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Gas taxes fund highways construction and people pay for their own private vehicles, so the whole system is funded by the users.

Absolutely, totally wrong. Highways are heavily subsidized, and unfortunately most of those subsidies are invisible, thus making it difficult for people to understand that they're getting a free ride at the expense of taxpayers. The best way to understand highway funding is to think of three concentric circles.

Concentric Circle #1: Fuel Taxes

Thanks to the efforts of the Better Roads Movement in the post-World War I period, many states have constitutional amendments that restrict the use of fuel tax money for highways only. Those who managed to escape this effort of the highway lobby ended up with similar statutory restrictions on fuel tax use. It would be wonderful if the contents of Concentric Circle #1 could pay the total cost of highway construction and maintenance, but it can’t. More money is needed.

Concentric Circle #2: Other Transportation Taxes

Many states have motor vehicle excise taxes, a sort of property tax on cars. There are state licensing fees for cars and tonnage fees for trucks. There are taxes and fees galore in different states, and while some of them can be spent on rail, transit, environmental abatement and port facilities, the lion’s share goes to highways. It would be wonderful if the contents of Concentric Circles #1 and #2 could pay the total cost of highway construction and maintenance, but they can’t. Still more money is needed.

Concentric Circle #3: The General Fund

We all know about the federal income tax. Most states have a broad-based tax such as a sales tax or income tax. This money can be used for anything, but in every state the legislature appropriates some money for highway construction and maintenance out of the general fund. Here transportation needs compete with education, welfare and a whole lot of other state needs, so the battles can be savage.

When you average a lot of numbers you can lose sight of each number’s individual uniqueness. So when I say that an average of 30% of highway funding comes from state and federal general funds, that covers a multitude of higher and lower numbers. But it’s a fact. The contents of this circle are a subsidy, pure and simple. This subsidy permits you to drive on the public highways and not pay what a cost accountant would deem “your fair share”.

If you truly want highways to be funded from the contents of Concentric Circles #1 and #2 -- i.e. by user fees and subsidy-free -- you’ll have to raise the combined federal and state fuel taxes to at least $2 per gallon to pay for it. This will effectively destroy the trucking industry and force shippers to move goods by rail. It will also take the ability to own and operate a car out of the hands of millions of Americans, who will actually be forced to rub shoulders with their neighbors on buses and trains.

But it gets even worse: Transportation taxes will never go down. Why? Every time you build a new highway or increase capacity on an old one, you increase the maintenance base of your system. That means the cost of maintaining your highway system will always increase. And that means your transportation tax burden will always increase. You’re on a treadmill to penury unless you find a way to step off. There are two ways: triage and privatization.

Triage

Have you ever seen a state remove the number from a highway and turn it over to a county or municipality? It does happen on occasion. Some state highway departments have the authority to give and take highways at will (Maryland). In other states the legislature makes the call, either consulting with the highway department (Washington) or dictating to it (New Jersey). But this merely shifts the burden elsewhere. Most states have formulae for handing out the contents of Concentric Circles #1 and #2 to counties and municipalities. But these monies get mixed with property tax revenue and other county and city taxes to maintain non-state highways. Somebody’s taxes will still go up.

Another method of triage is to tear out a highway. This has only been done in two places that I know of. In Portland, Oregon, a short freeway link was demolished to make way for an urban park along the Willamette River. In San Francisco a freeway was demolished because it was both an eyesore and was badly damaged in the 1989 earthquake. I don’t see roads being torn out on a massive scale in my lifetime.

Old Privatization Paradigm: The “Closed” Financial System

The Pennsylvania Turnpike was built in the Thirties on the model of the German autobahns. It had no speed limit and bypassed the major cities. After World War II, New Jersey, Ohio, Indiana and Illinois linked up to the Pennsylvania Turnpike and spent a decade building a toll limited access highway to permit people to go from New York to Chicago at high speed without encountering a traffic light. People gladly paid for the privilege.

To avoid complaints that people were paying twice -- once at the toll booth and again at the gas pump -- the highways were built on a “closed” financial system. The toll highway authority was authorized by the state legislature to issue revenue bonds based on future revenues to be generated by tolls and by leases from gas stations and restaurants at the service plazas. No tax money was used. (A member of the authority that owns the Atlantic City Expressway toll road once commented to me, “Owning and operating a toll road is like having a license to print money.”)

Some of these toll authorities were authorized to exist in perpetuity, and others were to be reviewed by the legislature every time a bond issue was redeemed. When the National Interstate and Defense Highway Act of 1956 was passed, the federal government forbade the use of Highway Trust Fund money on any toll road, even if it carried an interstate number. This created an interesting situation in Connecticut.

In 1975, a bridge on the Connecticut Turnpike collapsed into a river, killing nearly 100 people. An engineering study showed the cost of fixing up the basic infrastructure to be in the billions and the cost of expanding the highway to be even higher. You may remember the cost of money in the Carter era, which is why the state thought that authorizing a new bond issue for the turnpike would be a mistake. So the state legislature violated the principle of a closed financial system and appropriated enough money to call the remaining bonds, dissolve the turnpike authority and take the tolls off the turnpike. This opened it up for Highway Trust Fund money because it was Interstate 95, and the federal-state split in those halcyon days was 90-10. The Connecticut congressional delegation went to Washington with palms outstretched and brought home enough highway pork to rebuild Interstate 95 on the federal nickel.

New Privatization Paradigm: The “Mixed” Financial System

Virginia, Florida, Texas, Colorado and California have been building toll roads where the principle of “toll equity” permits mixing gas tax money with toll income. These toll highways permit motorists to bypass badly congested suburban areas and charge a premium on this based on time of day. It is a “mixed” financial system, which normally would have people up in arms because they are in fact paying for the highway twice. But the roads have become popular enough that Texas is considering building an entirely new statewide network using this principle.

Public Transportation

Before the Depression, America had the best privately owned transportation system in the world -- our railroads. After the Depression, the cost of labor made it impossible for private entities to make money hauling passengers by rail. That is true today more than ever. But there are people who do in fact make money from light rail lines (trolleys) or heavy rail metros (subways) -- the owners of properties near the stations.

It used to take 20 years before a new rail line created growth along its right of way. Now it comes even before the line opens. Portland's Westside MAX, for example, engendered over $6 billion in real estate development along the line, not only with respect to shopping and office space, but also with respect to housing development. These are the people who make a profit from rail transit.

Rail transit is offered today as a public service at taxpayer expense to provide an alternative to more roads. Why? Because rail provides more bang for the buck. To improve a highway, you have to build wider. That's expensive, and it gets more expensive each time you have to increase a highway's capacity. The Ironclad Law of Transportation Dynamics is, "Transportation infrastructure creates its own demand." Every time you increase highway capacity, you buy yourself only 3 to 5 years before the road fills up, and it becomes time for the next generation of improvements. Look at a map of Southern California, and you'll see what happens when the highway lobby gets its own way for 50 years.

To improve a rail line, you build longer. By this I mean longer station platforms and running longer trains. This is much cheaper than building wider and provides more bang for the transportation buck.

All successful cities are congested, and urban life is all about managing congestion, not eliminating it. (If you want to see a city that is not congested, visit Buffalo.) The key is to facilitate commerce, and that's why smaller cities, as they grow and densify, look more and more like the older eastern cities with their subways and trolleys.

Building rail is cheaper than building highways and produces greater throughput. People may not like to give up the freedom of the single-occupancy automobile, but as population density grows in an area, it is unreasonable to expect to drive your SOV on an empty urban freeway at the height of the rush hour at 70 mph.

I often compare this to living in a house versus living in an apartment. If you live in a house, you can practice the piano, crank up the stereo or have a shouting match with your spouse without incurring major trouble with your neighbors. If you live in an apartment and try any of these things, you will get a warning the first time and get evicted the second time.

Living in the city is like living in an apartment. Rugged individualism doesn’t work in the city. When people are densely packed together and your neighbors are above, below and next to you, decisions are made and lives are lived collectively. That’s why public transportation is built and operated with subsidies. Just like highways.

Light Rail Sometimes Fails

There are three notable failures in the world of light-rail systems.

Buffalo, for the reason mentioned above. It is a dying city, and the idea of revitalizing it by building a light rail line was foolish.
Los Angeles Green Line. This was the price that had to be paid to build I-105, the Century Freeway. Because the combined right of way ran next to the major defense plants of Los Angeles County, it was thought that a rail line would make life easier for commuters to these facilities. Unfortunately, by the time the line opened, the Cold War had ended, and the plants were empty. On its western end, the line fails to go into Los Angeles International Airport because the authority that runs the airport did not want anything to reduce the revenue from its parking lots. The eastern end is at Norwalk, which is nowhere.
Hudson-Bergen in North Jersey. The starter line was only one-third of what the proper starter line should have been. The line is in heavy use in Jersey City, thanks to Bret Schundler bringing that municipality back from the dead. But the line runs empty elsewhere. However, once full build-out occurs and the line runs all the way along the west side of the Hudson River, it should be a success.

Regretably, I will soon be able to include the Camden-Trenton diesel light rail line in this list of failures. It will open later his year.

But Light Rail Usually Succeeds

San Diego, Calgary and Portland have been hugely successful. I don’t measure success by whether the line can support itself from the fare box. That is naïve. I ask the question, “If the line disappeared tomorrow morning, would there be gridlock in the region?” For the above cities, the answer is a resounding Yes.

San Jose’s line is a bit questionable right now, but that will change over time.

Denver’s line has become a success.

Salt Lake City and St. Louis are expanding their lines because the people are demanding it.

Conclusion

Portland has decided to become a European-style city, concentrating its people in urban villages, and relying on rail to get people around. This is a wise choice. This is what makes a successful, sustainable city.