Despite taking a convoluted view of the social cost of collisions and injuries, this study confirms the analysis that the total revenue from drivers does not pay the full cost of Ontario's road system.
By Nicholas Kevlahan
Published October 30, 2013
The Conference Board of Canada has released a study, titled Where The Rubber Meets The Road: How Much Motorists Pay for Road Infrastructure [PDF]. It concludes:
The report finds that road users in Ontario cover a significant portion of road infrastructure costs and that cost recovery in the [Greater Toronto and Hamilton Area] is higher than it is for the province as a whole.
Overall, the study finds that Ontario drivers pay approximately $7.7 billion in revenue, whereas the Province and municipalities collectively spend $10-13 billion on roads. In other words, the study concludes that drivers pay between 59 percent and 77 percent of the total cost of the roads they use.
When restricting the analysis to the GTHA, the study finds that drivers contribute more than the cost to build and maintain GTHA roads.
This reflects the fact that the higher population density in the GTHA makes for more efficient use of public infrastructure.
What it means, as RTH reader arienc points out in this comment, is that urban drivers are heavily subsidizing rural drivers, not that drivers as a whole are subsidizing non-drivers.
That said, the study seems not to take into account the fact that GTHA drivers also uses freeways, highways and roads outside the region (think of all those Torontonians driving to Muskoka, Kawartha, Ottawa and so on).
The provincial highway network benefits all drivers, and Toronto drivers should reasonably be expected to bear some of that cost.
Further, the study takes a strange view of the social cost of collisions and injuries and makes a convoluted argument that these costs are largely internalized by road users. This is pretty weak:
As demonstrated above, the most significant of these costs for motorists are vehicle ownership and operating costs. Less obvious is the fact that accident costs are, to a large extent, internal as well. Aside from the obvious individual harm that they cause, road accidents also reduce economic output due to eroded human capital, so there is an obvious and important policy interest in increasing safety and minimizing these costs. But, individual motorists knowingly take the risks associated with travelling in a passenger vehicle. And, they do so only if the risks are outweighed by the benefits of travel. If there are travel alternatives that offer lower risk, individuals will prefer the alternatives, all things being equal. Moreover, motorists are required to purchase insurance policies that explicitly price the risk of the motorist causing damage to other people or property. This ensures that they meet the financial costs that they may impose on non-motorists as well.
There are many things wrong with the argument, most notably that the health care system is mostly funded from general taxes! Also, emergency services (except policing) are not included, and insurance certainly does not cover the full cost of injuries and death to society.
The idea that drivers accurately assess risks and benefits of driving and so if they drive it must be worth it is clearly not true! It is well-known that people underestimate the risks of driving (and overestimate other risks, like flying).
The study also assumes that congestion costs are not an externality because the cost is only to the drivers themselves (tell that to the trucking industry). So, we can see clearly that they exclude many external costs on very shaky grounds.
At least it acknowledges that pollution is an external cost not covered by drivers. It suggests that policy could add a pollution/carbon cost to drivers that would be "used to compensate society as a whole".
Another issue the study doesn't address (it indicates the authors will address this in a subsequent report) is the question of whether pricing should just cover costs or can also be used to encourage more efficient use of finite resources via market mechanisms.
Since the road infrastructure is in short supply in the GTHA, it make sense to regard pricing not just as a matter of cost-recovery but also to encourage the finite resource to be used more efficiently.
Businesses don't price to simply recover costs; they charge what the market will bear, and the free market argument is that this leads to optimal use of resources.
One final note: although the report claims to be the independent work of the Conference Board of Canada, in the preface, "The authors thank Teresa Di Felice and Christine Allum of the Canadian Automobile Association South Central Ontario (CAASCO) for initiating and defining the research and research questions."
Strangely, the following paragraph is contradicted by the first: "The Conference Board also acknowledges the CAASCO for financially supporting this research. In keeping with Conference Board guidelines for financed research, the design and method of research, as well as the content of this report, were determined solely by the Conference Board."
How can the the design and method of research be determined "solely by the Conference Board" if the CAASCO defined "the research" and "the questions" and paid for the study? It seems they just bolted on general boilerplate anti-conflict of interest text without thinking.
So you need to bear in mind that this is manifestly not a disinterested study. For a more disinterested accounting, I would recommend the older 2005 Transport Canada study, which found that the annual total financial costs of the road system in Canada are $16.5 to $25.8 billion, while annual revenues from fuel taxes and fees at the federal and provincial levels were only $12.8 billion, i.e. a shortfall of between $3.7 and $13 billion per year.
The Transport Canada study tried to include every conceivable source of revenue associated with roads and motorists: traffic fines, lot levies (development charges imposed by municipalities), special assessments, parking charges, building prices (share of road revenues embedded in building prices) and find total road revenues of between $15.1 and $17.2 billion.
Thus, even taking into account revenue sources, such as parking charges and traffic fines, that shouldn't really be thought of as user fees for roads, there is still an annual shortfall of between $1.4 and $8.6 billion per year.
The study concludes that infrastructure is used more efficiently and is easier to pay for in dense urban areas than in rural areas, but that overall, Ontario drivers still only pay 59-73 percent of road costs - even on the generous accounting and dubious assumptions about external costs that the study uses.
Finally, we must note that this is not a peer reviewed study but rather a study commissioned and paid for by the CAASCO.
You must be logged in to comment.