CoC Report Suggests Surcharge on Hybrids, Eventual VMT Tax to Fund Highway Maintenance
26 November 2005
|US highway and bridge systems face a cumulative $0.5-trillion shortfall by 2015 to maintain the system and a $1.1-trillion shortfall to improve the system.|
A report commissioned by the US Chamber of Commerce concludes that current revenues at all levels of government—Federal, state, and local—devoted to transportation investments are grossly insufficient to maintain, let alone improve, US highways and transit systems.
The report, Future Highway and Public Transportation Financing, recommends a variety of short- and long-term financing policy changes, including a special fee on hybrid and alternative-fueled vehicles and the eventual transition to a tax on vehicle miles travelled (VMT).
Federal funds for highway maintenance come largely from the Highway Trust Fund, which is funded by the federal motor fuel tax—a gallonage-based revenue system, rather than the proposed mileage-based system. Federal motor fuel tax rates are not indexed to inflation and have lost one-third of their purchasing power since their last adjustment in 1993.
This funding problem was not addressed in the mega transportation bill passed earlier this summer (which did include the now infamous “bridge to nowhere” in Alaska).
By the report’s analysis, the cumulative shortfall in funding required to maintain pavement, bridges and traffic levels of service at current levels through 2015 is $0.5 trillion. The estimated shortfall of funds required to improve the system through 2015 is an estimated $1.1 trillion.
The report offers a range of short-, medium- and long-term changes to address the shortfalls.
The short-term (2005–2010)
- Indexing federal motor fuel taxes to inflation. This would have the most immediate impact.
- Closing exemptions to the Highway Trust Fund (HTF) so that revenues dedicated to transportation are spent on transportation.
- Recrediting interest to the HTF so that the HTF can reap the full benefit of the revenue paid into the fund by users.
- Dedicating 10% of U.S. Customs import revenues to transportation to account for transportation&rsquuo;s contribution to the facilitation of international commerce.
- Giving states and local governments more revenue and investment options by authorizing expanded use of tolling and by encouraging states to index their motor fuel taxes to account for inflation.
- Stimulating greater use of innovative finance tools so that states can make transformative investments into their transportation infrastructure. These tools include federal loan guarantees, private activity bonds, tax-credit bond financing, and investment tax credits.
The medium-term (2010–2015)
- Introduce a vehicle fee on hybrid and other alternative-fuel vehicles to compensate for the fuel tax revenue lost from decreased fuel consumption.
- Ensure that any subsidies for the purchase of hybrid and nonpetroleum-powered vehicles come from the general fund as was done for ethanol fuel subsidies—not from the HTF.
- Recommending that the recently authorized National Surface Transportation Infrastructure Financing Commission oversee a new cost allocation study, setting principles and guidelines for the efficient and equitable allocation of HTF fees.
The long-term (2015–2030)
- Implementing a mileage-based transportation revenue system to help address long-term revenue shortfalls.
- Adopting two vehicle miles of travel (VMT) fees: a state VMT fee as well as a local-option VMT fee to help ease metropolitan congestion.
- Indexing VMT fees to inflation to help close the annual gap between transportation needs and revenues.
- To consider varying the VMT 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 fair share of infrastructure costs.
The report recommends that federal and state governments begin planning and developing a new mileage-based transportation revenue system immediately, with the states leading. (VMT tax schemes are already under trial in Oregon and under consideration in California. Earlier post.)
Between 2015 and 2020, the growth in fuel tax revenues will slow, and revenue yield will erode as alternative fuels and nonpetroleum-powered vehicles capture a larger share of the market. The federal and state governments should begin planning for a new mileage-based revenue system to offset the decline in gallonage-based fuel tax revenues.
It will take at least 10 to 15 years of significant experimentation to develop mileage-based revenue systems that can be tailored technically and politically to the needs of the states and cities.
Key factors that will influence the development and acceptance of state, and eventually federal, mileage-based fees are as follows:
Equity. The transition from a gallonage-based to a mileage-based revenue system will require careful examination and consideration of who benefits and who pays.
Privacy. The technologies that enable mileage-based revenue systems will cause privacy concerns.
Legal and administrative frameworks and enforcement strategies. Collecting mileage-based fees from all motorists will be much more complex than collecting fuel taxes from a limited number of wholesale fuel distributors. The states and the federal government will need time to develop and test efficient, cost-effective, and enforceable approaches.
Political and public acceptance. The current motor fuel tax system has been in place for more than 60 years. It will take time and a broad public education effort to explain the need for a new revenue system and to gain political and public acceptance.
The Chamber of Commerce has not yet endorsed the report.
(A hat-tip to Felix Kramer!)
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