Barron’s ‘Economic Beat’ writer likes user fees for infrastructure needs

Gene Epstein of Barron’s offers ideas for addressing the nation’s infrastructure needs.

In his peer-reviewed study of waste and inefficiency of infrastructure spending on transportation (“On the Performance of the U.S. Transportation System,” 2013), Brookings Institution economist Clifford Winston cites a proposal he made in 1989 for an “axle weight” fee on trucks. The fee “would encourage truckers to shift to vehicles with more axles that do less damage to road pavement, thereby reducing maintenance expenditures and producing an annual welfare gain exceeding $10 billion.”

If your heart sinks every time you hit a pothole, you should love Winston’s idea. More than a quarter of a century later, however, his proposal is still being ignored by every policy maker in the country, in part because infrastructure spending warms the heart of anyone running for office. Damage to the roads creates more potential business for state and local government officials who manage projects, labor unions, and private firms that get the lucrative contracts, which often get more lucrative due to cost overruns.

Both major-party candidates for president want more infrastructure spending. The idea has been endorsed by Harvard economist Lawrence Summers, among others, who argues that more borrowing by the U.S. Treasury to finance the spending is justified because interest rates are so low. Nonetheless, as a former U.S. Treasury secretary, Summers acknowledges the Treasury’s immense debt burden. “I am as worried about the debt burden on my children’s generation as anybody,” he told the New York Times last week, “but deferring maintenance on the foundation of our economy is of much greater risk to them.”

Fair enough. But any steward of the government’s fiscal health would first ask whether the infrastructure itself could be managed more efficiently before committing to a path of large-scale spending and debt. In a telephone interview last week, Winston spoke of “the engineering mentality that has pervaded public management of infrastructure, which has one mantra: Spend, baby, spend. Just put more money out there, and throw cost-benefit economics out the window. That mentality has drained this nation of a fortune.” …

… Winston puts the annual social cost of waste and inefficiency in the government sector’s transportation systems at $100 billion a year, which he calls “an extreme lower bound estimate.” He believes there is enough low-hanging fruit in his detailed proposals without taking on more debt in the short run, while radically improving the functioning of the system and benefiting its users over the long run.

For starters, the Brookings economist would replace as funding sources the federal and state gasoline tax and weight-based landing fees at airports with a cost-based fee system for passenger and freight transportation. The new system would, for example, charge cars and trucks for their contribution to congestion on the roads and bridges; charge planes of all sizes for their contribution to congestion on runways; and would, as noted, charge trucks for the actual damage these vehicles do to the road pavements. Because underpricing in these areas is the current norm, this system should raise more funds, while properly shifting the costs to users rather than taxpayers.