Constitutional Use of Toll Revenue the Subject of Recent Federal Court Decision

Public agencies with toll-setting authority should take note of a recent federal court decision relating to the uses of user fees and toll revenue, as well as the stated goals of the plaintiff in that case.

The U.S. District Court for the Southern District of New York recently clarified the constitutional uses of toll revenue in American Trucking Associations v. New York State Thruway Authority, 13 Civ. 8123 (CM) (S.D.N.Y. Aug. 10, 2016). In this case, commercial trucking companies and the American Trucking Associations (ATA) claimed that the New York State Thruway Authority violated the Constitution by charging inflated toll rates to cover the operations and maintenance costs of the New York State Canal System. The Court agreed.

The plaintiffs engage in interstate commerce and pay tolls to use the Thruway, the portion of the Interstate Highway System that runs from New York City to Buffalo. The Thruway Authority charges tolls that exceed the needs of the Thruway in order to cover the costs of operating and maintaining the Canal System. The Canal System serves as a recreational and tourist attraction. In her decision, Chief Judge McMahon held that the Thruway Authority’s practice of charging higher tolls to cover the costs of the Canal System unduly burdened interstate commerce in violation of the so-called Dormant Commerce Clause of the Constitution.

In arriving at her decision, McMahon invoked the test set forth by the Supreme Court in Northwest Airlines, Inc. v. County of Kent, 510 U.S. 355 (1994), which finds that a user fee or toll is constitutionally permissible only if it meets three requirements. First, the toll or user fee must be based on some fair approximation of the use of the facilities for which it is paid. Second, the toll or user fee must not be excessive in relation to the benefits conferred from the use of those facilities. Third, the toll or user fee must not discriminate against interstate commerce.

In this case, McMahon focused her analysis on the first two elements of the Northwest Airlines test, finding that the Thruway Authority failed to satisfy both the fair approximation prong and the excessiveness prong of the test. McMahon was clear that the fair approximation requirement related to the plaintiffs’ use of the Canal System, not the Thruway itself: to the extent that Thruway tolls are set with reference to the needs of the Canal System, there must be a rational relationship between the setting of those tolls and interstate truckers’ use of or benefit from Canal System facilities.

McMahon explained the second prong of the Northwest Airlines test: [t]he excessiveness prong compares the amount paid by the payer to the benefits conferred on him in his capacity as a consumer of those benefits (the benefits, in this case, being the barge canals and the associated facilities, not the New York State Thruway). Unsurprisingly, McMahon found that diversion of toll revenue to the Canal System, from which plaintiffs receive no benefit, is unconstitutionally excessive.

The recurring theme in McMahon’s decision relates to the plaintiffs’ use or benefit from the off-system diversion of user fees or toll revenue. In this case, she found that the Thruway’s practice of using toll revenue from the Thruway to support the Canal System violated the Constitution. However, she distinguished the situation in the instant case from another federal decision relating to the use of highway toll revenue for public transit, which found that such use was permissible because transit alleviated congestion on the facilities that were being tolled, creating a functional relationship that conveyed a benefit to those paying the toll. Automobile Club of New York, Inc. v. Port Authority, 887 F.2d 417, 421 (2d Cir. 1989).

In the wake of the New York Thruway decision, ATA President and CEO Chris Spear said that he hopes this decision will dissuade other states from financing their budget shortfalls on the backs of our industry. Indeed, the Pittsburgh Post-Gazette reports that as a result of the decision, ATA plans to review similar situations in other states to ascertain what further actions the organization could take.

One of those potential actions could come in Pennsylvania, where the Pennsylvania Turnpike Commission currently pays $450 million per year to the Pennsylvania Department of Transportation to fund mass transit service in Philadelphia and Pittsburgh. Clearly, the Automobile Club of New York decision is relevant here, but that holding turned on the fact that the transit system in question alleviated congestion on the facility that was tolled. In the Pennsylvania scenario the transit systems are located at either end of the Pennsylvania Turnpike, which is hundreds of miles long.

Another potential impact could be felt in Oklahoma, where the Oklahoma Turnpike Authority is considering a 17 percent increase in toll rates to finance new construction. The ultimate legality of such an increase could also turn on the location of the projects to be funded with the Turnpike toll revenue and the relationship those projects have with the Turnpike itself.

It seems as though the tolling practices of the Port Authority of New York and New Jersey is always the subject of dispute. In fact, the Automobile Association of New York is again suing the Port Authority, arguing that the Port Authority’s recent toll increase is unconstitutional due to its intended use to fund redevelopment of the World Trade Center.

The most significant potential impact of the New York Thruway decision, though, may have nothing to do with tolls. The Northwest Airlines decision applies to user fees as well as tolls, as McMahon notes in her decision. If federal courts interpret the Dormant Commerce Clause to apply to motor fuel and other excise taxes in the same way the New York Thruway decision applies this rubric to tolls, then the potential impact could be extreme. The question of whether or not an excise tax is legally tantamount to a user fee is murky, especially when such taxes are firewalled into trust funds with specific eligible uses.

Should federal courts arrive at such an interpretation, long-standing state practices could be deemed unconstitutional. For example, article 8, section 7-a of the Texas Constitution requires that 25 percent of all revenue from the state’s motor fuel tax be used to fund education, the remainder of which must be used to acquire right of way, construct, maintain, and police public roads, and administer related laws. This provision has been the law of Texas for nearly 70 years. More and more states have recently adopted or considered fuel tax increases to improve and maintain crumbling infrastructure, and such an interpretation could materially hamper the political negotiations necessary to adopt such increases.

Furthermore, the U.S. Code allows for public agencies to use toll revenue on facilities where the toll revenue is not collected. 23 U.S.C. § 129(a)(3)(A)(v) authorizes a public authority to use toll revenue for any other purpose for which Federal funds may be obligated under title 23 of the U.S. Code, which includes expansive authority to construct, operate, maintain, and improve highway and transit infrastructure, so long as the agency certifies that the tolled facility is maintained.

While the ultimate ramifications of the New York Thruway decision are yet to be realized, public agencies with tolling authority would be prudent to watch how the American Trucking Associations and its legal counsel challenge tolling practices in other situations around the country.

  • Fredric W. Kessler

    During his 45 years with the Firm, Fred Kessler has gained national recognition as a guiding force for public agencies in the field of transportation public-private partnerships (P3s). Clients benefit from his vast experience with ...

  • Shant  Boyajian

    Shant Boyajian advises public agencies on a wide range of innovative methods to procure and deliver the nation’s largest, most complex infrastructure projects. Clients have found tremendous value in his deep experience in ...

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