Those who directly use and benefit from the transportation system should, as a general rule and when feasible, bear the primary responsibility for the full cost of system use, including those costs placed on others and the environment—what economists refer to as "externalities." Internalizing the full costs of transportation will require more accurately identifying, quantifying, and charging the full range of costs, including the direct costs of transportation improvements and operations, such as pavement damage, and the indirect costs, such as those due to associated congestion, accidents, and pollution.
Subsidizing use by not making users and direct beneficiaries primarily responsible for these costs can result in "overconsumption" of the system and inefficient use. A better alignment of costs with use should produce greater system efficiency in terms of both system use and investment, as those decisions would be guided more directly by the willingness of users and direct beneficiaries to pay.
Direct system users include motorists who drive on the road network, transit riders who use public transportation systems, and transport and logistics companies that move goods over the highway, port, and rail networks. Examples of those who benefit less directly from the transportation system include businesses that receive goods that move on that system as well as individual citizens who purchase such goods or rely on certain components of the system for their safety and security. Some of these beneficiaries pay for the system when costs are passed on through charges (that is, for goods and services) imposed by direct system users.
In some cases, such as in rural areas, where it is more difficult for subcomponents of the system to be fully self-funding from users and direct beneficiaries, some cross-subsidies will be necessary and appropriate to meet other policy objectives. In these cases, cross- subsidization should be intentional, fully transparent, and designed to meet network, social equity, or other specified goals. Today, individual publicly owned toll roads and bridges are both recipients from and sources of cross-subsidies of the broader network. Similarly, non- tolled roadway systems generally are not held to the standard of funding self-sufficiency at the level of the individual roadway or system and are often financially supported by non- user fee revenues, such as sales and property taxes. The goal in these and other similar cases, however, should be to move toward a closer alignment of costs and prices.
Although transit systems historically also have not been funded on a fully self-sustaining basis, farebox revenues generate 35 percent of the operating costs on average across all transit modes and a portion of the capital investment requirements for transit systems.2 It also is important to take into account additional benefits from transit systems, including congestion and pollution reduction. For example, there is evidence that public transportation benefits users of other parts of the transportation system by reducing congestion and improving travel reliability. Moreover, one of transit's ongoing key roles is to provide critical transportation services and mobility for some individuals who could not otherwise afford them (if, for example, they had to use private automobiles). Such systemic impacts must be fully considered in evaluating the appropriateness of apparent cross-subsidization.