A new Congressional Budget Office (CBO) report confirms what we’ve known for a long time: our nation’s system of assessing the costs of roads—and paying for their construction and maintenance—is badly broken.

Entitled “Approaches to Making Federal Highway Spending More Productive,” the new CBO report is a treasure trove of details about the recent history of transportation finance in the United States. Though couched in the careful technocratic language of the budget analyst—you’ll read about how alternative financial arrangements would enable better “performance” and create greater “efficiency”—the translation is straightforward: the big cause of our transportation problems is that we’re charging road users the wrong price.

Collectively, road users are paying too little for what they use, which is why taxpayers have had to chip in more than $140 billion over the past seven years to make up shortfalls in the Highway Trust Fund. The Trust Fund is the repository of gas taxes and other road user fees and is supposed to cover the cost of building and maintaining the nation’s roads. But the underlying problem isn’t just that there’s too little money: it’s that the way we allocate costs to users, and the way we distribute funding among alternative investments produces lousy results.

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As the report puts it: “Spending on highways does not correspond very well with how the roads are used and valued.”

Translation: The price of roads is wrong. Drivers who use lots of expensive capacity (urban roads at peak travel times) don’t pay their costs, and money gets allocated to spending that produces limited value for the nation.

Under the current system of fuel taxes, all users pay basically the same amount whether they travel on highly congested roads or nearly empty ones. That means users have no incentive to adjust their travel times, routes, or modes to reduce the costs that their travel imposes on everyone else. The fact that many road users face prices that are far lower than the costs they impose on the system means that highways are over-used, and that there isn’t enough money to maintain or improve them. Getting prices right would lead to less peak demand (shifting travel to un-congested periods, when it can be accommodated with the existing infrastructure) and thus improving service for users who value travel time improvements.

It’s also important to keep in mind that this report only addresses the direct financial costs to government for constructing and operating the highway system. There are also huge social and environmental costs—from air pollution, climate change, and injuries and deaths associated with crashes—that aren’t reflected in the prices that that roads users pay. In an earlier report, CBO estimated that trucks were subsidized to the tune of $57 to 128 billion a year because of these costs and road damage.

The CBO has three recommendations: price roads, especially to reflect congestion, allocate funds based on a cost-benefit basis, and link spending to performance. TheCBO points out that road pricing would not only provide badly needed funds, but would provide valuable information about which highway system improvements would generate the largest economic benefits. They report that according to FHWA, pricing might reduce the expenditure needed to achieve a given performance level by 30 percent.

And—almost in passing—the CBO report casts doubt on the accepted wisdom that highway building triggers economic growth. They say: “Research suggests that increase in economic activity from spending for new highways in the United States have generally declined over time.” Translation: highway investment experiences diminishing returns. The nation gets a big gain from building the Interstate Highway system when there was none, but each successive increment to the system produces a smaller and smaller return.

Highway construction in Seattle, 1962. Credit: Seattle Municipal Archives, Flickr
Highway construction in Seattle, 1962. Credit: Seattle Municipal Archives, Flickr


We’ll grant that critics might point out that other modes, like transit or biking or walking, don’t cover their own costs with user fees, either—there’s no sidewalk maintenance toll, and nor should there be. But there’s a critical difference between car travel and these other modes. Users of those modes don’t create the same costs, either, and not just because sidewalks cost a tiny fraction of a tiny fraction of what roads cost. Each additional driver, for example, creates congestion for every other driver on the road at the same time, up to the point that travel times can be doubled or tripled at peak use. Additional riders on a subway, on the other hand, create only very modest increases in travel times because of the time it takes for them to board—and perhaps none at all, if more ridership causes the transit agency to run more trains, and their boarding time is canceled out by less waiting time. We’re not confronting the cost of multi-billion dollar sidewalk investment projects due to peak hour congestion caused by under-priced foot traffic. Just as importantly, transit riders, bikers, and riders don’t create any, or very, very small amounts, of the major social costs of driving, from deaths and injuries in crashes to pollution.”

Simply pumping more money into the existing highway finance system will produce limited economic benefits. Many projects are only needed because drivers don’t confront anything close to the actual costs of the roads they drive on—and if they did, demand would be far smaller. Congestion pricing would improve the flow of traffic and enable us to meet the nation’s transportation needs at much lower costs. And investments in the highway system face real diminishing returns, so that additional money invested in highways produces less and less economic benefit.