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Posted by on Nov 9, 2009 in General, Transit | 6 comments

Do Roads Pay for Themselves?

I must have missed this one back in 2006. I’m sorry that I did because it comes from the TXDOT and I would have liked something to say to those smarty pants that claim fuel taxes pay for everything. The goal was to defend using toll roads, but there is just so much more to it  . . . . Has FDOT done any studies like this particularly since the road budget will be tightening considerably in the next few years?

A major feature in the public debate about toll roads has been the issue of when or whether a road has been “paid for.”  To better understand this discussion, it is helpful to ask two questions:

1.  What is a traveler paying for when he or she pays state gas tax at the pump?

State motor fuel tax is collected from all over the state and goes into a single pool of revenue—about one quarter of which goes to fund education, and about three-quarters of which goes to the state’s highway fund, where it is spent on transportation uses and some non-transportation functions of government.

Then the state receives federal funds as the state’s share of the federal fuel tax; about 70 cents of every gas tax dollar Texans send to Washington comes back for road use.

The significant point here is that historically the fuel tax paid in any locality of the state is unrelated to the road projects in that locality. Every fuel taxpayer in the state paid something for any given road—which leads to the next issue.

2.  When is a given road actually “paid for?”

Just like your car, it never is.  You may have paid the note, but maintenance and fuel costs go on as long as you own the vehicle.  Once a road is built, maintenance and rehabilitation costs last its entire life, generally about 40 years.

The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly “paid for.”

Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues.

The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section.  The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates.

The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs.  If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be “paid for” only if the ratio were 1.00, when the revenues met 100 percent of costs.  Another way of describing this is to do a “tax gap” analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs.

Applying this methodology, revealed that no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon.

This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less.

To conclude, in the SH 99 example, since the traffic volume for that road doesn’t generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment. The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state’s transportation needs.

6 Comments

  1. It’s interesting to compare these numbers to the “farebox recovery” ratio for transit systems

    “Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less.” That’s very similar to the farebox recovery of transit systems.

    The Houston road example has a 16% farebox recovery. If that were a transit system, that would be considered rather poor.

  2. Yeah, the anti-transit people love to gripe about subsidies. We just hide the road subsidies.

  3. Like most that receive subsidies, the motorists won’t want to hear this -it’ll go in one ear and fly out the other one even faster, leaving no imprint. At least it made me feel better about what I get taxed to pay for TRE, the only transit I’ve actually used around DFW.

  4. We don’t “pay for roads” one by one, and we don’t use them that way, either. We pay for an entire street system. Local neighborhood streets are normally built by developers and maintained through property taxes. People rarely take trips from Point A to Point B solely on arterials and freeways.

    The TXDOT piece only scratches the surface regarding the costs of roads. The many “externalities” it doesn’t address:

    Aside from the obvious air pollution issues…

    Water pollution due to stormwater runoff

    When roads are widened, land taken for right-of-way is removed from the property tax roles

    When access management at large intersections reaches restrictive levels adjacent properties become non-viable for businesses. Those properties become blighted, further reducing tax revenues and often adding law enforcement costs.

  5. “When access management at large intersections reaches restrictive levels adjacent properties become non-viable for businesses. Those properties become blighted, further reducing tax revenues and often adding law enforcement costs.”

    There used to be a large car dealership on the corner of 50 and 436. How many years has that and the other lots on that corner been abandoned eyesores in preparation for the current road construction?

    • Keri, you’ve hit on one of my pet peeves. I think transportation officials and elected officials mean well, but they are so very car centric. I really wish our elected officials and the voters could comprehend how much money is spent on roads and how we don’t get a whole lot back. I believe LYNX has a farebox recovery of around 20% system wide (includes paratransit, bus, and vanpool). Bus alone gets a 24% recovery.