A Regional Gas Tax Surcharge to Sponsor Infrastructure Investment

» Expanded taxation at the state level could simplify the financing of regional high-speed rail networks.

Most of the discussion these days about how to expand funding for alternative transportation revolves around the role of the federal government: everyone in the game seems to be desperately waiting for members of Congress to move forward with a new transportation bill with hopes that senators and representatives will miraculously fall upon a brilliant funding device that will provide enough money to ensure a major surge in spending on highways and transit. It is a difficult task, to say the least.

Meanwhile, cities across the country have passed sales tax increases to fund the construction of new transit services, but those measures are liable to dramatic fluctuations depending on the economy, imperiling the goal of long-term funding stability. And cities cannot easily manage the construction of transportation projects designed to respond to regional demands.

Moving forward, then, advocates might want to look towards the states to push for real change.

State departments of transportation already play the major role in determining how transportation dollars are spent. Encouraging legislators to alter their thinking and work to build projects other than roads would be an important step in reforming the mobility agenda in the United States. Moreover, most states already enforce fuel taxes that are higher than the 18.4¢/gallon fee the federal government charges: they certainly are not naive about how to produce revenue.

For megaregions that extend across several states — take the Midwest as the easiest example — developing a regional funding mechanism for a high-speed rail program could be the ideal way to go about actually improving intercity transportation. By forming interstate compacts, states could implement regional authorities with the power to take revenues and distribute them into important projects aimed towards the completion of a regionwide system. States could sign onto a plan that benefits every member and then use this authority to ensure efficient funding and completion of projects, with the goal of integrating the region as a whole.

For the Midwest, such an authority could partake in around $25 billion in revenues over just a ten-year period just by imposing a 10¢ surcharge on gasoline consumption across the region’s eight member states. This would increase the existing gas tax in each of the states to between 45.7¢ (Missouri) and 67.2¢ (Illinois) per gallon. The projected revenues account for a 10% drop-off in fuel use (from 2004 transportation-based consumption levels) reflecting the increased cost of buying gas.

The advantages of signing on to a gas tax increase that applies to multiple states simultaneously are three-fold: one, it maintains existing relative gas tax levels across the region; it encourages the construction of a regional vision about how to spend the funds; and it allows politicians in each state to argue that they have a competitive reason to increase taxes: without doing so, their respective states wouldn’t be able to benefit from the benefits of joining the regional compact.

And indeed, with an arsenal of $25 billion with which to play, the regional compact would have enormous power to reshape the region’s transportation connections. It would be enough money to build a 220 mph link between Chicago and St. Louis — twice. And that’s just over the first ten years.

There’s no great complexity in this proposal, it’s simply a way of demonstrating how easily states could go about expanding their transportation systems without the involvement of the federal government, which may be evolving into a stumbling block too cumbersome to deal with.

Nonetheless, states seem unlikely to move forward unless they’re provided with a strong vision for how regional financial and political integration could work. From that perspective, proponents of high-speed rail should be working as hard as possible to instill a vision for how working across state lines — and taking fiscal responsibility in doing so — could make a major difference.

24 Comments | Leave a Reply »
  • Andy K

    Um…$25 billion sounds like a lot, but, it is not much when you are talking about 10 years and HSR across the mid west. It is a start though. And I do like the idea of regions working independent of the feds.

    I really think it is time for the feds to get out of transportation tax collection and funding. Collecting money locally, sending it to Washington, and doling it back out to the states makes no sense in this day and age.

    • Andy, the problem with the feds getting out of transportation is that there are large swaths of the US that wouldn’t even have US highways without federal aid, much less Interstates. Those same areas have enough representation in the Senate to keep those subsidies coming.

      • Adirondacker12800

        Well… without Federal Aid no place would have US Highways…. The Northeast, Midwest and California would have interstate grade highways, the rest of the country, probably not.

  • OceanRailroader

    I’ve been on a lot of the highways in that area between those states and a lot of them are very overloaded with cars and heavy truck traffic. I think most of that 25 billon will most likely go to widen hunderds of miles of over loaded interstates. Interstate 65 after driving on it several times looks like it will be needed to be widened from four to eight and six lanes at least.

    • JackRussell

      I fear that this is correct. The bulk of the money could easily get sucked out for more road projects, and rail would get a pittance.

      In Virginia, they took the view that by getting trucks off the road they could reduce traffic on I-81. Thus VDOT was able to spend money increasing freight rail capacity. To the average motorist, this has an obvious benefit. But when you upgrade lines for more capacity, they can also carry more commuter and passenger rail…

  • Cameron Slick

    I’m not sure if Minnesota can do this. The state constitution prohibits fuel taxes from being used on anything besides highways. Great idea on confronting the federalist race to the bottom on taxation.

    • BLambert

      I know that it isn’t the proposal that Yonah is toying with here, but if it goes to filling a hole in highway funding, then the money spared from that could be shuffled over.

      Of course, it would be subject to a legal challenge, and potentially found to be against the Minnesota constitution.

      At the same time, this is really an intellectual exercise, so it’s best not to lose sight of the forest for the trees :)

      • As mulad noted, this WOULD go against Minnesota’s Constitution, which specifically notes that the state gas tax must go towards improvements to the state’s trunk highways (i.e. state highways), county state aid highways, and municipal state aid streets.

        True, the Constitution can be amended (as it was a few years ago to dedicate the MVST to transportation), but given the already signficant lack of highway funding (as mulad also noted), not to mention the outright fight it was two years ago to get a gas tax increase to go for needed bridge work, I just don’t see it happening.

    • mulad

      The constitution is a hurdle, but it can certainly be amended (and if an amendment passed, it would be harder for it to be undone). Of course, a “surcharge” or “usage fee” might be a way around it since it wouldn’t be a “tax”, but that might be flimsy in court. The amendment process would take a few years (at least, considering how much opposition there would be), but I think a change to allow gas taxes to include both highways and “congestion mitigation” of various types (both transit and intercity/regional rail) would be helpful. I suppose there’d be a question whether the destination of could/should be controlled so strictly or whether airports and other transportation (bikeways, intercity buses, etc.) should be included as well.

      Anyway, another problem is that the current gas tax in Minnesota doesn’t even cover highway expenses adequately — it was very messy to just get a 5-cent increase after 18-20 years when we really needed a 10- or 15-cent hike, and it probably needs to go up by a cent every few years.

  • OceanRailroader

    This could possibly could use this to help railroads by fixing and replacing old railroad highway overpasses which are in bad shape. There are hunderds of them that most people drive under and wounder if they are going to fall down sooner or later. They could also use some of these new funds to replace grade railroad crossings with railroad highway overpasses which would help high speed rail and other trains. Highway railroad crossings are one of the most hardest parts to work on in a high speed rail system and if they used these funds for it. Tax payers would view the new highway overpasses as a good thing in that they won’t have to wait for trains to cross.

    • Woody

      Excellent idea. No legislature is going to tax gasoline to subsidize trains in any way, shape, or form. At least, no time soon.

      But we could possibly see a few states raise the gas tax by a penny — or even a nickel — and spend the money on upgrading, or much better on eliminating, grade crossings.

      In fact, to make it politically easier for the pill to go down, this gas tax nickel could pay half — a required and automatic matching half — of all grade crossing improvements including new overpasses or repairing underpasses.

      Then O.K., the other half would have to come out of rail money, some from the freights and the states’ general funds, but probably mostly from Congressional appropriations for Amtrak and HSR.

      Intercity rail simply does not yet have the kind of public support to overcome the highway lobby. Transit is probably even less popular, perceived as benefitting big cities and the ‘undeserving poor’ if you know what I mean.

      But spending on grade crossings does benefit everyone all across the state, in cities, suburbs, small towns, and rural areas alike. It can be sold as an apple pie issue because it reduces deaths, injuries, and costly accidents. It can be sold to drivers and business interests because it speeds cars and trucks, as well as trains. This would be the least controversial way to tap gas tax revenues in a way that benefits passenger and freight rail.

      The ideal would be a federal requirement that gas tax revenues, perhaps 25% from the =federal gas tax and 25% from the states, would automatically go to match the rail spending on grade crossing improvements or eliminations on any Amtrak or HSR designated track.

      Under the current system, all the spending on grade crossing eliminations comes out of rail money. The drivers, as usual, get a free ride by benefitting from the end to their waits at the crossings.

  • Am for any way to fund passenger rail, BUT:
    – Driving will decrease over the next 10 years (so will gas tax revenue). Gen Y (our largest generation)is driving 37% less than previous generations according to new federal data; and more than half of Baby Boomers (people over 40 are just 46% of the population but drive a whopping 59% of the miles)passing age 65, the age at which driving declines, people won’t be driving, so less tax.
    – Long term bonds better. 100 years ago highways were funded with bonds, to my knowledge. Gen Y understands trains are worth paying for over a lifetime.
    Americans spend over a trillion dollars a year on cars, and govt spends $300 -$500 billion a year. There’s money for trains.

  • Thunda

    Actually, MOST states have provisions in their constitutions which prohibit gas tax revenue from being used for anything but highways. It would require a major effort (constitutional amendments) in every state that you’d like to join the compact.

  • OceanRailroader

    I remember hearing that Virginia has a sales tax like program on rental car rentals that gives speical funding to the rail improvement bank fund which is intersting.

  • Scott

    No way this would happen in MN, it was hard enough to get the last dime of gas taxes passed. Funny enough those against swore there’d be a revolution in the congress — that didn’t happen.

  • Scott

    I mean, state house/senate, not congress. sigh.

  • Woody

    The goal should be to raise the gas tax at the federal level, and collect the funds all across the country. We could modestly tinker with the formulas, by applying some of the revenue to building overpasses over the tracks.

    Or we could go bold. We need a big tax, a HUGE tax, like $2 a gallon, to really knock down the level of oil imports and the rate of gasoline usage. The only way to get the needed big tax-and-price increases on gasoline is to make it with a rebate of some sort. (Fortunately, there is no constitutional limitation at the federal level.)

    People will need to know that while they have to pay more to fill the tank, and probably have to cut back on using gas, they will get their money back, for example, directly through lower Social Security taxes withheld, or perhaps indirectly by lowering the age of Medicare eligibility to age 50, or some similar massive and widespread benefit.

    (By the way, I’m already Medicare eligible, so I’m not arguing for a personal advantage. But I’d benefit if friends, family members, strangers, and retirees from state and local governments could get covered by Medicare instead of whatever coverage or lack thereof they have currently.)

    Even with a rebate, we’d probably need a phase-in over a few years, because that $2 tax or $4-5-6 price level would very fall hard on some folks. Perhaps have the gas tax go up 4 cents a gallon per month for four years, or even 2 cents a gallon every month for eight years. That would give individuals and the marketplace time to make adjustments.

    People would buy new cars or pickups getting better gas mileage. Some would decide not to build that second, weekend home in the far exurbs after all. Energy-efficient forms of transportation — like bicycles, buses, and trains — would become much more popular. More kids would ride bikes to school, more workers would hop on the bus, travelers would climb aboard Amtrak. Land near transit would increase in value; local governments would be pressured to upzone for denser housing.

    Such a massive transformation needs time, and of course it needs to be nationwide. But we need to be thinking and talking about it now.

    • Wad

      Negatory on the federal gas tax levy.

      The problem I have is that Congress will determine where the gas tax money will be spent.

      The urban areas that would be the biggest beneficiaries and the best users of the funds get hosed. The problem is that both houses of Congress put too much power into the hands of lightly populated states.

      Gas would be $5 or more a gallon and the funds would still go to highway construction in rural or exurban areas.

      • Woody

        Try reading my post again. “The only way to get the needed big tax-and-price increases on gasoline is to make it with a rebate of some sort.” I do not propose letting Congress use the funds. I’m taking a different approach than Yonah here.

        For a tax of a dollar or $2 or $4, the money needs to go right back into the hands of the citizens in a rebate.

        The most effective rebate would be to chop the Social Security withholding, the payroll tax. (Maybe you could mail rebate checks to the homes of taxpayers, or to their bank accounts, or something else.)

        Anyway, many people would turn around and use the money to pay the higher price of the gas at the same rate as before. Others would find a way to use less gas (car-pooling, biking, walking, getting a job closer to home, or a new home closer to work, buying high-mileage cars, using transit, etc.) and spend the leftover money on something else.

        Ronald Reagan made the point that if you want less of something, you put a tax on it. If you want more of something, you reduce the tax on it. So Reagan cut taxes on capital gains, corporate income, and the upper income tax rates.

        Another way to get less of something would be to tax gasoline consumption. Another way to get more of something would be to reduce taxes on payrolls (the Social Security tax now nearly 15% round number counting the employer’s share and Medicare). Under Reagan’s general theory, cutting the payroll tax would increase payrolls, that is, add more jobs.

        Another tax on jobs in this country is employer-paid medical insurance. I’m afraid for all the huffing and puffing in D.C., we will still see employers paying thousands of dollars a year for medical coverage for every job they offer. If we could shift that cost of medical care from jobs to some other source of revenues, we should see more jobs in our economy. So of course I would support using gas tax funds to pay for Medicare for all, for example. Or tax beer and sugar drinks and other stuff we have far too much of.

        I’m sorry that this discussion is going off-topic to some extent, so to get back to a gas tax. Most of us see that the existing level of gas taxes do not even pay the direct cost of building highways, much less the enormous cost of city streets, on-street parking, zoning-mandated off-street parking, traffic accidents, police enforcement, noise pollution, air pollution, etc. So surely gas taxes should go up. My proposal is simply to give the money back to citizens in rebates/tax cuts and let them make their own choices about how to use that money.

  • OceanRailroader

    The idea of raising gas to $6 would bankrupt a lot of people I know it would do far more damage then anyone who thinks it would be a good idea. When gas $4 dollar a gallon happened a year ago it ruined a lot of people I know. The idea of enginering artifical prices would fail and cause a reovolt. In that it’s for people in the city but if you live in the suburbs in a area where they don’t have any buses or don’t even belive in sidewalks it would a living nightmare.

    • It’s not that big a deal, when you consider the difference between a price increase and a tax. If the price of oil increases, then American drivers pay more, and oil producers gain. If the tax on gas increases, then American drivers pay more, and American taxpayers gain, in the form of tax offsets or beneficial government spending. For example, a $3/gal tax could come with a payroll tax reduction and high spending on urban, regional, and intercity rail for substitutes.

  • DBX

    To make a gas tax like this politically acceptable you have to be thinking in terms of an offset of other taxes for working people. In Illinois, for example, I can’t see this happening without packaging it with a very substantial increase in our measly $2000 a year personal exemption on the income tax and with significant efforts to promote public transport in rural areas. The extent to which pay for the working class has fallen in this country is remarkable and there’s a great deal of sensitivity out there to any kind of regressive tax.

    I also do not think getting the feds out of transportation spending is necessarily helpful to converting to more environmentally sustainable transportation. Look at Canada and Australia where federal transportation budgets are pitiful. Sydney and Melbourne aren’t even continuously connected by four-lane highway. Canberra is on a four-lane dead-end from Sydney; to get to Melbourne is practically an exercise in bushwhacking. There’s no continuous four-lane connection even from Vancouver to Calgary. And yet Canadian and Australian passenger rail is terrible, despite approaches to land use and density and urban planning and transit that are far more progressive than ours.

    • Um, all of the major cities in Canada and most of the ones in Australia have high transit use by US standards. Sydney, Melbourne, Toronto, Montreal, Calgary, Vancouver, and Ottawa have higher transit use than any US metro area except New York. In Canadian cities it’s typically on the strength of a subway or light rail, and in Australian cities it’s modern commuter rail.

      • DBX

        Yeah, but we’re not talking about intra city projects here, the point of this thread is regional transportation. And I don’t see taxation supporting it without federal involvement. Politically I don’t see the federal government stopping its 90/0 and 95/5 airport matching grants. So, if not the stick, then the carrot — new federal money supporting rail. Otherwise it won’t happen.

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