Road User Charging: Where to Next The Infrastructure Funding Debate

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Road User Charging Where to Next?The
Infrastructure Funding Debate

• Professor David A. Hensher FASSA
• Professor of Management
• Director
• Institute of Transport and Logistics Studies
  (ITLS)
• Faculty of Economics and Business
• The University of Sydney
• July 4, 2005
• ALGA National Local Roads and Transport Congress,
  Launceston

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What the Internet Says

• Type in Road Funding/Road Financing
• What one mainly finds is
• We want more money
• We deserve more money
• We were promised more money
• Where is it?
• It is not fair
• What often seems lacking are
• suggestions on what we might think about in the
  future to move forward on a wider front to a
  global and sustainable approach to road funding

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A Common Tale

• On a June day in 1979, drivers leaving Seattle
  crossed the Evergreen Point Floating Bridge and
  dropped 35 cents into a toll bucket, helping to
  finish paying for the bridge's construction
• Nobody has paid to use a public road in the
  Seattle area since
• As in much of the West of the USA (California
  excepted), the lack of tolls has been a point of
  pride and a symbol of the open road
• After two decades of steadily increasing traffic,
  however
• Seattle's roads are clogged,
• bridges are in disrepair
• Regional planners and some commuters have begun
  to consider tolls to be part of a solution

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The Pillars of Funding regional, rural and
urban contexts

• In Urban Areas the matter is increasingly
  Congestion, in Regional and Rural Areas the
  matter is Distance
• Despite the growing commitment to the environment
  and residential amenity
• Public Sources Increased Community Participation
• Money from Government Roads to Recovery and
  Auslink
• Private Sources Greater mobilisation of private
  capital
• 20 suggested by European Commission for its
  Trans-European Network
• User Sources Road user charges
• Kilometre fee development (all networks)
• With/without fuel tax compensation
• Congestion charges (specialised setting)
• Even by vehicle type (like North Sydney 4WD
  parking levy)
• A Reminder of the
• Imperative to build new roads vs
• The need to improve or maintain the existing
  system (given the maintenance backlog)

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Issues Arising in Infrastructure Provision and
Funding

• Which roads funded by which pillars?
• What service differences across road types?
• Criteria for new approaches
• Efficiency
• Relevance (national policy compliance)
• Fiscal neutrality (at least no net decrease)
• Fairness (Equity)
• Competition (especially opportunity cost of
  funds)
• State compatibility (harmonisation.)

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Why a Move to a Distance-Based charge and away
from Fuel taxes makes sense

• Damage to roads rises faster than linearly with
  payload per axle, yet fuel consumption rises less
  than linearly with payload
• Hence, fuel taxes are quite inappropriate for
  capturing road wear costs and for encouraging
  efficient practices

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Road Use Accounting Distance-Based Charges

• Vehicles are charged/taxed by the distance they
  travel and not solely by fuel use
• Good sense in many ways
• Economic efficiency
• Fairness
• Fuel taxes (as allocated non hypothecated)
  increasingly delivering a shortfall in revenue to
  maintain, improve and construct the road
  infrastructure
• A Paradoxical bane to road managers
• vehicle manufacturers are delivering ever lower
  fuel consumption on ICEs and the move (slowly) to
  hybrids, cleaner diesel, fuel cells

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Distance-Based Charges A True Use Charge

• A true road use charge facilitated by
• GPS/speed sensor vehicle tracking
• Calculated by on-board electronic (accumulating)
  odometers (OEO)
• Remotely assesses from central computers capable
  of applying a range of charging regimes
• Uniform road-use charges
• Congestion pricing (differential charging
  according to traffic conditions)
• Adjusted-upward charges for road use in remote
  areas (maybe excluding local residents?) where
  maintenance costs are high and kilometres
  travelled relatively less
• Graded distance fees (economies of distance
  travelled charges linked to equity)
• Many more possibilities?

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Distance-Based Charges How Does (Might) it Work

• Participants in tracking/distance reckoning and
  road use assessment system
• The vehicle
• The refuelling station (be it a service station
  or a truck station or other)
• Tracking can be defined spatially
• Within State (on-board electronic odometer (OEO)
  shut down out of State by GPS system)
• Within jurisdiction (excellent use in use
  accounting even without charges)
• Electronic odometer records distance in
  jurisdiction
• Central computer
• Wirelessly intercommunicating with OEO
• Calculates road-use charge and applies it at
  point of sale, at the fuel pump.
• Once the charge has been paid (EFTPOS) the
  system turns OEO back to zero, re-initiating the
  road-user charge procedure

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Extending Use charge formula to handle multiple
criteria Overview of pavement damage road user
charging system
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This is not Dreaming but Reality

• House Bill 3946 passed in 2001 in Oregon State
  Legislative Assembly
• Mandated mission To develop a revenue collection
  design, funded through user pay methods,
  acceptable and visible to the public, that
  ensures a flow of revenue sufficient to annually
  maintain, preserve and improve Oregons state,
  county and city highway and road system
• ODOT required to develop alternatives to current
  highway taxing use through fuel taxes
• It does not stipulate distance based charges
• Road User Fee Task Force Program
• White Paper from Californian Performance Review
  (CPR)
• Initiated by the Californian Governor with
  reporting back to the Governors Office
• CPR, Office of Governor Arnold Schwarzeneger,
  State Capitol
• Diminished proceeds from fuel taxes
• Funding by the gallon from fuel-use taxes no
  longer suffices, despite some additional Federal
  Govt contributions
• As little as 0.1 of a US 1 cent fee per use-mile
  would generate annually US310m
• Applicable to Australian States and LGAs?
• A charge as small as 1 cent per kilometre might
  make a difference to the road budget?
• Feasible from Financial and administrative
  Perspectives
• Collection and allocation war between Federal ,
  States and LGAs?
• Confidentiality issues compliancy with Privacy
  Acts

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Distance-Based Charges and Fuel Charges what
Mixture?

• Blended Charging
• Incremental Introduction
• Can be implemented above the existing fuel taxing
  regime
• Maintain full fuel tax rates
• Reduce fuel tax rates by varying percentages (to
  ensure revenue neutrality for revenues not
  earmarked to roads see caveat comments on later
  slide)
• Charging rates per kilometre determined by
  revenue needs (a reasonable starting position)
• Considerations of equity and efficiency
  permissible cross-compensation
• e.g., in congestion contexts delayer
  compensates the delayed
• Since the charge is applied at point of sale of
  fuel, it is very easy to vary the fuel charge
  component
• A Supply Chain Application (Logistics)
• Vehicle manufacturing supply chains need to gear
  up to introduce the technology in vehicle design
  (including equipment tampering protection)
• The fuel network is part of the supply chain
• Equipment costs
• when factory installed distance reckoning
  equipment in every vehicle is likely to be under
  100
• We promote free installation and supply to
  vehicle owners (like RTA free supply of Etags for
  toll roads)

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An Example of the New Funding Regime (revenue
neutral initially)

• Current situation
• Travel time Fuel cost
  Other charges Total fuel and charges
• Peak period 1 hr 15 min 30.00
  None 30.00
• Off-peak period 55 min 24.00
  None
  24.00
• Same trip under distance-based use charges
• Assuming a 50 reduction in fuel taxes
• Travel time Fuel cost
  Other charges Total fuel and charges
• Peak traffic period 1 hr 10 min
  15.00 15.00 30.00
• Off-peak period 50
  min 12.00 12.00
  24.00

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Example of Charge under Revenue Neutrality Cars
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Earmarking/Hypothecation A Specific Comment

• Governments already participate in Hypothecation
  to varying degrees
• Parking charges
• Developer Levies
• Workplace parking levies
• So what about Road Use Charges?
• Tricky issue that may initially have to be linked
  to fuel tax allocation back to the road system
  (or at least to Local Govt)
• For example The 2000 Transport Act in UK allows
  Local Authorities to introduce congestion
  charging and retain the collected revenue
• 2001 Durham, 2003 London (cars originally 5
  pounds, now 8 pounds)
• Earmarking has pluses and minuses
• Pluses
• Applies benefit theory of taxation
• Ensures a minimum level of expenditure for
  desirable govt functions
• Ensures continuity for specific projects
• Can help in overcoming resistance to new taxes or
  increased rates
• Minuses
• Hampers effective budgetary control
• Can lead to misallocation of funds (excesses and
  under provisions)
• Imparts inflexibility to revenue structure
  (especially in volatile times)
• Risk of remaining in place long after need

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Final Comments on Distance-Based Charges in a
Blended Charging System (BCS)

• A BCS has all the appeals of efficiency, fairness
  and revenue growth
• Huge political mileage if partial replacement of
  fuel tax
• It can be tailored to suit the local situation
  economically and politically
• Kilometre-based charging is coming regardless
• Tolls roads in Sydney (M7 in particular, due to
  open in 2006)
• The entire Regional network in the Netherlands
• The local roads in Germany
• Australia is well placed
• Interoperable electronic tolling in
  Sydney/Melbourne/Brisbane
• Hence extensive exposure and experience with
  electronic pricing (and widespread acceptance in
  Capital Cities)
• A huge amount of intellectual knowledge of
  advance intercommunication systems
• Vehicle, Road operator, Banking system,
  Telecommunications provider
• The issues is
• No longer Why or What?
• But When? (How has essentially been resolved)
• Whatever happens it must demonstrate Value for
  money and benefits to Users

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Summary table of key features of current and
proposed HGV charging systems
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The key functional requirements for the prototype
charging system

• to estimate a vehicles position on the network
  with sufficient accuracy to determine the
  individual road links that have been traversed
• to measure vehicle speed and distance travelled
  road links between any specified data polling
  interval
• to measure continuously the axle loads of a
  vehicle while in transit
• to store data recorded on the vehicle
• to provide a means of retrieving data recorded on
  the vehicle
• to identify relevant pavement characteristics for
  all road links used by an individual HGV from a
  pavement database
• to estimate the relative pavement damage caused
  by individual vehicles over a given distance or
  during a given period of time

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Other Matters

• Road vs Rail or Road and Rail integration in a
  supply chain
• Worth encouraging but unlikely to impact greatly
  on road needs
• Indeed Road access to/from rail hubs will be
  essential
• We have to stop being so modal and focus on the
  best way to serve the market
• Public-Private Partnerships
• Great appeal in urban areas
• Degrees of Success depending on who you talk to
• Careful with high levels of subsidy support
• Growing appeal in Statewide National
  Highways/major State roads
• Limited appeal otherwise with one possibility
• Agency to manage the Blended Charging System
• Tollroad Infrastructure and Toll Collection often
  different organisations (eg., M2 Hills Motorway
  and TollAust)
• Distance based use charges may well remove the
  necessity to venture into PPPs
• PPPs are often the consequence of political
  inability of government to sell the need for
  further finance by way of taxation or debt
  raising to fund projects, and to fast track
  important infrastructure (see Special Issue of
  Australian Accounting Review, Issue 33, Vol 14,
  July 2004)

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PPPs Treat with Care

• It is by no means certain that they will be more
  efficient than traditional public investment.
  Moreover PPPs can be used to move investment off
  budget and debt off government balance sheet
  while the government still bears most of the risk
  and faces potentially large cost that will
  eventually be borne by taxpayers Finance and
  Development December 2004
• If PPPs are to deliver high-quality and
  cost-effective services to consumers and the
  government, there must be adequate risk transfer
  from the government to the private sector. The
  quality of services has to be contractible so
  that payments to service providers can be linked
  to performance and the risk of costly contract
  renegotiations can be minimised
• There has to be either competition or
  incentive-based regulation
• An appropriate institutional framework
  characterised by political commitment, good
  governance, and clear supporting legislation is
  needed
• The government will have to refine its project
  appraisal and prioritisation skills so it is able
  to manage a complex PPP program
• Currently there are no international accounting
  standards for reporting PPPs
• The lack of such a standard raises concerns about
  transparency, especially regarding the
  longer-term implications of such schemes

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PPP Funding Models

• Alternative Ways of Defining PPPs
• Big Bundling (Current Practice)
• Selection of Best in each Category
• Banks and other Finance Organisations
• Construction
• Traffic
• Patronage forecasts

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Roads in a Supply Chain The Success Factors

• An Observation
• When local governments are weak, they dont (may
  not) ask for much.
• When local governments dont do much, they remain
  weak
• Where do you break the cycle? Local Participation
• Success Factors
• Have clearly defined and complementary objectives
• Avoid trying to achieve too much in the early
  stages
• Achieve at least some of the promised benefits as
  quickly as possibility (building credibility)
• Gain the support of politicians of all
  persuasions
• Be seen to work properly and reliably
• Gain the support of the public users and
  non-users
• Be understood by the public
• Have flexibility to develop as circumstances,
  public attitudes, objectives and technology
  change, and being able to tweak to react to
  unexpected events
• Pay attention to detail
• Where the distance-based charge is a congestion
  charge, offer realistic alternatives to
  travellers who wish to avoid the congestion
  charges (e.g., public transport, other routes
  with a lower distance based charge)

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Thank You