How Should We Pay for Transportation?

Transportation in the United States faces a never-ending financial crisis that warrants rethinking how we pay for it. From Pittsburgh’s Fern Hollow Bridge collapse in 2022 to public transit’s potential COVID-era “death spiral,” we never seem to have enough money to operate and maintain transit, roads or any other form of transportation.

The core problem is this: We have a bottomless “buy now, pay later” relationship with the provision of transportation. Whereas emergency services and public schools are clear public goods that we finance collectively through general taxes (e.g., property taxes, sales taxes, etc.) rather than charging someone each time they call 911 or a parent each time they drop their child off for school, water and electric utilities, which are also necessary for modern living, are mostly private goods financed by per-unit user fees. Transportation falls somewhere in the middle of this spectrum.

We pay bus fares, gas taxes and vehicle license fees, but none of these cover the costs of transportation, nor are they proportional to the costs we individually impose. For example, everyone pays a once-a-year vehicle license fee regardless of how much driving they do, and most transit agencies charge a flat rate regardless of distance traveled. And as vehicle fuel efficiency has both improved and grown highly variable, gas taxes are at once a long-outdated proxy for per-mile fees, regressive since those with older and less fuel efficient vehicles who pay a higher effective mileage rate tend to be lower income, and a diminishing source of user fee revenue.

Thus, as travelers, we are greatly insulated from the costs of our travel and have only grown more so over the past half-century. We build freeways and transit. We use them. But because they are mainly paid for by other people’s money through taxes — yes, tolls are an exception — we overuse them and they are overbuilt. Alas, costs forever outpace revenues, leading Congress every few years to pass “Build Back Better”-like infrastructure bills. Then, we do it all over again. It is time we consider reversing this trend and move toward financing transportation like the utility that it is. User-based pricing policies, like New York City’s now-paused congestion pricing program, are an important ingredient to doing this. Yet, how these programs are conceived often compounds the issue instead of helping to fix it.

To understand the scope of the issue, consider my choice to live on Long Island and commute to Manhattan. Relative to living in Queens, where I can only afford renting a two-bedroom apartment, I prefer owning a four-bedroom home with a yard. So, I accept the commute. 

The thing is, because I am insulated from transportation costs, I do not pay the full costs of this lifestyle choice. Whether I commute via the Long Island Rail Road (LIRR) or the Long Island Expressway, someone must pay for these. To date, that someone has (increasingly) been other people. Say I drive. Although fellow motorists and I more than pay for highway operations nationwide through our gas taxes, license fees and tolls, we pay near zero for their construction and rehabilitation. Others foot the bill, to the tune of $115 billion annually over the past decade, according to the Federal Highway Administration’s Highway Statistics Series. This is more than double the total subsidy given to transit capital and operations each year, according to National Transit Database (NTD) data. Never mind the congestion and pollution I contribute to but do not pay for, and that national aggregate numbers obscure geographic cross-subsidies. That is, even if 80% of road costs are paid by user fees nationwide, this doesn’t mean the Long Island Expressway is 80% paid for by user fees; it could be over or under.

Transit’s so-called death spiral is symptomatic of this broader tangle in how we view and finance transportation. Transit agencies that, prepandemic, relied on fares to cover most operating costs have been especially gutted as customers have not returned. According to NTD agency profiles, in 2018, the Bay Area Rapid Transit District, Washington Metropolitan Area Transit Authority’s metro rail and New York City’s Metro-North Railroad and LIRR received 70%, 51%, 59% and 50% of their operating funds from fares and directly generated sources (e.g., advertising). By 2021, those numbers plummeted to 10%, 6%, 22% and 22%, respectively. Rather than scaling down operations to match declining demand, agencies have sought state and federal aid, or authority to raise funds from other sources like congestion pricing. Conservatives have smeared this as transit “‘bailout’ money.” But if roads are provided as a quasi-public good for those who can at least afford to own a car and pay insurance, how can we expect other forms of transportation, like transit, to be self-sufficient?

The most direct way to correct our conundrum of never having enough money to maintain transportation is to economize how we provide and finance it. That means charging travelers proportionally to the costs they impose and using when and where receipts are generated to inform when and where we scale transportation. Subsidies must be scaled back.

Instead of evolving toward these supply-demand basics, our public debate about transportation finance perpetually treats travel as a quasi-public good and devolves into arguments over how to get people to travel and live the “right” way. One side seeks to ration driving and sprawl. They cherry-pick economic arguments that support charging motorists more but do not apply the same logic to transit. Rather, they see transit as the “un-car,” entitled to subsidies paid by “bad” motorists. The other side contends — contrary to the above evidence — that they pay their own way for the roads they use. So, any additional tolls or gas taxes amount to the government imposing its will through price manipulation.

New York City’s now-suspended congestion pricing program, which would have imposed tolls on vehicles entering part of Manhattan, illuminates how a worthwhile concept gets compromised by this clash. Congestion pricing is an economically sensible idea premised on having cars and trucks shoulder some of the costs of congestion. Building and maintaining wide highways and providing more train service principally to serve commute period travel costs a lot of money. And when we each pack onto a road or train, we impose delay on everyone. 

But in New York City, congestion pricing was conceived as a way to raise money for transit. Proponents further argued that a congestion toll would reduce vehicle traffic and encourage motorists to travel the “right” way (i.e., via transit). Ironically, these goals conflict: We at once want to alleviate vehicle congestion but also depend on its existence for revenue. And as designed, it would have made transit citywide dependent on revenue generated from cars in lower Manhattan, thus perpetuating our fundamental challenge of relying on other revenue. Given this design, opponents understandably viewed the program as a “rob Peter to pay Paul” construct.

The one thing both sides agree on is the baseless assumption that where we each choose to live — my living in outer Long Island, for example — is a fixed outcome and that we must provide some form of transportation to accommodate this. It is not a fixed outcome. But because of this shared, entrenched idea, we treat the provision of transportation as the broader public’s responsibility.

It is time to upend this.

We do not need to “punish” the car with subsidy-offsetting fees, “reward” transit use with countersubsidies, or even regulate where people live. We just need to stop subsidizing travel so heavily by pricing and scaling highways and mass transit more efficiently.

Some will counter that there is not enough housing closer to the city or that it is too expensive, and that internalizing travel costs will exacerbate the housing crisis. Others will challenge that pricing transit in this way undermines it being a lifeline for those who depend on it. Yet these circumstances are at least partly attributable to our long-running pattern of oversupplying and underpricing transportation. My house in Long Island was built because the toll-free Long Island Expressway made it possible for me and others to create housing demand there. Similarly, some volume of housing production in Queens has not occurred partly because of deflated demand attributable to underpriced transportation enabling me to live far away. If my option is to either live closer to the city or swap to using transit, I may well opt for the latter, which would allow the transit operator to reduce market clearing fares since more users means lower costs per user.

If everyone pays for their lifestyle, we can put the tired debate about which mode of travel is better and more virtuous to rest. Congestion pricing is an important part of this solution. But to be financially sustainable and fair, it is best conceived as a corridor-focused demand management tool rather than a revenue cross-subsidy mechanism.