Playing With Politics

A Blog on Law, Politics, Planning, Development, and Other Vices

Roads Aren’t Free [Updated]

Posted by Roobs on November 29, 2011

It’s high time we explore the dubious nature of how exactly we pay to both construct and maintain our beloved highways and their true costs.

[Updated: Following the release of the draft 2012 Business Plan for the California High-Speed Rail project, I have come back to this post to update the numbers.  The overall argument is still the same and very valid.]

Critics tend to fancy themselves experts in all things sociological and economic when it comes to high-speed rail in California.  They argue the technology will not work –people won’t ride it – and/or that it is simply too expensive of a project to undertake during this time of economic contraction and we simply shouldn’t build it to save the money.  However, as I pointed out in a recent post, the cost of NOT building the California High-Speed Rail Project has never been zero.  In fact, it would cost  $100 billion $170 billion to build new highways and air travel facilities to meet future transportation demand as opposed to the $45-$60 billion $98 billion for HSR.  Even with this fact critics point out that it’s also the operating costs, not just capital costs that make HSR too expensive to build.  But while critics spend their time attacking the cost and financing of HSR, they neglect to check the financing of their favorite alternative to HSR: roads.  It’s high time we explore the dubious nature of how exactly we pay to both construct and maintain our beloved roads and highways and their true costs.

Don’t Pretend Like You Didn’t Know

First, let’s make the admission that the true cost of high-speed rail does include maintenance and operations, which means that the lifelong cost of HSR will be more than $45-$60 billion $98 billion estimation.  But this is not news.  Just as when you buy your new car, you know that the true cost of owning a vehicle isn’t the sticker price you paid at the dealership.  It’s also the maintenance costs you spend during the time you own your vehicle as well as gas.  Similarly with HSR, we must pay to maintain the tracks that we lay and pay for the crews that will both operate and maintain the system.  But the half-truths of critics come from the fact that their only alternatives, roads, also require maintenance and repair and that’s not free.

Roads Are Heavily Subsidized on the Back of the Taxpayer

Just as with rail, roads have costs beyond what the average taxpayer thinks.  Critics would have the public believe that roads are fully paid for by user fees, such as the state and federal gas tax.  This is false under any understanding of highway and road finance.  The truth is that roads and highways are heavily subsidized by both users and non-users.  The fact is that these user fees are unable to pay for the total cost of roads.  An excellent paper by J. Brown in 1999 entitled The Future of California Highway Finance included a chapter on the historical evolution of highway finance in California.  Due to copyright restrictions, I cannot post it here.  However, here is my brief explanation on the same point from a previous post of mine:

The gas tax was once an excellent source of funding for the highway system but has since lost the majority of its purchasing power.  When the gas tax was first implemented, cars were clunky and inefficient.  How much gas you purchased was a good indication of how many miles you were driving.  So the tax was viewed as very fair.  Those who drove more should pay more to keep the roads in top condition.  But over the years as cars have become more fuel efficient, the gas you purchase is no longer an adequate measure of how much you drive.  Consider the following example:

I drive a 2000 Ford Mustang that gets about 18 MPG.  A Prius, on the other hand, gets about 50 MPG.  If we both started from Los Angeles and drove the 350+ miles to San Francisco, I would stop to put gas in my car 2-3 times for a round trip.  The Prius, on the other hand, may only stop once.  We each traveled the same distance and put the same amount of ware on the highways.  The Prius driver, however, is paying less in taxes than I am because he did not stop to put gas (hence pay into the gas tax).  Remember, gas tax revenue is what pays for freeway construction and maintenance.  So what is happening is that as cars become more fuel efficient, they no longer pay as much into the fund that keeps our roads in good condition.  And those of us who drive less fuel efficient cars end up subsidizing those who do.

The site Transportation for America cites a Pew Research Study that shows how user fees make up only half of the cost of construction and maintenance:

In 2007, 51 percent of the nation’s $193 billion set aside for highway construction and maintenance was generated through user fees — down from 10 years earlier when user fees made up 61 percent of total spending on roads. The rest came from other sources, including revenue generated by income, sales and property taxes, as well as bond issues.

That means in 2007, 49% of highway construction and finance came from additional taxes and subsidies that EVERYONE paid.

What does it all mean?  It means that user fees like the gas tax, either federal or state, do not cover the total cost of roads and haven’t for some time.  As a result, we pay for the construction and maintenance of roads through additional revenue sources, such as sales and property taxes as well as new taxes.  Even that is obviously not enough to maintain our roads because we can see the neglect our California roads suffer from.  Those who drive more are subsidized by those who drive less and those who don’t drive at all and take transit.  Does this at all sound fair?  No, no it doesn’t.  And this is what critics want to continue when they blindly reject high-speed rail.

Further, unlike roads with inadquate user fees, high-speed rail can be realistically expected to turn a profit like many other HSR systems on the planet (Japan, France, UK).  By being profitable, regardless of the capital costs, HSR can do something that roads and air facilities simply can’t: help pay for its operation and maintenance with very little support from taxpayer subsidies.

Roads Require Maintenance Too!

Everyone knows that California roads are the best in the world.  All roads are beautifully paved with no hints of cracking and no one ever complains of potholes.  If you’re still with me so far, then you’ve obviously driving even minimally in the Golden State.

Critics neglect to remind people that roads require maintenance just as rail does.  And just as critics like to argue that we don’t have the money to build and maintain a high-speed rail system, we don’t have the money to maintain the existing roads we have, let alone new ones.  So how do we pay for maintenance?  It’s roughly the same as construction.  That is, we get the rest from taxes and bonds (i.e., subsidies).

Local roads (owned by a city) are paid for through your property taxes.  However, this has also fallen short due to the limitations of Prop 13.  We keep building more roads to reach out to new homes have their property taxes capped.  So while we are building more roads that require ongoing maintenance costs, we don’t have an adequate supply of revenue to meet those requirements (Hence all the neglected potholes). In some cases we simply leave it alone and let the roads stand in disrepair.  Other times, we pass bonds or special taxes to help meet these needs.  Make no mistake, these are all subsidies.  As for maintenance on highways, that is paid for by the gas tax as well as other instruments, such as bonds, I.e. subsidies.  But exactly how much does it cost to maintain and repair a road?

It bolsters an argument when you have numbers.  However, quantifying how much it costs to build and maintain a road is tricky because costs vary depending on where the road is located.  For example, highways built in Northern California near the mountains, such as Interstate 80, must be engineered to handle extreme drops in temperature during the winter months.  However, highways like Interstate 10 in Southern California need to be engineered to handle extreme climbs in temperature during the summer months.  The unique conditions in each region of the state have a direct impact on the cost to build and maintain a road.  But to help give you an idea, I will use the Sacramento area as an example.

A 2008 report created by the Sacramento Area Council of Governments shows that the local cities and counties spend about $250 million on road maintenance and repair a year for its 10,000 miles of roads.  The report, however, states that this number should be closer to $350 million in order to ensure all roads are in good condition, which means they are short $100 million.   This means that the cost of road maintenance in Sacramento is approximately $35,000 for every mile of road annually.  This is also a low estimate because roads require major maintenance projects at other cycles.  For example, the report shows that the cost for basic maintenance can be about $20,000 per mile every year.  But the cost of heavy maintenance (slurry, chip seal coat) can cost $50,000-$80,000 per mile every seven years.  And for that fun and nice looking (but terribly smelly) new black asphalt look, it can cost $300,000 to $400,000 per mile every 15 or 30 years, depending on the type of road.

Ok, that was a lot of numbers.  To break it down, road maintenance and repair in the Sacramento area can cost anywhere between $20,000 per mile in any given year or as much as $500,000 per mile in any given year ($200 million or $50 billion in one year if Sacramento decided to do everything at once).  That’s just maintenance and repair, not for new construction. These numbers increase if you account for inflation to today’s dollars.

Hidden Costs and Benefits

While we spend much of our time arguing about money, we neglect what economists call “externalities” – a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit.  Whenever you hear proponents of HSR refer to the environmental benefits of HSR, they are referring to a positive externality of HSR. That is to say, the costs of building HSR in California is the $45-$60 billion $98 billion for construction and the additional maintenance and operating costs, but then there are benefits to HSR that are either difficult to quantify (such as improving air quality) or economic benefits.  The economic benefit one is important because critics of HSR often attack the claim that roads are bad because they too have an economic benefit.  But what are they?

Economic benefits are things like new jobs.  People will work on HSR and will earn money they can spend on the economy.  Also, stations in urban areas around the state can spur new developments of homes and job centers, which also contribute to the economic activity of the region and state.  Also property values tend to increase when your home is in proximity to a transit station by as much as 15%.   For roads, economic benefits also include those who build them as well as the mobility of the consumer: People travel to make transactions, etc.  However, there are many negative externalities to roads that critics either ignore or simply don’t believe.  For example, building roads, by definition, requires people to drive on them.  Driving causes more carbon emissions to be generated and reduces air quality.  HSR does not have this same problem during transit because HSR is run on electrical lines.

The point here is to not assume there is no trade between cost and benefit occurring in the greater marketplace.  There are numerous benefits to HSR and numerous costs to roads and highways that critics of HSR would like you to ignore.  They are hoping that the convoluted nature of externalities will keep people from understanding the truth.  Don’t let them.

Know the Whole Truth

If there are any undecided people out there regarding the California High-Speed Rail Project, the main takeaway from this post is the same as the last post.  The cost of NOT building the project has never been zero and will never be zero.  Yes, there is an additional cost to maintain and operate a future HSR system, but don’t believe those who imply roads are spared this extra cost.  Even if we chose to spend the $100 billion $170 billion to build new road and air travel facilities, there are still ongoing steep costs that we can quantify and those we can’t.  And these costs will be a lot more in the long run.  If you think it costs a lot to maintain a road in Sacramento, simply multiply that by all the cities and counties in the State of California.  High-speed rail, again, looks like a great bargain if you’re really interested in saving money.

Roobs is a masters student at UCLA in the Department of Urban & Regional Planning with concentrations in Transportation Planning & Policy and Urban Design & Development. He has a BA in Legal Studies and Sociology from UC Berkeley. Roobs is a former Waterfront Commissioner for the City of Berkeley and former paralegal for a law firm specializing in real estate development. 


One Response to “Roads Aren’t Free [Updated]”

  1. Why your statement that ‘high-speed rail can be realistically expected to turn a profit like many other HSR systems on the planet (Japan, France, UK)’ is not a reality:

    Japan HSR has not made a profit – it has cost double the projection at 400 Billion Yen and now requires a further 100 Billion Yen of funding to continue.

    France is bordered by seven nations, yet its high speed rail demonstrates leaving regions in economic doldrums – rather than bolstering them. Funnelling those with commercial skills and those seeking greater remuneration into Cities compounds the issues for the regions. Making commutable locations more expensive for thiose that work locally – completely contradicting the oft-used substantiation for HSR; that it invigorates the regions.

    UK’s 70 miles of HSR has not made a profit. Furthermore, debts for the Channel Tunnel were written off only then making the HS1 link viable and seemingly sensible to connect Capital cities in Europe other than flight. Rail throughout the UK continues to be subsidised by the GOVt

    Spain’s HSR was 25% subsidised by Europe and fails on reality for Capacity/Riders and Ticket revenue.

    Netherlands high speed rail is failing in reality of projections for Capacity/Riders and Ticket revenue. The end result is that saving 20% in time is not enough to justify tickets costing 20% more than existing rail.

    There isnt any profit from this business model – suppliers gain from subsidies.

    The financial gain from the Billion’s spent on mass-transit doesn’t appear to be sufficiently stronger over traditional existing modes.

    Residents living between stations 50-110 miles apart gain no advantage to being blighted by a 75-metre-wide HSR footprint.
    Those livelihoods that are completely destroyed get scant compensation either.

    Existing rail in the UK, with a few inter-modal tweaks, is approved to handle the peak passenger loads expected for London 2012 Olympics. Why not roll out such efficient rail management globally on traditional existing rail with upgrades and expansion where required?

    In conclusion. High Speed Rail proposals fail on many points not least addressing that traditional rail risks losing revenues from passenger tickets plus lost subsidy from the GOVt, High Speed Rail proposals also fail by putting traditional rail into the 2nd Division with the risk at losing public and private investment leading to 2nd Division timetables and poorer conditions emerging for regional rail travellers blighted by premium travellers on High Speed Rail?

    Moreover, as long as 1st Class continues and rail has room for private hire trains, how can Capacity be a credible issue on existing traditional rail?

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