Transcript Reforming Transportation Finance: Needs, Opportunities, Constraints

Reforming Transportation
Finance: Needs,
Opportunities, Constraints
Martin Wachs, Director
Institute of Transportation Studies
UC-Berkeley
Overview of my talk
 Review
of Current Needs; Summarizing
Points Made by Earlier Speakers
 Criteria by Which to Evaluate Policy
Responses to Needs
 Review of Current Opportunities
 Review of Constraints….Mostly Political
History of Transportation Finance
 Motor
fuel taxes enormously popular
 Supported by wide variety of
constituencies
 Adopted in every state by 1940
 Federal motor fuel tax in thirties
 Fundamental finance mechanism for
Interstate System in fifties
History of Transportation Finance
 User
fees in USA became associated
with “trust funds” and non-diversion
constitutional provisions in many states
 Elastic definition of user fees allowed
expansion to transit and to
environmental mitigation in many states
 “Hypothecation not common worldwide,
but key to popularity in USA
Motor Fuel Taxes
Usually Expressed as “Cents per Gallon”
 Must be Raised by Act of Legislature
 Revenue Does Not Rise Automatically with
Inflation as Does Income Tax or Sales Tax
 Improving Fuel Economy Lowers Revenue
per Mile of Driving
 Revenue Declining Precipitously in Relation
to VMT

Fuel Tax Changes, 1957-2002


Average of Fifty States
State Fuel Tax in 1957:
5.7¢/gal
 If adjusted for Inflation in 2002: 31.0¢/gal
 Actual Current Fuel Tax:
20.3¢/gal
 Difference
10.7¢/gal
Fuel Tax Changes, 1957-2002


California
State Fuel Tax in 1957:
6.0¢/gal
 If adjusted for Inflation in 2002: 32.5¢/gal
 Actual Current Fuel Tax:
18.0¢/gal
 Difference
14.5¢/gal
Eroding Buying Power of Fuel
Taxes
 Only
Three States Have Raised Fuel
Taxes Sufficiently Since 1992 to Keep
Even with Inflation
 Improved Fuel Economy Lessens
Revenue Per Gallon
 California Would Have to Triple its
Motor Fuel Tax to Restore Buying
Power Per VMT to the Level of 1957
Changes in State & Local
Transportation Revenue,1995-99
(National Totals) Billion$/Year % Change
State User Fees
36.2-42.7
+18%
Local Property Taxes 5.2-6.4
+22%
Local General Funds 12.3-15.9
+29%
Other State Taxes
6.6-8.6
+30%
Other Local Taxes
4.5-7.1
+58%
State Borrowing
4.3-8.3
+92%
Criteria by Which to Judge
Alternative Approaches
 Revenue
Production
 Equity
 Political Acceptability
 Contribution
 The
to Operational Efficiency
measures may differ short term
versus long term with respect to these
criteria
Review of Current
Opportunities
Reassert Reliance on User Fees
Raise Fuel Taxes
Indexing the Fuel Taxes
Shift to More Direct User Fees:
tolls/congestion pricing/hot lanes/ VMT
Fees
Increase Borrowing….defer user fees
Continue to Increase Local Sales Taxes (via
Voter Approved Measures)
Raising the Fuel Tax

Has Been Popular in the Past
 Increases Small in Comparison with Market
Fluctuations
 Easy and Cheap to Administer
 Encourages Increased Fuel Economy
 Regressivity Tempered by Limiting Incidence
 Has Obvious Limit in Long Term as we
Transition to Alternative Energy Sources
Indexing the Fuel Tax
 Has
Been Done Dozens of Times in
States and Often Retracted
 What should be the Basis of
Indexing….Fuel Price, CPI, Highway
Cost Index, Expenditures?
 If Not Done Right Can Add to Price
Volatility
Shift to More Direct User Fees

Tolls
 Difficult to Implement on Existing Toll-Free
Roads
 Greatly Aided by Widespread Acceptance of
Electronic Toll Collection
 HOT Lanes
 Incremental Toll Increases on Existing Roads
and Bridges
 Toll Financing of New Capacity
VMT Road User Charges
 Technology
getting Closer
 GPS Measurement of Use
 Unit Price Charged Based on Time of
Day and Particular Facility and
Particular Class of Vehicle
 Very Promising for Longer Range – 20+
Years for Cars, sooner for Trucks
Increased Borrowing
 Borrowing
Used Less in Transportation
than Other Infrastructure Programs
 Interest is an Operating Cost That Can
be Substantial; But Often Warranted
 Borrowing Can be Justified by Timing of
Flow of Costs and Benefits
 Borrowing More Easily Justified for
Capital Costs than Operating Costs
Taxes---Already Growing
Quickly

44 Transportation Finance Ballot Measures in
US in 2002

32 Local/Regional in Nature
 9 Statewide

20 Dealt with sales taxes
 5 Property taxes
 1 Gasoline tax
9 Bond issues
Major Features of LOTTs
Majority vote or supermajority
Project lists/categories
Sunset dates/reauthorization
Implemented by local govts.
Issues Raised by LOTTs

Move Away from User Fee Philosophy
 Sales Tax is Broad Based Tax
 Regressive
 Consistency with Regional Transportation
Plans
 Project Delivery
 Local Authority and Responsibility
 Flexibility versus Specificity
 Salience of Issue of “Trust”
Issues Raised by LOTTs
 Christmas
Tree Measures
 Pay to Play Measures may be Even
Worse (California Proposition 51)
 Dissociation between projects and
efficiency of system
A Mixed Strategy Most Likely

Local Measures Appropriate for Local Serving
Facilities (Including Transit), NOT for Major
Interstates, for Example.
 Local Measures Will Be a Major Transitional
Finance Mechanism, but Should Not be
Centerpiece of our Strategy
 There is a Limit to Local Financing Capacity
 Transportation Competes with Other Local
Needs in Post-Proposition 13 World
Increasing Use of Tolls

New Capacity Expansion/Toll Roads
 Specialized Toll Roads: Truck Only Lanes,
Hot Lanes/ Electronic Tolling
 Congestion Pricing in Particular Locations but
Growing Gradually
 Truck User Fees Before Widespread VMT
Applications
 A 20-30 Year Transition
 The Need for Revenue Will Dominate Over
Reluctance to Use Toll Mechanisms
Borrowing
 Some
Uses, Facility Specific Focus on
New Capital Expansions, Not on
Operating Costs, Rehabilitation,
Maintenance
Interim
Bridging Measures

Fuel Tax Increases and/or Indexing
Appropriate Now for Short Term Transition
 Effectiveness Significant in Short Term,
Weakening in a Decade or Two
 Probably Devolving to States and Even to
Regional Fuel Taxes More than Relying Upon
National Fuel Taxes to Grow as Rapidly
Political Considerations

Reluctance of Elected Officials to Raise New
Taxes is Greater than Unwillingness of
Constituents to Have them
 Related to Trust of Elected Officials By
Citizens
 Tolls: Paying Twice for Same Roads
 Tolls: A Tax on Foreigners Living Abroad
 Sales Taxes: Concentration Versus
Dispersion
 Privacy Threats Inherent in Some
Approaches
That’s What I See Coming
How About You?
Thanks for your attention