Planning and Finance Series: When is a user fee not a user fee?

by Patrick L. Dugan, Everett, Washington

REDUCING CONGESTION: The Lake Washington Congestion Management Program is a series of projects to help address congestion and increase safety on SR 520 and I-90 in the Seattle area. Source: http://www.wsdot.wa.gov/Projects/LkWaMgt/upamap.

As tax revenues become more and more constrained, local governments have turned increasingly to other ways to finance services and facilities. One of the more popular sources of alternative revenue is user fees that finance services or facilities by fees charged to use those services or facilities.

User fees

User fees are based on the time honored “benefit principle” of raising revenues for services and facilities from the people who are benefited by a service or a facility. User fees are implemented for a wide range of services from recreational facilities to transportation systems. In contrast, a “tax” raises money to support services that provide a general or indirect benefit to the entire community, irrespective of whether the particular user would ever actually use the service. We use taxes to pay for fire services whether we ever use them or not, and we do not charge a user fee only to those who have fires.

 The increasing need for transportation investments is encouraging state transportation departments to consider user fees in the form of tolls to help finance highway facilities. While tolls have a long history on the East Coast of financing transportation facilities ranging from canals to super highways, tolls are rarer on the West Coast. In Washington, until recently, tolls have only been used to finance bridges, but not highways.

 User fees, such as tolls, are thought to be a very fair way to finance facilities since they only charge those who actually use such facilities. However, as tolls are applied to more and more facilities, situations arise that challenge the perceived fairness of this method of finance. One such situation has arisen regarding the financing of the SR 520 Bridge over Lake Washington.

The setting

For those readers who may be unfamiliar with the geography of the Seattle area, Seattle is bounded on its east side by Lake Washington. There are two bridges that connect the growing “east side” cities and communities with Seattle: the older and larger I-90 Bridge and the SR 520 Bridge. In the middle of Lake Washington is Mercer Island, an incorporated, largely residential community of almost 23,000 people.1 The only access to Mercer Island is the I-90 Bridge. While the SR 520 Bridge primarily serves to connect Seattle with the growing eastside, the I-90 Bridge also provides Seattle with its eastward connection to eastern Washington and the nation.

 After nearly 50 years, the SR 520 Bridge is showing its age and has inadequate capacity for HOV lanes and Transit, creating a need to replace the existing SR 520 Bridge. The Washington State Department of Transportation (WSDOT) has had difficulty in developing the financing for this expansion and has already imposed tolls on the SR 520 Bridge to generate revenue to help pay for it. WSDOT has long considered imposing tolls on I-90 to assist in funding the SR 520 Bridge, since WSDOT views the two bridges as one transportation corridor and improvements one bridge will benefit users of the other; the bridges serve as alternate routes for one another, and their operations influence each other.2

 As many anticipated, the SR 520 tolls have diverted traffic to the I-90 Bridge, increasing traffic on the I-90 Bridge by 11 percent.3 This diversion, and the associated reduced revenues from tolls, has amplified WSDOT’s interest in placing tolls on the I-90 Bridge to recover these diverted revenues and to generate more money to finance the SR 520 Bridge.

Equity issues associated with user fees

Although WSDOT considers applying a user fees to the I-90 Bridge appropriate, many I-90 Bridge users do not generally agree. While there are perhaps many long-term I-90 users who may agree with WSDOT and support the tolls as a means to finance needed regional improvements, many other (perhaps most) I-90 users would see the toll as an inappropriate user fee for something they do not use, and have almost no need to use. Almost all cross state travelers would have little need to use SR 520 and would recognize little direct benefit from the SR 520 improvements and would even challenge any argument that there is any indirect benefit such as reduced congestion on I-90 with SR 520 improvements.4

 Mercer Island residents are particularly resistant to the tolls, since the only access between their residential community and most services and most employment opportunities is over the bridge. Very few, if any, island residents would have any need to use the SR 520 Bridge. It has been estimated that the Mercer Island residents would pay $1,900 a year in these tolls.5 The tolls have been called a “penalty tax” for living on Mercer Island.

 A particularly awkward irony associated with these tolls is that I-90 users would pay more than SR 520 Bridge users if the toll amounts were close to being equal on the two bridges, since traffic volumes are higher, and were higher prior to the diversion, on the I-90 Bridge.6

Conclusion

It is increasingly difficult to find ways to finance needed highway improvements. Transportation departments everywhere are seeking new ways, or expanding old ways, of raising revenues. In this context, we can anticipate that user fees in the form of tolls will become increasingly attractive way of financing highways. Since there is seldom only one way to get from one place or another, situations such as I-90 will become more and more common.7 These situations challenge our traditional notions of basing user fees on benefits provided. Instead, tolls will take on the characteristics of taxes, which are not connected to a specific benefit for their payments, rather than as user fees, which are based on specific benefits being provided from the fee.

Patrick L. Dugan has been a city planning director and a city finance director. During the last 30 years, he has held various financial and planning positions in cities, counties, and regional agencies in three states. Now a private consultant in Washington, he can be reached at consult.dugan@frontier.com.

Endnotes

  1. In the interest of full disclosure, I have provided consulting services as recently as 2010 to the City of Mercer Island. I also have provided consulting services to WSDOT in the early 1990s.
  2. WSDOT, “I-90 Tolling Environmental Assessment,” http://www.wsdot.wa.gov/Tolling/I90/default.htm.
  3. WSDOT, “Looking at Tolling I-90,” WSDOT BLOG, http://wsdotblog.blogspot.com/2013/01/looking-at-tolling-i-90.html.
  4. See for example Clark Williams-Derry, “Where Are My Cars: SR-SR-520 and I-90 Across Lake Washington?” Sightline Daily, May 23, 2011, http://daily.sightline.org/2011/05/23/where-are-my-cars-lake-washington/
  5. Mike Lindblom, “Plan to toll I-90 angers Mercer Islanders,” Seattle Times, January 13, 2013.
  6. PB, SR SR-520 and I-90 Toll feasibility Analysis, Traffic and Revenue Forecasts Technical Memorandum, Prepared for WSDOT, http://www.wsdot.wa.gov/NR/rdonlyres/B0CF3B97-7013-45FB-83F2-D1E8BB6437E0/0/Tolling_Tech_Memo.pdf, page 19.
  7. One such circumstance could be evolving in the discussions between Washington and Oregon regarding the replacement of the I-5 Bridge over the Columbia River and potentially using tolls to help finance the new bridge (the current bridge and past improvements were financed by tolls). Such tolls are likely to divert traffic to the parallel I-205 Bridge.

Published in the July/August 2013 Issue

Paul Moberly