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Paying to drive will reduce the cost of driving

Yesterday saw the release of the Center’s new report, “Twin Cities Traffic Congestion: It’s No Accident”.

The report thoroughly examines the scale of traffic congestion, its causes, and its consequences. It also sets out a number of possible solutions. One of these is variable pricing.

Why can’t current motoring taxes pay for the roads?

This will be difficult for many Minnesotans to accept. As a correspondent to the Star Tribune wrote lately, why should they pay yet more money on top of the gas tax, motor vehicle registration fees, and motor vehicle sales taxes they already pay? It’s a good question.

One answer is that much of that money isn’t being spent on roads. At least 20 percent of federal gas taxes, more than 12 percent of state gas taxes, and over 10 percent of vehicle registration fees are diverted to transit or other uses each year.

Another answer is that gas taxes do little to reduce congestion. It is, after all, a tax on gas useage, not peak time road useage. Someone who drives a lot on uncongested roads will pay as much or even more than someone who drives less on congested ones.

Why prices for using roads means lower costs of driving

The essence of traffic congestion is too much demand from motorists for a scare resource, road space. The solution, initially, is to match demand to this supply.

This can be done by using variable pricing to encourage some people to travel at less-congested periods of the day. As the report notes, “Far less than half of the vehicles on the road at rush hour are people going to or from work”. If we can encourage some of those people who are able to drive at other times to do so, we will reduce congestion. If it costs $X to drive on a given section of I-35 during rush hour, people who can do so will be incentivized to travel at another time when the charge isn’t in force.

The MnPASS express lanes, also known as high-occupancy/toll (HOT) lanes, on parts of I-35E, I-35W, and I-394 are a step in this direction. As report author Randall O’Toole notes of a survey of such schemes, “The benefit-cost ratios of such express lanes ranged from 3.1 to nearly 140, that is, for every dollar spent on the lanes, benefits ranged from $3.10 to $140.87. Only four of the projects had benefit-cost ratios of less than ten to-one.”

Prices lower costs

Such prices might even lower the cost to commuters of driving.

Economists think in terms of the ‘opportunity cost’ which is “the value of the next-highest-valued alternative use of that resource”. In the case of traffic congestion the resource is time. The ‘cost’ of driving to work is not the amount you spent on the gas, it is the loss of the thing you would have done with the time saved by a shorter commute. This might be more time in bed, a jog, seeing the kids off to school, or getting into work early. And that’s just in the morning. To the extent that variable pricing would reduce congestion, it would reduce the opportunity cost of commuting.

More road building is still needed

But prices serve a dual purpose. They don’t just restrict demand, they also encourage supply. At least, they do in a free market without artificial barriers to entry. For the longer term, we need to increase the supply of roads.

The supply of new road is unlikely to be as responsive to price as the supply of other goods. The prospect of profits from operating roads is highly unlikely to see a spurt of private road building. For all sorts of reasons, there are too many barriers to entry. For now, at least, the government is the sole provider of roads.

And if road prices are not to rise more road will have to be supplied. Population will grow. People will still need to travel. This will push road prices up. While variable pricing will go a long way to solving congestion, with a fixed stock of roads it will only do so at higher prices.

As our report makes clear, taken together these approaches will give commuters more time of their own.

John Phelan is an economist at Center of the American Experiment.




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