The Lexus Lane

I penned an opinion piece in the Minnesota Daily about congestion pricing back when I was an undergraduate in civil engineering school. At that point in my life I believed – like most Americans today believe – that gas taxes pay for the cost of highways, that any lack of funding was due to bloated bureaucrats taking money from roads to pay for other things and that rural areas generated most of the revenue in the system. If that article surfaced today, it may be a bit scandalous, especially given how much my understanding has changed over the years.

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Of course, the gas tax comes nowhere near paying for the road system. The cost of bureaucrats – bloated or not – is a small percentage of transportation funding. And rural areas pay a tiny fraction of the cost of their transportation, instead relying on the financial productivity of urban areas to maintain their lifestyles and what they inappropriately label a “local economy”. It is a cruel world.

In the series I wrote on financing a World Class Transportation System, congestion pricing played a major role. I’ve taken a little bit of heat over that, both on and off line, so I wanted to elaborate a little bit and see if I can find some converts.

With the current highway system, we design for rush hour – for peak flow – and, ironically, we call that efficient. For places like my hometown of Brainerd, that means for 10 minutes each day the main highways are a little congested. For the remaining 23+ hours they are vastly underutilized. A perverse definition of efficient.

Politically, congestion is a relative term.For major metropolitan areas, the peak flow is spread out over a longer period of time and congestion can snarl roadways for hours. Yet, when new capacity is built, the pent up demand combined with the induced demand (people drive more when it is easier) often overwhelms any improvements. In places where traffic flows are stagnate or declining, plans that have been in the works for decades often still mandate extra capacity based on projections.

It is difficult for many of us to understand how congestion pricing of roadways would work because we are used to the current system. It is easier to understand when we think of cell phones. Or subway fares. Or airline tickets. If the airlines had to have enough capacity for the day before Thanksgiving and couldn’t charge anyone a different rate for flying in peak time or on a red-eye, well, they would quickly go bankrupt. We all get that supply and demand is balanced by price in these markets – a congestion price during peak times – and that optimizes the system.

(Note that I intentionally use “optimize” as opposed to “efficiency” as efficiency usually is a one-dimensional measurement while optimize acknowledges complexity and the need to balance different objectives. We have too much one-dimension efficiency, especially in transportation, and not nearly enough optimizing.)

Where congestion pricing or mileage charges have been tried (or proposed) in this country, they have generally been about raising revenue, not optimizing the system. Some proponents of congestion pricing theories would argue with that assertion, but I have yet to identify a system that captures the revenue from a priced lane and targets it towards capacity improvements (including transit). If you congestion price a heavily-used urban freeway and then use that money to resurface an exurban frontage road, you’re basically a jerk. And a dumb one at that.

Someone benefits from this. Is it really taxpayers?If we are going to move away from a project prioritization system that is both politically-driven and focused on new construction into a modern system focused on maintenance and optimization of our current investments, then there needs to be an objective signal – other than whining constituents – for what improvements are a priority. Politically, “congestion” is a relative term. The people of Brainerd, Minnesota, and the engineers that plan and build this city I live in, believe we struggle with congestion. The suggestion is so ludicrous that I can’t even laugh at it. Yet we line up at the trough to whine for our share – or more – of highway money. The same is true in nearly every city in this country.

Putting a price, not just on the lane but on the time of day that lane is used, and then sequestering those funds for the ongoing maintenance and improvement of that lane, will allow the market to send a clear signal for what the high-returning investments are. This clear signal would be free of any politician, bureaucrat or interest group. Elegant.

Some of the specific feedback I received:

• “Chuck, isn’t this just a Lexus lane for the rich?”

I can see that, but I think that is mitigated in a few ways. First, by sequestering the money collected on the congestion-priced lane and using it for capacity along that corridor, we are essentially using the revenue of those willing to pay more for the capacity (not all of which will be rich) to build that capacity. The new capacity will be available for everyone (albeit at a cost).

Another important factor here is that our scarce resources will be applied where there is the greatest demand, not the greatest political connections. While the former might sometimes benefit wealthy drivers, it is going to be a lot more egalitarian than the current patronage system.

And right now our system is pretty fair in that, when it is overly congested, it doesn’t work for anyone. That means it doesn’t work for the rich dude in his Lexus, it doesn’t work for the single mom running late for her job interview on the other side of town, it doesn’t work for the van of construction workers carpooling to the construction site and it doesn’t work for the small business owner making an urgent house call. Having that capacity there – always – is going to be a benefit for everyone.

My proposal also allows for other responses to congestion other than increasing capacity. In most urban situations, the proper response to congestion is a maturing of the development pattern. It is going to provide that single mom late for the interview a lot more opportunity if she can drive across town on the congestion-priced lane OR consider a job opportunity closer to home. Our current system, which addresses peak efficiency, doesn’t optimize for job/housing location. We need a system that optimizes more, efficiency less.

• “Why, Chuck, would we not apply congestion pricing to all lanes?”

I theoretically like the idea, but I see two problems. First, we have already built the system with gas tax money and I think there is a certain logic to maintaining that base system with that source of revenue. I would even be open to increasing the gas tax if that is needed to support the base system, although I don’t think it would be (at least not as I’ve defined the “base” system).

Second, there are a number of parts of the transportation system that are important but are simply not viable with a mileage tax or congestion pricing system. A lot of farm roads, logging roads and mining routes are critical to the economy but don’t pay for themselves with their usage. Amazingly, political influence has built many of these routes beyond anything needed for farm, logging or mining (just visit Minnesota’s Iron Range to see a most bizarre collection of empty four-lane divided highways), but that is beyond that “base” and thus would be subjected to congestion pricing. In one life cycle, that excess capacity would be abandoned. But the components necessary for getting those commodities to market would still be there, and I think paying for those through a gas tax is a reasonable solution.

And there is only so much inertia we can overcome at one time. Containing and channeling this slush fund into maintenance of a defined system would be a huge victory.

• “I disagree with your plan, Chuck. We should just raise the gas tax until people stop driving.”

While a couple people called my proposal “politically naïve”, I’m guessing it is far more politically viable than raising the gas tax a buck or two.

While some people may think eliminating driving would be a good thing, I’m not one of them. If my system cut vehicle miles traveled (VMT) by 50%, I wouldn’t be sad, but the automobile is a really helpful device for travel between places. If its use were eliminated entirely, I think we’d lose something helpful and productive.

And in terms of being naïve, I find it kind of funny that I’m naïve for proposing a plan that would work but be difficult to get approved while groups like Move MN are not considered naïve for proposing a band aid (one that makes the underlying problems worse) and Minnesotans are not considered naïve for believing a small tax on wholesale gasoline will result in substantive change.

“Chuck, I just want a train.” Good luck with that, Pavlov.

• “Are you really suggesting we use the revenue for transit?”

Yes, depending on the situation. If we have a lot of trips between two productive places, so much so that our congestion-priced lanes are producing revenue in excess of what is needed to maintain the lanes, then transit is likely a great option.

A bus route between those two places can be used to see if demand is there for more intensive transit. The equation here is all about moving goods and people between two places. I want to optimize that and so transit would absolutely be on the table. We’d be fools to not include it.

If you are worried about fees from automobiles going to transit, why? If we can reduce traffic – and this lower the congestion charge – by adding transit, why is that not good for the automobile driver?

• “Under your system, Chuck, a lot of highway miles are going to be abandoned or otherwise not maintained.”

That is a feature, not a flaw. Understand that under the current system, or with a system where we raise a marginal amount of additional revenue through a hidden tax as Move MN is proposing, we are still going to abandon and not maintain miles of highways and other roadways. The system is overbuilt and is going to contract. My proposal would triage that contraction with some market forces and an emphasis on supporting places that are making the most financially productive use of these public investments. How does Move MN or Mn/DOT propose we triage this contraction?

The latest from Chuck Marohn – MoneyHall – is set to be released in May. Sign up to be notified when it is available on Chuck’s site, MoneyHall.org, and while you are there, check out Thoughts on Building Strong Towns, a great primer on Strong Towns thinking.