A Better Way to Pay for Infrastructure
Most of us don’t think about infrastructure until it stops working. But roads, bridges, and broadband cables are vital to a functioning civil society; and they don’t come cheap. Tunnels, airports, roads…etc can easily cost billions of dollars to build and millions more to maintain. As a consequence, many projects never turn a profit, or break even, leaving future generations saddled with debt. There are better and more sustainable means of funding vital infrastructure.
Today, much infrastructure is funded through taxation and/or debt. A portion of your income tax, for example, might be used to fund an expressway project. But due to the indirect nature of this financing, it is hard for taxpayers to see the connection between their hard-earned money and the facilities they actually use.
Understandably, some might wonder why their money is used to finance a road that they will not benefit from. This makes raising funds for infrastructure politically difficult, leaving many bridges, roads, railways, and tunnels chronically underfunded.
On the other hand, those that do benefit from an infrastructure project, such as a hotel located near an expressway exit, reap disproportionate benefits in the form of higher land values, better business opportunities, and convenience.
In short, infrastructure funding is often a game of funneling money from one group to another, from those who pay taxes to those who reap the rewards. And more often than not, there is little overlap between these two groups. Ideally, we want a funding structure that doesn’t weigh the government down with debt and imposes the cost of financing upon those who benefit most, and not on those who don’t.
User fees are the simplest means of funding infrastructure. User fees can take the form of tolls on roads, fares on subways and trains, or water/electricity usage fees. This concept is certainly intuitive. Why not charge the very people who use a road to pay for its maintenance and recoup the cost of construction?
The problem is that the cost of that road is so astronomical, the commensurate high tolls would discourage the road’s use…