Mike the Mad Biologist

…at least in Houston, Texas. With non-automobile transportation options in the news, on of the interesting things is that the actual entire cost of automobile transportation infrastructure–that is, roads, is rarely discussed, while it is almost always raised with mass transit. But, by way of Ryan Avent, lookee what happens when the lifetime cost of highways is accounted for (italics mine):

The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly “paid for.” Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues.

The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section. The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates.

The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs. If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be “paid for” only if the ratio were 1.00, when the revenues met 100 percent of costs. Another way of describing this is to do a “tax gap” analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs.

Applying this methodology, revealed that no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon.

As Avent notes, “Keep this in mind whenever you read a crap analysis from Reason or Cato about how transit is a money loser.”

I think this also highlights how no transit system, whether it be rail, automobile, or aviation, can survive without massive subsidies. It’s just that some subsidies are easier to discern than others.

Comments

  1. #1 Joshua
    July 18, 2008

    Pshaw! If it can’t pay for itself, it’s not worth having, as any good Libertarian will tell you.

  2. #2 Siamang
    July 18, 2008

    My Hannity-loving stepfather once brought out the trope about how subways never wind up paying for themselves with tolls. I merely wondered aloud about how freeways ever can hope to pay for themselves.

    He didn’t have a response.

  3. #3 Richard Simons
    July 18, 2008

    I do not know if it is still the practice, but for decades in the UK railway construction and improvements were only done if projected additional revenues exceeded the extra costs, whereas new road construction was based on cost-benefit analysis that typically gives much more favorable results. In one case, a road across an estuary was justified by cost-benefit analysis and a badly-needed railway could be added for relatively little extra expense. However, the railway would have extracted so much custom from the road that the road could no longer be justified. Although the railway gave a better cost-benefit result than the road alone that was not a permitted method for evaluating rail construction so the road was built and the railway was not.

  4. #4 MattXIV
    July 18, 2008

    As Avent notes, “Keep this in mind whenever you read a crap analysis from Reason or Cato about how transit is a money loser.”

    Quite true, although not in the way you think. Your libertarian think-tank types generally believe that government spending in mass transit and new roads are both inefficiently high and poorly allocated. What do you think is the motiviation behind the libertarian support for using private investment in toll roads, which won’t get built unless it is likely they can pay for themselves?

  5. #5 Ken Hirsch
    July 18, 2008

    I must say that I don’t understand this. If no road in Texas pays for itself, where does the extra money come from? I don’t live in Texas, so maybe someone can explain their highway funding.

    Or maybe they are not talking about average revenue but instead marginal revenue.

  6. #6 John
    July 18, 2008

    Ken: Sales taxes and various others, plus occasional state deficit spending. Federal highway funds, paid for by federal income taxes, federal deficit spending, etc.

    The point is that revenues to the state attributable to that road or section of road are typically far less than the cost of that road over its lifetime. So the roads are de facto subsidized by other sources of revenue, making them appear far less expensive than they really are – and consequently, making mass transit alternatives look far less cost-effective than they really are (although they may still not be cost-effective in many cases.)

  7. #7 Ken Hirsch
    July 20, 2008

    Sales taxes and various others, plus occasional state deficit spending. Federal highway funds, paid for by federal income taxes, federal deficit spending, etc.

    The Federal highway fund is paid for from fuel taxes. It runs a surplus (in general). Do you know in fact that Texas uses general sales tax revenue for roads? I looked at this document[pdf] and I don’t see any non-motor vehicle-related revenue.

  8. #8 Edward
    July 21, 2008

    Ken – what you seem to be missing is that these various highway funds do not pay the whole cost of building and maintaining the roads. That was kind of the point of the Texas DoT analysis linked above – they looked at the total cost of building and maintaining the road for 40 years vs. the gas tax revenue generated by the fuel burned. You seem to be getting hung up on a line in a budget rather than the actual revenue and expenditures generated for roads. It’s accounting tricks vs. reality.