Paying for roads: time for a change?

With the exception of a few tolled sections, the roads network is free at the point of use. This distorts economic signals and leads to excess demand. Moving to a revenue neutral ‘pay as you go’ system, using existing and developing GPS and fleet management systems, would provide a way to link usage and cost directly, leading to a more optimal use of the road and wider transportation network.

The concept of road pricing to reflect both the direct cost of road provision and the scarcity of road space during congested conditions is well established within the discipline of transportation economics. Like any well- functioning market, road pricing would reflect the costs and benefits of using the road network. However, except for the relatively few tolled sections, the roads network is free at the point of use.

This is in part for to two historical reasons: the slow emergence, but ultimate dominance, of automobile travel, and the associated challenges of delivering a robust road pricing system given the technological limitations through the last century. A third, and arguably more important, reason for limited road pricing is the political realities of charging for something that hitherto has been free.

For example, the City of Toronto Council recently approved the implementation of road pricing on two key roads into the downtown core, in part to fund their C$3-4 billion rehabilitation cost. However, the Ontario provincial government, whose legal approval is required, rejected the application. Media observers suggested that the rejection was due to the perceived opposition from voters in the surrounding areas. Looking more widely, locations where road pricing has been proposed and put to referendums (Manchester and Edinburgh in the UK for example) confirm the public apprehension about road pricing schemes.

Much of this dislike stems from the perception that the existing road network has already been paid for with income, property, and fuel taxes and any additional charging is simply more taxation. However, a simple review of the operating and capital budgets across all levels of government illustrate that many billions of dollars are spent annually on operating, maintaining and expanding the road network. In addition to the C$3-4 billion rehabilitation costs for two major highways, the City of Toronto has a 10-year highway operating and capital budget of C$1 billion per year; MTO, the Ontario provincial highways authority, plans to spend C$2.2 billion in 2016-17 alone on highway infrastructure projects, and York Region in Ontario has a 10-year roads capital budget of C$1.5 billion. 

This work is funded by general taxation (including property taxes) and fuel taxes, and is thus largely ‘hidden’ to the road user.

However, the emergence of GPS and associated fleet management systems does provide an opportunity to make a fundamental shift in the way roads are paid for. The basic proposition is that, using such technologies to record vehicle use, the required funding is paid by a per kilometer charge levied on such vehicle use (estimated to be in the range of 5-10c/km for Ontario), billed to the vehicle owner on a periodic basis, just like any other utility.

However, and this is where the proposition differs from typical ad hoc road pricing proposals, general taxation would be reduced to make the overall proposal revenue neutral. This was the approach adopted by the British Columbia government, when a carbon tax was introduced in the province. Introduced between 2008-2012, the tax requires a three-year plan for recycling carbon tax revenues through tax reductions elsewhere.
A similar approach could be used for road pricing (at least initially), with an independent body reviewing the money raised though road pricing and setting out where reductions should be made to compensate. Making the system revenue neutral becomes a much more attractive proposition to both the public and political arenas.

The use of real time GPS recording of road network use (which is already done by many IT companies to monitor traffic conditions, for example) could have wider uses as well. Such systems can also measure driving behavior; this could be used to enforce driving laws, notably around speed limits, with consequential improvements in road safety and wider externalities (such as emissions).  With an appropriate legal framework, fines could be levied directly on the usage bill.

Overall, a move to a revenue-neutral, distance-based road use pricing regime, would crystallize the cost of using the road network and engender a more balanced view of alternative modes of travel.