Transportation User Fee Model Obsolete, But No Solution on the Horizon

» Even as GAO reveals that nearly all states received more federal allocations than they contributed to the Highway Trust Fund, Congressional inaction continues. Supposed alternatives, like L.A.’s 30/10 plan, don’t address core issues.

Here’s how the Highway Trust Fund was supposed to work, back when it was created in 1956 to fund the Interstate Highway System: Congress would redistribute annual revenue from a series of fuel taxes on a proportional basis to states to cover the majority of construction costs of freeways from Maine to Montana. Over the past five decades, that system has worked well enough both to construct the United States’ massive roads system but also to keep it in relatively adequate condition — all by relying only on fees covered by direct users of the system. The understanding, theoretically shared by both drivers and politicians, was that the road system “paid for itself.”

Over the last few decades, however, that relationship has become increasingly tenuous. In 1983, the Mass Transit Account was created to fund public transportation with one out of every nine collected cents from drivers going to support rail and bus projects. In 1993, a 4.3¢ increase to the tax was allocated towards deficit reduction rather than transportation (though the money was eventually directed back towards roads in 1997). In the past two years, though, the user fee system has met its most challenging situation yet: Because of a refusal of the Congress to approve tax increases, a decrease in overall vehicle miles traveled, and an increase in the fuel efficiency of vehicles, the Highway Trust Fund is now paying out more than it collects for the first time — to virtually every state, according to the Government Accountability Office.

For proponents of the idea that federal transportation spending should be self-supporting, these facts come as a serious blow. They put in question both assumptions about the manner in which transport is funded in the United States and the long-term viability of that funding.

The biggest obstacle faced by the American transportation system is simply that we have run out of money to pay for it. The Congress has made little effort to advance any reauthorization of highway and transit allocations because of an unwillingness throughout the process to identify any tax increases that would be politically acceptable enough to pay for the system. The general fund has become the de facto financing source (leading to the aforementioned situation in which states contribute less in fuel taxes than they receive), but support for its continued use, despite its merits, remains unclear, leaving the whole transportation program in the lurch.

This situation has been exacerbated by the Obama Administration’s steadfast failure to support any tax increases during the recession: Transportation Secretary Ray LaHood declared late last month that not only is no fuel increase in the cards, but also neither is a vehicle miles traveled fee, the only realistic alternative. Mr. LaHood argued that tolls could fill the gap — but there are structural impediments blocking that idea; more significantly, the federal government has no direct control over road tolls, so any increase in funds would go to state governments, not the national government.

Though states have the potential to be strong supporters of public transportation, they currently have shown little interest in doing so, even in the most progressive states. Apart from municipal and metropolitan governments, the overwhelming contributor to the financing of transit capital projects has been Washington.

Recently, two new alternatives have been promoted. Ken Orski, an Associate Administrator of the Urban Mass Transportation Administration (now FTA) in the 1970s, commented last week in his Innovation Briefs that Los Angeles’ 30/10 transit plan was one significant option, since it promoted “fiscal independence” by allowing the federal government to “facilitate” but not be responsible for the financing of transit in ten years through low-interest loans that would eventually be paid back through thirty years of tax revenues. This argument has been repeated by several other sources.

This discussion, however, is disingenuous, since it does not reflect the fact that each of the public transportation projects being proposed for Los Angeles, from the Westside Subway extension to the Crenshaw Line, will require a financial commitment from Washington through the New Starts grant program. In other words, the federal government must still find the money to pay for these projects through direct funding — through 30/10, Los Angeles is just trying to speed the process up. This could potentially make the situation worse for the already cash-strapped U.S. Department of Transportation, since it would only increase the immediate demand for more national transportation funds!

Meanwhile, Orski points to the proposal of the libertarian Reason Foundation to simply direct all transportation funds raised through the fuel tax — including those currently used for transit projects — towards a “results-oriented” “Interstate 2.0″ highway program. This proposal is a reflection of Reason’s sense that Americans “have lost trust in the Trust Fund,” a sense that only conservatives seem to share, based on the understanding that it is unreasonable to use driver user fees to pay for bike, pedestrian, and public transportation projects.

This is a dangerously anti-multimodal point of view that fails to reflect the fact that there are significant benefits to the nation as a whole to invest both in highway and transit projects, no matter the source of revenue used to pay for them. Moreover, it does not consider a political reality that lobbies for the roads and public transportation are mutually dependent; there must continue to be a role for both in any future federal transportation financial structure.

I do not have a miracle solution to these problems other than to suggest once again that if the government wants to support a well-maintained national infrastructure, there is no choice but to increase taxes to do so — most of the “alternatives” are either just as reliant on federal investment as is the current system or represent an overall reduction in spending, the exact opposite of what is necessary. While it may be politically inconvenient to force through a tax increase, whether that means on fuel or income taxes, the United States has no real choice but to do so if it continues to desire a functioning transportation network.

Image above: Highway and rail Seto Bridge, in Kagawa Japan, from Flickr user tataquax (cc)

32 Comments | Leave a Reply »
  • I wouldn’t say that the “User Fee Model” is obsolete, per se. The root of the problem (and you hint at this already) is that the politicians (namely Congress) have chosen to spend down the fund while not setting tax levels at a point allowing both the spenddown and accommodating inflationary increases. When you consider that the gas tax hasn’t been changed in 17 years, plus factor in what inflation has done in that time, that’s a SERIOUS drop in the gas tax’s spending power over that time. Doesn’t make the gas tax obsolete, IMO…just means Congress hasn’t been doing their job.

  • poncho

    as much as i’d like to see a higher gas tax, i dont think its worth it. the trend is for cars to use less fuel as hybrids and alternative energy slowly takes over. its better to be ahead of the curve for a new more reliable funding source. then again, i’m no fan of roads, so go ahead and depend on the dwindling gas tax to pay to duct tape them together.

    i’d rather our transportation system be privatized… you know like what we had- transportation provided by private railroads, ferry companies and transit companies. it’ll only happen again if the govt subsidies to highway go away.

    • Ha ha, why do you think the public was so eager to build roads? Roads were seen as the best and possibly the only way to deal with the problems of “private enterprise” transportation.

      And there is also the fact that railroads and ferry companies were constantly going broke, even before unions got strong enough to enforce demands for safe working conditions and living wages.

      • poncho

        I wasnt being entirely serious about that. I find it interesting libertarians rush to defend roads and bridges when these government projects literally and directly put out of business competiting taxpaying companies providing transit, rail and ferry service. Look at almost any major bridge today and youll find that it put out of business a private ferry boat operation. Look at almost any pre-interstate highway and they were built directly parallel to an adjacent short line or interurban rail line that probably shut down in the following decade or two because of the road.

        But assuming private transit could work again, there are pros and cons to both private sector transit and public sector transit. One thing I find very attractive about the private sector in real conventional transit (not half assed jitneys) is the ability for the transit company to be directly involved in real estate development designed to support the transit lines… this could really be TOD on steroids. Buy up land ahead of time for the transit line and future transit oriented development. Obviously this very thing happened in the past and is largely what built our great cities.

        Yeah but the industry as a whole didnt go broke until extensive roads and cars changed travel patterns. Before then the companies that went broke, got broke for taking on too much capital spending, poor routes and mismanagement. Most of this was remedied with buyouts and takeovers from better managed companies that continued the operation albeit more streamlined.

  • political_incorrectness

    Driving is expensive and at some point it will come down to the people. Congress should be able to levy tolls on Interstate Highways and distribute funds in whatever share was paid to build them. So if 90% was federal funds and 10% state funds, 90% of revenue would go to the federal government 10% to the state. Congress’s inaction is the root of the problem. Privatization of transit is not the best idea though. I am still in favor of raising the gas tax 5 cents a gallon. That is a drop in the bucket even for a 30 gallon tank at $1.50.

  • The basic problem with privatization is that if regulations don’t change then private business won’t be able to work any more than the government. It’s painfully obvious with rail issues like FRA compliance and the contracting process. The only solution to incompetent government in this case is to make government more competent. It’s hard and annoying, but it’s the only way.

    With highways, there are other issues. One is that the gas tax increase required to bring roads’ operating ratio (to say nothing of the full recovery ratio) to 1 is much higher than 5 cents. It’s closer to 50 cents. Tolling would be a much stabler income source, but the roads movement has been doing its best to prevent tolls for the better part of 80 years.

    • Danny

      We really need to account for weight effects with the tax, and that is something that can be very difficult with a fuel tax.

      And if we were to account for weight costs correctly, it is possible that light cars could end up paying way less than they currently do.

      Using the most conservative estimates, put forth by trucking industry associations, the average truck does 9000x the damage to road surfaces compared to the average car. Some estimates range to almost double that.

      If we were to charge heavy vehicles on a per mile basis which accurately reflects the amount of wear to the road surface that they cause, I certainly think it is possible that most cars could be paying less for their road use.

      Now when it comes to an accurate carbon tax, that is a completely different story.

      • This is perfectly true, Danny.

        But variable-weight tolling brings another issue, though. Politically, trucking is one of the primary lobbies for roads. The auto industry doesn’t have much money, and private users often hate driving so much they vote to tax themselves for transit. A tax shift from cars to trucks would be economically efficient and good for the majority of users, but the majority of lobbyists would just get pissed.

        • poncho

          yeah i wonder why truckers have so much money for lobbyists, maybe its because the feds and other road users (and even railroads indirectly) are paying for their infrastructure.

          there is some construction near where I live detouring truck traffic and I’m really getting to see first hand tractor trailer trucks speeding through the neighborhood pulverizing the road surface as the trailers bounce over every bump in the road.

          guess who got the livability provision taken out of the transportation bill… the trucking lobby.

  • matt

    All freeways and then highways and some major roads should start collecting tolls by licence plate scanning, like they use on the toll roads in Denver. These fees should be adjusted by a weight multiplier so everyone pays for their fair share of the maintenance. The fuel tax should be lowered to 5 or 10 cents a gallon to cover environmental effects only.

    If people are more in touch with the real costs of the services that they use than the market will react and sprawl will slow or stop and people will move closer to where they work, and be willing to pay more for public transportation to get places. Public transit will not require such heavy subsidy as it does not have to compete against a subsidized road system.

    Subsidizing roads, then public transit to balance it out is counter-productive. Subsidizing all kinds of transit, then urban core development to balance it out is counter-productive.

    • The consensus estimates of the proper carbon tax level correspond to about $1 per gallon of gas, and about $1.10 per gallon of diesel. Not 5-10 cents. There’s no consensus estimate for pollution tax levels, but the lowest I’ve seen is 40-50 cents and the rest are $2-3.

      • matt

        I just threw out 5-10 as an example of what I guessed went from the gas tax now into mitigating environmental effects. I had no idea what it actually was. If you can some how show a conversion from gallons of gas/diesel to dollars for environmental effects of 2-3 dollars or wherever you want to put it, then thats fine with me. But that would get into the cost of pollutants, which is a discussion for elsewhere.

  • Donk

    Clearly the respononsiblity is (unintentionally) being shifted to the states. If you live in a donor state, why would you want the feds to increase the Federal gas tax, and then have the feds turn around and spend that money on Alaska and Montana and impose all kinds of restrictions on you?

    I see this as a positive. If the federal gas tax becomes irrelevent, then the states can simply raise their own gas taxes and pay for the projects themselves without paying a “convenience charge” for the feds to collect the money and then return it. Furthermore, the states, counties, and cities can get the job done much faster, and choose to spend funds on projects that their constituents desire.

    My county (Los Angeles) is ponying up already and has some of the highest gas and sales taxes around. Screw the feds, if you want transit or roads, raise your local taxes and do it on your own terms! If another county doesn’t want more roads or transit, they can choose to keep their taxes lower.

  • Ethan

    But many states are run by Republican ideologues who would rather see roads crumble and bridges collapse than raise *any* taxes for *any* reason. You’re assuming politicians have the interests of the public at heart, when they’d rather risk human lives in order to gain more votes among their base.

    • poncho

      yeah infrastructure requires long term thinking, something our country severely lacks (at least for the last 30-40 years). it doesnt help that regulations, endless reports and studies and federal funding and oversight only prolong the process even longer. nevermind that every politican is only concerned with the next election.

  • On the subject of tolls, the Center for Transportation Studies at the University of Minnesota recently conducted a study on public acceptance of tolling, focusing on HO/T lane conversions and other “express toll lane” concepts. I haven’t dug through the study yet but thought I’d mention it here for those interested.

  • Of course, the Highway Fund was never true user pays, since the gas tax was collected from all drivers on all streets and roads while the funds were directed to Highway Fund recipients, with the majority of miles of central urban streets and roads not eligible for funding while the local “township highway” in an unincorporated area receives it … so the Highway Fund has always been a cross-subsidy from urban to suburban and rural motorists.

    Of course, alongside the range of other cross-subsidies for suburban sprawl, it encourages an increase in the share of population living in suburban sprawl, reducing the share of the population to tap for the cross subsidy.

  • Matt

    It is a mistake to say that each rail project in the Los Angeles 30/10 plan will require New Starts Funds. In fact, only the regional connector and the Purple Line extension are requesting funds. Others like Crenshaw are expected to go it alone similar to the current Expo Line which is receiving no federal support.

    • L.A. Metro expects $2.2 billion in federal funds to be shared between the Crenshaw, Gold Line (East & Foothill), Green Line (LAX & South Bay), I-405, San Fernando Rapidways, West Santa Ana, and Westside Subway — I’m not sure specific financing for each project has yet been defined. That’s in addition to more than $700 million for the Regional Connector.

      Note that the government generally spends about $2 billion/year on New Starts, so this means L.A. wants the U.S. to spend almost 15% of all national transit capital funds over the next 10 years on the city.

      • It’s not inherently stupid to spend 15% of national transit capital on LA. If you look at the gaps between actual transit ridership to potential transit ridership, LA probably has more than 15% of the total national gap. If you want to minimize cost per rider, you should spend much more money on LA than would be warranted based on population alone.

        • Matt

          Yonah, you are technically correct, although I think everyone expects this to really go to the Westside subway (Purple Line), because it should meet New Starts criteria and is one large major project so in theory it would be easier to secure funding for one project rather than many small ones. It is all but certain that Crenshaw, the Eastside Extension and the Gold Line Foothill Extension won’t meet New Starts funding, although it is possible that they could get some other type of federal funding.

          The Regional Connector and the Purple Line extension are expensive far reaching projects that stack up well against other projects across the country. There have been many years when LA hasn’t had any New Starts contributions such as now, with the Expo Line and Gold Line Extension being built with all local funds. Lets hope the politicians judge projects on their merits and not suddenly try to go for some random geographic balance now that one city is trying to catch up.

  • Ditto to Bruce McF. I hate to see people play along with the “drivers were paying their own way” nonsense – they weren’t.

    The gas tax is a huge subsidy from urban to suburban, and, ironically, from non-driver to driver (since so many urban roads are paid for out of property and sales and other general taxes which non-drivers have to pay).

  • Mike O

    Two concepts not mentioned:
    1. Index the oil tax to inflation, but only on imported oil, making it essentially a tariff.

    2. Although the tax on trucks should reflect the true wear and tear on roads, the tax is really passed on to the consumer. But price the tax to the point where intermodal becomes more economical.

    • Wad

      Why a tariff on oil? Tariffs are done to give a price advantage to domestic industries. That’s not the issue in the U.S.

      Houston is already the world’s alpha city for energy, but U.S. oil production peaked in the 1970s. We import oil because domestic stocks don’t meet our needs.

      • Its purely political, a wedge between the domestic oil producers and the big oil companies, and sidesteps the heavy investment in the drill baby drill nonsense (as though we didn’t do that in the 80’s and that oil can be found twice and burned twice).

        There are a wide variety of things that could be done which would technically work: the problem is always getting something passed into law.

        Indeed, the lie about the highways being funded by highway users until the trust fund started running short was part of what made the gas tax politically expedient.

        • The domestic oil producers own a lot of production abroad. The biggest abuses that ExxonMobil and Chevron-Texaco engage in aren’t in the US; they’re in Nigeria. On top of it, Shell and BP are predominantly foreign, but have as much of a foothold in US lobbying as the US-owned firms.

  • Danny

    Question: If the GDP of Los Angeles is $792 billion, shouldn’t it be relatively easy to come up with an extra $2.2 billion if it were spread out over 10 years? That amounts to 0.028% of yearly GDP. That should easily be funded with a small sales tax increase.

  • The good news is that Gen Y is driving less, regardless of the state of the economy, and that by 2020 the highway system will simply be financially unsustainable, no matter what government does or funds. Prediction: by 2020 the term “multimodal” will be long gone as trains replace cars as the primary source of transportation for most Americans.

    A rise in the gas tax helps in the short run to both provide money and further the decline in driving.

    The long term solution to fund trains is long term bonds, which Gen Y is only too willing to pay throughout their lives.

    • poncho

      how i wish. if rail is the main we get around in 10 years that would be the most explosive growth ever and we’d have to start building literally tomorrow. oh and the price of oil would have to go up to at least $10/gallon.

  • Stan

    Eventually Congress will have to act and the sooner the better. They must raise taxes significantly to reduce personal driving and support public transit. Simply look at how many vehicles pass by with one occupant and there’s the bus with only 10 if that many. Build Park and Ride’s where you park and the bus carries you to your part of town and then a smaller shuttle takes you to your final destination. This will bring alternate forms of energy to an afforable level while keeping our use of foreign oil down. Do it soon or our children will be back riding horses to work with their own form of polloution.

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