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Transportation Reform, Part 1: The Case for Congestion Pricing

In this issue of Taxing Times:

• What is congestion pricing?
• Why is congestion pricing needed?
• Is congestion pricing a form of so-called “double taxation”?

Unless Utah implements major transportation reform, massive tax increases are underway. Last week’s 0.25% sales tax increases in Salt Lake County and Utah County for transit and roads are just the beginning. Unless several reforms are implemented, combined state-local sales tax rates will soon surpass 7% and could even surpass 8%.

State and local officials are already talking about even more tax increases for transportation. One powerful state senator recommends an annual $500 million increase in state sales taxes. One county commissioner mentioned that the equivalent of an additional two percentage points would have to be added to sales tax rates in order to fund transportation. These tax increases are so large that no one even tries to pass them off as just a couple of cupcakes per household per fortnight.

Transportation is one of Utah’s biggest issues because our economy depends on an effective transportation infrastructure. Unfortunately, the state struggles to fund expansion of transportation infrastructure while trying to avoid massive tax increases in a state that already has one of the highest state/local tax and fee burdens in the nation. Click here to see more information on Utah’s tax and fee burden.

Three reforms in transportation are needed: congestion pricing, corridor preservation, and transit/roads prioritization. Today we focus on congestion pricing.

What is congestion pricing?
Congestion pricing is a form of variable tolling in which the toll increases as congestion increases. For example, a driver would pay more to drive during peak traffic hours but would pay little or nothing to drive during off-peak hours, like before 6:30 am and after 6:30 pm and on weekends.

Why is it needed?
Congestion pricing is a means to slow the growth in rush hour vehicle miles traveled (VMT). VMT growth has been exceeding population growth and is imposing a huge burden on our transportation infrastructure. Congestion pricing gives commuters a financial incentive to

• car pool
• telecommute
• leave earlier or later
• live closer to work.

In the long run, government will need to spend less on roads than currently projected if VMT growth is slowed, especially during peak hours.

Since Utah relies heavily on general tax dollars for transportation at the state and local level, Utahns who either live closer to work or car pool are subsidizing those who live further from work and don’t carpool.

Congestion pricing is better than a fixed 24/7 toll because a fixed toll rate does not provide a financial incentive for commuters to leave for work earlier or later. Utah highways have excess capacity for about 20 hours every work day, and congestion pricing provides an incentive for drivers to use highways when roads are not operating at full capacity.

Congestion pricing is also better than simply raising state and local taxes such as sales taxes since sales tax increases do not encourage commuters to change their driving habits.

In FY2007, the state’s transportation budget is more than $1.1 billion. Of this amount, more than $447 million in state general funds are being used for state roads and another $18 million in state general funds are being used for local roads. Prior to the mid-1990s, the state rarely used general fund dollars for transportation. Gas taxes and motor vehicle registration fees funded state transportation projects. While a case can be made for using some state general funds for roads – roads serve a general purpose and using ongoing cash for capital projects is a good year-to-year budget management technique – the state could use state general fund dollars for other purposes, including higher education (which would allow more income tax dollars to be used for K-12 education) or a tax cut if VMT growth is slowed.

Where is congestion pricing being implemented?
Congestion pricing has been implemented on I-15 in San Diego, I-10 in Houston, SR91 in Orange County, London, Stockholm, and two bridges in Lee County, Florida. Click here to see how congestion pricing has worked in Stockholm.

What will happen if we don’t implement congestion pricing?
Massive sales tax increases, motor fuel tax increases, increased congestion, and less money for education will be the consequences if congestion pricing is not implemented.

Does this mean that we’ll have to drive through toll booths?
No. In most areas, congestion pricing is implemented by having drivers mount a transponder on the dashboard of their car. The transponder communicates with the highway’s communication system. When a driver enters a zone where congestion pricing is in force, the driver’s credit card is billed. Drivers without a transponder are billed using license plate numbers.

Responding to the critics

 Isn’t this a tax increase?
Increasing general taxes and fees for transportation is a foregone conclusion. Opponents of tolling argue that tolls are a tax increase, but toll opponents are proposing massive increases in sales taxes. However, the total tax and fee increase will be smaller if commuters have a financial incentive to change their driving habits during rush hour.

Isn’t congestion pricing a double tax?
Toll opponents falsely argue that tolling is a “double tax” because motorists are “already paying at the pump”. Toll opponents’ logic is faulty because taxpayers are already paying multiple taxes for transportation:

• twice at the pump (federal and state gas taxes)
• three times at the cash register (portions of state, county, city sales taxes are used for roads)
• twice on property taxes (portions of county and city property taxes are used for roads)
• once when they buy a newly built home (many cities impose impact fees for roads)
• twice when they register their vehicles (state and some counties)

Additionally, toll opponents “double taxation” argument is based on faulty logic because

• Opponents are implicitly arguing that roads can only be funded with one and only one revenue source.
• Opponents are implicitly arguing that double taxation exists in K-12 public education because schools are funded with state income taxes, local property taxes, federal income taxes, and state liquor taxes.

Finally, if imposing a toll is a form of “double taxation” because we are already “paying at the pump”, then wouldn’t increasing sales taxes – which is what toll opponents want to do – be a form of “double taxation” since we would be paying at the cash register as well?

Aren’t tolls permanent even after the road is paid for?
Congestion pricing would be permanent just like gas taxes are permanent. Travelers already pay gas taxes to drive on roads that have been paid for, and these gas taxes are often used to pay for roads in growing areas of the state.

Wouldn’t this be unfair to the west side?
Congestion pricing should be implemented on all new state roads where congestion justifies it, starting with Legacy Highway in Davis County, followed by Mountain View in Salt Lake and Utah Counties and other highways with congestion.

Current federal law severely restricts implementing congestion pricing on existing capacity that has been funded with federal gas tax dollars. However, that may change, and if that does, then congestion pricing should be implemented on existing roads that experience congestion.

Tolls don’t always cover the cost of road construction
Congestion pricing is not just a funding mechanism but a means to slow the growth in VMT during peak times on congested roads. Even though congestion pricing will slow VMT growth and will require less total government expenditures, a mix of revenue sources will still be needed to fund new construction.

Won’t truckers pass tolls on to customers?
Ultimately, businesses don’t pay taxes and fees but pass taxes and fees on to customers, employees, and shareholders. However, this applies to sales taxes as well, and toll opponents propose raising sales taxes to fund transportation projects. Therefore, when the spending lobby says tolls are bad because trucking companies pass these on to customers, taxpayers should tell the spending lobby that businesses, including trucking companies, pass sales tax increases on to customers, shareholders, and employees as well.

Since everyone benefits from transportation, shouldn’t transportation be paid for with general taxes instead of user fees, just like public education is funded by general taxes?

This argument is false for at least three reasons:

Public education is a constitutional entitlement. Transportation is not.

• Moreover, by slowing the growth in rush hour VMT, the state will have additional funding for education.
• Water is at least as critical as transportation and everyone benefits from a reliable water system, but no one argues that water usage should be “free” (no user fees).
• Like tolls and congestion pricing, gas taxes are a user fee. Should gas taxes be abolished and general taxes increased in order to fund transportation?

As previously noted, support for congestion pricing does not imply that general funds should not be used at all for transportation.

Proponents of higher tax burdens are well organized and are trying to stop sensible fiscal policies such as congestion pricing. They are lobbying against tax cuts and are lobbying for massive sales tax increases. If Governor Huntsman and the Legislature do not act soon, they’ll be back in five years for another sales tax increase, and the next tax increase will be bigger than the tax increase they asked us to pass last week.

Email us @ taxwatch@utahtaxpayers.org