Road to reauthorization
Commission proposed fuel tax fix to fund highway infrastructure.
By Eric Kulisch
The United States should phase out collection of fuel taxes and switch to a direct user-fee system that charges vehicles by the number of miles driven, to address the growing gap between available revenues and a backlog of projects to upgrade deteriorating highways, bridges and transit systems, a special commission chartered by Congress recently recommended.
The National Surface Transportation Infrastructure Financ-ing Commission also called for hiking the 24.4-cent-per-gallon diesel tax by 15 cents ' 2 cents of which would be diverted to a new trust fund to raise about $800 million for freight-related projects ' and the gasoline tax by 10 cents to 28.4 cents per gallon as a short-term solution until a vehicle-miles traveled fee system can be instituted.
Other immediate fund-raising proposals in the report are:
' Doubling the Heavy Vehicle Use Tax. (Applied to trucks with a gross weight above 55,000 pounds, it has not been increased since 1983.)
' Maintaining the existing truck and trailer sales tax and truck tire tax.
' Indexing the motor fuel, heavy vehicle use and truck tire taxes to inflation.
Taken together the short-term measures are expected to raise $20 billion per year for the Highway Trust Fund, which Congress bailed out with $8 billion from the general fund last September in order to keep federal aid commitments to states. The cost of a gas tax increase for a typical household would average $9 per month, or about $5 per vehicle, according to the Feb. 26 report.
Legislators and policymakers preparing to reauthorize a transportation spending law that expires on Sept. 30 are grappling with the hard reality that fuel tax receipts are declining and unable to meet current obligations for highway and transit projects. Current investments across all levels of government are only about one-third of the $190 billion required each year just to keep the highway system from getting worse, with modest, gradual improvements to keep up with increased trade, population growth and shifts in population.
The American Society of Civil Engineers recently gave the nation's road conditions a grade of 'D-'. The level of deferred investment is reflected by:
' From 1980 to 2006 the total number of miles traveled by automobiles and trucks doubled while the total number of highway lane capacity grew at only 4.4 percent.
' Real highway spending in inflation-adjusted dollars compared to usage has declined 7 percent since 1988 and by almost 50 percent since the advent of the Highway Trust Fund in the late 1950s.
' As a percentage of Gross Domestic Product, highway and transit spending has fallen from 1.9 percent then to 1.4 percent today.
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| 'We face serious consequences if we continue on the present path of failing to enhance or even maintain an aging system: too many lives lost from unsafe conditions, an eroded quality of life for system users, and diminished economic performance as a nation.' | |
| National Surface Transportation Infrastructure Commission report |
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The main reason behind the revenue shortfall is that the tax is tacked onto the price of each gallon of gasoline or diesel fuel, purchases of which are dropping as people drive more efficient vehicles and make fewer trips due to the recession. Last year, Americans drove 108 billion fewer miles, or 3.6 percent less than in 2007, according to the Department of Transportation. During the fiscal year that ended in September, collections fell $3 billion, or 10 percent, to $36 billion. The trust fund has drawn down its balances the past few years and is poised to go into the red again this summer without another cash infusion from Congress. The shortfall is projected to reach $79 billion by 2015.
The situation is expected to get even worse without a funding solution in the wake of President Barack Obama's expressed intent to issue guidelines for achieving a 40 percent improvement in gas mileage for automobile and light truck fleets by 2020.
The erosion of funding has forced states to place many capital projects on hold due to the uncertainty of receiving federal money.
Taxing people on the distance they traveled by road is an attempt to get people to pay their fair share for using the transportation system, which suffers wear and tear from vehicles no matter what fuel mileage they get. The system would use tracking technology and wireless communication to compute a vehicle's travel miles and bill the consumer.
'We face serious consequences if we continue on the present path of failing to enhance or even maintain an aging system: too many lives lost from unsafe conditions, an eroded quality of life for system users, and diminished economic performance as a nation,' the report said.
Congress set up the commission to inform it about funding options for the massive new surface transportation blueprint that will set policy and spending priorities for the next six years. Without new authorization for additional revenues, the highway and transit programs will have to be cut by 45 percent to 50 percent in fiscal year 2010.
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| Oberstar |
Rep. James Oberstar, chairman of the Transportation and Infrastructure Committee, said he intends to write a bill worth about $450 billion to $500 billion and pass it before the expiration of the Safe, Accountable, Flexible, Efficient Transportation Equity Act-A Legacy for Users, or SAFETEA-LU. But the Senate is expected to take much longer to deliberate on a measure and most Capitol Hill observers don't expect the new bill, labeled 'MAP 21' for Moving Ahead for Progress in the 21st Century, to become law until sometime in 2010. Several factors are likely to slow the process, including the complexity and size of the bill, the need for a new administration to have time to formulate its own plans, the challenge that competing interest groups will have trying to reach a consensus on legislation and the number of other major issues on Congress' plate.
It took Congress almost two years and a record 12 funding extensions of the TEA-21 spending law before the $286 billion SAFETEA-LU was passed in 2005.
The massive economic stimulus recently enacted into law contains $54 billion for reconstruction and repair of transportation infrastructure, including:
' $27.5 billion for highways.
' $12 billion for transit.
' $8 billion for high-speed rail.
' $3 billion for airport improvements.
' $1 billion for Amtrak.
The highway money essentially doubles what is normally appropriated in a single year, but still only fills in about three months of the annual investment gap to maintain and improve the system.
The emergency injection of surface transportation funds may also relieve some of the pressure on members of Congress to act quickly because states will still be busy obligating the new funds.
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| Kavinoky |
Some transportation industry officials had assumed that the stimulus package would include even more funding for roads, rail and bridges given all the talk from politicians about the need to support 'shovel-ready' projects. But Janet Kavinoky, director of transportation infrastructure policy at the U.S. Chamber of Commerce, said a smaller transportation portion in the stimulus could allow for more investment in the reauthorization round when priorities can be better thought through.
Kavinoky raised the possibility that if all parties can't agree on a new funding mechanism, and the trust fund goes into the red again, Congress could just throw highway spending into the general fund and force transportation to compete with the rest of the government's budget items.
Congress should take the time necessary to produce a quality bill, said Polly Trottenberg, executive director of Building America's Future, a coalition of elected officials created by New York City Mayor Michael Bloomberg, California Gov. Arnold Schwarzenegger and Pennsylvania Gov. Ed Rendell in 2005 to promote the need for infrastructure investment.
'There's a tremendous agenda of reform, dealing with climate change, dealing with the financing issue. For some of us, we'd like to get it right. If it took an extra year I don't think that would be such a terrible thing,' Trottenberg said at a mid-January Transportation Research Board forum that previewed the commission's report.
Keeping a federal grant program on life support, however, can wreak havoc with disbursement of money and construction plans, James Burnley, who specializes in transportation affairs at the Venable law firm in Washington and served as transportation secretary in the Reagan administration, said at a RAND Corp. policy forum.
States and other recipients must go through the grant-application process each time a program gets extended for a short period.
The Federal Aviation Administration, for example, is working under similar short-term extensions. The FAA office that issues grants had to wade through 700 additional packages of documents that had to be reprocessed because Congress couldn't complete a multi-year authorization in time, Burnley said. Those types of do-overs slow down an agency's ability to get money out the door, he added.
VMT. The 15-member commission acknowledged that fuel-tax increases and a vehicle-miles-traveled fee are not politically popular at the moment, but said sticking with the fuel tax as the primary funding source for federal highway aid is not sustainable given technological and behavioral trends, and is at odds with new policy goals for reducing dependence on foreign sources of oil and emissions from burning fossil fuels.
The Obama administration has signaled opposition to raising fuel taxes and a VMT fee, although Transportation Secretary Ray LaHood originally offered that a VMT was a valid funding tool. LaHood has instead said private investment and allowing states to expand the use of tolls should be used to make up the spread between current expenditures and receipts.
Raising the fuel tax, which has lost one-third of its buying power due to inflation since last adjusted in 1993, is not popular on Capitol Hill, especially since many Democrats who otherwise may favor certain tax increases believe a fuel tax is regressive and disproportionately impacts low-income earners. Many members of Congress and interest groups have also raised cost, privacy and fairness concerns about a VMT system that monitors vehicle movement.
The commission analyzed many different types of freight fees, but couldn't find one that didn't discriminate against some sector of the freight industry or was a good proxy for the diesel tax, said Commissioner Kathy Ruffalo, a consultant and former Senate staff worker who has helped draft federal transportation policy, including SAFETEA-LU.
A transportation surcharge on customs duties or a national container tax are the only freight fees that Congress might want to consider as a possible option to fund a separate intermodal or border crossing infrastructure program, the advisory body said.
It also recommended that Congress order a study to assess the need for a modest shift toward freight-related users paying a higher share of total surface transportation infrastructure costs, particularly those imposed on highways.
(The 15-member commission included Jeffrey Crowe, chairman of Landstar System Inc., a large non-asset-based trucking and logistics company headquartered in Jacksonville, Fla.)
Transportation advocates say Congress and the Transportation Department need to first articulate a national vision for what surface transportation to build, the federal role, eliminating waste and reforming highway and transit programs before taxpayers are asked to contribute more.
According to a new poll commissioned by Building America's Future, 81 percent of Americans said they are prepared to pay 1 percent in taxes to rebuild the nation's infrastructure if the money is used wisely.
A majority of respondents (800 adults surveyed online) said accountability is their strongest priority for public works projects, with 31 percent saying they want construction to be completed on time and on budget, and 24 percent saying they want to see exactly where the money is spent.
'There simply isn't another issue with such widespread support across partisan lines and geographic boundaries,' pollster Frank Luntz said. 'The public already sees the need and is ready to lend a hand financially to make sure it gets done ' but they want it done correctly. This is a major test for government.'
The National Surface Transportation Policy and Revenue Commission last year recommended streamlining 108 transportation programs down to 10 nationally focused ones. Experts of all stripes say the system must also be overhauled so that projects are awarded grants based on performance ' the ability to measurably achieve specified outcomes for safety, congestion mitigation, emissions reduction and other priorities ' rather than political factors.
Rob Atkinson, chairman of the Finance Commission and president of the Information Technology and Innovation Foundation, said it's premature for Congress or the White House to make a decision on VMT now. The commission is only asking Congress to start research and development of standards and technology, and establish several pilot projects for automobiles and commercial vehicles to answer policy questions so that by the next reauthorization bill in 2015 Congress can decide whether to pursue the concept, he stressed at a press conference in Washington where the report was released.
'There's no need to ask politicians to go way out front of where the people are,' he said.
Atkinson also noted that Obama's and LaHood's statements about gas taxes referred to no increases during the recession and that by the time any reauthorization bill is passed, and new taxes kick in, the nation may be out of the recession. Fed Chairman Ben Bernanke and other government economists have recently stated they see the potential for the economy to hit bottom by the end of this year or early 2010 and begin growing again.
The report said the government should commit to deploying a VMT system by 2020, including new cars and trucks built with electronic onboard recorders and satellite-based Global Positioning System devices. The timetable is much more aggressive than one in a report by its sister policy commission last year, which called for a 15 to 20-year transition phase to VMT, but extra fuel taxes in the range of 25 cents to 40 cents per gallon over a five-year period.
The Finance Commission recommended that the federal auto fee should be 2 cents per mile to address the investment gap at the federal level, which is at $64 billion and could grow to $400 billion between 2010 and 2015. (Temporary gas tax increases would close about 30 percent to 40 percent of this gap.) Congress could set the rate at 0.9 cents per mile if its goal is to slightly exceed the current performance of the Highway Trust Fund. The truck fee would be 5 cents or 10.6 cents per mile, it said.
The fees could fluctuate for various types of roads, vehicles and time periods driven, it said. An independent advisory board would coordinate all the private sector, state and federal efforts and help set rates.
The current highway system is under-priced, meaning that payments through the gas tax don't reflect the true cost of pavement repair, pollution, accidents and congestion, according to the report.
Commissioner Bryan Grote, a principal at Mercator Advisors, said drivers pay about one-fifth the true cost of using the highway system if environmental costs are included.
'Subsidizing use by not making users and direct beneficiaries primarily responsible for these costs can result in 'over consumption' of the system and inefficient use' that can lead to capacity shortages and congestion, the report said.
'The technology allows us to have a real user fee. So, it's a very fair system that creates an efficient dialogue between users and providers of the roads,' said Adrian Moore, a commission member and vice president for research at the libertarian Reason Foundation in Los Angeles.
Commissioners acknowledged that a VMT was not a perfect solution for pricing highway use, but was better than other options.
Meanwhile, officials in Idaho, Massachusetts, Rhode Island and North Carolina are evaluating whether to propose a VMT system in their states.
The commission recommends that a VMT system be rolled out on the part of the highway system that receives federal aid, but in a way that allows states to piggyback on that platform. That way states would only have to write software to add their pricing formula into the existing architecture and the system would calculate the miles and payments owed for each party. States that opt to move ahead faster on VMT for their own roads should strive to make their system interoperable with the federal one.
Massachusetts Gov. Deval Patrick recently unveiled a wide-ranging transportation plan that includes instructions for the Department of Motor Vehicles to study the VMT as a possible solution for weaning the state off the fuel tax. State taxes on fuel purchases across the nation are in addition to federal excise taxes.
Oregon Gov. Ted Kulongoski has also asked the legislature to institute a mileage-based fee to address the shortfall in the state's own transportation revenues. The plan is based on a year-long pilot program conducted by the state Department of Transportation in 2006. Kulongoski is also pushing to raise the gasoline tax by 2 cents for vehicles not equipped to pay the mileage tax.
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But the ODOT study only involved two service stations and 285 volunteers who were charged a fee based on odometer readings downloaded at the pump, in lieu of fuel taxes. GPS-based location monitoring was not part of the system. The demonstration program showed that a comprehensive mileage-based pricing scheme is feasible, but that numerous technical, administrative, legal and policy concerns need to be solved before it can be implemented across the board.
Federal officials would need to include safeguards to protect against a balkanized VMT system at the state and local level that could inhibit interstate commerce, Moore said at the TRB session.
Commissioners stressed that an extensive public education campaign is needed to familiarize people with a VMT and gain their support.
The report also recommended a menu of financing options to allow states to leverage federal revenues and meet their own needs. These include:
' Lift restrictions on interstate tolling for all new capacity and for existing capacity under certain circumstances.
' Create an incentive program for states to do more tolling.
' Expand federal low-interest credit programs for transportation.
' Expand the cap on private activity bonds to $30 billion from its current level of $15 billion.
' Invest $500 million per year over six years to recapitalize State Infrastructure Banks.
Less restrictive bond requirements are important because states can't get enough upfront capital for construction through the typical tax-exempt bonds. As investment-grade financial instruments, they are not able to borrow as much money against future revenue streams as private debt or equity, said Commissioner Geoffrey Yarema, a partner in the infrastructure practice group of the Nossaman law firm in Los Angeles.
Any solution based on bonds will have to wait until the bond markets unfreeze. More than $100 billion in bond issues have been suspended or canceled since last fall.
The commission also endorsed further use of long-term asset leases to private investors as long as public protections are clearly articulated.
To read the full report go to http://financecommission.dot.gov.