Sources of roadway financing

There are a number of methods for financing roads. They are much more than just different accounting schemes. Each financing method has an effect on people's transportation decisions. The financing method greatly affects land use, traffic congestion, and the environment.

A concept of great importance is the correlation between payer and beneficiary.

Payers are the people paying for a product, for example, a freeway or a freeway widening. Beneficiaries are the people directly benefiting from a product. For freeways, it's usually peak-direction car commuters. The correlation measures how well the two groups of people match. (If the two groups are comprised of the same people, the correlation is defined as one. If there is no relationship between the two groups, the correlation is zero.)

A toll, more accurately called a fare, is the most direct use-related source of funds that can be applied.

A fare charges only those people who are direct beneficiaries of the road building or widening. A fare has the highest correlation between payer and beneficiary. In the past, "toll" collection has been inconvenient and has involved high overhead. However, modern technology has changed that. New methods of fare collection do not require vehicles to stop or even slow down, and they eliminate toll-taker labor. Lower rates can be charged non-peak-direction commuters. Because peak traffic flow occurs at about 40 mph, varying the fare by time to control traffic flow will efficiently increase road carrying capacity. This is called demand pricing. There is no wasting of time, as with on-ramp metering and bumper-to-bumper traffic. Fare collection is legal under state law for privately-owned roads. An act of the legislature (as was passed for Orange County) may be required for publicly-owned roads.

Methods of financing, in order of decreasing correlation between payer and beneficiary, are described in the table below. Also given are the advantages and disadvantages from an economic perspective.

The last three methods of financing tax everyone to support a particular group: car-commuting workers, and provide no disincentive for car commuting. On the contrary, this outright subsidy provides an incentive for increased --and greater distance-- car commuting. Why? Transportation modeling --a primer (page 14) explains how a 29% decrease in travel time (resulting from road construction) will double the demand on the roadway if there is no disincentive to usage. This is the consequence of general-sales-tax and property-tax financing.

Financing method



fares for road usage,
demand pricing

meets free market principles;
decreases car commuting the most

charge cars brought to work
decreases number of car commuters

charges less to long distance car commuters per mile of commute

gasoline tax
proportional to trip length

does not differentiate between peak and off-peak

car registration fee
decreases number of cars in region

penalizes those who keep a car but take transit or bicycle to work

developer fees, assessment districts for "traffic mitigation", traffic lanes or parking

actually increases car commuting

penalizes those who take transit or who bicycle to the developments, including home buyers who don't own a car.

property tax

actually increases car commuting

penalizes those who take transit or who bicycle, including those who don't own a car.

general sales tax

actually increases car commuting

penalizes those who take transit or who bicycle, including those who don't own a car.


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