Vikki Wiercinski

Should Alberta Have Toll Roads?

Enid Slack, the director of the Institute on Municipal Finance and Governance at the University of Toronto, says yes.

For people tired of being stuck in traffic or concerned about the health and climate impacts of poor air quality from vehicle emissions, toll roads have a lot to offer. Tolls are a form of road pricing that influences all aspects of the choices people make about travel, including short-term decisions about how often and when to use the road, as well as longer-term decisions about where to live and work.

Although tolls can generate needed revenues for local governments, this is not their primary purpose. Their primary purpose is to signal to drivers the true cost of using the road. When drivers decide to drive, they consider their private out-of-pocket expenses, such as fuel, insurance and depreciation. They do not take into account the social costs of their trip, in particular the costs associated with the congestion and pollution they create. Tolls incentivize drivers to make travel choices based both on private and on social costs.

Without tolls, drivers will use roads more than if they had to face the full cost of doing so. And when roads become congested, drivers will demand more roads, resulting in the need for more public investment. With tolls, however, those who provide the road (typically government; sometimes the private sector) have an incentive to adopt the most efficient and effective way of providing it, supplying it only up to the level and quality that people are willing to pay for.

Road tolls can improve air quality and reduce greenhouse gas emissions by reducing the number of cars and trucks on the road and time spent idling in traffic. By pricing roads, people will have a greater incentive to use mass transit. Tolls can also help curb urban sprawl, because the increased cost of commuting makes it less desirable to live far from work.

Advances in technology have made it much easier for local governments to impose road tolls, and electronic tolling has made it easy for drivers to pay the charge without slowing down their trip. Technology also allows for tolls to vary by time of day, distance travelled, vehicle occupancy and other factors. Tolls can be effective in reducing traffic congestion if they are higher in peak demand hours and lower in off-peak hours. It’s also possible to toll only some lanes, so that people who can’t afford to pay and don’t have good access to mass transit still have an option.

Highway 407 in the Greater Toronto Area, which is privately owned and operated, charges vehicles according to location, direction of travel and time of day. Canada has other examples of toll roads and bridges (Albertans will remember BC’s formerly tolled Coquihalla Highway), but not many. The lack of proper road pricing has been a primary cause of highway congestion and urban sprawl, environmental degradation, lost productivity and reduced economic activity in large cities and urban areas across Canada. We need to think more seriously about introducing tolls on major roads and bridges.

D.T. Cochrane, the economic researcher and analyst at Canadians for Tax Fairness, says no.

“We face a fiscal reckoning [and] need to find creative ways to build new infrastructure projects.” So said former Alberta Transportation Minister Ric McIver, justifying tolls on new and expanded highway infrastructure. By invoking a fiscal reckoning that his government has imposed on itself, the minister sidesteps the real question: Are tolls preferable to other options for financing infrastructure? On both justice and efficiency grounds, the answer is a resounding no.

Tolls systematically reduce access based on who can afford to pay. It’s not only the toll road or bridge that gets closed off. Access to public goods connected by the toll road or bridge is also restricted. Bill 43—the UCP’s legislation allowing toll roads—does require that “a non-toll alternative route [be] available.” However, this isn’t needed if “stakeholder engagement supports proceeding.” It’s not clear how stakeholders are defined or how their concerns and interests will be assessed, or what would constitute an appropriate alternative.

Tolls also happen to be a regressive way to pay for highway infrastructure. A toll is typically the same for all personal vehicles. Therefore, people with higher incomes pay a smaller share of their income to use the infrastructure.

Proponents of tolls often use a model of supply and demand to claim that public funding creates inefficiencies. However, the assumptions behind this—such as competition among many sellers—make the argument inapplicable in the real world.

Simple accounting tells the actual story: that tolls end up costing more. First, tolls must cover the cost of operating the toll itself. Moreover, Bill 43 authorizes third-party operation of toll collection. That means the cost of operating the tolls may also include business profits, high executive salaries, higher private-sector financing costs and other business expenses.

Tolls are typically removed once the capital costs of the infrastructure have been repaid. But Bill 43 doesn’t state how toll revenue will be distributed. If other costs are prioritized, capital cost repayment could be prolonged indefinitely.

One justification given by McIver is that tolls help reduce congestion. However, unless the toll applies to all routes, it just entices drivers to take slightly longer routes, which will increase congestion on those roads and worsen carbon emissions.

Meanwhile, about that “fiscal reckoning”: The bridge at the centre of this debate—Highway 697 crossing the Peace River—will cost $200-million. In 2019 the UCP cut the corporate tax rate from 12 per cent to 8 per cent. In 2020/21 Alberta collected $3-billion in corporate taxes. If the UCP had kept the 12 per cent rate, it would have collected plenty of revenue to build this bridge and more. Governments can also use deficit financing. Debt only becomes a concern when interest rates exceed economic growth. But interest rates are likely to remain low.

Tolls will just end up costing Albertans more to create a two-tiered system.

Enid Slack responds to D.T. Cochrane

D.T. Cochrane writes that taxes are a better way to raise revenues to pay for new and expanded highway infrastructure than road tolls. But that view does not appreciate that road tolls have a much broader and longer-term usefulness than simply as a way to generate revenues. Their greatest potential benefit is in relieving traffic congestion and reducing GHG emissions. Traffic congestion costs our economy billions of dollars every year and pollution has a lasting negative impact on our health. By making the costs of congestion and pollution explicit to drivers, tolls influence our decisions about how and when to travel. Although tolls can bring in significant revenues to pay for infrastructure, that shouldn’t be their main purpose, and the use of tolls should continue even after the infrastructure has been fully repaid.

Even if one thinks that tolls are simply a source of revenue, they are actually a better way to pay for highway infrastructure than taxes, in large part because they avoid the distortions created by an increase in tax rates. Personal income taxes, for example, distort the choice between work and leisure; sales taxes have an impact on consumer spending; residential property taxes affect decisions around what kind of home to buy, and so on. It is particularly difficult to justify corporate income taxes as a way to pay for roads, as suggested by Cochrane, when these taxes have been falling in major trading countries. Taxing corporate capital and corporate profits encourages firms to shift their investments and profits to lower-taxed jurisdictions. Furthermore, when governments provide roads out of general tax revenues, non-driving taxpayers are essentially subsidizing drivers, which flies in the face of the benefit principle of taxation that links those who benefit with those who pay for services.

Tolls are often criticized for being regressive because, as Cochrane says, “people with higher incomes pay a smaller share of their income to use the infrastructure.” Claims that road pricing hurts the poor are often exaggerated, however. The reason is that poorer people tend to travel less than richer people and they rely more on public transportation. And a reduction in the number of cars on the road would benefit transit users too, because transit could also go faster. Transit users would likewise benefit if toll revenues were spent on improving public transit. Moreover, equity concerns can be addressed by offering discounts or exemptions for certain users.

Tolls do more than just generate revenues—they can relieve traffic congestion and reduce CO2emissions.

Another way to address equity and still reduce congestion is to put tolls on only some lanes, such as high occupancy toll (HOT) lanes. Tolling is applied only to vehicles that are below a minimum occupancy requirement—typically two or three people. Toll-free lanes run alongside HOT lanes and offer drivers the choice of bringing passengers, paying for a quicker trip, or sticking with the toll-free lanes. HOT lanes are reasonably easy to implement, they provide unpriced alternatives for drivers who do not want to pay to use the road and they reduce congestion. They have met with success in several US jurisdictions and in southern Ontario.

Diversion of cars from toll roads to other roads is also an issue that needs to be addressed, as Cochrane notes. Some experts have argued, for example, that tolls should be lower on roads in neighbourhoods that have fewer public transit options. Others have argued that improvements in public transportation should precede the implementation of road pricing. For example, the success of the congestion charge in London, UK, is in part attributed to improvements in bus service before road pricing was introduced, giving drivers an alternative to paying the toll. Tolls will thus need to be accompanied by improvements in roads and transit so that drivers have viable alternatives to get to their destination.

The cost of collecting tolls is not insignificant, as Cochrane suggests. These costs can be as low as 5 per cent of revenues but can exceed 10 per cent on many US toll roads. Costs will vary with the complexity of the pricing scheme, the coverage and the infrastructure. But we have seen costs fall over time as the technology improves. It is also worth looking into satellite technology, which is used in many European countries to provide a more economical way to toll vehicles.

All of the issues Cochrane raises are important to consider in the design of tolls, but they don’t provide a reason not to implement tolls. Overall, the case for road pricing is solid. Efficient road prices are an effective travel-demand-management tool for reducing traffic congestion, pollution and other external costs of driving. Congestion not only imposes costs on individuals in terms of time and lost income; it also affects the environment, our health, the economy and the overall livability of our cities. Tolling roads will reduce traffic congestion and result in economic and environmental benefits.

D.T. Cochrane responds to Enid Slack

The standard economic justification for tolls is that they make the individual who benefits from using the tolled bridge or highway pay the actual cost. This is supposed to maximize efficiency. However, this seemingly common-sense idea is on unstable footing, both theoretically and practically.

Theoretically, the argument depends on numerous assumptions that don’t hold in the actual world. One is that individuals are capable of assessing the benefit they derive from using a bridge or highway and quantifying it into a price. Another is that individuals can choose whether or not to use the tolled infrastructure either by refraining altogether or by opting for a different route. But many trips that individuals take are not voluntary. For example, consider a parent who receives a call at work—their child has been injured at school. Most parents will want to get to their child as quickly as possible. How do they calculate the benefit of taking a faster tolled route? What about the benefit to the child? How about the benefit to the school, which is diverting resources to care for its injured student? Or the benefit to society when parents are able to best care for their children?

At that moment, the parent would likely pay almost any amount of money to use the faster route. The benefits are incalculable. But paying that toll will be much more onerous for some parents than for others. A mid-day trip on Highway 407 in Ontario can cost almost $60. For some families, that unexpected expense is a burden.

Relief from congestion is short-lived, and eventually vehicle emissions increase, even with tolls.

The problems with Alberta’s planned use of tolls are most apparent in the practical application. Bill 43 (2020) authorizes tolls on “new or expanded highway infrastructure.” The government says tolls will cover the cost of new infrastructure, such as a bridge to replace the La Crete ferry. But road expansion always induces more driving due to the “iron law of congestion” (traffic expands to meet available road space). Relief from congestion is short-lived, and the new infrastructure eventually increases vehicle emissions, even with tolls. (Of course, reduced emissions aren’t the stated goal of Alberta tolls.)

Bill 43 also opens the door to privatizing Alberta’s highways, since it authorizes third parties to operate tolls. If the privatization of Ontario’s Highway 407 is any indication, this will be a bad deal for Albertans. Ontario sold a 99-year lease on Highway 407 in 1999 for an impressive-sounding $3.1-billion. However, the government paid $1.5-billion to build the highway, so the sale price was actually $1.6-billion. And in 2019 SNC-Lavalin sold a 10 per cent stake in the highway at a total valuation of more than $30-billion!

Recently, Ontario forgave a $1-billion penalty owed by Highway 407’s owners, who have collected fewer tolls during the pandemic. The road is the perfect example of the folly of privatizing profits and socializing losses. Meanwhile, the province is now planning to build a costly new highway parallel to the 407 to deal with high traffic volumes on the rest of Toronto’s public highway system.

Perhaps the only positive lesson from the 407 is how technology can make toll roads easier to use and eliminate the need for toll booths, which create slowdowns and more vehicle emissions. However, these upsides are minor relative to the scale of the problems of congestion and emissions. And a better solution to both problems exists anyway: publicly funded public transit.

Low-emission public transit options are desperately needed for both intra-city and inter-city transportation. Public transit can move many more people than private vehicles, in the same amount of space and with the same amount of energy use. It will also be much easier—and collectively cheaper—to create low-emission public transit systems than to replace all of our high-emission private vehicles with low-emission vehicles.

The expansion of public transit ought to be publicly funded. Alberta has repeatedly cut corporate taxes, promising the province would reap increased investment and jobs. Citizens continue to wait for those benefits. Just by restoring Alberta’s corporate tax rate to that of its closest neighbours, the province could see increased revenue of more than $1-billion per year. Publicly funding the expansion of public transit would also create jobs. These include not only the direct, immediate jobs of building and operating expanded public transit but also the indirect jobs created by making it easier and cheaper for people to move within and between cities.

Tolls could be part of sustainable transportation systems. But even if we accept the assumptions that justify tolls, the theory doesn’t apply to Alberta’s plan. Further, there are better ways to fund infrastructure. Properly funded mass transit would do much more to reduce emissions, while publicly funding transportation is more just and ensures the greatest public access.

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