Commentary

Conference Board Study: Drivers Do Not Pay Full Cost of Ontario Roads

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.

GTHA

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.

External Costs

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".

Pricing for Efficiency

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.

Not Disinterested

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.

Conclusion

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.

Nicholas Kevlahan was born and raised in Vancouver, and then spent eight years in England and France before returning to Canada in 1998. He has been a Hamiltonian since then, and is a strong believer in the potential of this city. Although he spends most of his time as a mathematician, he is also a passionate amateur urbanist and a fan of good design. You can often spot him strolling the streets of the downtown, shopping at the Market. Nicholas is the spokesperson for Hamilton Light Rail.

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By banned user (anonymous) | Posted October 30, 2013 at 12:55:44

comment from banned user deleted

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By Ted Mitchell (registered) | Posted October 30, 2013 at 16:37:51 in reply to Comment 93987

Yes it does, in words, but not in numbers. And it ignores certain key concepts.

Search the pdf doc for 'occupancy' or 'infrastructure deficit' (0 hits).

So if you only count the money you spend without asking if it's adequate to keep roads adequately maintained, I guess it comes out looking pretty good.

I have an ongoing challenge to find an worse example of waste, in the civilian world, of 1.2 people per vehicle. That's less than 25% utilization of seats driving around. It's the modern version of 'tragedy of the commons'.

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By kevlahan (registered) | Posted October 30, 2013 at 17:26:11 in reply to Comment 94003

Thanks for noticing the fact that "costs" accounted for in the study only includes what is (or has) actually been spent, not what what should be spent.

As Sean has pointed out, the roads are a big contributor to the infrastructure deficit because we are not spending what we should be spending just to maintain our existing road network, never mind the cost of ongoing maintenance of the thousands of km of new roads that are built to service new subdivisions.

One of the most important conclusions of the study is that it requires very high densities to make motorist charges "pay for the roads", even if one ignores the cost of negative externalities like injuries, deaths and congestion and the fact that we are not actually spending what we should be spending to maintain the road network we've got. And these high densities (and low occupancies per vehicle) mean the roads end up operating sub-optimally (i.e. we have severe congestion even on freeways, which are designed for high speeds, and many residents do not have a choice because of poor public transportation).

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By causal (anonymous) | Posted October 30, 2013 at 13:08:01 in reply to Comment 93987

So what do you call it when drivers pay $7.7 billion but roads cost $10-13 billion?

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By Number Cruncher (anonymous) | Posted October 30, 2013 at 13:49:32

Out of curiosity, has someone crunched the numbers for public transit users? What is the total annual cost of provincial public transit vs. what public transit users pay into the system?

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By AnjoMan (registered) | Posted October 30, 2013 at 15:32:06 in reply to Comment 93994

I read in a comment recently on RTH that according to the HSR, the lower city transit operations make an operating profit whereas the mountain routes do not. This obviously does not tell the whole story because less people would use the lower city routes if they did not connect with the mountain, but it is still telling. It's not really surprising to me if you compare the urban form + density of the lower city versus the upper city.

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By banned user (anonymous) | Posted October 30, 2013 at 16:22:30

comment from banned user deleted

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By Kevin Love (anonymous) | Posted October 30, 2013 at 19:29:17

I'll start by writing that I am a professional accountant, and used to people putting forth cost studies that are... shall I say... economical with the truth.

CAA traditionally is a source of... shall I say... bovine effluent when it comes to pricing car costs. A source of certain amusement to me is the things excluded from their cost of individual car ownership. Things like the cost of car parking. Even in far-flung suburbia, the capital and maintenance costs of things like driveways and garages is very far from the zero that appears in the CAA model.

What is particularly disturbing is their handling of the costs of the lethal cancer-causing poisons with which car drivers poison people in Ontario. Toronto's Medical Officer of Health has calculated the health-care costs of treating people who have been poisoned by car drivers at $2.2 billion per year, just in the City of Toronto. See:

http://www.toronto.ca/legdocs/mmis/2007/hl/bgrd/backgroundfile-8046.pdf

or if that's too much, see page two of this backgrounder

http://www.toronto.ca/health/hphe/pdf/air_pollution_burden_backgrounder.pdf

I must add that this is an official City of Toronto Medical Officer of Health report, using the Health Canada AQBAT model. Not the dubious car industry funded biased sources used by CAA.

And by the way, City of Hamilton roads are paid for with property tax dollars. Car drivers get a free ride on the property tax.

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By Henry and Joe (anonymous) | Posted October 30, 2013 at 23:37:58 in reply to Comment 94007

^Thanks for the links. These are interesting. However, I see an apparent discrepancy in the numbers between these two documents. The original report you linked says that there are 440 premature deaths due to traffic related air pollution in Toronto, while the summary report from Toronto Public Health says 1700. The latter seems high given that the mortality number here at home is 186 according to Clean Air Hamilton. Am I missing something?

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By Kevin Love (anonymous) | Posted October 31, 2013 at 20:56:37 in reply to Comment 94015

1,700 is the number of people in Toronto poisoned by car drivers every year and injured so seriously that they have to be hospitalized. 440 is the number of people who are dead due to being poisoned by car drivers.

Please look at page 2 of the backgrounder for details. Here is an excerpt from page 2:

Burden of Illness from Traffic Pollution in Toronto

• As a result of this new study, Toronto Public Health has determined that traffic pollution
gives rise to about 440 premature deaths and 1,700 hospitalizations each year in Toronto.
• While the majority of hospitalizations involve the elderly, traffic-related pollution also
has significant adverse effects on children.
• The study estimates that children experience more than 1,200 acute bronchitis episodes
per year as a result of traffic pollution. Children are also likely to experience the majority
of asthma symptom days (estimated to be about 68,000 per year)
• Overall, this study shows that traffic-related pollution affects a very large number of
people, and contributes to 67,000 acute respiratory symptom days, and 200,000 restricted
activity days during which people spend days in bed or cut down on their usual activities.


Economic Impact of Traffic Pollution
• This study estimates that mortality-related costs associated with traffic pollution in
Toronto are $2.2 billion each year.
• Based on policies in place in other jurisdictions, implementation of comprehensive,
integrated policies and programs could reduce total vehicle travel by 30 to 50%.
• A 30% reduction in motor vehicle emissions in Toronto could save nearly 200 lives and
result in 900 million dollars in health benefits annually

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By WaitingforMAW (anonymous) | Posted October 30, 2013 at 19:53:46

No comment from MAW yet? I'm disappointed.

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By jonathan dalton (registered) | Posted October 30, 2013 at 22:21:41

^ It's coming.

It came as news to me that GTA roads are in fact unsubsidized when considered in isolation. However, it makes sense when you realize how many license fee and gas tax payers we have squeezed onto them.

In other words, automobile infrastructure pays for itself as long as it's congested enough.

Look at the end of the pdf linked to the Transport Canada 2005 study and you can see that provinces more lacking in traffic congestion have lower cost recovery rates.

And the jury is still out on indirect costs.

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By LOL all over again (anonymous) | Posted October 31, 2013 at 20:16:04

The ancillary costs are not taken into account in the report. The production of a car takes many many steps and each one of those steps creates jobs and with jobs comes taxation. Lots of taxation. Without the car industry the government coffers would be empty. That's why governments go to great lengths to attract any kind of plant that has anything to do with car manufacturing.

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By so? (anonymous) | Posted November 03, 2013 at 01:27:50 in reply to Comment 94054

the exact same can be said of public transit. what's your point?

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By -Hammer- (registered) | Posted November 01, 2013 at 00:02:01

Ah yes...drivers directly pay around 59-77% for use of the roads before taxation (so in a sense the drivers are actually getting double taxed for the roads, but I digress) but the non-drivers, who share the road too and consistently petition for greater inclusion in the road system, have no problems with the goods that come in on the trucks from those roads, and have no problem using the buses that travel on them, and have no issue with the countless economic benefits that come with having an active, quick and effective transportation network shouldn't have to pay anything for them.

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By kevlahan (registered) | Posted November 01, 2013 at 09:32:39 in reply to Comment 94062

This is a straw man attack. No one is claiming that non-drivers should pay nothing towards the roads. And the result show they pay 41-23%, which is a significant proportion.

The constant claim from some drivers annoyed at fuel taxes is that drivers actually pay MORE in fees and taxes than are needed to pay for the direct and indirect costs of the roads and there they are being used to subsidize general government spending. This is not true.

In particular, non-drivers DO pay for the cost of roads associated with goods movement because the cost of transport is passed on to the end consumer. This should be obvious! Basic free market economics says that all direct and indirect costs should be passed on to the consumer, not subsidized by others.

And there is the basic fact that 80 people in one bus along a particular bus route take far less space and inflicts far less wear and tear than 67 private cars (at 1.2 occupants per car) that must be provided with an entire road network. And walking and cycling inflict negligible wear and tear on the roads than driving. In fact, it could be argued that each person who decides to cycle or walk or take public transit is actually generating a positive externality for drivers by reducing congestion and the cost of road maintenance. And, of course, this is why we see campaigns to encourage people to do just that.

Remember that when private cars were less common (before WWII) the road network was far less extensive, and the post-WWII period saw a huge campaign of road widening and construction beyond what is required for goods movement. And transit users typically travel fewer kilometres per year because they make fewer individual trips.

And, of course, in households which share a car everyone in the household is typically contributing to the cost of running the car through shared expenses (drivers and non-drivers).

Comment edited by kevlahan on 2013-11-01 09:51:06

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By arienc (registered) | Posted November 01, 2013 at 10:10:32 in reply to Comment 94073

Exactly...in fact, eliminating government subsidy for goods movement can actually benefit local economies. Currently a subsidy enables goods to be shipped longer distances at lower cost, meaning that there is greater incentive to produce goods farther away from home. By reducing this subsidy, producers are more likely to locate closer to their markets, which means more local jobs.

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