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Managing California's Highways: The Next StepManaging California's Highways: The Next Step

April 2, 2004
by Professor Peter Gordon, School of Policy, Planning, and Development


When it comes to the nation's nearly 4-million miles of roads and highways, two contradictory messages are concurrently competing for our attention. First, system performance is widely criticized and its adequacy is questioned. Second, proposed transportation spending authorization now before Congress (six-year reauthorization) is thought by many to be extravagant. When reasonable people articulate both views, we are at an impasse. This paper will suggest a way that Californians can move forward. At this writing, the political sides in Washington DC are debating a range of transportation funding proposals, priced from $256 billion to $375 billion. Perhaps in a heavily politicized system, where gasoline taxes are paid by users to all levels of government, with most dollars making a complicated return trip to states, MPOs, counties and cities, there is nothing anomalous about the political gridlock. Nevertheless, it is important to consider whether and how we could do better.

What do we know? Simple economic theory suggests that there is a choice between adding to capacity vs. better managing what we already have. The best management is widely agreed to be direct pricing and the most sensible direct pricing is time-of-day pricing, whereby users are charged the opportunity cost of their consumption. Use a crowded facility and the costs all around go up.

State-of-the-art transponder technologies reduce the transactions costs of variable toll collection, making it more feasible than ever. In contrast, the current practice of relying on fuel taxes to support most roads and highways means that users pay about the same, no matter where or when they travel. Incentives to place lower valued trips at lower valued times and places are muted.

The fuel tax as a revenue source has also been criticized because more energy-efficient autos mean lower highway revenues even as highway use does not necessarily fall.

Yet, we also know that politicians prefer adding to road capacity over economic management of the roads; large construction projects are thought to "create jobs", whereas pricing is seen as "inequitable". Left largely unexamined is not only the degree of inefficiency but also the possible regressivity of the build-over-pricing approach - especially in light of how projects are typically financed and implemented. The other important fact is that in most US cities, there are significant numbers of non-work trips on the roads during the peak periods. About half of all 6-9am trips are nonwork and about two-thirds of all 4-7pm trips are nonwork. A portion of these would switch to non-peak travel with sufficient incentive. Time-of-day pricing that allows drivers self-select based on their personal assessment of each trip's value is the only way to have so many trips be allocated efficiently