The True Costs of Transportation

In the United States we live in a mixed economy, where private enterprise provides most goods and services. The Government still has an active role in the economy, spending about 45 percent of GDP in 2009 on various services generally denoted as public goods. A public good is (roughly) defined as something that can be consumed in any quantity and still be available to anyone else in the same quantity and quality. Transportation and parking are steeply subsidized by the government so that the commodity of getting around is essentially regarded as a public good. If you would like to hear why free parking is a disaster, I would suggest reading Donald Shoup’s The High Cost of Free Parking. In this post, I will argue that transportation is not a public good and current transport policy in the United States is full of fallacies and conflicts of interest that are ruining the environment and spawning cities which are essentially unlivable.

For many Americans the day begins like this: wake up, walk into the garage, then drive through your subdivision to an arterial street to a freeway to your place of employment. Even if parking isn’t free in this scenario, this trip was incredibly subsidized. The only user fee for this driver was the fuel tax he paid at the pump. Fuel tax in America is far below the OECD average, 18.4 cents of Federal tax per gallon. State taxes increase this amount, but in the end, tax on gasoline and diesel ends up being less than 35 percent of the purchase price. In Britain, taxes are 73 percent of the purchase price. The low fuel tax in the US can be attributed to the unwillingness of politicians to raise it. The last time the Federal levy was raised was in 1994 and since then “progressive” political figures like Barack Obama and Nancy Pelosi have refused to raise it, even though there is an indisputable correlation between higher gas prices leading to less driving and a slowdown in climate change. This phenomenon was seen in 2007-8 when gas prices hit all time highs and the amount of VMT’s (vehicle miles traveled) in the United States dropped for the first time in history. In that case, Big Oil was the beneficiary of the extra funds, but the government could put it to better use and reduce driving.

Highway and transportation funding has always been seen as a quasi-public good, and for that reason it was originally supposed to be paid exclusively by this single user fee, the fuel tax. Until recently, this funding formula proved sufficient (although 80 percent of funds went to highway construction – an argument for a later post perhaps), but with the advent of hybrid vehicles and the general increase in fuel efficiency, coupled with the stagnant rate of the fuel tax since 1994, has lead to a massive shortfall in transportation funds at the Federal level. Instead of rectifying this problem, congress chose to replenish the Highway Trust Fund with money from the General Fund, basically income tax receipts. Suddenly highways and transit are an entirely public good, public enough that your income tax dollars may be paying for them. Eventually, electric vehicles may render a fuel tax inert and require the government to come up with a new funding mechanism, or face full subsidies from the General Fund.

This single case highlights the gap in logic in transportation funding. Airports, rail and bus transit, and even intercity and freight rail are subsidized in equally fallacious ways, although they pose less danger to society. The bottom line is, in declaring transportation a public good, the government has chosen to heavily subsidize ALL forms of transportation instead of leaving the industry alone. Transit systems in the United States (except the New York City Subway) do not turn operational profits. Many, like the Los Angeles County Metropolitan Transportation Authority, generate less than 20 percent of their revenue from passenger fares. My idea regarding this funding model is radical, but here goes: if drivers had to pay the full costs of driving, mass transit would no longer require government subsidies to operate. How does that work? Check it out:

Before the 1950’s, most transit systems in the United States were financed and operated by private companies. These companies were heavily regulated in urban areas (New York’s IRT and BMT come to mine), yet turned decent profits. These profits can be attributed to a lack of competition from the automobile. When cars became commonplace, their infrastructure was bestowed upon the states for the price of: free! (in effect). The Interstate Highway System was built with a 90/10 funding model where the Federal Government paid 90 percent for any freeway any state DOT wanted to build. No environmental impact reports were required and no planning whatsoever went into most urban interstates. With government funded competition, private transit operators folded. Deciding that public transit was beneficial to the general public, governments bought private transit systems and began to subsidize their operations. Before cars got an unfair cost advantage, transit was profitable.

Why should anything different hold today? My main mode of transportation is bicycle, but I take transit often and drive more often than I would like. If every car trip I took cost 3-4 dollars per mile, I would seriously rethink my driving patterns and inevitably switch to transit or walk/bike modes. Money speaks louder than words, and morals, it seems. With climate change soon to be a large issue, Deepwater Horizon destroying the Gulf of Mexico and OPEC distorting the world economy, now is the time to drastically change the way we pay for transportation.

More full transit vehicles would be on our streets and rails if driving was unsubsidized. This would allow governments to significantly cut subsidies to transit. The higher cost of driving would mean that transit can accordingly be priced higher. Higher fares would close the rest of the gap and driving and transit would both be profitable endeavors. The same holds true for air travel. Reducing subsidies for airports and airlines would reduce traffic and end the distorted economic incentive to fly more (air travel is by far the most harmful travel mode for the environment). Airport subsidies, Highway Trust Fund subsidies and transit operating subsidies could be entirely eliminated in one fell swoop. So why not do it?

Well, who wants to pay more for transportation? Our society is founded on the assumption that it is fairly easy and cheap to get around metropolitan areas, and even the nation. It’s a basic tenet of America: freedom of movement. A massive increase in transportation costs, by all modes, would instantly cause urban areas to condense in size and change land use patterns to eliminate waste. On another level, such a huge change would be resisted by all kinds of special interest groups, and indeed many voters themselves. As such, it would be even more politically toxic than raising the fuel tax. Like I say at the end of most of these posts, I can dream can’t I – Dream of a day when we will all pay direct fees for transportation and the upfront cost will match the true cost of all modes of transportation.


About Karl Tingwald

Civil engineering student at the University of Southern California with a severe transportation compulsion.

Posted on June 16, 2010, in Policy and Politics and tagged , , . Bookmark the permalink. Leave a comment.

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