Trump floats gas tax increase after cold reception to privatized toll roads
By Terri Hall
May 5, 2017
It’s tough being a change-agent. Newly minted President Donald Trump came into office with high hopes of a major infrastructure overhaul. With the nation’s crumbling bridges, pothole stricken roads, and millions of commuters choking in urban congestion, Trump had a big plan to harness the private sector through public private partnerships (P3s) to address congestion by adding toll lanes. The problem is those privatized toll lanes grant private, usually foreign, entities monopolies over vital public highways where the companies are given the exclusive right to extract the highest possible tolls for 50-99 years.
With the pushback to P3s coming fast and furious from working class families to truckers, Trump has begun to change his tack. After meeting with members of the trucking industry this week, Trump has floated the idea of a federal gas tax increase to raise the revenue necessary for the big infrastructure fix. Truckers prefer a gas tax increase to tolls.
Here’s the back story. The National Highway Trust Fund, which is funded with a federal gasoline tax of 18.4 cents per gallon, has teetered on the edge of bankruptcy for over a decade while the gas tax has remained unchanged since 1993. Inflation has diminished its buying power over the last 24 years, and members of congress have been reluctant to raise it. Under President George W. Bush, many Republicans pushed road privatization and implementing toll ‘managed’ lanes as the means to finance road projects as perpetual road funding shortfalls plagued the highway system.
Private toll lanes inflict maximum pain
‘Managed’ lanes typically mean the addition of High Occupancy Toll (HOT) lanes in the middle of existing highways, allowing carpoolers to ride free or at a discount while those in single occupancy vehicles have to pay tolls. They utilize dynamic tolling or congestion pricing where the toll rate goes up based on the level of congestion, charging commuters a premium to drive during peak hours.
On privatized toll managed lanes, that pain increases exponentially since taxpayers cannot hold them accountable like they can a public entity. P3s give a single company a monopoly in very long-term leases. When elected officials seek to respond to complaints by taxpayers when tolls, fines, and fees become unbearable, the courts consistently rule there is no recourse. Once the contract is signed, total control goes to the private firm.
A recent appeals court decision in North Carolina upheld the state’s private toll contract with Spain-based Cintra. Taxpayers filed suit because the private toll lanes come with contractual clauses designed to perpetuate bottlenecks in the free lanes and give the private foreign company the ability to collect "an unlimited rate of return on investment.”
On the ETR 407 in Canada, one of the first such projects globally, the Canadian government has sued to try and get out of the contract with Cintra because the toll fines and fees were so high for their citizens. The courts said there's nothing the government could do because it signed a contract.
Old school tollways used to charge a fixed toll rate based on the actual cost of the project and what was necessary to retire the project’s debt. Toll rates tended to remain low and reasonable (9-12 cents per mile on average) and many times, voters were promised tolls would come off the road once that debt was paid. But today’s complicated morass of dynamic tolling means there’s virtually no limit on how high the toll rates can go during peak commute hours, costing drivers a small fortune to get to work. On two P3 toll projects operated by Cintra in the Dallas-Ft. Worth area, the initial toll rates during peak hours were supposed to be 75 cents a mile, but commuters report having to pay $30-$40 per day in peak hours to get to work using these private toll lanes. It’s an unsustainable level of new taxation that’s hurting the economic survival of Texas’ working families.
Gas tax vs. tolls
So when compared to a modest gas tax increase, of say 5-10 cents per gallon, having to pay tolls that range from 15 cents to over $1.00 per mile on a daily basis to get to work, the average household pays far more in tolls than they would in gas tax. The thinking among road users was reflected in polls, initially, as there being more support for tolling than a gas tax hike because everyone would have to pay the increased gas tax, but users thought they could somehow avoid paying tolls. Attitudes have shifted as more managed toll lanes have become more commonplace with congestion tolling now almost universally opposed by the public.
However, today, American cities have toll managed lanes popping up everywhere, with commuters facing enormous toll bills on a daily basis. The unpopularity of toll roads has skyrocketed, with truckers and working families being hit hardest. A 2014 study conducted in Texas asked respondents to rank transportation options, and toll roads came in dead last out of 15 different options proposed.
Tolls non-starter in congress
Tolls certainly won’t play well in the rust belt where the middle class is struggling with falling incomes and lack of well paying jobs. U.S. House Committee on Transportation and Infrastructure Chairman Bill Shuster has indicated tolls on existing interstates is a non-starter in the House. Ranking Democrat on the House Transportation Committee Congressman Peter DeFazio echoed that sentiment warning that tolls are an unpopular double tax.
DeFazio put it this way: ”That would be a very rude shock to a lot of people who voted for Donald Trump if they suddenly found that the rural roads in Nebraska or Indiana - the interstate highway, which they paid for and they're still paying gas taxes - now they have to pay a toll on top of that?…They probably wouldn't be happy."
He was responding to a report by think tank Center for American Progress founded by John Podesta, who worked in both the Clinton and Obama administrations, that stated even with public private partnerships and Trump’s proposed tax incentives to lower the cost of borrowing for infrastructure projects, it still won’t generate the revenue needed to address the nation’s crumbling roads. The report estimates P3s could only be used to address one half of 1% of the needs. The report’s author, Kevin DeGood, argues the issue isn’t access to debt, the issue is a fundamental lack of revenue. P3s only work when there's a source of revenue to repay the private entity’s investment — like tolls — and there's not enough projects where that’s possible.
Trump seems to be responding to that struggle and looking at other ways to address urban congestion without the pain of tolls and loss of control over public infrastructure to foreign toll operators. Naturally, foreign control over U.S. highways doesn’t play well with Trump’s base that’s already angry about jobs being shipped overseas and free trade agreements that have hurt U.S. jobs and incomes very hard. Having to pay homage to a foreign corporation to gain access to U.S. highways would pour salt in a gaping wound.
Taxpayers are reticent to give the government permission to raise their taxes. When at some points, up to 40% of the federal gas tax went to non-road purposes — primarily for mass transit — they argue misplaced priorities and misspending by congress is the culprit, not them paying too little. But when the primary source of revenue for building and maintaining our federal highways hasn’t been increased in 24 years, there is a legitimate structural funding shortfall that has to be addressed. Many states have tried to do it, some managing to increase their state gas tax like Portland, Oregon.
But voters often reject gas tax hikes, most often because the proposal is tied to diverting some of that gas tax hike to pay for non-road purposes like transit and rail, that road users don’t use or benefit from. But when gas taxes are guaranteed to go to roads only, the support is there as was the case in Portland where voters cited support because it couldn't be used on non-road projects. Aside from ballot initiatives, however, 19 state legislatures bypassed voters and increased their state gasoline tax by passing specific legislation. The higher state gas taxes may actually hurt efforts to raise the federal gas tax.
Whether Trump will be successful in raising the federal gasoline tax may depend on his connection to his voters. Polls indicate his base of support remains strong despite the relentless attacks on Trump by the press. If Trump can demonstrate that a fuel tax increase is the most affordable way to repair and upgrade the nation’s infrastructure, then he may just garner the support needed to get it done. Tying it to overall tax relief through his larger tax reform proposals may also prove to be a winning strategy for Trump. After all, it’s all about the art of the deal, and convincing voters he’s getting the best deal on behalf of the American people could move it across the finish line.