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Home / Washington Business - February 2006 / Keeping the Country Moving |
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Keeping the Country Moving |
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Written On: February 2006 |
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Written By: by Ron Dalby |
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The good news is that to maintain the current state of congestion, safety and quality in our nationwide highway system for the next 10 years, we're only going to be about a half-a-trillion dollars short of the necessary cash, based on current taxation at all levels. The bad news is that if we want to improve the highway system during that same time frame, we're fully $1 trillion short of the funds needed. A trillion bucks is the numeral one followed by 12 zeros.
"Current transportation funding is not enough to maintain our current system, much less make improvements," according to Thomas Donohue, president and CEO of the U.S. Chamber of Commerce. "The consequences of an inadequate transportation system are long-lasting and severe — congestion, decreased productivity and more accidents."
Donohue made these remarks early in 2005 when he announced the U.S. Chamber had commissioned Cambridge Systematics of Massachusetts to conduct a far-reaching study documenting current and future transportation needs and matching these needs with funding expected to be available from existing revenue streams. They were to finish the study with recommendations on both short- and long-term funding solutions.
The results of the study aren't pretty and strongly suggest that major changes in how we tax ourselves to provide transportation infrastructure are coming, and may already be overdue.
The Shortfall
According to the Cambridge study, to maintain the current conditions of the nation’s highways, bridges and transit infrastructure, "...an expenditure by all levels of government of $222 billion ($125 million in capital investment and $97 million for operations and maintenance) [was] needed in 2005 and $295 billion by 2015. Below this level, highway and transit systems deteriorate and congestion grows."
To improve the conditions, the need was $271 billion available in 2005 growing to $356 billion for 2015. It was also noted that spending these amounts would provide a positive benefit/cost ratio and improve U.S. productivity.
Revenues fell well short of these goals with only $180 million expected to be available in 2005 from the usual sources such as federal and state motor fuel taxes and other programs, $42 billion short of the money needed to maintain the system, and $91 billion short of the money needed to improve the system just in that year alone.
These calculations were all made prior to the August 2005 enactment of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users. And while it does change the equation slightly, the underlying problem still exists — Americans are not generating enough money through existing tax programs for transportation infrastructure to fund the maintenance and improvement of our nation’s transportation systems — not just roads, but including railroads, port facilities, mass transit and even bike trails.
According to Cambridge, "Total national needs for the period from 2005 to 2015 will be $3.4 trillion to 'improve' the system, but total revenue will be only $2.4 trillion, leaving a cumulative gap of about $1 trillion." The money available to fund just the federal government’s portion of this amount is expected to fall $20 billion short each year for maintaining highway and transit systems and $43 million short each year for improving these systems.
Where the Money Isn't
It is almost certainly a given that we’re going to see different ways of taxing ourselves in the years ahead as regards to our usage of motor vehicles. The current federal gasoline tax used to provide transportation funds has lost one-third of its power due to inflation since it was last raised in 1993. Some states, like Washington, are already moving to aggressively increase state taxes on motor fuels as a means of increasing transportation dollars. Yet taxes based solely on the amount of fuel you pump into your car may become increasingly unrealistic in the years ahead.
Depending on how you describe "fair share," those driving hybrids and other extremely fuel-efficient automobiles aren’t paying their share of taxes because they purchase relatively little motor fuel at the pump and can then drive a considerable distance on the nation's roads. At the same time, our federal tax structure is encouraging people to purchase these kinds of vehicles by awarding tax credits to those who buy one. Thus we’re increasing the outlay from the federal treasury while at the same time encouraging a product that will decrease input into the federal treasury. Both tend to reduce the federal money available for transportation products.
Possible Short-term Federal Solutions
In the short term, Cambridge offers eight possible mechanisms for making up most of the federal shortfall:
• Indexing federal motor fuel taxes starting in 2005 — equivalent to an increase of about one-half cent per gallon each year — would raise an average of $5.6 billion annually for the Federal Highway Trust Fund and $62 billion cumulatively through 2015.
• Indexing federal motor fuel taxes retroactively to 1993 (the date of the last increase) — equivalent to an increase of about six cents per gallon in 2005 and an increase of about one-half cent per gallon each year thereafter — would raise an average of $19 billion annually and $211 billion through 2015.
• Eliminating current Highway Trust Fund user fee exemptions and recapturing interest earnings on the HTF balances would add an average of $2 billion annually to the HTF and $22 billion cumulative through 2015.
• Increasing use of tolling for new infrastructure, including federal authorization of tolling Interstate highways, could generate approximately $12 billion through 2015. (Editor's note: Tolls are starting to put in an appearance in Washington with the new Tacoma Narrows Bridge.)
• Continuing use of Transportation Infrastructure Finance and Innovation Act credit instruments and Federal authorization of tax-exempt private activity bonds could generate $450 million annually and $5 billion cumulatively by 2105.
• Issuing "Build America Bonds" would yield net non-HTF proceeds of $30 billion for investment between 2005 and 2010.
• Dedicating 5 percent to 10 percent of current U.S. Customs duties for investment in port and intermodal freight projects would generate $1.6 to $3.1 billion annually and $17 to $34 billion cumulatively.
• Granting of investment tax credits to equity investors in new freight-related capital improvements could attract up to $6 billion of private capital between 2005 and 2009.
This entire package would meet about 70 percent of the federal shortfall needed to maintain the U.S. transportation system and 28 percent of the federal money needed to improve it.
All of these proposals were written in early 2005, none have since been enacted, and none appear to be on the congressional agenda as of this writing. So, if we were counting on any of these short-term solutions, we’re already at least a year behind.
Long-term Solutions
As more and more fuel-efficient vehicles take to the nation's roads, the amount of money produced by motor fuel taxes is expected to dwindle relative to the number of miles driven. The Cambridge study addresses this problem by proposing vehicle miles of travel fees. In one form or another, all of their long-term solution strategies are based on VMT fees:
• Implementing a mileage-based transportation revenue system to help address long-term revenue shortfalls.
• Adopting two VMT fees: a state VMT fee as well as a local option VMT fee to help ease local congestion.
• Indexing VMT fees to inflation to help close the annual gap between transportation needs and revenues.
• Consider varying the VMT fees by vehicle weight, fuel type and consumption, environmental impact, road system, and/or geography to account for different levels of use and impact and to ensure that all users of the system pay their share of infrastructure costs.
For many, this is one of the ultimate Orwellian ideas. Essentially, it will require the installation of a device in your vehicle to record where and when it was driven.
Implementing these devices will not be cheap, and to that end the Cambridge study recommends the federal government provide "strong leadership" and offer states incentives to develop and test mileage-based revenue systems. "This process could lead to the eventual phasing out of the federal motor fuel tax and replacing it with a federal VMT tax," notes the Executive Summary for Phase II of the report.
It is probably more realistic to assume that a federal VMT fee — if enacted by Congress — would be used to supplement the federal motor fuel tax, at least initially. It seems unlikely that Congress will scrap an existing revenue stream generating billions of dollars annually in favor of a completely new method of taxation. And, as more than two centuries of U.S. history have demonstrated, taxes, once in place, are all but impossible to remove.
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