User-fee principle should guide future N.C. transportation choices

North Carolina should focus on user fees to help address long-term transportation needs. That’s the advice from Randal O’Toole, who studies transportation issues for the libertarian Cato Institute.

“There are at least five reasons why I think the user-fee principle is key to solving all of North Carolina’s transportation problems,” O’Toole said during a May 24 online presentation for the John Locke Foundation.

First, user fees assign a program’s costs in a straightforward manner. “Transportation users are the main beneficiaries of any transportation they use — whether it’s riding a train or driving a car,” O’Toole said. “So they should be the ones to pay the cost.”

Beware of those who tout the “side benefits” of certain forms of transportation, O’Toole warned. Those advocates tout extra benefits as they pursue subsidies for their favored modes of travel.

“Frankly, there are side benefits to everything,” O’Toole said. “If we say, ‘if there’s a side benefit, you’ll get a subsidy,’ then everybody’s going to raise their hand and say, ‘I’m generating a side benefit. Subsidize me!’”

This leads to subsidies going “way out of control,” he said. The evidence is clear at the federal level. “We see billions and billions of dollars being spent on things like light rail, … which was a form of transportation that was rendered obsolete 96 years ago.”

The second advantage of the user-fee principle springs from economics. “User fees are more than just a way of paying for things — they’re signals between users and producers about the values of the things that are being produced and used,” O’Toole said.

“Signals say, for example, that this road might cost more than that road,” he explained. “Users might be willing to pay more for this road than that road. Users are almost certainly willing to pay more to drive on a highway that goes 70 miles per hour than one that goes 20 mph.”

Subsidizing favored forms of transportation interferes with users’ important signals.

A third reason to support user fees involves worthwhile incentives. “They give providers incentives to be efficient and incentives to avoid grandiose megaprojects,” O’Toole said. In contrast, “Subsidies insulate transportation agencies from the need to be efficient and … from the need to be responsive to their users.”

When transportation providers ignore users and focus instead on politicians, “then you end up building giant megaprojects that don’t really do any good,” he said.

O’Toole’s fourth point highlights an interesting correlation. “Infrastructure that’s funded out of user fees tends to be in much better condition than infrastructure that’s funded out of tax dollars,” he said.

While just 2% of bridges funded by tolls are considered to be in poor condition, that number jumps to 12% for bridges owned by cities and counties. Local governments tend to use funds other than user fees for their transportation projects.

“The better the user fee, the better condition of the resource,” O’Toole said. “The providers know they have to provide sound transportation. Otherwise, people aren’t going to use it, and they aren’t going to be paying for it.”

With his fifth argument in favor of user fees, O’Toole employs a term popular among the political left. “User fees are socially just,” he said. “When you pay for what you use, you’re not paying for what somebody else is using. There’s no chance that low-income people will be asked to pay for what high-income people use.”

Gas taxes originally acted solely as user fees. Over the years, some gas-tax revenue ended up subsidizing modes of transportation in ways that stray from “social justice.”

“When gas taxes and other highway user fees are diverted to Amtrak or to executive jetports, they become a tax,” O’Toole said. “Low-income people pay a higher percentage of their incomes on transportation than high-income people, which means we have a regressive tax.”

O’Toole realizes his recommendations have little to do with his own preferences. “Personally, I love passenger trains,” he said. “I also love cycling. … I like to ride the trains. I like to ride my bicycle. But I also know I’m not an ordinary person. … I don’t think other people should have to subsidize my hobbies.”

The user-fee principle helps drive O’Toole’s latest assessment of N.C. transportation, released by Locke in May. He critiques the state’s existing long-range transportation plans. He also takes aim at a state commission that recommended a 40% increase in the N.C. Department of Transportation’s budget.

“I found a lot of the things that they wanted to spend on were totally arbitrary,” O’Toole said. “If we substitute user fees as criteria, the user fees will tell us where to spend the money, when to spend the money, how to spend the money, and we don’t have to worry about using arbitrary or political criteria.”

It’s not clear if N.C. policymakers will accept O’Toole’s proposals. At least they could make one decision that would steer future transportation choices in the right direction: Focus on users and what those users are willing to pay.

Mitch Kokai is senior political analyst for the John Locke Foundation.