Are tolls a smart way to pay for transportation infrastructure?

A:

No. Tolling is tremendously inefficient. We will pay more on the front end in higher borrowing costs to finance the project, and more on the backend, as toll-overhead is a dead weight loss to the region.

Nationally, 33.5% of toll revenue is spent on overhead.

With respect to costs as percentage of revenues, the toll agencies analyzed typically expended 33.5% of revenues to cover administrative, toll collection, and enforcement costs in 2007.

Transportation Research Board, NCHRP Report 689: Costs of Alternative Revenue Generation Systems, 2011 pp. 73-74

Ohio, in particular, has a poor track record with toll administration expenses.

In 2007, the average cost per transaction for the agencies analyzed was $0.54. The costs for urban and multi-road toll-road agencies tended to have a relatively high number of related transactions, which tended to decrease the overall cost per transaction. In particular, NTTA and OOCEA recorded an average cost per transaction of $0.16 and $0.17, respectively. In comparison, single facility toll agencies had a higher cost per transaction. Specifically, total costs per transaction for the Ohio Turnpike and SR-91 were $1.43 and $1.34, respectively.

Transportation Research Board, NCHRP Report 689: Costs of Alternative Revenue Generation Systems, 2011 p. 74

Given the financial difficulty toll roads have faced in the last few years, toll driven projects are financed at a significantly higher interest rate.

A common financing issue is that P3s are almost always structured with a BBB- rating, which rewards bondholders, but penalizes citizens. Most public agencies can get the necessary financing at a AA or even A rating, which is an enormous saving over a 25-30 year bond issue.

A proposed bridge project today, the Brent Spence Bridge, will connect Indiana (sic) and Kentucky. Although there is a lot of documentation for the project, it is not clear what the economic advantage is for the “availability payment” model that was chosen.

In this model, private firms will design, build, finance, operate, and maintain this toll bridge and receive “availability payments” from a “toll authority” over several decades. When you drill down into the available economic analysis, it is not clear that the engineering firm that prepared the analysis understood what the proposed financing costs would be (table 8A2) for public or private borrowers. In fact, it appears that only a day and a half of “workshops” were convened to evaluate what the cost variables would be for a multi-billion dollar project (page 19).

Cate Long, The Brent Spence Bridge Financing Puzzle, Reuters, 1/29/2014

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