Texas' Toll Roads: A Big Step Towards Open Markets For Transportation

Texas' major cities have been leaders in the growth of private toll roads.
By Scott Beyer | Sep 04, 2018 |
By Scott Beyer | Sep 04, 2018 |
The Sam Houston tollway in Houston, TX / Wikimedia

No city in America runs on anything resembling a free-market model. But Texas’ major cities are probably the closest thing, with vast improvements to their economies and living standards to show for it. Their looser land-use laws mean that housing supply grows quickly, stabilizing prices. Their lighter tax and regulatory structure helps businesses locate there and grow. And—shenanigans from the governor’s office notwithstanding—their openness to immigrants means they have cheap and robust labor forces.

But one market-oriented aspect little discussed is Texas’ approach to transportation. The state has 25 toll roads, more than any other state. They are particularly common in Houston and Dallas, with notable examples including the Sam Houston Tollway in Houston and the LBJ Express in Dallas. Although toll prices vary depending on time and demand, many roads are traversed for under $1.

Texas’ toll roads began as public entities, but in 2003, amid shortfalls in transportation funding, a state law was passed allowing new and existing ones to enter public-private partnerships. This brought several advantages, said Bob Poole, director of transportation policy at the Reason Foundation. The private sector—which encompasses contractors and investors, often from overseas—brought in floods of capital and innovation, creating a much more self-sustaining system.

In a typical scenario today, said Poole, the upfront expenditures that go into building a private toll road are between 15-20% government-funded (with the revenue coming from state and federal gas taxes, which are technically a user fee anyway). This is opposed to most major roads, which saddle taxpayers with the full construction costs.

From there, ongoing road maintenance is covered by the actual road users. Poole says that oftentimes, deals are structured so that the excess revenue goes back into government coffers, or at very least, to pay off construction debts. This was confirmed by a state DOT estimate which found that eliminating tolls would cost Texas $40 billion in revenue.

But what the government is not forced to do for Texas’ public-private toll roads is assume much of the risk. If a road fails—such as one stretch did along a rural portion between San Antonio and Austin—it is shuttered, and the costs eaten by the private investors. Contrast this with most other major U.S. roadways, which don’t have this level of user-fee-based accountability. Instead, they are funded–without question and in perpetuity–by gas tax revenue (and increasingly, general fund revenue). Without any market correction process, such roads don’t endure the same scrutiny about whether they are even justified. Money for them just keeps rolling in, footed by taxpayers.

Another thing Texas’ toll roads have accomplished is greater mobility. The Dallas and Houston metros, in particular, have been the nation’s two fastest-growing metros by net population since 2010. But their congestion levels are not as bad as similar-size metros, according to traffic studies by Inrix and TomTom. This is because they’ve expanded highway capacity to accommodate population growth, acknowledging that the laws of supply and demand apply to roads like with anything else. Perhaps more crucially, though, they’ve priced the use of these roads, to avoid a tragedy of the commons. And it has worked at creating many excellent, self-funded roads: as I can attest from having lived last summer in Houston, Dallas and Austin, toll roads proliferate throughout each metro, are free-flowing, and charge users electronically, so that they’re not having to stop and pay at booths.

The most congested portions of Texas’ cities, meanwhile, are the major roads that follow the generic socialized model, rather than this private one. For example, the stretch of I-35 going through central Austin is notoriously congested; this is because, as a federal interstate, it cannot by law have its existing lanes converted into toll lanes.

Yet despite the clear advantage in quality, efficiency and cost to the public, Texas’ private toll roads have grown increasingly shunned. In a poll by the Texas A&M Transportation Institute, toll roads scored as the least popular way to solve Texas’ traffic issues. And the internet proliferates with bad press about Texas’ toll roads, with much of it surfacing from local papers and blogs.

One might suspect this is rooted in the same anti-road, anti-growth sentiment common in liberal coastal cities. But Poole said that is not the case in Texas, where road growth is generally viewed as necessary. Rather, objections to toll roads “have come mostly from right-wing populists,” said Poole, who dislike footing the full cost of this particular service. Having noted that in other states, roads are provided via a broad-based funding model that appears to make them “free”, Texans have come to dislike paying directly.

Of course, the notion that major government-run roads really are free is a myth–existing gas tax revenue doesn’t fully fund them, and taxpayers, rather than users, must cover for these shortfalls. But this info is often not understood by the public, not even Texans. In May, the state House shot down a bill that would’ve allowed further tollway construction or expansion on 20 projects. Perhaps a market-oriented concept that, in America at least, has reached its broadest manifestation in Texas might come to an end.

[This article was originally published by Forbes.]