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Narrator: It's time for Talking Michigan Transportation, a podcast devoted to the conversations with people at the forefront of the ongoing mobility revolution. In the state that put the world on wheels, here's your host, MDOT Communications Director Jeff Cranson.
Jeff Cranson: Hi, welcome again to the Talking Michigan Transportation podcast. We are recording on Wednesday, July 15, and today I’m speaking with Baruch Feigenbaum, managing director of the transportation policy at the Reason Foundation. I’ve invited him on to talk about tolling on roads, in light of Governor Whitmer signing legislation last week that asks MDOT to pursue a tolling feasibility study. Thank you again for taking the time to do this.
Baruch Feigenbaum: Absolutely and thanks for having me on.
Jeff Cranson: So, let's talk about first why a foundation that's, you know, promoting libertarian ideas supports tolling for transportation infrastructure, and why the user-free model, you know, won't work for other government services. I know you can't measure the intangibles and assign a value to all of them, but I think the question we face when it comes to transportation is what it's worth to be able to travel freely on a road whenever we choose. It's not just the user or the use, obviously, it's the constant availability that creates options and who's getting and should pay for the benefit—just the person on the road or also the person or business they're going to see? I know that's a lot, but I have a feeling you have a lot of thoughts on those things.
Baruch Feigenbaum: Yes, well, it's a great question. It is somewhat complex. The way we look at things, where it's possible we always support a strong users-pay/users-benefit mechanism and other mechanisms in transportation such as the gas tax are also users-pay/users-benefit. We like tolling a little bit better because instead of paying a fee that goes to a bunch of different roadways, regardless of which ones the individual traveler uses, in tolling the traveler is paying exactly for the roadway that they're using. There's some abilities later on in terms of varying price with tolling based on congestion, and I don't think we're quite ready for that in most places, but we like that principle. Now, for other things that the U.S. spends money on, such as defense, it's pretty hard to figure out a system where we could pay exactly for the amount of defense that each individual person uses, which is why that's generally easier to pay with for general funds or other types of expenditures. Where feasible, and transportation is not the only area, but where feasible we really users-pay/users-benefit, which is one of the reasons we like tolling.
Jeff Cranson: Talk about other places where a user fee is feasible, other services, obviously.
Baruch Feigenbaum: Sure, well, I think you look somewhat at education, I mean higher education, and you sort of got a users-pay/users-benefit system there, although obviously there's some subsidies for public universities. There's also certain environmental programs on certain parks. If you think of national parks, the folks who pay for them are by and large most of the revenue they get. Again, there's a little bit of a general fund revenue, but it's types of services where that that's feasible. Whereas something else that's basically what we would call a common good— it's just harder to charge individual fees for those.
Jeff Cranson: Yeah, well, it seems like when it comes to tolling in roads that the enthusiasm that was around, you know, 10 or 15 years ago, when places like Texas were embracing the idea, it seems like that's slowed some. Do you think that—are you starting to see a revival of that interest?
Baruch Feigenbaum: Yeah, so, that's a great question. I think in terms of tolling it's really important to approach it correctly, and that might mean going a little slower than some policy makers would like. I think tolling is still generally popular. I think as we're facing more challenges with the gas tax it's going to become more popular because it's one of the few feasible options. I think in the case of Texas, they built a lot of toll roads within a very short period of time, and folks almost got a little anxious about that and had a little bit of toll anxiety because they thought maybe the state was going too fast. Other places like Virginia and Florida, have been pretty successful with tolling, and they've gone a little bit slower and had a little bit more deliberate effect. I also think they've done a better job of speaking with the community, making sure everyone's considerations are taken care of. I think tolling is still popular, but it's important to get it right, it’s also important to consult with the community before the projects are constructed.
Jeff Cranson: Well, I’m glad you brought up Florida because the whole reason you and I are talking about this, obviously, is that really some 70 years after Michigan abandoned a turnpike commission, a turnpike authority, and was going to look seriously at tolling and decided not to go that route there hasn't been a serious study or examination of it since then. The conventional wisdom is, you know, Michigan is a peninsula state, so tolling wouldn't work, but it's worked very well in Florida which is also a peninsula state.
Baruch Feigenbaum: That's right. I think there's a sort of a common misperception that a lot of folks who are using highways are actually out of state, and obviously there's some truth to that, but folks who are out of state can still come in and leave in the same direction. In Florida, most of those folks are coming in and leaving through Georgia. In Michigan, folks are coming in and leaving through Ohio and Indiana, and in the case of the upper peninsula, Wisconsin. What we found is that if the toll rates are set at a relatively low rate, you know, consistent rate, and that revenue is spent specifically on the roadways, it's not diverted to other purposes, we found that tollways have been very popular and are feasible regardless of the amount of out of state traffic that is on the roadways.
Jeff Cranson: So, how can we kind of revive that user pay mindset that built our interstate system? I mean, that that was kind of understood, you know, that at a time when the gas tax was sustainable and wasn't diminishing returns like it is now, that that's how you pay for roads.
Baruch Feigenbaum: Right, and that's a great question. It's been a hundred years now since Oregon, which was the first state to implement the gas tax, actually implemented a gas tax for transportation purposes. The gas tax has served us very well, it's just as we're having more electric vehicles, as we're having more hybrids, as there's a real difference between the fuel efficiency of certain types of vehicles, like pickup trucks and other types of vehicles, like sub-compacts, the gas tax has become increasingly unreliable but increasingly unfair mechanism. When they studied the interstate system, they actually examined tolling. There were some folks who wanted to do tolling because previous to the interstate system, we had some toll roads in the country, Indiana toll road, Ohio turnpike, Florida turnpike, as you mentioned, which came a little bit later, the challenge was that in some of the southern and the western states because of population at that time tolling was not feasible. Now, due to two things, one the increase in population across most of the country, and two something that we call all electronic tolling, which means instead of toll booths and toll booth operators, which are obviously expensive because you have to pay the toll booth operators, we have these small stickers called transponders, and we have these detectors called gantries, and when a vehicle passes under this detector with this gantry the funds are automatically deducted out of a prepaid or postpaid account. So, the actual administrative costs of tolling have decreased from as much as 25% to below 10%, making them more competitive to the gas tax. Since tolling is not dependent on the type of fuel used or the type of engine, it's relatively fair for all vehicles. Truckers pay higher toll rates, just as they pay more gas tax, because they use more gas, but it's generally proportional to the use and thus eliminates some of the problems based on what type of vehicle a traveler has.
Jeff Cranson: So, do you recommend, you know, Robert Poole, who obviously is an associate of yours, somebody you're familiar with, that approach of refunding fuel taxes paid by toll road users? I know that would probably require higher tolls and create a kind of money go around, but is that something that you would support?
Baruch Feigenbaum: Yeah, and as you mentioned I work with Bob Poole, so I do know him pretty well. We do support the refunding of gas taxes because we think tolling should be the successor to the gas tax, it shouldn't be complementary. Now, the tolls that are paid might be slightly higher than the amount of gas tax collected in order to make sure that we maintain these roads. We think it's important enough to have the double taxation, and there's various ways administrative to do it. For trucks, the state of New York has the system Best Pass, where if they pay tolls the gas taxes are refunded, so it's not theoretical. It's something that actually happens in real life, and we think this could be applied in Michigan and other states as well.
Jeff Cranson: So, what do you do in a state like Michigan that has, you know, 600 plus road agencies when you take in all the cities and villages and counties, and MDOT, the Department of Transportation, is just one of those 600 plus road agencies, and, you know, the money is now shared through a long-time formula that, you know, has been tweaked some but dates back to 1951. Under a more aggressive tolling system and some of those fuel taxes on freeways that, you know, help with the local system, how would you help sustain the local system in that scenario?
Baruch Feigenbaum: Sure, so, that's actually a great question. What we're proposing is tolling the interstates and other major freeways only, and, so, all of those highways are under the jurisdiction of Michigan DOT, and we wouldn't have to worry about different agencies having different routes. What we found is that Michigan actually takes some of the revenue that it would spend on off system arterials, and uses it for the actual interstates because the interstates tend to cost more to maintain, their pavement is a slightly higher quality, there's higher truck volumes which tend to wear out roads faster. What we found is that having the system, the interstates and other freeways, strictly paid for by tolls would actually free up a little more money for other state roads and for local and county roads. So, it actually works out as a net positive if the interstates and other freeways are using toll revenue only.
Jeff Cranson: Okay, so let's talk about, you know, how we got here, and how did raising revenue even for something as essential as transportation infrastructure which is, you know, our literal foundation, how did this become so difficult? You know as well as anybody because you studied these things closely, you know, what's happened with tax pledges in in various states, and how that's affected a mindset of a couple of generations of legislators now and people that get to congress and just say, you know what, I know the roads are falling apart and we need to do something, but I’m just not going to support a new tax ever. Maybe it's a toll and it's a fee, so it's not a tax, but that's really a mindset that we have to break if we're ever going to, you know, do what our what our forefathers did and reinvest in roads and bridges, right?
Baruch Feigenbaum: Yeah, I think that's a great point, and it's certainly challenging. As you point out, at the federal level the gas tax hasn't been increased since 1993. It's a flat rate. It's not a percentage, so in that time it's lost about 50 percent of its purchasing power. Now, at the state level it's a little bit better, states have increased their gas taxes over time, some more than others. The challenge with this gas tax is first at the federal level, as you pointed out. It's become almost the third rail. Increasing the gas tax is hard to get support from either republicans or democrats for that. Even if we increase it, in order to solve the challenge, we'd have to index it to both cafe standards, the efficiency of vehicles, and also inflation, something which some states have attempted to do but is very challenging and would be a non-starter at the federal level. That's why we like the idea of tolling, because with tolling you would start out with the mindset that the tolls would be indexed to inflation. They would not have to be indexed to vehicle fuel efficiency, of course, because folks are paying them regardless of the vehicle fuel efficiency. It's the same. We think that indexing it to inflation is an easier argument. We've seen that happening in a number of states that have toll roads. It seems to be an easier political lift because tolls are not taxes by legal definition in most states, they’re user fees. It's a challenging conversation to have for sure, but we've seen it be much more feasible with tolling as opposed to with taxes, and I think that's another reason that tolling is a better long-term solution.
Jeff Cranson: Well, something I’ve often wondered is, you know, whether states have explored, you know, kind of a public utilities commission model. As you know, we don't have to go to the legislature to keep the lights on. Why do we have to go to the legislature to maintain the roads, and whether if tolls would be subject, and really if it's VMT and per mile fees, to the same failing of the fuel tax, which is the refusal of politicians to raise the fees to keep up with inflation.
Baruch Feigenbaum: Yeah, that's a good question. We have actually looked somewhat at the utility model because we think it's a promising model. We've also looked statewide at the non-interstates and freeways at a mileage-based user fee system as a successor to the gas tax on those type of roads. It's an interesting idea. I’m not sure we've got a consensus yet for exactly how to solve that problem. As we transition from the gas tax to mileage based user fees and other roads, combined with tolling on the interstate, some type of utility system, as you point out, as we do for water, cable, or phone, or just about every anything else would work a lot better, we think. It's really just a matter of getting it right and getting the transition correct.
Jeff Cranson: So, another question that comes up, you know, when I talk with our policy analysts about this is that in Michigan the user fees now, the gas tax and registration fees, are constitutionally dedicated to roads and that might not be the case of tolls. How could we keep them from being, you know, diverted? Like the New York State Barge Canal, the World Trade Center, you know other examples I’m sure, what would you recommend for that?
Baruch Feigenbaum: Right, that's a great point, and I would say Michigan has done an excellent job in making sure that its road revenue is dedicated to roads. I think that's something that needs to continue. When a tolling system is set up, when other revenue systems are set up, those provisions to make sure that they're dedicated to roadways need to be included, whether that's another constitutional amendment, whether the legislature can do that independently. I do think that's important, and I do think that's something that Michigan has gotten right for the gas tax.
Jeff Cranson: So, in your commentary, one of your commentaries, about the Michigan situation specifically, you mentioned that tolling is popular with taxpayers. A Michigan-based pollster, Epic MRA asked the question last August, so almost a year ago. I know anecdotally I’ve been in rooms where we were, you know, at various times, with two administrations now, working on funding proposals and would ask for a show of hands just informally on tolling. It might be about 50/50 in most of those rooms, but that Epic MRA poll found a 42 percent total favor and 49 total oppose. It was 19 strongly favored, 23 somewhat, and 13 were somewhat opposed, and 36 strongly opposed. Now, you know, it was a reputable firm and it was a good sample, but these are all snapshots in time obviously. I’m kind of wondering what evidence you were basing your generally supportive assertion on.
Baruch Feigenbaum: Sure, that's a great question. What we found is it really depends on how the tolling and gas tax and the different revenue options question is asked. If you ask folks if they want to pay more, a clear majority are always going to say no. If you ask folks which option they want to pay, whether it be a gas tax, or tolling, or sales tax, or something else, we found in a number of surveys polling is always the most preferred. We believe the reason it's the most preferred is because the folks who are using that roadway are the ones who pay the toll. Folks who don't use that system don't have to pay the toll, so in their view they're getting a good deal. There's a number of folks in Michigan who don't use the interstates or other freeways on a regular basis, so to them they would perceive this as a better deal. We've also found that there's some challenges in terms of explaining exactly what tolling is, so sometimes people have this vision that they're stopping in a tollbooth, which they don't like. Oftentimes with the tolling question, we'll explain exactly what the option is, so a gas tax similar to what you're paying right now at the pump, tolling with the prepaid account and transponders, or a sales tax, a whatever percentage increase to what the sales tax is today, and that is where we see the tolling is the preferred option of those options.
Jeff Cranson: Yeah, I think definitely. I mean, they tried to phrase the question to explain in the preface what we can do now with technology, and how, you know, this isn't your grandfather's tolling method. I mean, who knows, it's very difficult in a few seconds to make sure somebody grasps that, and you almost have to have be driving regularly in other states and maybe have an easy pass, you know, which I do for when I’m in Chicago, or, you know, Indiana, or Ohio, but if you don't and you're not familiar with that it's going to take a while to really get your mind around it I think, but that's a key point, that change in technology. You also talked about the delivery economy and how it's growing by double digits and truck traffic is expected to grow. You specifically reference in Michigan, you know, I-94 between Detroit and Chicago, really between Canada and Chicago, and I-69 which, when 69 is completed further in the southern states, would link Mexico and Canada, which is a, you know, our most important trade partner, obviously. Could you talk more about that and why you think those projections are what they are?
Baruch Feigenbaum: Sure, so, when we look at the fastest growing travel modes or travel trends, and granted some of this was before COVID and so things are a little slower now, but we think over time they'll ramp up, we see trucking as an enormous increase, and the reason is folks want to buy things, and most of the things that they want to buy come via truck, some travel via train, but it really depends on the commodity and obviously there's not train tracks everywhere. There has to be a method of getting the goods, even the travel by train, from the warehouse delivery to the actual store, or, in the case of delivery, to someone's home. We see these increases in truck travel over the next 25 years of well over 100% increase from where it is today. If we look at that, even on roadways right now where there might not be a lot of trucks or there's not a lot of congestion, there's going to be problems down the road. I-94 and I-69 are two roads that even in sections in Michigan today have some challenges, so we think that those roads are going to be especially good fits. With the delivery economy, we think that there's going to be more individualized deliveries, so maybe even more goods that people are ordering 10 years from now versus what they're ordering today. The increase in driving among passenger vehicles is going to be there, but it's not going to be near the size of the increase in trucks. That’s why we're really laser focused on trucks and laser focused on those two corridors particularly, which we think have the biggest impact for an increase in truck traffic.
Jeff Cranson: Well, I guess the last question I’d ask, there's a lot of discussion in in Michigan and elsewhere as we, you know, as we lead in the testing and operations of connected and autonomous vehicles, and we talk about how they could factor into a managed lane system and what that could mean in terms of tolling, you know, there's a social equity argument that goes on. Is tolling a fairer fee than a gas tax? I know that many would argue it's not as regressive as a gas tax or sales tax, and that we can design a system to be fair and equitable. That's something that they've worked on in Virginia that I’m sure you're familiar with, and some other states, so I mean what do you think the future is there?
Baruch Feigenbaum: Yeah, that's a good question. The equity issue definitely comes up, and I would agree with what you said if you look at the other mechanisms being gas tanks or sales tax, tolling is actually the least regressive of any of those three mechanisms. I think we're already doing better than what the status quo is right now. For certain metro areas, we've also seen transit bus service operating in these lanes and this is what we see in the northern Virginia area, and we're a big proponent of these services. We think high quality express bus or bus rapid transit in metro areas can offer really high-quality service at a relatively low cost, especially the construction costs because the transit vehicle is sharing the right-of-way with the cars, and with the ability to vary tolling, the price of tolling I should say, in certain circumstances that can ensure that there's a congested free travel option. I think there's some good ways to do it and some good ways to address the equity issue. It's one of those things where a conversation with the community is needed, and there really needs to be an open discussion with some education about this is how tolling is going to benefit transit, so it's not just a roadway solution, it's really a multimodal solution.
Jeff Cranson: Well, that's excellent. I really appreciate your insights. This is a great conversation. I especially am impressed that somebody, you know, in the Beltway would know to not just talk about Ohio and Indiana’s neighboring states to Michigan, but also think about the upper peninsula in Wisconsin, so good for you.
Baruch Feigenbaum: Well, thank you very much. I try to have a national focus and remind myself that not everything revolves around Washington, unlike some of the other folks that live here, so I’m glad that was helpful.
Jeff Cranson: Yeah, no this was a great conversation. I think maybe we'll do this again sometime if you're available. I really appreciate it.
Baruch Feigenbaum: Yeah, sure, please feel free to reach out to me, always happy to talk about these issues.
Jeff Cranson: Thanks again for listening to this week's edition of Talking Michigan Transportation, and I want to give a special thanks to Cory Petee, who does the sound engineering for the podcast, and to Sarah Martin, of MDOT, who does the show's intro and closing.
Narrator: That's a wrap for this edition of Talking Michigan Transportation. Check out show notes and more on Soundcloud, or by subscribing on Apple podcast.
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