The Public Purpose
Number 26 February 1999

US Streets and Highways:
User Fees and Subsidies: The Difference

Opponents of highway investment often claim that highways do not pay for themselves, because they are supported by general taxation. While streets and highways are supported by general taxation (such as property taxes), this is necessitated by the fact that highway user fees (such as fuel taxes) are diverted for other uses, (such as mass transit), which creates a deficit that is funded by general taxation. In 1996, U.S. highway user fees exceeded the construction, maintenance, debt service and administrative costs of the highway system. Highway user fees exceeded street and highway expenditures over the past five years.

Some analysts even classify highway user fees as subsidies. The same logic would classify consumer payments to the municipally owned Los Angeles Department of Water (DWP) and Power as subsidies, while payments to Southern California Edison, a private electric utility, by neighboring consumers would not be considered subsidies. In fact, neither payment would be a subsidy; they would each be user fees.

Highway user fees (and airport user fees) are fundamentally different than subsidies to public transit or intercity rail, which are either from general funds or from highway user fees. If public transit and intercity rail were financed in the\ same manner as highways or airports, the primary funding source would be taxes on transit fares or intercity rail tickets.

Moreover, it may not be reasonable to expect highway users to pay the full cost of highways, because streets and highways would be required even if there were no automobiles.

Governments collect enough money from highway users to support the street and highway system. Indeed, street and highway function could be entrusted to self financing government or private corporations, similar to the Tennessee Valley Authority, without raising highway user fees. On the other hand, no public transit system in the nation would be self supporting --- each would continue to require subsidies provided by non-users.

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