Dynamic tolls on highways the fairest of them all

Tolls used to keep traffic moving are also the most fair to low income residents.

It turns out that the best way to keep traffic moving on busy highways is also the most fair.

Under what is known as dynamic tolling, as the demand for driving on a highway increases, the toll increases. When demand is low – late in the evenings or early in the morning, for example – the price falls. Dynamic tolling systems already in place offer a simple promise: no more traffic jams. They also provide a source of revenue to operate and build highways and allow governments to lower taxes for both individuals and business as they avoid the need to add more lanes.

That’s in sharp contrast to cities like Toronto where the price of using a highway at any given time is free (barring the 407) – which ensures that a market that matches demand for road space with supply fails to materialize. Such a system encourages an inefficient use of roads and leads to calls for an expansion of congested highways.

In contrast, dynamic tolling projects across the U.S. have been successful in both reducing congestion and increasing throughput. They’ve also produced positive environmental side effects and eased the need for more roads.

Yet, this model has had many critics crying foul, saying that such a price would produce “Lexus Lanes.” The rich could buy themselves out of traffic jams, while everyone else is left worse off, critics contend.

But research suggests that isn’t the case.

Two researchers in California found that a dynamically priced highway in Orange County, rather than a highway financed through an increased sales tax, saved low income residents money while also shifting the cost of the highway onto its heaviest users.

The researchers found that if the $34 million in revenue that was raised from dynamic tolls on the State Route 91 highway in California was instead raised through sales taxes, the lowest income group – who paid very little in tolls – would be paying $3 million for a highway system they used far less, if at all, than their middle and high income counterparts.

“From a regional planning perspective, funding freeway capacity with the sales tax is a pro-auto/pro-driving policy that taxes all residents, the rich and (disproportionately) the poor, to provide benefits to a smaller group of drivers and their passengers,” the authors conclude.

Critics of dynamic tolls who say the price of a highway should be free and financed through sales and other taxes have it all wrong, according to the researchers.

The researchers add that rather than pricing a highway “well below its marginal social costs because tolls might burden impoverished drivers,” policymakers should instead find other ways to directly help those families who need it most. Distorting the cost of using a highway for all drivers creates congestion. It also results in higher taxes, which are more of a burden on low income households.

Dynamic toll lanes are also popular with the public. A landmark U.S. study on dynamic toll lanes across the country found that while the public was often sceptical at first, the new toll lanes were generally welcomed once the projects were underway. Recent data from a dynamic toll road in Florida, for example, has been so popular with drivers that the price to use it has repeatedly hit a politically-imposed cap.

In short, dynamic tolls can save lower income residents money, ease traffic congestion and help to avoid building expensive new highways, all the while remaining popular with the public. The question is: what are we waiting for?

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org