The Federal Highway Administration reported last month that 2008 revenues into the Highway Trust Fund fell $3 billion from 2007 levels. It seems that $4 per gallon gasoline earlier this year suppressed driving nationally by almost 90 billion miles in the 12 months since October of 2007, the most significant and sustained decline in driving in more than two decades.
The Federal Highway Trust Fund was already expected to go broke by FY 2010. But this drop in revenue may accelerate that crisis to the current fiscal year. It also serves as a stark reminder that with declining VMT and improving fuel efficiency eroding the motor fuel tax’s contribution, the U.S. must find a better way to pay for transportation projects.
The need is all the more pressing as discussions on SAFETEA-LU reauthorization shift into high gear. Some experts have called for scrapping the existing surface transportation funding bill altogether and developing a new agenda for federal transportation policy. But either way, the nation’s infrastructure needs are considerable. Earlier this year, a national commission found that it would take $225 billion per year for 50 years to bring the nation’s roads, bridges, and transit systems to a state of good repair and create an enhanced and modernized transportation system.
Transportation policy wonks have been having fun developing alternative revenue proposals, which MTR summarizes here:
Raise the federal gas tax. The federal gas tax has held steady at 18.4 cents per gallon since 1997. Proposals range from an immediate 5 cent increase to a 40 cent increase phased in over five years. Others have called for raising the federal gas tax by as much as 80 cents. With national gasoline prices now under $2.00 per gallon, a steep gas tax increase should be much more palatable for the public, and their elected leaders. Still, if and when the country embraces alternative fuel vehicles, transit, or more fuel efficient vehicles, gas tax revenues will begin to diminish once again.
Index the federal gas tax to inflation. In 1997 dollars the current federal gas tax of 18.4 cents per gallon has been eroded by inflation to just 13.6 cents. Had the tax been indexed to inflation beginning in 1997, it would now be 24.8 cents per gallon. As a general rule of thumb, every penny of gas tax brings in $1.9 billion, so simply adjusting the tax for inflation today would produce an additional $12 billion over the year. This idea is a no-brainer, but again, higher fuel efficiency, alternative fuels, and greater transit use will work against the gas tax’s ability to raise revenue for transportation projects.
Make the federal gas tax a sales tax. A sales tax which produces greater per gallon revenues when prices are high would help defray at least some of the revenue lost when people drive less. It would also serve to convert some of the pain drivers feel at the pump to tangible road, bridge and transit improvements, instead of profits for oil companies.
Establish a commission to adjust tax rates. It’s no secret that politicians are loathe to raise the gas tax. One way to get around that perpetual problem is to establish a commission a la the Base Realignment and Closure Commission to propose tax rate hikes and offer political cover.
Impose a VMT tax. To get around the problem of the eroding value of the federal gasoline tax, many transportation experts have proposed a mileage-based transportation fee. Existing technology could be utilized to track the number of miles driven and charge drivers a fee per mile. Last year Oregon’s DOT found that a mileage-based fee could feasibly replace the state gas tax without infringing on privacy; Rhode Island is currently considering a mileage fee. Varying the fee by vehicle weight would help account for the greater environmental and safety externalities of a Hummer vs. a Prius.
Share a carbon tax. A federal carbon tax could provide significant monies for transportation improvements if greenhouse gas reductions from transit, bicycling and walking projects are counted and alloted a proportionate share of tax revenues.
Tax for freight projects. Aside from small federal programs, most federal support for goods movement comes in the form of congressional earmarks. Yet public investment in freight projects — particularly in freight rail — would serve a public good of removing trucks from congested highways. Several experts have proposed setting aside a portion of customs fees or imposing per-container taxes to raise funds for freight-related projects.
Expand tolling authority. Tolling is prohibited on most Interstates throughout the country. Current Secretary of Transportation Mary Peters has long advocated giving states greater authority to impose tolls on Interstates running through their states. This is not a bad idea, but it won’t obviate the need for a federal source of revenue.
Public-Private Partnerships. PPPs in theory apply free market principles to infrastructure projects. Where they have been used in this country a private company typically pays for the expansion of a highway which is then maintained jointly by the government and a private company, with toll revenues going to the private company. In limited cases, this may be an appropriate mechanism for cash-strapped states. But, as with expanding tolling authority, it won’t come close to paying for the country’s huge infrastructure needs.
Some combination of these proposals will probably be needed both in the short term and longer run to reach the $225 billion the Revenue Commission says we need. The Campaign urges Congress and president-elect Obama to act quickly and decidedly to shore up a renamed “Transportation Trust Fund” when SAFETEA-LU expires next year.
Image: Via Pickering, Corts, & Summerson. Cracked column supporting I-95 in Philadelphia, from March 2008.