Commision Report Favors Vehicle Mileage Tax

Congress commissioned two transportation infrastructure system studies. The first was released a couple of months ago. Advance copies of the second study became available yesterday. The Report of the National Surface Transportation Infrastructure Financing Commission,Paving Our Way, A New Framework for Transportation Finance is a definitive of study of what the system needs, the costs related to satisfying those needs and recommendations for financing the investment.

If you take our transportation infrastructure away, we can be no greater than any third world country. It is this system of conveyance that differentiates us from other countries and up until recently gave us the distinction of being the leader. When the Interstate system was proposed, it was wrapped in the concept of “a necessity for national defense.” World Wars I and II were still fresh in the memory of most Americans as was Korea and the threat of Soviet invasion.

People were building “fallout shelters” in their backyards; public buildings were being designated as Public Fallout Shelters; we were terrorized by the threat of an invasion. We lived in the menacing shadow of nuclear war, so selling Congress on an Interstate Highway System that was critical to our national defense was doable. The benefit was as significant as was Henry Ford’s application of the assembly line to industrial production.

Being able to move people and goods without restriction gave us an edge with which no other country could compete. Because of this ability, we became the industrial power that dominated world commerce. Like everything, all good things come to an end. We believed that this infrastructure would sustain us forever. We became so used to it, we took it for granted.

This is not the only problem we, as a country, face. It is one of many, but a very important one. If we don’t fix it, fixing the others won’t make much difference. Our existence is dependent on commerce and our commerce is based on the ability to move ideas, people and goods to market.

The following are a few excerpts from the 236-page report that, after reading in its entirety, I felt were most significant.

Highway Facts
Real highway spending per mile traveled has fallen by nearly 50 percent since the Federal Highway Trust Fund (HTF) was established in the late 1950s. Total combined highway and transit spending as a share of gross domestic product (gDp) has fallen by about 25 percent in the same period to 1.5 percent of gDp today.

Because it is not adjusted for inflation, the federal gas tax has experienced a cumulative loss in purchasing power of 33 percent since 1993—the last time the federal gas tax was increased.

Urban travelers are delayed in rush hour traffic nearly one week (40 hours) per year, and in total Americans spend 4 billion hours per year stuck in traffic.

As of 2006, over half of the total vehicle miles traveled on the overall federal-aid highway system occurred on roads that were in less than good condition, many of which are in rural areas that connect these regions to each other and to urban centers.

Due in large part to rider ship growth, many existing transit systems are operating near or in excess of their physical capacity and above a level that provides acceptable passenger comfort and safety.

Guiding Principles To Shape A New Funding And Finance Framework

  • The funding and finance framework must support the overall goal of enhancing mobility of all users of the transportation system. The range of mobility needs throughout the nation requires an intermodal transportation network that ensures easy access, allows personal and business travel as well as goods movement without significant delays, and permits seamless transfers and choices among complementary transportation systems and services.
  • The funding and finance framework must generate sufficient resources to meet national investment needs on a sustainable basis, with the aim of closing a significant funding gap. The framework must enable the federal government to raise sufficient funds and also support the ability of other levels of government to raise sufficient funds and make appropriate investments.
  • The funding and finance framework should cause users and direct beneficiaries to bear the full cost of using the transportation system to the greatest extent possible (including for impacts such as congestion, air pollution, pavement damage, and other direct and indirect impacts) in order to promote more efficient use of the system. This will not be possible in all instances, and when it is not, any cross-subsidization must be intentional, fully transparent, and designed to meet network goals, equity goals, or other compelling purposes.
  • The funding and finance framework should encourage efficient investment in the transportation system—recognizing the inherent differences between and within individual states—such that investments go toward projects with the greatest benefits relative to costs.
  • The funding and finance framework should incorporate equity considerations—for example, with respect to generational equity, equity across income groups, and geographic equity.
  • The funding and finance framework should support the broad public policy objectives of energy independence and environmental protection. Revenue-raising mechanisms that impose the full cost of system use (including externalities such as carbon emissions) can support reduced petroleum consumption and improved environmental outcomes.

The Financing Commission’s Response—Findings And Recommendations
Through its wide-ranging investigative and deliberative process, the Commission makes the following critical findings:

There is no easy “silver bullet” solution to the problem of insufficient funding. As an important corollary, not all approaches work equally well throughout a geographically and economically diverse country. The Commission assembled a broad and balanced menu of options for Congress to consider, with an assessment of the pros and cons of each approach.

The current federal surface transportation funding structure that relies primarily on taxes imposed on petroleum-derived vehicle fuels is not sustainable in the long term and is likely to erode more quickly than previously thought, due in large measure to heightened concerns regarding global climate change and dependence on foreign energy sources, which are creating a drive for greater fuel efficiency, alternative fuels, and new vehicle technology.

The current indirect user fee system based on taxes paid for fuel consumed provides users with only weak price signals to use the transportation system in the most efficient ways. This results from three primary factors: system users are typically unaware of how much they pay in fuel taxes (as distinct from the price of gasoline), such that daily swings in price mask the tax component and blunt its effect on demand; fuel taxes and other direct and indirect user fees currently account for less than 60 percent of total system revenue (federal, state, and local), so that users do not bear anywhere near the full costs of their travel; and fuel taxes have no direct link to specific parts of the system being used or to times of the day and thus cannot be used to affect these kinds of traveler choices.

A federal funding system based on more direct forms of “user pay” charges, in the form of a charge for each mile driven (commonly referred to as a vehicle miles traveled or VMT fee system), has emerged as the consensus choice for the future. The Commission cast a wide net, reviewed many funding alternatives, and concluded that indeed the most viable approach to efficiently fund federal investment in surface transportation in the medium to long run will be a user charge system based more directly on miles driven (and potentially on factors such as time of day, type of road, and vehicle weight and fuel economy) rather than indirectly on fuel consumed. At the same time, this choice for the federal system provides a foundation for state and local governments that choose to use it to develop their own mileage-based systems that piggyback on the federal system in order to raise their share of needed revenues in ways that spur more efficient use of the system. The Commission believes that such a system can and should be designed in ways that protect users’ privacy and civil liberties that incorporate any necessary cross-subsidies (for instance, to benefit the national network or to meet social equity objectives), that do not interfere with interstate commerce, and that support goals for carbon reduction. Moreover, greater use of pricing mechanisms, including both targeted tolling and broad based VMT pricing stems, may spur more efficient use of our highway network and, by shifting demand to less congested periods of the day or to other modes, may in turn enable more efficient investment, thus reducing the additional capacity that needs to be built.

As a nation, we cannot afford to wait for a new revenue system to be put in place to start addressing the fundamental investment challenge. And, in the short term, effective and feasible options are limited. Given the significant current funding shortfall, the Commission concluded that the best near-term options for federal investment are increases to current federal fuel taxes and other existing HTF revenue sources. After reviewing a wide array of options and suggesting several viable candidate approaches the Commission concluded that increasing and indexing existing mechanisms satisfies the key evaluation criteria most effectively—primarily in raising significant sums with relatively low implementation costs or other hurdles. That is not to say that other options are not possible should Congress choose to pursue other avenues as well, but increases in existing HTF revenues present the best option in the near term, the Commission believes.

Federal actions can help expand the options available to states and localities to fund their shares of investment. While many state and local funding options are not reliant on the federal government for implementation, several key federal actions could help facilitate and encourage the greater application of some—specifically, user-backed funding approaches such as tolling and pricing—to help meet a portion of state and local government investment needs, including their required matching of federal support.

Finally and importantly, financing approaches—as distinct from revenue-raising mechanisms—are not a substitute for solving the underlying problem of insufficient funding. Properly structured financing techniques and government financial programs, including those focused on facilitating partnerships with the private sector, can play an important supplementary role. Their success, however, will depend on their ability to leverage new revenue streams to repay upfront capital investments. Even with this, financing approaches will have limited positive impact if not coupled with substantial net new resources.

The Commission realizes that the transition from the current funding and finance model to a new model cannot be made overnight and that the immediate needs are simply too critical to wait until such a system is put in place.

Ensuring the Security and Sustainability of the Highway Trust Fund
The Commission recognizes the fundamental value of the Highway Trust Fund—not only today but also as the appropriate foundation for any new user-based revenue system for surface transportation investment in the future—and offers the following overarching recommendation:

Preserve the Highway Trust Fund mechanism and take any necessary actions to help ensure its security and sustainability in the near and longer term. This should include ensuring the integrity of the trust fund structure premised on the link between direct and indirect user fees and transportation spending upon which the HTF is based. It also should include continued efforts to reduce and minimize tax evasion and methods to align spending and receipts, with interest earned on any balances accruing to the HTF.

An economic stimulus spending package that includes investments in surface transportation, while helpful, will not solve the immediate or the longer-term problems of funding system needs. The current investment shortfall is just too great.

The Highway Trust Fund will continue to need significant augmentation beyond whatever an immediate short-term stimulus plan can provide. For instance, a Stimulus Package that includes nearly $40 billion for highway and transit infrastructure, while important in addressing the short-term economic crisis, will pay for only about three months of the identified annual national funding gap to maintain and improve the system—a gap that repeats itself and compounds year after year.

If you are interested in reading the detailed 236-page report, you can click here to do so.

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ARTBA Sounds Off
Early this afternoon, the American Road & Transportation Builders Association (ARTBA) released a statement by its president & CEO Pete Ruane, regarding the National Surface Transportation Infrastructure Financing Commission Report.

“Fifteen highly qualified and forward-looking individuals from very diverse professional backgrounds spent nearly 20 months evaluating transportation financing options. The Commission’s report makes one thing clear. ‘Business as usual’ won’t cut it any more.

“The Commission’s major recommendations mirror those put forward in a 72-page report ARTBA sent to the Capitol Hill, the White House, federal agencies and other policymakers in 2007 containing the association’s proposals for the surface transportation investment bill, due later this year.

“The future of transportation project financing has been exhaustively studied over the past few years. Reports from two congressionally-chartered commissions and a broad array of stakeholders have all reached the same conclusion: America needs a significant boost in transportation investments, these new investments should be paid for directly by system users, and all options, including current and non-traditional mechanisms must be on the table to meaningfully address the nation’s transportation challenges.

“We strongly encourage Congress and President Obama to give the Commission’s recommendations the serious consideration they deserve.”

Everyone Is Not Happy
Of course not everyone is happy about the prospect of increased user fees. Owner-Operator Independent Drivers Association (OOIDA) had this to say:

In response to a report from the National Surface Transportation Infrastructure Financing Commission, OOIDA agrees there is a need for additional funds but wonders why there was no thorough evaluation of how highway user dollars are currently spent.

“This commission’s report is a waste
of public and private resources, let alone the time and energy of transportation policymakers,” said Todd Spencer, executive vice president of OOIDA. “Before dumping more water into the bucket, we need to fix the gaping holes in the bottom.”

“They neglected to address the most fundamental problem associated with financing our nation’s infrastructure – reining in and redirecting ineffective and wasteful spending on programs and initiatives that aren’t aligned with actual construction and maintenance for our highway system.”
Most relevant to truckers are the commission’s recommendations for a 15-cent increase in the diesel fuel tax, doubling the annual Heavy Vehicle Use Tax and further increases in the truck tire tax. Also, the Commission suggests more toll roads, conversion of existing public roads into toll roads, and a system to record and tax miles driven.

Before agreeing to pay more, OOIDA will demand that transportation tax dollars collected be used in the most effective and efficient ways to address the nation’s significant infrastructure needs.

“This is like giving your kid money and sending him to the store for milk and bread,” comments Spencer. “If he comes back asking for more money, you’ll want to know why,” continued Spencer. “You’ll also expect him to go back and actually get what he was supposed to in the first place.”

Trucks make up only 7 percent of traffic on the nation’s highways. But the various highway use taxes that truckers pay amount to more than 36 percent of the total money contributed to the Federal Highway Trust Fund. “Truckers are already paying more than their fair share,” said Spencer.

The biggest problem our transportation infrastructure has faced is politics. Our Congress is fearful of increasing user fees to pay for the maintenance and improvements the system needs. They believe they will lose votes if they do. Hell, they ought to lose votes if they don’t. If they had the gumption to address this problem when it was in its infancy we wouldn’t be facing the crisis we are now.

Greg Sitek

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