Do User Taxes Pay for Highways?

The Post-Dispatch recently published an op-ed from the Center for America Progress (CAP) that argues that all forms of transportation, including highways, are highly subsidized. The article specifically states that 46 percent of Missouri’s major roads do not pay for themselves. Because all modes are subsidized, the author suggests Missouri should stop dedicating road user taxes to highways. This would allow the state to “balance” its transportation spending, namely by spending more on transit. But if we compare highways to transit, there is no balance either in terms of importance to Missouri’s economy or the amount of public subsidy.

In terms of sheer importance to the state economy, there is no contest between the Missouri state highway system and transit. The state highway system carries virtually all cross-state traffic, most commuters, and $711 billion of freight annually. Transit carries a tiny sliver of commuters in the state’s largest cities. Even in Saint Louis City and County, where the state’s transit network is most dense, less than 5 percent of commuters use transit.

What of subsidies? In 2013, the largest source of non-user funding the Missouri highways received was from the now chronically underfunded federal highway trust fund. In that year, Missourians sent the federal government about $877 million in road user funds and got back about $938 million to spend on highways. That’s a $66 million subsidy. Add in local spending and other small sources of non-user fees, and Missouri’s subsidies for all highways is around 10 percent.

How, then, can CAP claim that 46 percent of major highways do not pay for themselves? First, the study CAP issued broke highways and arterial roads into sections, which may not be an appropriate way of measuring the cost-effectiveness of highways. One should note that, on this measure, 54 percent of the system either broke even or was in the black (36 percent). Second, CAP’s study does not look at all forms of indirect user fees, including permit fees and other non-fuel taxes. Using incomplete data from the FHWA (which counts bonds and reserves that may be based on user fees as non-user revenue), At most, 24 percent of Missouri’s highway spending is not derived from user fees. That means, even with no tolling and the fifth lowest gasoline tax in the nation, user fees manage to pay for at least 76 percent of highway costs.

With transit in Missouri, taking 2013 as an example, fares only covered 16 percent of total costs. In years with major construction, this number falls below 10 percent. And while CAP claims 46 percent of highway segments are in the red, every segment of Metro, including MetroLink, is deep in the red. The best bus routes (counting only weekdays in Metro’s highest ridership months) recover 82 percent of its operating costs from fares. Most routes perform much worse, with a third of all routes receiving subsidies in excess of 80 percent of their operating costs. The numbers are no better in Kansas City.

Comparing the systems, it is clear that highways could be paid for entirely with user fees, especially if rigorous cost-benefit analysis is used to evaluate new highway projects. We argue for this all the time. Transit is a different story. It would be essentially impossible for Metro to break even using fares, which would have to quintuple in order to cover just its operating costs. As that would make a reduced monthly pass $195 and a regular pass $390, it is safe to say people would stop riding Metro altogether before it broke even.

CAP essentially would have Missouri take user revenue from the system virtually all Missourians use and depend on in order to give more money to a system that very few use despite incredible subsidies. CAP’s plan is fiscally irresponsible and endangers the future of transportation in Missouri.