Monday, July 14, 2014

Myths of the oppressed motorist: financial myths

Inevitably, when one speaks of urban issues, one hears many of the typical complaints of people who are used to driving cars everywhere. I just thought about making a list of the common myths that I see and can, hopefully, dispel.

The bottom line: financial myths


Myth 1: Car drivers are the cash cows of the government, we pay for everyone else!

It is true that car drivers pay a lot of money in taxes and fees of all kinds: gas tax, licensing fees, permit fees, etc... They are also legally forced to have insurance in most cases. The amount of money each car driver pays varies per jurisdiction, I'd figure overall between 500 and 1 000$ per year, just in taxes and fees to the government. For instance, in Québec, where I am, annual licensing fees for a car are 275 to 320$, the driver's license costs at least 68$, but can be much higher if you accumulate infractions, and gas taxes, provincial plus federal, are about 30 cents per liter (around 1,15$ per gallon).

However, it is important to point it out: all the fees and taxes car drivers pay account only for the costs on society of their driving, and even then don't account for all of them.

All jurisdictions have differences, but there are certain trends. For instance, most of Québec's driver's license and license plate fees go to fund the public auto insurance (the SAAQ), which covers bodily damages in collisions, regardless of responsibility (material damages are left to private insurances). Part of the fees also go to fund provincial highways and other roads, as does the provincial gas tax (20 cents per liter). 

Overall, in Québec we are more or less balanced. The SAAQ is neither in a deficit nor a surplus, and we currently pay 2,6 billions per year for road works (which is bound to increase by 1 billion a year soon because of current investments to repair our roads). Meanwhile, the gas tax brings about 2 billions in revenue each year, and the share of licensing fees going to infrastructure brings in another 700 millions. Our transport ministry (DOT equivalent) also requires 600 millions per year to manage the system and maintain it.

The worst thing is that we're pretty much ahead of most in North America, even if when all is accounted for, we actually subsidize roads somewhat.  In the United States, a report analyzed revenues and announced that the cumulative deficit of the highway trust fund (the amount appropriate from general revenues) was 600 billion dollars. Another report revealed that State and local road spending was funded only at 32% by user fees (including the gas tax). Worse, road spending on maintenance and rebuilding is much too low in the US, with maintenance being deferred for years on end. So, not only are current fees insufficient to pay for the actual spending level, the spending level is too low to maintain roads in decent conditions! That's a double whammy that kills this myth for good (I wish).

Myth 2: car drivers pay for transit currently, transit users should pay their own way to lower the fiscal burden on drivers

Some governments do create fees and taxes on car drivers to pay for transit projects, but this is accounting fiction. When you have to direct money from general funds to road spending as user fees are too low to pay current costs, a tax on car drivers to fund transit is quite irrelevant.

Suppose we are three and buy a 18$ pizza, with each having an equal share of the pizza (so 6$). I ask you to pay your share and demand just 3$ from you, but also ask you to pay 1$ to the other guy to help him pay his share. You are in no position to protest that you're paying for the other guy, you get 6$ worth of pizza for 4$. And that, in a nutshell, is why this is a myth.

I understand how politicians and activists may like taxing car drivers to pay for transit, as it creates a dedicated funding source for transit, however, the political repercussions on the willingness of car drivers to support transit projects may not be worth it. Especially when the tax is a farce as spending on road infrastructure is already supplemented by general funds.

Transit is quite subsidized in North America, but it is taken mostly from cities' general funds, that come mostly from property taxes... just like local streets that drivers use are funded directly from property taxes and not from any kind of user fee on cars. There is an additional reason to support subsidies for transit, because they save money to everyone else. The standard local bus for instance allows the capacity of a road to be increased without having to widen it. Suppose a certain lane can carry 1 600 vehicles per hour, at 1,25 people per vehicle (typical vehicle occupancy), that's 2 000 people per hour. Now add a bus line with a 10-minute frequency and a capacity of 50 people per bus, each bus is the equivalent of two cars, so the capacity of the road is now of 1985 people in cars and 300 people in buses, for a total of 2285 people per hour, nearly a 15% increase. With buses every 5 minutes, the capacity increases to 2570 people per hour, nearly 25% more.

This means that the local authority won't have to build as many roads as they would have needed to if everyone used cars. It also means lesser congestion, there's a reason why transit strikes lead to massive traffic jams.

Since transit saves other people money and time, there is an economic justification to provide some subsidy to it. That being said, I do prefer transit to be financially self-sustaining, for reasons I explained in another article.

Myth 3: paying for parking is exploitation and an hidden tax!

To paraphrase our right-wing friends, there is no such thing as free parking, only subsidized parking.

Any cursory analysis of parking reveals costs to someone. You need land on which to build parking or the street on which cars can park. So you have land acquisition costs, plus you generally need to pave over the land, another expense, and finally you need to pay to maintain the parking lot (especially in places where it snows). If parking is in a structure, it's even worse. Some parking garages can cost 30 000 to 50 000$ a stall just for construction.

The Victoria Transport Policy Institute estimated annual costs for parking from 700 to 4 000$ a year per parking spot, depending on where the parking is built and how it is built (surface, underground, structure, etc...).

So if the people who use the parking don't pay for it, the costs don't disappear, they are paid by someone else, or bundled through other prices. For instance, residential parking is generally bundled with the cost of the house or apartment, whether you use it or not, you pay for it, a result of parking minimum requirements. Now granted, that's an hidden cost, not a subsidy, as people are paying for their parking spots, whether they use them or not, not for their neighbors'. For commercial and office parking, these costs tend to be integrated in commercial and office rents, which can passed down to customers or employees in higher prices or lower wagers. This becomes a subsidy when some customers or employees don't use the parking, they still have to pay as much for it as those who use it, subsidizing those who use parking.

On-street parking or public parking lots are the most evident form of subsidy. It is quite rare that these provide enough revenues to compensate for the costs of providing the parking, especially if you count opportunity costs (without the parking, the land could have been used for something else and yielded tax revenues to the city). Even when there are parking fees, it is quite rare that they actually are profitable once you account the average tax yield of square foot of the area and what the land could bring had the public right-of-way been smaller, making for more land for private property owners.

Anyway, just deserves repeating that there is no such thing as free parking, what we call "free" parking is in fact parking which costs are borne by someone else than the one who uses the parking space. So asking for parking fees is just fair, it has those who use the parking assume the costs of the utility they are using.

Myth 4: gas taxes are a proper user fee for roads

This mainly comes up when talking about alternate user fees, especially tolls, which many people hate with a passion, or even the per-mile fees that some jurisdictions are exploring (charging taxes at a flat fare per mile driven rather than taxing gas).

What's the problem with gas taxes? The more you drive, the more you use gas, the more you pay. So that's a cost proportional to your mileage, right? And the heavier vehicles like trucks take more gas and damage the road more, so all is fine, right?

Yeah, no. Not at all. First of all, not all roads cost the same to build and maintain, nor are all roads paid for by gas taxes. Local streets can be quite cheap to build (but the infrastructure underneath them may be expensive), because there is almost no point to traffic lights, stop signs can do the trick, streets are narrower and shallower than highways and don't need a lot of land to be built, nor do they need sweeping curves at intersections. Highways can require the expropriation of entire neighborhoods and need insane amounts of space, the infrastructure must be built to strict standards with no at-grade intersections, all roads that cross them must do so either above or below them. That's extremely expensive, all to maintain speed. The result is that private toll-funded expressways in the world have tolls from about 10 cents per km/16 cents per mile (in flat rural areas like France and Texas) up to 20-25 cents per km/30 to 40 cents per mile (for elevated expressways in Japan or the 407 in Ontario, Canada). With Québec's gas taxes, we pay about 3 cents per km (5 cents per mile) on the highway in average, but that depends on fuel consumption, efficient cars can pay as little as 1,5-2,0 cents per km (2,5 to 3,5 cents per mile). With American tax rates, it's half that.

Worse, the gas taxes paid on these expensive roads is less than those paid on cheap local streets most of the time. That's because highway mileage is much better than city mileage in most cars (save hybrids), so as people pay in proportion to the amount of fuel used, they pay more per mile in gas taxes on city streets than on expensive expressways.

Even worse, most city streets are not even funded with gas taxes but by property taxes, being funded from cities' general funds. Which means that people driving on city streets subsidize people driving on highways. It would be fair if everyone drove the same amount of miles on city streets as on highways, but that's obviously completely false. The result is that even if gas taxes are sufficient to pay for road maintenance, how the fiscal burden is spread around is unfair and not proportional to the use of expensive infrastructure. To put it bluntly, city drivers subsidize suburban drivers.

The issue of fuel efficiency also makes gas taxes a poor candidate for user fees, as compacts use the road as much as SUVs but pay much less per mile than them. Electric vehicles and non-gas vehicles (CNG for instance) even avoid paying for the road altogether.

So the incentives of the gas tax are all wrong regarding road infrastructure. If we want to encourage less gas use and internalize pollution costs, they make a lot of sense for that, but as user fees for roads, they suck... but they're easier to collect than most alternatives, and still better than having annual fees regardless of car use.

Myth 5: each truck damages roads more than 10 000 cars, so trucks should pay 10 000 times what cars do

Like all good myths, this one has a foundation in truth. Yes, road wear is dependent to the power of 4 on weight per axle of a vehicle, so that a single truck damages roads more than 10 000 cars. In fact, when calculating road wear to determine the needed road depth, we completely ignore cars and only count heavy vehicles. However, there are factors that make this not that relevant.

1- The relation goes both ways. If you double the number of trucks, you don't need to double the road's depth nor do you double its cost. A 10% increase in pavement and foundation depth increases road resistance to wear by much more than 10%. So the cost of a road is not directly proportional to expected road wear.

2- If only trucks could use highways, most regions in the world could make do with a single 2-lane per direction highway, all the truck traffic in the metropolitan area would not fill up that highway. So why do we have so many highways everywhere? Because of commuters and their cars. I do not know of any single highway that was built because an adjacent highway was considered too worn down. When an highway is worn down, it is rebuilt, we don't build another one. All the highways we have built in metropolitan areas, especially those wider than 2 lanes per direction, were built for cars, often because of congestion on existing roads. Meaning that user fees should principally pay not for road WEAR, but road USE. On that level, yes, trucks do occupy more of the road and impact traffic more than one single car, but it's not 10 000 times more, more like 3-4 times more.

3- Other things than vehicles damage roads. Time does, and the weather, and the salt we use to de-ice roads in cold parts. Flood, landslides, earthquakes, thermal dilation, etc... All cause damage to the road. I don't think you could build an eternal road even if no car or truck used it, maybe a concrete road built directly on the bedrock in a place without wide temperature fluctuations (good luck finding such a spot).

So even if it is justified to make heavy trucks pay more, they don't deserve to pay tens of thousand times more than cars, as cars, not trucks, are the justification for the vast majority of roads and highways we build.

I intended at first to make all the myths just one article, but it's become clear that I need to split them in many articles, so I'll continue later.

1 comment:

  1. Great post. The message needs to be reiterated over and over that the overwhelming majority of the street network is not paid for with gas taxes. So many people think that gas taxes pay for all the roads, highways, and local streets, which leads to farcical arguments about things like bicycle license plates and pedestrian taxes and other nonsense.