What about Highway Subsidies?

Last week, in a comment on this blog, the highwayman stated, “road users only cover about 20% their costs directly and the rest of the funding comes mostly from income & property taxes.” I don’t know where he gets this information, but it is not credible.

The National Association of Railway Passengers (NARP) claims that “41% of the $133 billion spent on highways came from payments other than the gas tax, tolls, and vehicle taxes and fees.” In particular, NARP counts the proceeds of bond sales and interest on savings as money that comes from sources other than user fees. But how do the bonds get paid back? Mostly out of user fees. Where does the interest come from? Mostly from savings of unspent user fees.

What is the truth about highway subsidies? And what ought to be done about them? The Antiplanner has addressed this topic before, but (judging from the comments) it may have escaped the attention of some readers and I confess that I may not have rigorously covered this subject.

The best source of information on this issue is the finance section of the U.S. Department of Transportation’s annual report on highway statistics. Table HF10 summarizes where the money comes from and where it goes.

Line 15 shows that federal, state, and local governments collected $116.4 billion from highway users — gas taxes, tolls, vehicle registration fees, and similar fees collected for the specific purposes of providing money for highways. General sales taxes on cars and other materials are not included. Of this amount, $3.2 billion is spent on collection expenses (line 18), leaving $113.2 billion for roads.

Except it doesn’t all go for roads, as $10.5 billion was diverted to mass transit and $8.8 billion was diverted to other purposes. In addition, for several years in the 1990s, 4.3 cents of the federal gas tax were diverted to “deficit reduction,” and they did not show up on table HF10 at all. I count these all as highway user fees because people paid them in the course of using the highways, not as a general tax (like a sales tax on all goods).

In any case, we have $113.2 billion in highway user fees. Line 32 shows that another $44.5 billion in property taxes and general funds also went to highways. These are the subsidies. My simple method of calculating subsidies is to subtract the $19.3 billion in diversions to transit and non-transportation purposes from this $44.5 billion to get the net subsidies — in this case, $25.2 billion in 2006.

Since the entire amount spent on roads was $161.1 billion (line 66), subsidies were about 16 percent of the total. This is more than usual — historically, the average has been about 12 percent, but it has gone up in the past couple of years. By comparison, transit gets about 73 percent of its funds from tax dollars and only 27 percent from user fares.

Another way of looking at it is to divide the $25.2 billion subsidy by the 4.9 trillion passenger miles of travel shown in table VM1. The result is about a half penny a passenger mile. This is far smaller than the subsidies to transit, which averaged about 61 cents per passenger mile in 2006.

This is the way I have previously calculated highway subsidies, but I confess that there is a slight flaw in this analysis. It presumes that all of the bonds (shown in line 35 of table HM10) will be repaid out of user fees, not taxes, and all of the interest (shown in line 33) comes from savings of user fees, not taxes. This is mostly, but not entirely, true.

Most of the bonds and a lot of the investment income is at the state level, and the states get 88 percent of their income from user fees (even more if you count federal distributions to the states). Table SF3, for example, shows that the states with the biggest bond sales — New Jersey and Texas — got none of their highway money from general funds.

But let’s ignore all that and just look at user fees and taxes. If users paid $113.2 billion and $44.5 billion came from taxes, then 28 percent of highway costs came from taxes and only 72 percent from user fees. That is higher than I’ve stated in the past. But it still leads to the conclusion that highway subsidies are less than a penny per passenger mile. I think a close scrutiny of the bonds and interest would show that the actual user fee contribution is higher than 72 percent, but no higher than 84 percent.

Not only are taxes used to subsidize 73 percent of transit but no more than 28 percent of highways, this has been true since at least 1970, the earliest year for which we have much transit data available. In most years since then, the total number of dollars spent subsidizing transit actually exceeded the dollars subsidizing highways — even though roads carry 100 times as many people and far more freight than transit. So any idea that there is some “backlog” of transit work needed to “catch up” with historic highway subsidies should be forgotten. If after nearly 40 years of huge subsidies transit’s market share of urban travel is still only about 1.5 percent, more subsidies are not the answer.

I go through this only to dispel any residual claims that road subsidies amount to 41 percent or 80 percent or whatever higher percentage of the cost you might hear. This doesn’t mean the Antiplanner approves of these subsidies. My preference is to turn all roads, or as many as is feasible, into toll roads. Charge market rates for the tolls. Build new roads only where tolls justify their construction. Earn profits on the roads that you can. Reduce maintenance or other costs on roads that lose money; close them if that is the most expedient thing to do.

That is not the argument we hear coming from planners and planning advocates. Instead, they say things like, “all transportation is subsidized, so ignore the subsidies that are going into rail transit and Amtrak.” Or, “road subsidies tilted the balance against transit and forced Americans to drive when they might have chosen other options.” In fact, they simply want more subsidies for their favored mode of travel.

Let’s just end all the subsidies and let the transportation chips fall where they may. Or, if you think some people need subsidies because they are poor, disabled, or otherwise disadvantaged, give them the subsidies and let them decide how to use them rather than subsidizing some transit bureaucracy or construction industry. If ending the subsidies means more rail transit, great! I love trains. If, as I suspect, it means less, we’ll still have plenty of privately funded historic rail and trolley museums and tourist lines.

Speaking of which, the Midcontinent Railway Museum, the nation’s premiere museum specializing in operating rail equipment of the 1880-1916 era, was hit hard by the Midwest floods and needs the support of those who appreciate rail history. The Antiplanner sent in a donation and encourages other train lovers to do the same.

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20 thoughts on “What about Highway Subsidies?

  1. jwetmore

    I am not so sure that property taxes should count as subsidies for roads (and road users).

    The road in front of my property carries 100 – 200 vehicles a day, so tolling is not a good option. Likewise, fuel taxes could hardly expected to finance this section of road. Without the road, it is hard to imagine the value of my property. Perhaps a few percent of its value when served by an access.

    The access provided by the road also allows the school bus to pick up my children, the trash collector come by and pick up the trash, fire, ambulance, and other emergency personnel to reach my property.

    If my neighbors and I did not drive cars, we would probably still need the access so that we could get to the bus or train if the only alternative was public transit.

    The fact is our highway system is made up of several subsystems, and I believe the funding should be appropriate to the subsytem we are examining. Interstate highways do not directly serve properties, so user fees seem the most logical and efficient way to fund these roads.

    At the other end of the spectrum, some roads provide only property access. Property taxes and assements seem a logical way to fund the majority of the costs for these roads.

    In between, many roads serve both functions. I think a case could be made that property taxes are a fair and efficient way to fund some portion of the costs of these roads.

  2. the highwayman

    Though just the simple aspect that the street in front of your residence is not threatened with being closed because it’s doesn’t have enough traffic is kind of a hidden subsidy too.

    Even the most extreme anti-automible people know that a street has value as a commons.

    I’ve seen people at Reason flip flop too, in that they will even work with extreme socialists when it suits them.

    Also the current system has been warped for the past 100 years a lot of infrastructure is missing and I wouldn’t want to live in a private police state.

    Ideally the ratio between miles of roadway and miles of rail line would be 10:1(10 roadway to 1 rail line).

    Again:

    What government does for one it should do for all;

    What government does not do for all it should do for none.

  3. rationalitate

    Interesting analysis of the accounting costs of the roads. Now, what about the economic cost – that is, the accounting cost plus the opportunity cost? A true businessman evaluates a project not just against how much he spent on it, but how much he could get out of the capital/land/whatever if he chose a different project.t

  4. Dan

    If VMT drops, the lane-miles – broken down here – must still be maintained. As we all know, local miles are not fully paid for by Randal’s charts, and are subsidized by local funding from general funds – property taxes, bond issuances, sales taxes.

    So the lane-miles of roadway need to be maintained regardless of subsidy per passenger mile and are the more important indicator.

    Subsidy per lane-mile is more important, as we see local roads (the ones subsidized by other than user fees) are more than 2/3 of the functional system.

    DS

  5. PeterSK

    I would also refer interested persons if they have e-journal access or a university library nearby to check out this article from Mark Delucci at UC-Davis: Mark A. Delucchi, Do motor-vehicle users in the US pay their way?, Transportation Research Part A: Policy and PracticeVolume 41, Issue 10, December 2007, Pages 982-1003.

    He finds that motor vehicle users are subsidized, to quote: “First, current user payments probably are on the order of 80–90% of the associated government expenditures on MVIS. The low end of this range is similar to that estimated by Morris and DeCicco (1997) and FHWA et al. (1997). Second, …, the fuel tax would have to be increased by about 20–70 cents per gallon to make up the present shortfall between motor-vehicle-user payments and motor-vehicle-related government expenditures.”

  6. Market Urbanism

    Let’s just end all the subsidies and let the transportation chips fall where they may. Or, if you think some people need subsidies because they are poor, disabled, or otherwise disadvantaged, give them the subsidies and let them decide how to use them rather than subsidizing some transit bureaucracy or construction industry. If ending the subsidies means more rail transit, great! I love trains. If, as I suspect, it means less, we’ll still have plenty of privately funded historic rail and trolley museums and tourist lines.

    applause to the antiplanner for that quote…

    Yet, I agree with rationalitate that you’ve covered the accounting costs of the subsidies and have confirmed that gas taxes and fees fall well short of road costs in dollars. Next, what about the opportunity costs of the malinvestment of capital on transportation?
    I discuss some of the opportunity costs here: http://marketurbanism.com/2008/07/30/urbanism-legend-gas-taxes-covers-all-costs-of-road-use/

    I agree we should “just end the all subsidies”. But when we’re done with that, we need to mitigate the opportunity costs and malinvestment of capital through privatization. First the congested freeways and then down the line…

  7. Dan

    I recall quoting from that paper, PeterSK. I had forgotten about it.

    Here is a link to the paper. I suggest everyone here who wishes that vehicle fees and taxes pay their way read the paper.

    In my view a 50¢ – $1.00 tax isn’t a bad thing for the upper 3 quintiles in this country, as gas is too cheap for them. The issue is the bottom 2 quintiles and equity – as many of them are stuck in autocentric neighborhoods & have few freedoms in their transportation options.

    DS

  8. the highwayman

    When I used the term “backlog of work” it takes into account many transit systems were trashed due to government policy over the past 100 years.

    At one time in Los Angeles area, Pacific Electric alone had a 1000 mile system, the MTA’s current system is no where near that. In essence a holocaust happened and we have to account for that.

    Mr.O’Toole’s agenda is purely political, not economic.

  9. PeterSK

    highwayman,

    Just as a cautionary note – the federal government heavily subsidized or incentivized rail infrastructure in the 19th century for many railroads (I should note also that many large rail systems were not). This was often done by grants of money or land per track-mile-built which led to the malinvestment or overcapitalization that rationalitate and Market Urbanism note. Rather quickly a series of realized “bridges to nowhere” ended up across much of the Western U.S. that didn’t have the population or productive output to justify the investments. So, while government policies can eviscerate a transportation system, they can also encourage systems to be built that are not needed. Infrastructure holocausts it seems are more likely to happen because public planners or policy makers are not always cognizant of the opportunity costs of their actions. I think the history of U.S. transport subsidies does in many ways validate Randal’s central conclusion regarding subsidies from both the policy and economic standpoints.

  10. Dan

    his was often done by grants of money or land per track-mile-built which led to the malinvestment or overcapitalization that rationalitate and Market Urbanism note.

    I’m sure the capitalists of the time lobbied the government for the land grants that still can be seen on the landscape today, but expanding westward and exploiting resources to fill national coffers (esp after Civil War) were important drivers of this “subsidy”.

    I doubt most if not all rational actors of the time would have taken the risk to invest so much capital for uncertain reward. As such, and providing one thinks that resource exploitation to fill national coffers (and to give folk something to do) is a good thing, what else is a country to do?

    DS

  11. prk166

    In CO @3/4th of the state gas tax goes toward state highways. IIRC most if not all of the vehicle registration fees go into that pool also. That would be on top of the 3/4th covered by the gas tax.

    As for local roads, we need a means to take into account what drives their costs. Local roads are engineered to withstand the huge weights of buses, garbage trucks, fire trucks, et al. How much of subsidies of those are actually subsidizing drivers versus ensuring local governments can provide those services? Heck, in rural Wisconsin most rural roads are paved (doesn’t it cost about 4-6 times as much to pave a road versus have it be gravel?). They could be gravel but they’re paved to ensure that milk trucks can service dairy farms. So how much of that is a subsidy to cars versus a farm subsidy?

  12. Dan

    Local roads are engineered to withstand the huge weights of buses, garbage trucks, fire trucks, et al. How much of subsidies of those are actually subsidizing drivers versus ensuring local governments can provide those services

    In most jurisdictions road functional class is not only number of lanes, but load-bearing capacity. That is: arterials carry more gross weight than collectors than local access roads; this is why you see those signs with the truck silhouettes and weights on them all over the place (esp in areas with alleys). Nonetheless, fire trucks can operate on gravel, and garbage trucks often do as alleys are often gravel.

    DS

  13. craig

    I’m for ending all subsidies to roads. I also believe we should end all subsidies to transit. I don’t think the Transit community will ever allow it to happen.

  14. Dan

    I’m for ending all subsidies to roads. I also believe we should end all subsidies to transit. I don’t think the Transit community will ever allow it to happen.

    Nor will the Roads community.

    For that matter, nor will the 10 corporations that receive 74% of the ag subsidies. Nor will the oil corporations who still receive tax breaks. Nor will Halliburton and KBR who receive war profiteering subsidies. Nor will…

    DS

  15. Kevyn Miller

    prk, The rule used by our transport funding agency is that it is cheaper to continue maintaining a gravel surface until there are 250 vpd. Above that number it is cheaper to build and maintain a flexible pavement, seal life 14 years, road base life 45 years. Vehicle wear and tear only begins to shorten these lives when vpd is between 500-1000, depending on the type of subsoil. Research at the Canterbury Accelerated Pavement Testing Indoor Facility has found that flexible pavements don’t need to be built to withstand the huge weights of buses as flexible pavements fully recover from these compression loads within 15 minutes. Stronger pavements are only needed when heavy vehicles are more frequent than that or when they travel at speeds below 40 kmh on steel springs. This is because their isn’t enough enrgy being applied to the multi-leaf springs to overcome the friction between the leaves so essential they lock-up and the spring stops springing. Air suspension doesn’t suffer this problem so it should be mandatory on buses and garbage trucks.

    On the funding side of things, the system in New Zealand is that maintenance has falways been the number one funding priority and improvements and new roads get whatever is left over.

  16. the highwayman

    Well this is part of the quaqmire of what we are in today. where we judge roads by one standard and rail by another. There isn’t any legal protection of property(in this case track).

    Like I have said in the past we are not judging the road in fornt of your house on a profit or loss basis, the same should be for rail lines too.

  17. Pingback: Matt Yglesias fails to make the right case against highways | Market Urbanism

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