On the Road Again

If you haven’t heard yet, the Texas Transportation Commission is proposing the building of several toll roads across the state in hopes of relieving traffic congestion. In an effort to make the state tax dollars go farther and allow for more projects, they are also basing some funding decisions on local projects on whether or not local areas decide to toll.

As you can imagine, such a large increase in the number of toll roads has caught the attention of the public and the media the last few years. But since most the policy changes have been in the past four years, the issue has yet to receive much serious attention in statewide elections.

Governor Rick Perry has proposed the Trans-Texas Corridor, basically a compliment to the interstate highways in Texas. And the Legislature in the past few years has created the means for local areas to create entities called regional mobility authorities that oversee highway funding projects and may construct toll roads.

The figures can get pretty big when you start looking at how we pay for highways in Texas. Old roads to maintain here, new roads to build there; highways here, tolls roads there; gasoline taxes here, toll fees there; billions from state taxes here, billions from federal taxes there.

But, no matter big the numbers are and how many highways we build the only real way to analyze the efficiency of the dollars and the soundness of the policies is to look at them on smaller levels.

Assuming school finance and tax reform are resolved by the summer, the roads issue may come up in the gubernatorial election in the fall. So let’s look at some of the numbers and policy questions behind the issue.

During the fiscal years 2004-2005 biennium, the Legislature appropriated $10.5 billion for the Texas Department of Transportation, almost half of which came from the federal government. This $10.5 billion was spent as follows: $7.7 billion for highways ($5.6 billion for construction and $2.1 billion for maintenance) and $2.8 billion for highway planning, right-of-way acquisition, aviation, public transportation, research, vehicle titling and registration, and general operating expenses such as salaries and the like.

The portion of these funds derived from the gasoline taxes paid at the pump was $2.84 billion in fiscal year 2003. From fiscal year 1992 through fiscal year 2003, that amount averaged about $2.5 billion annually with an annual increase of 5.65% during that time. As mentioned, the fiscal year 2003 amount was $2.8 billion; so, you could say that the portion of the state gasoline tax going to TXDOT pays for the construction of new highways (2.8 billion * 2 = 5.6 billion), still leaving a shortfall of $2.1 billion needed to pay for maintenance.

Highway officials argue that the shortfall is much greater than that because the $5.6 billion spent on new highways does not cover current demand.

Mr. Ric Williamson, chairman of the Texas Transportation Commission, TXDOT’s governing board and the entity that awards highway funds, has stated recently that factoring in the state’s significant growth in population (57% from 1980-2005 and an expected 64% from 2005-2030) and miles traveled (a 50% increase from only 1990-2005 and an expected 200% increase from 2005-2030) with the limited increased road capacity (only 8% from 1980-2005), it should not surprise anyone that Texans face a supply shortage of roads and should look at all options to consider increasing that supply.

It becomes pretty obvious that we need new roads. Some advocate that our current funding only meets about one-third of our actual needs while others argue that we have enough money to meet half our needs at worst.

What is the best way to identify that shortfall and how best should it be covered with a system most beneficial to the taxpayer?

Mr. Williamson is one of several government policy leaders promoting tolls as the way to pay for that highway shortage. As a matter of fact, he and others on the Transportation Commission have even said it would take a 50 cent to one dollar increase in the gasoline tax to pay for this demand. Adding this to the current 20 cents per gallon would place the tax somewhere in the 70 cents to $1.20 range.

It’s important to note that only 75% of the state gasoline tax of 20 cents per gallon goes towards transportation in one form or another. The amount which goes towards new highway construction is about 60 to 65 % of the 20 cent tax, or 12 to 13 cents.

The gasoline tax was last increased in 1991 and would be roughly 27 cents per gallon today if it was indexed to increase with inflation. Some state number crunchers estimate that each penny of the gasoline tax collects about $100 million, though this seems somewhat conservative since the amount collected from the tax in fiscal year 2003 was almost $3 billion. That would place each penny of tax at about $150 million.

The seven cents from inflation could be worth anywhere from $1.4 billion to just over $2 billion in the course of the two-year budget cycle. That would go a long way towards meeting the $2 billion plus shortfall in funds for highway maintenance.

Inflation increases the price of construction, too. But there is a little good news here. The Federal Highway Administration calculates that the average price of construction for highways in the United States has grown slightly more than inflation overall from 1992 through 2004. So that’s basically a wash.

The major tolling authorities in Dallas and Houston say that their roads cost about 10 to 12 cents per mile to construct and operate. Using that as a guide, let’s compare tolls to an increase in the gasoline tax.

With a corporate average fuel economy of roughly 25 miles per gallon per vehicle in 2005, it would appear that at ten cents per mile, a driver pays an effective $2.50 tax per gallon for a toll road. Going conservative with both figures (ten cents per mile and 20 miles per gallon), the effective tax is roughly $2 per gallon.

That makes a state gasoline tax of $1.20 per gallon (a dollar increase based on the current rate) seem cheap by comparison.

If the Legislature was to increase the gasoline tax from 20 cents to 40 cents per gallon – remember this would be an effective increase of only 13 cents, since the tax would need to be 27 cents to bring in the same number of inflation-adjusted dollars today as compared to 1991 – that would generate at least $1.5 billion in new highway construction money every biennium (13 cents x 100 million x 2 x 60%). In the next twenty five years the State would have about $20 billion for new highway construction.

If the tax was increased 80 cents, so that it was one dollar per gallon, the amount collected would be a total of $4.6 billion per year (77 cents of new money x 100 million x 60%), assuming the Laffer curve does not apply. In twenty five years, that would be over $115 billion – a lot of roads!

Will this become an issue in the gubernatorial election or during interim hearings at the Legislature? That’s a good question.

Personally, I have yet to decide which policy option is best. But, if someone wants to close the sale with me on toll roads, right now I am going to need a little more convincing.


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