Last July Diane spoke with Financial Times columnist Edward Luce about his book, "The Retreat of Western Liberalism." A year later, we have invited him back for an update.
Toll roads make up a fraction of America’s highways, but their number is growing. More than 5,000 miles of U.S. roads require tolls today, up 15 percent over the past decade. One reason: The highway trust fund is in crisis. It’s currently financed by a federal gas tax that has not risen since Bill Clinton was president. So states are looking for other ways to pay for much needed transportation projects. Current laws prohibit the tolling of existing interstate highways. But many infrastructure advocates would like to change that. Others argue public roads should be accessible to all Americans. Diane and her guests discuss how best to pay for highways and the future of toll roads.
- Robert Puentes Senior fellow, Metropolitan Policy Program, The Brookings Institution.
- Chris Edwards Economist and editor of DownsizingGovernment.org, Cato Institute.
- Donald Cohen Executive director, In The Public Interest. It's a resource center on privatization and responsible contracting.
- Ed Rendell Building America’s Future Co-Chair; former governor of Pennsylvania.
- Bill Graves President and CEO, American Trucking Associations; former governor of Kansas.
Why do we have toll roads? It's a policy that dates back to the 50s.
Would we be more willing to pay for gas taxes than we are for toll roads?
Should we use private capital instead of public funds for toll roads?
A look at how some states are taking innovative approaches to infrastructure.
From The Blog: Why Do We Have Toll Roads?
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. New transponder technology like E-ZPass, makes paying tolls quicker for many drivers. But not everyone agrees that creating more toll roads in the U.S. is good public policy. Joining me in the studio to talk about how best to pay for our highways, and the increasing role tolls are playing in that equation, Robert Puentes of the Brookings Institution and Chris Edwards of the Cato Institute.
MS. DIANE REHMJoining us by phone from Los Angeles, Donald Cohen of In The Public Interest. I hope you'll join us as well. Call us on 800-433-8850. Send us an email, tell us about your experience, to firstname.lastname@example.org. Follow us on Facebook or Twitter. And thanks to all you for being with us.
MR. CHRIS EDWARDSMorning, Diane.
MR. ROBERT PUENTESGood morning. Thank you for having me.
MR. DONALD COHENMe, as well, thank you.
REHMGood. Good to have you all. Robert Puentes, I hear more and more travelers talking about the number of toll roads they encounter. Give us an overall picture, number of highway miles and number of toll roads.
PUENTESWell, we have an interstate highway system that's about 47,000 miles. The toll part of that is only about 7 percent. For a long time in this country the interstate highways were generally non-toll. But over the last couple of years, since about 2003, we've built about 1,000 extra miles of these roads. And about half of those are toll. And so this is all part of a large transition that we're having with infrastructure in this country.
PUENTESHow it's designed, how it's financed, how it's built, how it's governed. Toll roads are a perfect example of that because we had this program in the '50s that built out the interstates. That was a lot of federal money coming in. Those days are over.
PUENTESUnder Eisenhower. And then the subsequent administrations. This was a national policy. The toll roads are now part of this transition to try and do something about maintaining the existing system and then building out new capacity where we need it.
REHMAnd, Donald Cohen, why the increase in the last decade or so?
COHENIn toll roads?
COHENI think it's because there's a fundamental problem we have in paying for the things that we all need. I mean, I think we'd all agree that, you know, as Rob was saying, our infrastructure is critical to the nation, to our economic health, to the ability of people to get to work and school and goods to market. But we have to be willing to pay for things.
COHENAnd there are enormous political limits and fear about raising taxes -- a gas tax, say, that would be another mechanism or other things that, you know, other ways that we would actually have to raise the revenue to pay for and maintain and operate the things that we all absolutely need. So I suppose some believe that the easiest way to do that is, you know, is to do that through tolling because then it's a clear, you know, the user pays, you know, But, you know, there are issues that that raises as well. But I think it's fundamentally our unwillingness to pay for things we value and need.
REHMNow, it's interesting that the federal U.S. tax on gasoline has not changed since 1993. I wonder, Donald Cohen, do you believe more people are willing to pay for gas taxes than they are for toll roads?
COHENWell, you know, that's an interesting question. I think people, in general -- I want to disaggregate it just a little bit. People in general are willing to pay for services that they, you know, public services that they understand they're going to get, when you can frame the question that way. Second, though, when you talk about taxes, it becomes a political issue that is used, unfortunately, you know, for one side or the other, you know, to make it difficult to take action.
COHENSo I do think people would be willing to pay for things if given the choice, whether it's through a toll road or a tax or what have you. I think we're not being honest about that, you know, that things cost money and we should be paying for them and bring those decisions to folks, rather than a political football about taxes or a political club, you know, bludgeon.
REHMChris Edwards, we have a Highway Trust Fund. What's the state of that fund today?
EDWARDSWell, the Federal Highway Trust Fund is spending, in really rough terms, about 55 billion a year and it's raising about 39, 40 billion a year, mainly funded by the gas tax. So there is a big gap there. And so there is debate about how to fill that gap. I actually think we ought to lower the spending to match the amount of revenue. And I will leave it up to the states -- the laboratories of democracy -- how they fill that gap, whether it's gas tax increases, whether it's going to new public/private partnerships for highways, adding electronic tolling.
EDWARDSThe polls do show that people, if you ask them how should we fund an expansion or increased maintenance on the interstate system, they strongly favor tolls over raising the gas tax. Now, I'm in favor of the new electronic tolling, if the money is used of a direct benefit for drivers. If you add lanes to increase capacity on an interstate, you toll it, you use the money for that project. Don't siphon it away for other purposes, so that the drivers can see the real benefit of the toll.
REHMIsn't that part of the problem, that you use tolls, you toll/tax drivers, but then the money goes elsewhere?
EDWARDSThat's right. In some of the Northeastern states where the toll roads are run by the government in New Jersey, Pennsylvania, places like that, there has been a problem, in my view, of siphoning the money off to use for other purposes. But I think some of the new projects, where they get the private company in, they raise the finance, they fund the increase in capacity on the interstate, then they toll to pay back their upfront capital investment. That makes sense, I think.
REHMRob Puentes what do you…
COHENDiane, can I interject? Oh.
REHM…think of tolling or these private companies taking over responsibility for tolling?
PUENTESWell, I think the states are all different. And they're doing different things. Some states are raising their gasoline tax. We've seen Maryland, Wyoming, states as very different as that have raised their own gas tax. But in a place like Delaware, where the governor wanted to do this, he couldn't get it through. And so they raised the tolls on U.S. 1, because that was an alternative to raising the gas tax. So the states really matter.
PUENTESBut there is a lot of this interest now from the private sector in investing in toll roads. But I think it's a misunderstanding. We're not really putting tolls on existing roadways. Right? I think this is some part of the confusion. It's really going to when we're adding new capacity to either existing roads, like here in the Washington beltway on the Virginia side, where we added a couple of lanes.
PUENTESThose were tolled, the rest of it stayed un-tolled, or where they're going for new roads. It's very difficult and I think probably politically untenable to put a toll on an existing, what is a "free" road.
REHMBut who owns the toll…
COHENDiane, can I interject about the issue of -- I'm sorry.
REHM…business when you put that new road on there?
PUENTESIt depends. And so there is interest from the private sector. They're -- not in just putting new roadways in, like in Texas and some other places, but in leasing and engaging in partnerships for existing roadways, like we had recently with the Indiana toll road, which goes east to west across the northern part of that state, where a private consortium came in, gave the state some money to operate that thing over a long period of time.
PUENTESThey recently just went through a financial restructuring and a new company is taking it over. But there's so much interest from the private sector in investing in this country (unintelligible).
REHMDonald Cohen, tell me how much leeway states had to create their own funding formulas.
COHENWell, I mean, I think they have all the, you know, as the other guests mentioned, they have all the leeway they want, but in the end it comes back to the willingness to raise the revenues one way or the other to fund their infrastructure. I do want to pushback, you know, mention one thing about the issue of siphoning off that your other guest was talking about. I think what we have to remember, both in terms of the states -- pushing it all to the states and then keeping all the money in the roads. We really want to integrate a transportation system.
COHENAnd so we should be careful about cordoning off, financially, the road system. Because the roads -- the toll roads themselves feed other roads. The toll roads, you know, the roads themselves are integrated with, you know, park and ride systems, with transit. And then between the states we have interstate commerce that is a very real part of our economic health. So I think we need to be careful about only doing that. I think -- so, you know, and let me leave it at that.
REHMI want to ask if we know how much profit do toll companies make when we are using their roads, Rob?
PUENTESWell, it's not entirely transparent how much money and how much profit they're making. But I will say that when these deals are negotiated it's very transparent. And a lot of this stuff is done in the public eye. It's done with very large contracts. I mean the whole -- this whole process is a different model from how we would normally do it from the -- if the public sector was just doing it.
PUENTESSo all these things are laid out ahead of time, the negotiations, the agreements, all, you know, how -- who's goes into operating and maintaining the road. What all those risks and rewards are laid out ahead of time. How much they actually make out of it, I don't know if we have any (unintelligible).
EDWARDSYeah, I would give a -- there's an interesting example of that. The Indiana toll road, which has been in the papers recently because it's gone bankrupt. So a decade ago the governor, Mitch Daniels, got this consortium, I think a Spanish and Australian company came in, bought the toll road and a long-term lease. They've gone bankrupt. The demand for the road was less than they thought.
EDWARDSAnd drivers were not hurt by that. Taxpayers were not hurt by that. It was company and its creditors got hurt. When Daniels made the original deal there was complaints that oh, these companies are going to come in and make these big profits at average folks' expense. See, that didn't happen actually. The companies -- they didn't earn any profits. And I would say actually there's a benefit.
EDWARDSIf you have a liberal perspective, there's a benefit of private companies coming in and running roadways because those private companies will pay taxes on their profits, on their income tax. So that -- so it broadens the tax base to put some of these assets into the private sector.
REHMBut wouldn't we all be better off if the Highway Trust Fund were not itself siphoned off to be used for other things? I'll leave you with that question, as we take a short break here. When we come back we'll continue our conversation, taking your calls. Stay with us.
REHMAnd welcome back. Joining us now by phone from his office in Philadelphia, Pennsylvania Governor Ed Rendell. He's co-chair of Building America's Future. It's an infrastructure advocacy group he founded with former U.S. Department of Transportation Secretary Ray LaHood and former New York City Mayor Michael Bloomberg. Thanks for joining us, Governor Rendell.
GOVERNOR ED RENDELLGood morning, Diane.
REHMI know you made a plea to allow tolling on federal highways. Why do you feel so strongly about that?
RENDELLWell, it's very expensive to maintain those highways. And the states are left with the burden of doing it. And in many cases the states simply can't afford to do it, even though they have, unlike the federal government, raised their gas tax. I'll give you an example. I-80 in Pennsylvania which cuts through the state from the east to west in the northern tier, it goes through the mountains. Pennsylvania is the highest elevation state east of the Mississippi. And it costs $200 million a year just to maintain the roads and I-80 in safe and decent condition.
RENDELLWe need help in doing that. It's an un-toll road. It competes with the Pennsylvania Turnpike. And we want to put a toll on the road -- we wanted to put a toll on the road that was essentially a user fee. The only people who would pay for the maintenance of the road would be people who use it. So someone who never -- doesn't own a car and takes public transportation wouldn't pay. But people who do use it, use it for business, use it for getting around would pay a very modest toll.
REHMAll right. But let me ask you this. Wouldn't that raise concerns about accountability and loss of control if you turned it over to a private company to toll that road?
RENDELLRight. Well, let me give you an answer and an example. First of all, it depends on how the contract is written. If the contract gives the state complete oversight over the operations of the private company then the answer to that is no. But if you don't want private companies running our infrastructure then, Diane, you and your listeners promise me you won't fly into Orlando because the Orlando airport is run by a Spanish company. They run the airport, they take the profits out of the airport. They do all the work again with some supervision from the airport authority in Orlando.
RENDELLAnd if you look across the length and breadth of this country, many parts of our transportation infrastructure are run by private companies but with government oversight that's contractually accounted for.
REHMYou know, I'm interested, Chris Edwards here just raised the Indiana toll road operator that just filed bankruptcy. Isn't that one of the risks of privatizing in the public works.
RENDELLSure. But again if that contract was written the right way then the road reverts back to the state to state control and state ownership. So -- but that's just like -- states are bankrupt, cities are bankrupt. Detroit is bankrupt. Anyone can go bankrupt. And again, the question is, is there proper oversight, are there proper remedies?
REHMOkay. So if the company goes bankrupt, it goes back to the state. Suppose the state does not have the money to operate it.
RENDELLAnd the state gets to keep the money that the company -- I'm sorry, and the state keeps the money that the company paid for it up front.
REHMAnd that's how it continues to operate. What...
COHENWell, sure. And then instead of the tolls going to the private company the tolls would revert back to the state. The reason these public private partnerships are happening, Diane, is because states, the federal government and local governments simply don't have or are not willing to raise taxes to generate the right type of money to pay for revitalizing and maintaining our infrastructure. So...
REHMWhat do you think about raising taxes on gasoline in order to adequately finance the national highway trust fund?
RENDELLWell, it has to happen. The last time we raised the federal gas tax was in 1993 with President Clinton.
RENDELLWhat do you know, Diane, that hasn't increased in its cost since 1993?
RENDELLBologna has, milk has, rent has, everything's been increased.
REHMExactly. So are you one of those people who is advocating that the congress do its job?
RENDELLYes. In fact, there's a bill put in by Senator Murphy of Connecticut and Senator Corker from Tennessee who's a Republican raising the gas tax by 12 cents a gallon over -- phased in over a few years, and then indexing it to inflation. If in 1993 when they raised the gas tax they had indexed it to inflation, the trust fund would be healthy today, the highway trust fund. So indexing it to inflation is very, very important but also raising the actual tax itself.
RENDELLLook, people have to understand, no one likes to pay more taxes but the cost of doing nothing is incredible. The Texas Transportation Institute estimates that the average cost to drivers of bad roads, of congested roads, of idling in traffic which eats up gas is about $800 a year. A 12 cents increase in the gas tax would cost the average driver about $140 a year. And if it helps us repair our roads and keep them in good condition and avoids accidents, if it helps us break up congestion then it's well worth it. We get a great return on that investment.
REHMOkay. So which would you be more in favor of, raising gasoline taxes or having private toll roads?
RENDELLWell, we have to do both but if you ask me to choose, raising the gas tax.
REHMRaising the gas tax, and how likely do you think that might be in the next five years.
RENDELLWell, unlikely until the next presidential election is decided and a new president is sworn in. I think we'll have a patchwork highway bill like Map 21 which was for 18, 19 months and really just kicked the can down the road. But I think that's what they'll do early next year. But when the next president comes in, the next president has to address our infrastructure which is falling way behind.
RENDELLTwelve years ago the world economic forum ranked the American infrastructure best in the world. The ratings last year reduced us to 16th best in the world. We are becoming uncompetitive economically. Our infrastructure is in dangerous condition. It affects the quality of our lives. We have to do something and we have to do something long term.
REHMFormer Pennsylvania governor, Ed Rendell. He's co-chair of the infrastructure advocacy group Building America's Future. Thank you, Governor. Good to talk with you again.
RENDELLThanks, Diane. Thanks for the time.
REHMOkay. Bye-bye. What's your thought, Chris Edwards?
EDWARDSHe talks about a lot of things. I mean, one is true that a lot of countries have better infrastructure than us now. But that's partly because other countries have done more privatization than us. I mean, airports are private all around the world, Britain, Canada. Roads are becoming private all around the world, seaports private all around the world, airports private all around the world. So I think privatization is the way to get better efficiency in our infrastructure.
EDWARDSThe issue is not the total amount we spend. It's more about efficiency and I think you get more efficiency if we decentralize the funding and financing of highways and other infrastructure to the states. Let the states compete. Let them experiment and bring in entrepreneurs to help them build the infrastructure, I think we'll get more efficiency.
REHMDonald, I want to ask you about the idea that we have always assumed as citizens of the United States that public highways were going to be free. What is the best argument against tolling on existing lanes?
COHENThe best argument against is that we all need them as fundamental to making America work. And so if that's something that we value at that level, because it's fundamental to our personal lives, our regional and national economies, our environment, you know, in terms of how we create a sustainable environment going forward, if we believe that's important then we should not be charging -- we should not be putting the cost of our transportation system on all the users. We should be having a far more integrated system where people -- so as you can tell, I actually have a mixed mind on the tolls. And so, you know, even you asked for my, you know, argument against.
COHENI want to make one point, if I could, Diane.
COHENYou can take this to a very simple place, I believe. I completely agree with Governor Rendell and, you know, I think we all agree. We need a robust and healthy infrastructure and we're not willing -- it seems that we're not willing to pay for it. But it's not rocket science if you have the following argument. One, things cost money. Governor Rendell said $200 million just to maintain those roads. I believe him. He was a good governor, and prudent. Then we have to decide how we're going to pay for them.
COHENTo the issue of using private money to do that, it's -- there's no free lunch. So they have to make a return. We still have to maintain the roads. And so we have to figure out how to get the money. So it's either a higher gas tax again or it's higher tolls, so it's the same thing. It gets to the same places, we have to pay for it. The difference I would say in terms of using private capital versus public capital is I could right now build a house on 3 percent, with 3 percent money. You would -- private investors need 8 percent, 9 percent, 10 percent, 15 percent. It's more expensive money. And so -- but it doesn't avoid the reality that we need to pay for it.
REHMAll right. And joining us now by phone from his office in Arlington, Va., former Kansas Governor Bill Graves. He's president and CEO of the American Trucking Associations. Thanks for joining us, Governor.
GOVERNOR BILL GRAVESMy pleasure, Diane.
REHMI gather you have a different viewpoint from that of Governor Rendell on how best to improve the nation's infrastructure. Why not tolls if the congress and the states won't increase the gas tax?
GRAVESWell, I think we aren't that far apart in that we have always said if there's new capacity that is of critical importance and as long as given that we're engaged in interstate commerce, as long as we're not forced onto routes and forced to pay tolls that we otherwise, you know, wouldn’t, we don't have a problem with new capacity. We have a huge problem with putting up tolls on existing United States interstates.
REHMWhat about a fuel tax?
GRAVESWe're very supportive, Diane. And in fact, you know, I have a history. I raised the fuel tax in my state twice while I was in office. And the American Trucking Association has advocated and continues to advocate for congress to increase the federal fuel tax, diesel tax in order to more adequately fund the highway trust fund.
GRAVESI mean, we simply look at it from, I guess, you know, it's economics, it's our business to move freight up and down the nation's highways. And we, you know, ponder the question, why should we pay proportionately more to cover either administrative costs and/or return on investment from, you know, private entities that might be running toll roads, if not a state-run toll road? Why should we proportionately pay more for the same, you know, roads that we believe we can fund and get built through a very efficient and quite frankly well-known historical funding source, the federal fuel tax?
RENDELLThe other thing as a former governor, I have great concern that if we start down this path of first of all, of the federal government shedding its responsibility for national infrastructure, that some states will take up that challenge, but some won't. It will depend a great deal on what the priorities of the setting of the administration in each state might be, their particular financial situation. We'll end up with a patchwork of haves and have nots. And once we start to dismantle the federal program I think it'll be very difficult to ever, ever go back. So, you know...
REHMAll right. And you're listening to "The Diane Rehm Show." One area where you disagree with Governor Rendell is that you think we should toll the -- or he thinks we ought to toll the existing interstate network. But you do agree that new roads should be tolled. What's the difference?
GRAVESNo, no, no. What I really mean, Diane, is that if there is some project where it would otherwise simply not qualify for funding, if it's something that -- we have a toll road in my home state in Kansas, built prior to the advent of the interstate network. There are places in this country where new capacity would otherwise not get built because it simply perhaps doesn't have the demand or the priority level of the whole network that we run on.
REHMBut why couldn't you raise gas taxes to do that?
GRAVESWell, you certain can and, in fact, we're very supportive of that. We just...
REHMAnd you would have the flexibility as the Governor of a state to do that, would you not?
GRAVESAgain, there are examples today, and Governor Rendell mentioned the plethora of tolling projects down and around Orlando, Fla, the airport, things like that. There are great opportunities for infrastructure investment in this country where tolls probably make sense, or fees make sense. We don't think they make sense on existing United States infrastructure, roads and bridge infrastructure.
REHMFormer Kansas Governor Bill Graves. He's president and CEO of the American Trucking Association. Thanks for joining us, sir.
GRAVESYou're welcome, Diane.
REHMAll right. And turning to you, Donald Cohen, this whole issue of whether roads should be free to the public or whether new roads have to be tolled because there simply isn't enough money to build them otherwise. Is that where you come down?
COHENIn a -- it is a case-by-case. I hate to be evasive but there's issue of -- there's a set of issues to peel apart. One is where the roads are and who depends on the roads to do what they have to do, whether to get to work or move goods, you know, to market or supplies to manufacturing. You know, there's an issue -- if we're building new roads that are sort of out of reach for people that work in the region because they work in industries that don't pay enough, that's a problem. We should not toll those.
COHENEven if we need new ones, we should be investing that money but we should be spending that money to build an infrastructure, you know, as a transportation system that can actually get people to work.
REHMDo you agree with that, Rob?
PUENTESI completely agree. We can't -- we have to stop talking about infrastructure in the abstract. And whether or not toll roads are a good idea or a gas tax in the abstract is a good idea, there's almost -- it's an academic kind of conversation. It really matters where these facilities are and what they're designed to do. You know, we're still a growing country but we're not growing equally all across the board. Places like Texas are growing...
REHMOkay. Give me an example.
PUENTESThe intermountain west is really where a lot of the growth is happening in this country, a place like Phoenix and Las Vegas and Denver, in and around Texas, the new sunbelt areas. This is where a lot of the country is growing. These are the places that are also experimenting with some of these new ideas and some of these new ways of getting infrastructure built today.
REHMRobert Puentes of the Brookings Institution. Short break and when we come back, your calls, your email. I look forward to hearing your take on this conversation. Stay with us.
REHMAnd welcome back. We've got lots of calls, lots of emails. Here's one from Ed in Cedar Grove, North Carolina, who says "living in a state that already has one of the highest gas taxes in the country and then, having toll roads newly installed on top of that, I, for one, will never pay to travel on a toll road." Might you have a revolt at some point?
PUENTESWell, I think this is what's happening in places like Texas where you do see folks a little frustrated with, I guess, a feeling that they're being directed onto these, that there's no other option for them. So when these -- this is kind of what Governor Graves was saying. When you have a new capacity that's providing an additional service, people are willing to pay for that.
PUENTESIf you have a predictable, reliable journey, people are willing to pay. If you've got to pick up your kid from daycare and if you're gonna get, you know, fined, whatever, $20, exorbitant prices, you're gonna be willing to pay whatever the toll's gonna be to get you there faster. So if it's coupled with some kind of additional benefit for the traveler, we do think they're willing to pay.
REHMAnd Donald, here's one for you. From Catherine in New York who says, "tolls in some states are disproportionately high compared to the minimum wage. In New York, for example, the Verrazano Bridge is $15, which eats up about two hours of a minimum wage earner's daily pay. We need to keep tolls reasonable enough to allow people to afford to get to work." Your comments, Don.
COHENWell, I completely agree. I actually drove over that bridge last year and was shocked at the level of how much it was. I could afford it. I was doing it once. I wasn't going to work every day.
REHMAnd you don't have to do it both ways, as you've said, Rob. You do it one way and that's it.
PUENTESA lot of the bridges in and around Manhattan are just tolled one way, but then also, in Manhattan, you have a tremendous public transportation system so it's not like there aren't any other options in place like that.
REHMBut they have to get in there first.
COHENWell, I think that goes to the -- what it goes to is that a gas tax probably does make more sense. If we had a reasonable gas tax, we can maintain our bridges and roads and reduce tolls.
REHMAll right. Let's -- if I can get this telephone wire working, let's go to Terry in East Hampton, New York. You're on the air.
TERRYHi, Diane. Thank you.
TERRYI suspect comments that were made earlier by a panel member who stated that there are private sector companies out there willing and ready to invest in infrastructure and roads. To me, this is misleading and somewhat untruthful. Private companies exist to make a profit. Whether or not the public benefits is merely a tactic, if you consider the true objective of private business.
TERRYAnd secondly, it's my belief that in a global economy, it's extremely important that we have a flexible and mobile workforce. Toll roads are a barrier to entry for most people that are in the workforce. And they're not only costly, but they take time. They slow the workforce down and that's time that can be spent with families.
EDWARDSWell, I mean, congestion is very costly to the economy as well and makes the economy less efficient. So I'm in favor -- to build on what Robert said, that I'm in favor of tolling the most congested parts of our interstates where the money is used to expand and rehab those parts of the interstate where the driver can see a clear benefit. And, you know, as to profit thing, again, these private companies are taking a lot of risks getting involved in these public/private partnerships.
EDWARDSAnd the whole idea is to shift the risk from the public sector onto these private companies. They take the risk. They should earn profits. And when they earn profits, the government benefits from higher income taxes.
REHMDonald, I want to go back to her point about the low income worker, however, who more and more is living out in the suburbs, must make a trek in to whatever the area is of work and that's costing that worker more and more money, meaning less and less in that final paycheck. So does that lead you then to a higher gas tax, which that same worker is going to pay in smaller increments.
COHENWell, it leads me there as one place, but it also leads me again, to my point earlier, is that we need an integrated transit system. You know, if we had a significant increase in mass transit that could get people to work and to where they needed to go, of course, we'd have to pay for it and we'd have to deal with how high the fares were and all of that, but, you know, we need to be getting people out of their cars and we need to be getting people into affordable transit options.
COHENAnd it isn't just to help that worker get to work. It's to help the economy grow. And so I think we should -- that's why a gas tax, other revenue streams that are general revenue streams that can fund an integrated transportation system could help us all.
REHMAll right. Let's go to Shaker Heights, Ohio. Hi there, Jim.
JIMI agree mostly with Governor Rendell. I worked for the Ohio Department of Transportation for six years out of college and I had transportation planning and planned most of the freeways in northeast Ohio. And I believe that a gas tax, not a user tax, but a gas tax or license plate fees and whatever should increase. We all benefit, whether we drive on something or not. We all benefit from what's happening on those roads, whether it's a truck delivering goods and supplies, whether it's a car manufacturer delivering cars to its destination, whether it is a sales person that's going to create sales that benefits the society in general, this toll stuff is like back taxes.
JIMAnd the only say that anything can be dispersed equally is everybody pays for it through a tax.
REHMOkay, sir. Thanks for calling. You know, it does make me think that more and more, we've become a society of what's good for me is good for me and I'm not so much caring about the other guy. And more and more, we see that, Rob.
PUENTESI think so and I think -- I mean, the caller, I think, was very eloquent on this, but...
REHMI do, too.
PUENTES...the governor, I agree with the governor, too. We've got to deal with this current problem we have right now on the federal level, which is running a short fall and what happens to the future of that program. But we do overemphasize the federal role here. When it comes to transportation, it's only about a third of all of the spending is coming from the federal government. The states, the cities, the metro are doing so much of this work.
PUENTESBut when it comes to toll -- and the issue is not what's happening now, but what's happening out in the future. The gas tax is throwing off less revenue for lots of different reasons. It hasn't been raised since the early '90s, as we said. We're also driving much more fuel efficient cars, which are consuming less gas, then throwing off less gas tax revenue and driving is generally flat or declining in most places. So tolls are really part of this new regime.
PUENTESIf this is not going to be a sustainable source in the future -- it might be now, but it's not going to be in the future, and several national commissions have talked about this, what else then are we going to do as a nation?
REHMAll right. Let's go to Strongsville, Ohio. Hi there, Ed. You're on the air.
EDThank you, Diane. I have two points. Number one, Germany has some of the best highways in the world. There is not a single toll road, not a single toll bridge in all of Germany. And if you do have toll roads, you should not let a private company run it because their allegiance is through their stockholders. They do not care about the public. All they're interested in making money. Private enterprise is wonderful if there is competition. Toll roads have no competitor.
EDWARDSI think the best place to put toll roads in is -- privately funded, is where there is competition. I would partly agree with that. But, you know, you think about the economy more broadly, there's a huge amount of infrastructure that is provided by for-profit capitalist companies. You know, cell phone towers and oil refineries, this is all infrastructure we all use. Companies provide these things efficiently because they're trying to earn profits.
EDWARDSAnd, you know, you look historically, most U.S. infrastructure actually was provided privately. In the 19th century, most American roads were private toll roads. Urban transits, all those trolley systems a century ago, those were all private. So, you know, the private sector has long been in the infrastructure business and has been so efficiently.
REHMAll right. Neil Gray of the International Bridge, Tunnel and Turnpike Association has emailed us that for all the focus on private toll roads, the vast majority of existing authorities in the U.S. are actually public toll authorities and state departments of transportation.
PUENTESAbsolutely. And the great example, I think, the New Jersey turnpike's massive expansion is getting ready to open up within a couple of weeks, the largest improvement they've made on the Jersey turnpike in its history. It's $2.5 billion and that was funded through -- they issued bonds and they raised the tolls on the turnpike.
REHMThey issued bonds.
PUENTESYeah, and then, the toll increase is going to pay off that big investment, so.
REHMAnd the toll is going to be operated by the state, not by a private institution.
REHMSee, I worry about what that last caller said about the dedication to stockholders as opposed to those who use the roads. It's real question. And you're listening to "The Diane Rehm Show." Rob, I know you wanted to respond to that.
PUENTESJust that it's always more expensive to go with a public/private partnership in almost every single case for the reason that Donald mentioned and others. The money is more expensive, the motivations are different. But you do get other -- the reason to go for that is because, again, if we have these large funding shortfalls, if many cities and states and metros are still debt averse, there is these capitalists out there ready to invest.
PUENTESWe've got to make sure that's more of a -- it's a reciprocal relationship, that we're getting public policy goals we want to achieve, that we're not completely ignoring what's happening to the general public, but that you can actually find projects and investments that are appropriate to both public policy goals and to private investments.
REHMAnd if a private toll company owns that highway, who makes the repair to that highway.
EDWARDSWell, the private company. The whole idea here is a sort of life cycle cost and they design it, they build it, then they're responsible for maintenance. The great benefit of getting for-profit companies in there is that projects are completed on time and on budget. The Capital Beltway widening done by private companies in Northern Virginia was finished on time, on budget, done efficiently.
REHMThen why did the one in Indianapolis go bankrupt?
EDWARDSWell, they overestimated the demand for drivers and that was just -- they didn't know the future. They overestimated how many driver's they'd get and so...
REHMWell, how do we know many companies know what they're doing?
EDWARDSWell, but that's true for the government, too. I mean, the government misallocates investment all the time. So in Indiana, the company has gone bankrupt. A new private company will probably come in and own it. Drivers have been beneficiaries. That private company that owned the Indiana toll road pumped in billions of dollars into improvements and repairs on the highway so we benefitted. They're the ones who lost.
REHMAnd how are they going to get their money back?
EDWARDSWell, they're not. The creditors are going to get, you know, the shaft on their financing.
PUENTESAnd it's interesting because when the toll road did declare bankruptcy, it didn't revert to the state. I could, but the other investors lined up to go ahead and to buy this again, so.
REHMOkay. Donald, you wanted to say something.
COHENWell, it's a question I wanted to -- you have to peel apart a couple of things. First, this issue of on-time and on budget. Every infrastructure project in America is built privately. We already design and build roads, bridges, transit systems with private contractors and lots of publically funded and publically operated systems, which is after they're built, are come in on time and under budget as well. So that's a separate issue I think we need to deal with.
COHENYou know, we don't want to conflate issues. The second point I would make is, the issue of profit is, you know, this is an act of desperation. We're not willing to raise the funds to, even though it's cheaper, to use public dollars and public bonds to do it. We're not willing to do that so maybe we have to go to private markets and pay more because we desperately need the infrastructure.
COHENThe challenge is, and I think when Governor Rendell is -- you have to write the contract right, is you have to make sure that you are not embedding features in those contracts that limit public policy makers for, you know, 75 or 90 years in the future to prevent competition, which some of the deals have had, to require that we compensate private owners for public policy decisions that we want to make, whether that be to increase mass transit or address climate change or any number of other things.
REHMAll right. And finally, to Bill in Chelsea, Michigan, you're on the air.
BILLMy question is about any difference in quality between the toll roads and the freeways. Here in Michigan, when we go to Chicago, we notice that the excellent toll roads there are so beautiful, we wonder are they made to last longer. I know the Autobahn was designed for 50 years and I've heard our highways are only designed for, like, 20, 25 years. So are toll roads better built?
REHMAny thoughts, Chris?
EDWARDSWell, we touched on this a little bit earlier. If a private company is designing and building then operating and maintaining a highway on a long term lease, like 50 years, they have a strong incentive to build it efficiently and with high quality so that their maintenance costs are lower in the future. That is one of the advantages in these public/private partnerships.
PUENTESI don't know the answer to the question, but we know far and away, the states with the most toll mileage, it's Florida, Oklahoma, Pennsylvania and New York in that order. You can make your own assessments of whether those are the best quality roads in the country or not.
REHMAnd here's one last comment from Jim. "If states would stop giving billions of dollars in tax breaks to corporations to move or stay where they are, then maybe there would be money for the roads, as well as other benefits that the average person is losing out on. A gas tax is not the answer. If companies that use the road paid for them, then there would be no issue. Wal-mart has hundreds of trucks on the road every minute, making billions of dollars in profits, but pays very little in taxes." Any comment?
EDWARDSWell, the pay a lot -- Wal-mart pays a huge amount not only in gas taxes, all their trucks, huge amounts of property taxes in every state and local jurisdiction they're in. So I don't agree with the premise of that one.
REHMAll right. Chris Edwards of the Cato Institute, Robert Puentes of the Brookings Institution, Donald Cohen of In The Public Interest. We'll see where these roads take us. Thank you.
EDWARDSThank you, Diane.
REHMAnd thanks for listening all, I'm Diane Rehm.
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