fuels taxes for fuel used while driving on toll roads that do not receive federal funds.

Costs of establishing tolling across the Interstate system are likely to be great. States would need to construct gantries above roads and entrance and exit ramps at thousands of locations to hold toll-collection equipment and cameras to identify toll violators, in addition to building communications infrastructure. If tolling were introduced in conjunction with reconstruction of Interstate Highway segments, estimates of the road building costs involved range from $1 trillion to $3 trillion. The use of bond financing would add interest expense.

However Congress chooses to proceed, the conversion of a significant portion of the Interstate Highway system from free roads to toll roads would take a number of years. Studies would need to be conducted to identify the best locations to collect tolls, equipment would have to be ordered, and physical infrastructure such as road-spanning gantries and communications structures would need to be designed and constructed. Increased use of tolling would therefore be unlikely to have a significant impact on the need for taxpayer funding over a 5- or 10-year time frame.

Increased Use of Tolling to Encourage Innovative Finance

The revenue stream provided by tolling can be used to support highway projects that rely on debt finance and private equity investment, both of which have long histories in toll road construction. In recent years, Congress has encouraged the use of innovative financing mechanisms such as public-private partnerships (P3s), which may use toll revenues in several ways.

Toll revenues can be used to service municipal bonds that state and local agencies have issued to pay for highway projects. The federal government supports this spending by providing a tax exclusion of the interest paid on the bonds. The tax exclusion results in a loss of revenue to the federal government. Private activity bonds, in which a state or local government acts as a financial conduit for a business or individual (such as a P3), can also be serviced with toll revenues. The Transportation Infrastructure Finance and Innovation Act (TIFIA) provides federal credit assistance, including loans, to leverage nonfederal funding, which may include investment from the private sector. Under the FAST Act, TIFIA is authorized to spend $1.44 billion over five years to cover the federal government's cost of providing the subsidized credit. Each $1 of budget authority can support approximately $10 in loans. TIFIA requires that each proposed project have a dedicated revenue stream to repay the loan. For highway projects, toll revenues are the most commonly proposed revenue source. Toll revenues could also support loans for highways and bridges provided from a National Infrastructure Bank, should one be established. The creation of a well-funded National Infrastructure Bank could thus lead to an expansion of toll roads.

Any expansion of tolling due to increased use of innovative financing for highway construction, maintenance, and operation would occur over an extended period of time. In any event, toll-supported innovative financing is likely to provide only a small proportion of highway spending needs unless Congress requires its use in large-scale reconstruction of Interstate Highways.

Tolling Policy Issues

How Could an Interstate System Conversion Be Accomplished?

The current federal-aid highway program is essentially a state-run federal grant program, and states have ownership of the federal-aid highways within their borders. Any immediate conversion of highways to toll roads would necessarily be at individual states' discretion, with federal participation limited to technical assistance and a suggested conversion schedule. This would likely lead to a piecemeal outcome, as some states might convert quickly, some slowly, and some not at all.

Congress could insist on a much stronger federal role by making the provision of federal highway grants to a state contingent on the state implementing a program of converting Interstate Highways to toll roads. FHWA might then take the lead in determining the sequence of reconstruction and conversion of Interstate Highways. This paradigm would have the advantage of assuring that all states would begin imposing tolls at roughly the same time, and federal leadership would likely not allow the outbreak of "toll wars" among the states, whereby states attempt to impose toll rates in a way that shifts the burden of the toll to their neighbors or interstate travelers generally. Under federal oversight, the operation of the converted highways might still be under the auspices of the states, which could operate them directly, through a toll authority, or perhaps under contract to a private operator.

Whether or not implementation of tolls were linked to reconstruction of existing roads, creation of tolling systems would require up-front investments in gantries, equipment to read transponders in vehicles, communications infrastructure, software to process toll payments, and enforcement. This would have to be done before the tolls are collected.

How Would Tolls Be Regulated?

Under current law, FHWA approval is needed for initial implementation of tolls on roads and bridges that have received federal aid, but the federal government has no jurisdiction over toll rates. The Surface Transportation and Uniform Relocation Assistance Act of 1987 ( P.L. 100-17 ; H.Rept. 100-27) requires only that bridge tolls "shall be just and reasonable."

More widespread use of tolls is likely to raise significant questions about equity. These might arise in a variety of contexts. Motorists from states with comparatively low tolls might find it unfair that other states charge comparatively high tolls. Some existing facilities offer preferential toll rates to residents of particular jurisdictions; if that practice were to become widespread, it could burden interstate travel and commerce. States may be tempted to collect tolls at state borders rather than at internal locations where more residents would be affected, effectively taxing interstate travel at higher rates than in-state travel and in some cases putting out-of-state companies at a competitive disadvantage against local companies.

Truck tolls are invariably higher than auto tolls, sometimes much higher: crossing the George Washington Bridge from New Jersey to New York at an off-peak hour costs $10.50 for a car with an electronic transponder, but $68.00 for a standard tractor-trailer rig. Trucking interests generally oppose additional tolling, largely out of concern that political considerations will make it easier to raise tolls on trucks than on cars; they generally prefer higher fuel taxes whose revenues are dedicated to highway improvement. One reason for the preference for fuel taxes is that studies have concluded that funding highways with motor fuels taxes provides trucks a cross-subsidy from automobile users' gas tax payments.

Proposals for a major expansion of tolling of federal-aid highways are likely to lead to discussion of a federal role in rate-setting. The FAST Act involved the federal government in toll rates for the first time, mandating that intercity buses serving the public have the same access to and pay the same rates as public transportation buses, and requiring public authorities operating high-occupancy toll lanes on the Interstate system to consult with affected metropolitan planning organizations on the placement and amount of tolls. Deeper federal involvement might include a federal framework of regulatory standards or a more precise definition of the requirement in current law that tolls be "just and reasonable," along with provision for the enforcement of that requirement. In such a case, Congress would need to clarify which federal agency would be responsible for enforcing tolling regulations and overseeing toll rates.

Will Tolling Increase Transportation Spending?

Proponents often advocate tolling as a means of increasing total spending on surface transportation infrastructure. It is possible, however, that any increase in toll revenue could be offset by declining spending on surface transportation at the local, state, and federal levels. Congress has at times sought to condition federal support for states' highway spending on "maintenance of effort" by state governments. Imposing similar requirements in conjunction with a large increase in the use of tolling would require increased federal monitoring of state and local transportation expenditures.

Toll Credits

An existing federal program, the toll credit program, has for many years allowed states to count expenditures of toll revenues on capital investments serving interstate travel as part of a state's required match for federal highway grants. Although the statute states that the credit "shall not reduce nor replace State funds required to match Federal funds for any program under this title," some states have come to rely heavily on toll credits to meet their matching share requirements. A major expansion of Interstate Highway tolling could also expand the use of toll credits nationwide. This raises the possibility that states could provide less taxpayer funding for their matching shares of federal formula grants, unless other changes are made in the law.

Mileage-Based Road User Charges as an Alternative to Tolls

A mileage-based road user charge would be a toll-like charge on each mile driven. It has been advanced as an alternative to the federal and state motor fuels taxes that now support highway spending. As generally proposed, a mileage-based charge would be imposed for the use of any road within a state or nationwide, whereas tolls are imposed only on specific highway segments.

Most existing highway tolls are based on weight and distance traveled, and road user charges could be structured in a similar manner. Both electronic tolls and mileage-based road user charges could be used to implement congestion pricing, in which drivers are charged more for using a road at a busy time. However, a number of widely criticized aspects of mileage-based charges, such as the difficulty of accommodating drivers who lack credit card accounts to which the charges could be billed and concerns that the vehicle tracking system would invade drivers' privacy, have generally been less prominent in discussions of tolling.