Tuesday, December 2, 2008

The wrong approach on tolls

Here's Governor Patrick on the gas tax:

If it's a gas tax where we're talking about taking all the tolls down, now we're getting somewhere.

It's about 10 seconds into this episode of Jim Braude's NECN show*. (You have to wait through a commercial first.)

That is absolutely the wrong way to frame the issue.

As we settle into discussions about how to fix the Pike and the Commonwealth's other transportation needs and problems, policy-makers must keep the various issues at play straight. In particular, they must recognize that revenue is not the only benefit that tolls provide.

During peak periods, tolls serve a non-revenue function: they allocate the asset — the limited space on the road — to those who place a higher value on it. Tolls keep some people off the road, which makes the going easier for those willing to pay the toll. If there are no tolls (or too low tolls), the right to travel on the Pike is badly allocated. It's an economic truism: underpriced assets are badly allocated. An asset is underpriced if demand exceeds capacity. Congestion is the sign that Pike demand exceeds capacity.

When the Pike demand is below capacity — during the substantial off-peak period — there is no pricing problem or opportunity. During those periods, tolls serve only a revenue function.

Apparently, Governor Patrick wants to fashion himself in the mold of the sledgehammer- wielding populist Bill Weld, who personally took up an implement of destruction to begin demolition of the Newton toll plazas way back when. But, it's a know-nothing kind of political opportunism. The so-called free commute creates all sorts of unintended — but absolutely predictable — costs.

For those willing to pay the tolls, there's a benefit to keeping those unwilling to pay the tolls off: a faster commute. If you don't keep off those unwilling to pay the tolls, those willing to pay suffer. Time is money. Congestion creates pollution and wastes energy. Free Pike travel reduces demand for T and commuter rail. More people driving into Boston taxes Boston streets.

Those costs — externalities — can be reduced or eliminated by managing the tolls with peak-period pricing. Right now, Pike tolls are too low during peak periods and there's not enough difference between peak and off-peak prices. We know peak-period tolls are not high enough because there is regular congestion. Raise them every six months until congestion disappears — allocation is optimized. Provide a meaningful discount between peak and off-peak toll rates and people will have an incentive to time-shift their travel. Time shifting is important because under-use is just as much of a misallocation as over-use. Ideally, the Pike would see traffic spread out more evenly across the day.

So, no, Governor Patrick, eliminating tolls should not be an objective, much less a condition of a gas tax. Perhaps, it make sense to reduce the off-peak tolls. But, given the premium ride you get on the Pike v. local roads, there ought to be some toll off-peak.

In another post, I'll address three issues I didn't address here:

  • Regressiveness of tolls, particularly higher tolls
  • Fairness of tolls on the Pike v. no tolls on I-93
  • Impact on local roads

*Braude and his guests Dan Kennedy and Tom Palmer are sadly uninformed on the show's main topic: the Pike's swap option deal that's got them on the hook for tens of millions. But, all three of them come to reasonable positions on hiking tolls and the gas tax.

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