Tag: "highway trust fund"

Obama Announces $98.1 Billion More Transportation Spending Waste

A major portion of the Administration’s proposed new transportation spending21st Century Clean Transportation Plan — is a series of proposals to expand transit systems (31 rail, bus and streetcar systems in 18 states costing $3.5 billion), revive the failed high speed rail initiative, modernize freight systems and provide grants to regional authorities to implement innovative “clean” technologies and “green” transportation programs. This new transportation spending is expected to cost $98.1 billion in just FY 2017.

The President just recently signed a groundbreaking transportation bill — the Fixing America’s Surface Transportation Act or FAST Act — that gave a longer temporary partial solution for the nation’s transportation infrastructure. However, the Fast Act and the new transportation proposal both fail to address several key problems with the Highway Trust Fund and the federal gas tax.

The new administration budget for transportation is a 60% increase over the current annual spending level. To partly pay for the new spending, the Administration is calling for a $10 per barrel tax on oil or a 25 cent/gallon increase in the price of gasoline at the pump which is estimated to bring in $650 billion over a decade.

Despite this, the administration’s budget request was declared dead even before its arrival on Capitol Hill, just like most of Obama’s previous transportation budget proposals.

 

Transportation Bill Gives Longer Temporary Partial Solution

The Fixing America’s Surface Transportation Act, or the FAST Act was approved by the Senate 83-16, the House on a 359-65 vote and formally signed by the president. The bill reauthorizes the collection of the 18.4 cents per gallon gas tax that is typically used to pay for transportation projects, and also includes $70 billion in “pay-fors” to close a $16 billion deficit in annual transportation funding that has developed as U.S. cars have become more fuel-efficient.

The new law, paid for with gas tax revenue and a package of $70 billion in offsets from other areas of the federal budget, calls for spending approximately $205 billion on highways and $48 billion on transit projects over the next five years. It also reauthorizes the controversial Export-Import Bank’s expired charter until 2019. The bill is paid for by:

  • Raising revenue by selling oil from the nation’s emergency stockpile.
  • Taking money from a Federal Reserve surplus account that works as a sort of cushion to help the bank pay for potential losses.
  • Cutting the dividend paid to banks with assets of at least $10 billion, reinstating a controversial offset that had been eliminated by the House, but narrowing the set of banks to which the cut would apply.
  • Preserving a measure intended to raise money by hiring outside debt collectors to collect unpaid taxes.
  • Increasing the fees paid by travelers who go through customs.
  • Directing to the Highway Trust Fund penalties paid for motor-vehicle safety violations.

However, the bill was rushed and failed to address several key problems with the Highway Trust Fund and the federal gas tax. The federal gas tax clearly requires major reforms to work efficiently again. Some proposed reforms include:

  • Eliminating the Mass Transit Fund and all other non highway funding through the Department of Transportation, saving $16 billion annually that could be used for additional highway funding.
  • Raising the federal gas tax to compensate for inflation since it was last raised in 1993, and adjusting for future inflation, which would bring in 40 percent more, or $10 billion a year.
  • Repealing the Davis-Bacon Act, saving $11 billion annually in construction costs.

The Fixing America’s Surface Transportation Act, or the FAST Act was rushed and gave a five year extension to a partially funded federal highway system, while missing out on key Highway Trust Fund and federal gas tax collection reform elements.

Senate Energy Policy Leaves Out Oil and Highway Funding

The focus of the Energy Policy Modernization Act of 2015 includes energy efficiency and conservation, protecting the electric grid and speeding up the application process for liquid natural gas refineries. The bill includes:

  • The secretary of the Energy Department to issue a final decision on applications to export liquefied natural gas within 45 days after projects have won approval from the Federal Energy Regulatory Commission.
  • The Strategic Petroleum Reserve, a stockpile of nearly 700 million barrels of oil, should be used only in emergencies — while there are legislative efforts to sell off some of that oil to help pay for surface transportation funding.

The most recent senate energy bill failed to address some of the most important energy issues currently facing the nation. The bill avoided such issues as:

  • The ban on exporting crude oil.
  • Keystone XL pipeline.
  • Federal gas tax reform.
  • The failure to fund our highway system.
  • Renewable Fuel Standard reform.

U.S. energy policy that includes natural gas, but leaves out oil, is not real energy policy. Protecting the electric grid and leaving out critical funding for the highway system, addresses half of our most pressing infrastructure needs.

The Transportation Funding Fight

The fight over the future of transportation funding in the United States has once again pitted the House against the Senate and Republicans against Democrats. In June, the House of Representatives narrowly passed a bill to spend $55.3 billion on transportation and housing projects through December 18. 2015, with only three Democrats voting yes to the bill. The intention of the short-term bill was to give representatives more time to craft a longer term bill. The House bill, however, also included amendments restricting travel to Cuba, blocking funds for the transfer of Guantanamo Bay detainees, and attempted to undo recent trucking regulations, which angered House Democrats and the White House.

Senator Dick Durbin (D-IL) gave a grave warning of the current system of transportation and infrastructure funding.

“We cannot patch our way to prosperity with temporary, short-term answers to long-term problems. In just the past six years, there have been more than 30 extensions of surface transportation programs. This is not the way to run the federal highway and transit program.”

Now it’s the Senate’s turn to attempt to pass their own transportation bill. They have a tight deadline to meet since the last measure passed to finance infrastructure programs in the country expires July 31st.

The Senate Bill, which Senator Mitch McConnell (R-KY) brokered with Senator Barbara Boxer (D-CA) is a six-year authorization, although funding appropriations in the bill extend for only the first three years. The bill allocates $47 billion to fund the revenue gap between federal gas tax and other transportation revenue ($35 billion a year) and yearly expenditures ($50 billion a year).

Problems of funding have also divided the two sides but both sides have been firm in their desire to keep the gas tax at current levels, rather than raising it. The House proposed funding the gap between projected costs and expected revenues with a one-time tax on $2 trillion in business income brought back to the United States.

The Senate bill, on the other hand, includes revenue-increasing methods such as:

  • Selling oil from the Strategic Petroleum Reserve to raise $9 billion.
  • Reducing the dividends paid to certain banks by the Federal Reserve to raise $16.3 billion.
  • Indexing various custom fees to inflation to raise $4 billion.
  • Increasing Transportation Security Administration fees to raise $3.5 billion.
  • Extending certain guarantees on mortgage-backed securities to raise $1.9 billion.
  • Adjusting various tax compliance measures to raise an additional $7.7 billion.

While the Senate bill may not directly raise the gas tax, it increases revenues through various raises in fees (fees which are essentially very similar to taxes). This seems quite contrary to Senator McConnell assurances that the Senate bill “does not increase the deficit or raise taxes.”

Tolling is a Critical Funding Tool for Texas

Over the last two years, a groundswell of opposition has arisen to tolling in Texas. A number of groups including Toll Free Texas and Texans Uniting for Reform and Freedom have been lobbying to eliminate all tollroads in the state. Several Texas State Representatives and Senators have filed multiple bills to prioritize non-tolled roads and make building tolled roads much more challenging. Certain bills such as HB 856 that requires MPOs to stream, record and publish meetings are not anti-tolling. Other provisions such as one in HB/SB 1834 that ensures tolls are used to repay the cost of the road are a positive. But as a whole, the package of bills that requires elected officials to affirm support for a toll project multiple times and requires the conversion of tolled roads to non-tolled roads within 20 years is troubling.

The frustration with tolling is understandable. Nobody wants to pay any more than they have to. But everybody agrees having a quality roadway network is critical. Surface transportation policy in Texas and across the country has long been based on a users-pay/users-benefit principle. The users payment system has several advantages. First, it is fair. Those who pay the users fees receive the benefits. Second, it is proportional. Those who driver farther pay more. Third, it is self-limiting. A user tax that can only be spent on a certain purpose prevents officials from increasing taxes. Fourth, it is predictable. A user fee does not have to worry about economic downturns or political whims. Fifth, it is an investment signal. It answers the question of how much infrastructure to build.

Historically, the best user fee was the gasoline tax. People traveling longer distances used more fuel; heavier vehicles that damaged the road consumed more gasoline than light duty cars. However, the gas tax is no longer a good proxy for highway use. The emergence of electric and hybrid vehicles means some people pay dramatically more to drive than others. Now, the folks who pay the most are very often rural drivers despite the fact that rural roads are some of the cheapest to maintain.

And if that is not bad enough, there is the question of diversions. The federal government diverts about 30% of its gas tax funding to transit, biking, walking and invasive species removal. Certain environmental groups got all bent out of shape when the latest surface transportation bill, Moving Ahead for Progress in the 21st Century (MAP 21), outlawed the use of gas tax revenue for transportation museums. Oh the horror! But the policy changes fixed a fraction of the problems. The changes said “no” to gas tax funding for a transportation museum in Illinois but allowed funding to continue for recreational trails in Oregon.

Texas also has a statewide gas tax. But similar to the federal gas tax, it diverts money to projects that have nothing to do with roadways. By law, 25% of motor fuel tax proceeds are diverted to education. Education is clearly important, but using gas taxes to fund education is a clear violation of the users-pay/users-benefit principle. Some in the Texas legislature hope to end the education diversion but such a change is extremely unlikely to pass. So neither the federal nor state gas taxes are true user fees.

Texas policy makers have floated a number of other transportation funding ideas, none of which is a good user fee. With sales taxes there is no link between how much someone buys and how far they travel. Throughout the country there has been tremendous pressure to charge more in sales tax than is needed for a specific program and then use the excess taxpayer revenue to support non-transportation improvements.

Last year, Texas voters approved spending 50% of the royalties from oil and gas drilling on highways. While voters and policy makers were understandably looking for a good political solution, there are several reasons why this is not the best long-term option. The link between transportation and increased drilling is weak. More troubling, with the price of oil lower, hydraulic fracking no longer makes economic sense in some Texas communities. Any decline in fracking will lead to less revenue.

So while it might not be popular tolling is the most realistic solution for funding large parts of Texas’ transportation system. Unlike the gas tax, it is 100% dedicated to roadways. Unlike the gas tax, an increase in electric and hybrid vehicles will not affect its viability as a funding source. Unlike the gas tax, it can be increased during peak hours and decreased during off-hours to improve mobility. Unlike fracking it provides a stable revenue source. Unlike a sales tax it is a good proxy for road usage and can serve as a signal to investors when it is time to invest in a facility. Put simply, tolling has to be part of the solution.

 

Committee for Responsible Budget Highway Plan has Issues

Recently, the Committee for a Responsible Federal Budget, released a report titled, “The Road to Sustainable Highway Funding.” The committee, which includes Erskine Bowles and Alan Simpson, builds on many of the transportation recommendations included in the Bowles-Simpson report. It recommends passage of comprehensive tax reform while ensuring the Highway Trust Fund remains adequately funded. It includes three steps:

  • Getting the Trust Fund Up to Speed ($25 billion) by paying the “legacy costs” of pre-2015 obligations with savings elsewhere in the budget;
  • Bridging the Funding Gap ($150 billion) with a policy of raising the gas tax by 9 cents and limiting annual spending to income; and
  • Creating a Fast Lane to Tax Reform to help Congress identify alternative funding and financing.

The report is a great attempt at creating a sensible national transportation policy which is something that seems to elude Congress. Many of its suggestions are excellent. These include reducing funds for the Congestion Mitigation and Air Quality program (CMAQ), eliminating Davis-Bacon requirements and killing the transportation alternatives program. Keeping federal transportation funding constant is an excellent goal. Limiting future spending to income is a great idea that seems obvious everywhere but Washington, D.C. Encouraging future highway bills to make tax and spending decisions together would be great policy, although I am not sure how this occurs without the Ways and Means Committee losing power, which would never happen politically.

However, some of the bill components are troubling. First, to get the Highway Trust Fund up to speed, the plan spends $15 billion reducing and reforming agricultural subsidies and $10 billion extending the mandatory sequester. While reforming farm policy is a great idea, since paying farmers not to plant certain crops has always been one of our most curious policies, such funding should not be directed to the highway trust fund. Rather, it should pay down general fund debt. There is no real link between farming and transportation.

Second, a two-year highway bill is better than a series of extensions but does not provide the needed long-term certainty. It takes 10 years or longer to complete many highway projects. Securing sufficient funding requires a mix of public and private funding that requires complex deals. DOTs need long-term certainty, and two years is not long-term enough. The traditional six-year bills are also a little short. Ten years would be ideal.

Third, the group proposes to schedule a 9-cent increase after one year. Such an increase is reasonable but only with significant program reforms. Policy makers should also eliminate Buy America. Federal caps on financing tools including Private Activity Bonds need to be increased. And while a 9-cent increase would be a short-medium term solution, increasing fuel efficiency and the presence of electric and hybrid cars, makes the gas tax a poor long-term solution.

Finally, the report’s acceptance of the blanket spending cuts in the sequester (as a baseline) is poor policy. The sequester cut discretionary programs such as Next-Gen which is a core national priority for aviation while not touching formula programs such as streetcars which are neither a national nor a core transportation program. The sequester cuts should be examined to ensure that areas cut do not serve a vital national function.

Eliminate Federal Gas Tax Funding for Non-Highway Uses

Today, I want to offer the fourth of my recommendations to reform U.S. surface transportation policy. I advise eliminating federal-aid gas tax funding for all non-highway uses.

The federal highway transportation program is structured as a users-pay/users-benefit system with fuel taxes funding construction and maintenance of the Interstate and national highway system. Over the last 30 years, the program has diverted an increasing percentage of its funds to transit, bicycling, walking, smart growth, transportation museums, weed removal and other non-federal transportation purposes. While these programs have value, they also reduce the funding available for federal aid to highways; this has jeopardized interstate commerce. Eliminating federal aid funding for all non-highway uses will return the federal highway program to a users-pay/users-benefit program that spends limited resources on the most critical infrastructure.

U.S. government policy is based on the principle of federalism where the federal and state government share legislative responsibilities. In transportation, the federal government funds interstate passenger and goods movement using federal aid highways, aviation, inland waterways, and ports. Traditionally, other transportation modes have been funded by state and local governments. While transit and active transportation are important in certain states and regions, such systems are not federal in nature and should not be funded by the federal government. Most local governments and some states provide substantial funding for transit. Federal government funding makes up less than 30% of the revenue for the most important transit agencies such as the New York Metropolitan Transportation Authority. The funding of these modes from federal aid amounts to a cross-subsidy from highway users to other modes.

Federal transportation funding is limited. With little bipartisan interest in increasing the gas tax or embracing an alternate funding mechanism coupled with increasing vehicle fuel efficiency, federal gas tax receipts must be targeted as effectively as possible. Fuel tax diversions significantly reduce funding for highways.

While transit is important in many communities, it should be funded by farebox revenue and with supplementary local funding that does not come from federal roadway funding. U.S. transportation policy is predicated on a users-pay/users-benefit system. Potential funding sources for transit include local general tax revenue and value capture. (Value capture uses increases in land values resulting from highway and transit projects to finance infrastructure improvements.)

This change could devote more revenue to highways. Assuming all non-roadway funds are dedicated back to roadways, under Moving Ahead for Progress in the 21st Century (MAP-21) transit receives approximately $11 billion per year. Additionally, there is approximately $5 billion per year in highway funding that is flexed to transit, bicycling, walking or non-transportation purposes. This totals $16 billion in additional highway funding per year, or about 1/3 of federal gasoline taxes.

Transportation Budget from the White House – Deja Vu All Over Again

It is that time of year for a President Obama transportation tradition. Each of the past six years, the President has sent a transportation proposal, concept, or list of guidelines to Congress. And each year Congress, in a bipartisan manner, has rejected the President’s proposals as being completely unreasonable. Some hoped, with the prospect of corporate tax reform, that this year’s budget would be different. But while somewhat better than past years, this year’s budget is still an unrealistic document that is more focused on politics than policy.

The White House submitted a $95 billion budget request for USDOT for fiscal year 2016. The budget is a $22 billion or 31% increase, over 2015. And the Administration proposes to achieve this increase by removing Amtrak, transit new starts grants, TIGER grants, high speed rail funding, and a few other items controlled by the Appropriations committee. If this sounds familiar it is because the White House has submitted a variation of this proposal for the last several year; it has been rejected on all occasions in a bipartisan manner.

The first problem with this approach is it takes power out of the Appropriations committee and gives it to the White House. Appropriations committee members like the power of the purse and are unlikely to give it up even if they and the President agree on transportation policy.

The second problem is this proposal changes the fundamental users-pay/users-benefit nature of the highway trust fund. Both roadway and transit interests have dedicated funding in the current system. While transit might receive more funding under the President’s proposal, the funding is not guaranteed so it is unclear they would support this change. Other than passenger rail interests, it is unclear who would support this change.

The final and biggest problem is finding the money to pay for this proposal. The President is proposing a 14% tax on repatriated profits. However, there is bipartisan consensus that 14% is too high. Senators Boxer and Paul have introduced a 6% rate which is far more likely to pass. But the 6% does not provide enough money to fund the proposal. And both taxes are short-term fixes that do not provide the long-term certainty the transportation community is seeking.

For the seventh year in a row, the White House has proposed an overtly political budget which has no chance of passing. It is déjà vu all over again.

How Gas-related Taxes have Created Unfunded Liabilities in Construction

As any responsible steward of income can probably state that any reduction in income must be met with a reduction in spending and likewise any increase in spending must be validated by an increase in available income, lest the reality of debt or re-appropriation of disposable funds becomes your only choice. The gas tax debacle that looms over our heads is an example of how this simple yet universal lesson in finance is often lost upon the government.

Due to its lack of popularity among both citizens and politicians alike, the federal gas tax which was progressively rising throughout the 20th century finally hit a wall in 1993 at $0.18, from which it hasn’t moved since. Curiously, the 1993 increase in the gas tax was not even fully utilized to improve the highway systems as 2.5 cents per gallon were dedicated towards paying down federal debt…  As we’ll see later, states were not behind this trend of cross-funding. When coupled with inflation, this stagnation of the federal-gas tax and a simultaneous reduction in the amount of gas spent per mile — with the introduction of more fuel efficient cars — has effectively minimized revenues upon which the government was dependent to fully fund the Highway Trust Fund. However this simple lack of resources is not the only reason Congress is supporting bailing out the fund.

Spending priorities are determined more by politicians appeasing special interests than local needs or consumer choices. And the federal regulatory burden delays projects and smothers state and private-sector innovation.

― Emily J. Goff, a policy analyst at the Heritage Foundation

While the simple reality that solutions offered by the federal government will rarely not have an adverse effect on some Americans, what Goff describes is only the tip of the iceberg:

The beneficiaries of these local activities take from, but do not contribute to, the Highway Trust Fund. Better for New York and New Jersey to fund their subways, Oregon its bike paths and Maryland its trails.

What is the validity behind these assertions? Here are some numbers and figures for your consideration:

  • New Jersey is currently allocating 95% ($516 million) of its gas tax revenue towards paying off the $1 billion it has in interest on debt
  • New York currently uses 70% ($1.4 billion) of this revenue to pay off debt on past construction projects
  • Oregon will have to spend over 35% of its gas tax revenue ($200 million) per year to fulfill interest payments on bonds purchased
  • The state of Washington allocates 11.18 cents of tax revenue per gallon towards paying down its own debt payments
  • There are even states like Texas, where 25% of the total state tax funds go towards funding completely unrelated endeavors, such as education

Given the magnitude of the fund’s present day debt, it becomes clear that these are not simply isolated incidents and hence, this not necessarily a problem that is unique to the federal government. The gas tax represents a failure of policymakers, not only the simple failure of neglecting to index taxes to inflation but the failure to create a non-regressive tax while exercising responsible stewardship over its revenues.

-Santiago Bello is a research associate at the National Center for Policy Analysis

Developing a State Free Market Transportation Policy

In my last post we examined how to create a local free-market transportation policy. This posting will examine how to create a similar policy on the state level where Republicans will control 32 governorships in 2015, almost 2/3 of the U.S. total. Most states lack a comprehensive transportation vision. Many depend on Washington D.C. for more than 50% of their funds. Yet with federal budget challenges, most policy makers expect federal funding to decrease. As a result, states need to create a transportation vision and ensure that they have the budget to implement such a vision.

States should focus on funding statewide assets. What is a statewide asset? Generally, it is a transportation asset that serves intrastate movement. Most national systems which transport people throughout the country transport people throughout the state and qualify as state assets. These systems include Interstate highways and other major roads that are part of the National Highway System, class one railroads and certain aviation routes. Railroads typically are self-funded so states can merely need to coordinate freight needs with the railroads. Intrastate passenger rail services should also receive some state-level funding assuming the corridors are commercially viable. Statewide and regional transit systems also merit some funding, although the majority of funding should come from the regional, county or city level. While it may be popular to fund non-motorized transport, bicycling and walking are primarily local activities that should be funded at the regional, county or local level.

How should states fund such a system? Similar to at the federal level, the most economically efficient method is a user-pay/user-benefit system. For highways this means transitioning from a partial user-pay/user-benefit gas tax system (some of the money gets diverted to other uses) to a complete user-pay/user-benefit mileage based user fee system (MBUF). An MBUF is the best option because it could be set up to include no revenue diversions. Further, it allows states to vary rates based on type of road and level of congestion to provide a more advanced system. Oregon allows its drivers to choose from one of three models. The most advanced option monitors driving habits and charges rates based on the type of road and the time of day. But for those wary of government intrusion Oregon also offers the option of an annual fee with neither destination nor time-of-day monitoring for motorist travel. Oregon also refunds gas tax revenue so motorists are not paying twice.