The downside: reliance on tolls

By Peter A. Buxbaum, AJOT

Today’s US freight transportation system reminds Kevin Soucie, a Milwaukee-based consultant and former Wisconsin state legislator, of his experiences as an exchange student in communist Poland. In a nutshell, price controls in Poland’s state-run economy encouraged consumers to over-consume while discouraging producers from producing, creating frequent and widespread shortages.

Soucie draws an analogy between the long grocery lines in yesteryear’s Poland and the congested and over-extended infrastructure that highway users experience. Highway users, “consider their highway facilities to be available for use without limit, 24-hours-a-day, seven-days-a-week, free of charge,” he said, at a conference sponsored by the National Association of Regional Councils in Philadelphia earlier this month. “The costs of transportation are not related to supply and demand.”

Not the least of the problems associated with surface transportation is its reliance on the gas tax as the major source of revenue. Better vehicle fuel economy means that the gas tax is not raising as much as it has in years past, according to Soucie. Nor does placing gas tax revenues in a highway trust fund ensure that the revenue will be used for their intended purposes.

Once communism collapsed in Poland, that country moved away from a top-down, big government, model and toward a market-based model. “We need to make this shift as well before we find ourselves in a transportation crisis with significantly limited options,” Soucie said. “We need to move away from the old model that relies on political incentives and begin to embrace a new approach that provides economic incentives to get projects done right and on time.”

In Wisconsin, Soucie has advocated a public-private partnership approach for rebuilding a road project known as the Marquette Interchange in order to provide an alternative for a project plagued by cost overruns and delays. Soucie said the same approach should be considered at the national level.

“The public-private partnership gets to the root of the system flaws and provides economic incentives that would correct most of the problems,” Soucie contended. “The public-private partnership approach would significantly change the incentives for bringing in projects on time and on-budget.” Schemes of this kind are already operating in California, Texas, Virginia, and Ontario, according to Soucie, and will be adopted in a big way in the European Union.

Reducing cost overruns

The current model, according to Soucie, provides incentives to add costs. “By contrast,” he said, “when a developer/operator, under the public-private partnership, has a long-term concession to provide the facility, it has every incentive to hold down costs and to get the project open to toll-paying customers on or ahead of the scheduled date. That is why concession companies negotiate tough design-build contracts providing for financial penalties for every day of delay, and often bonuses for completing work ahead of schedule.”

This process reduces the likelihood of cost overruns, Soucie contended, and when they do occur, investors, and not taxpayers, are the ones shouldering the burden. “If they mess up, it’s the private investors who pay, not taxpayers,” he said.

Of course, Soucie’s plan relies on tolls as a finance mechanism, but here, again, he claims that this aspect of his proposal includes economic benefits. For one thing, it would end the disconnect between the highway user, the funds he pays in the form of a gas tax, and the road on which he is traveling. Gas tax revenues and motor vehicle fees do not necessarily maintain and improve the roads being used by the taxpayer.

“The current disconnect between revenue sources and the actual highway facilities removes any financial incentive to manage assets and recapitalize,” Soucie argued. “Under the present model, revenues continue to flow into the transportation fund regardless of a highway’s physical condition