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01/25/2008 Increased Fuel Tax Recommended by Transportation Commission
Annual 5 to 8 cent fuel tax increase is one recommendation of 258-page report.
A recently released Government report exploring the future of transportation recommends increasing the Federal fuel tax by 5 to 8 cents per gallon per year over the next five years. After five years the fuel tax would be tied to inflation rates.
The fuel tax increase was one of several recommendations aimed at generating revenue for the Highway Trust Fund (HTF). According to the report, by 2009 the Highway Account of the HTF will have a negative balance of between $4 and $5 billion if nothing changes. The report findings will influence lawmakers as they try to cope with a transportation infrastructure that the commission itself described as “broken.”
Just how much money do we need?
According to the report, which took a large-scale look at U.S. transportation issues, at least $225 billion is needed annually for the next 50 years in order to “upgrade our existing system to a state of good repair and create a more advanced surface transportation system.” Less than 40 percent of that is currently being spent. For perspective, each one-cent increase in the Federal fuel tax produces about $1.9 billion annually.
A number of factors combined to make an increased fuel tax the first choice for many Commission members, including low administrative and compliance costs, ability to generate substantial amounts of revenue, relative stability and predictability, and ease of implementation.
Recommendation met with criticism
The fuel tax increase recommendation was immediately met with objections, including from members of the commission itself, three of whom did not endorse the report. One of those members who did not endorse the recommendations was U.S. Secretary of Transportation Mary E. Peters, who chaired the Commission. “Contrary to the views of the majority of the Commission, we do not believe Washington is capable of spending billions more of Americans’ money wisely when it comes to transportation investments,” she wrote in a published letter to the Wall Street Journal.
“[A]s a nation we’ve barely taken advantage of the billions of private-sector dollars currently available for investment in new road, bridge and other transportation projects. With the kind of encouragement we're recommending, many more states could soon be able to pay for new transportation projects without having to increase taxes, sell new bonds or go further into debt. We need to encourage, not constrain, state and local leaders willing to pursue fundamentally different strategies to finance and manage transportation systems,” wrote Peters.
Iowa’s U.S. Senator Charles E. Grassley, Senate Finance Committee Ranking Member, was also critical of a higher tax. “An orange traffic cone could have come up with a gas tax increase … Everyone knows most members of Congress will toss that recommendation right in the trash … Raising gas taxes should be a last resort. Instead, it's a first resort for this commission.”
Tolling and congestion pricing also recommended
While a fuel tax does have benefits as far as easily raising revenue, some argue that tolling is preferable because of the direct connection between use and toll charge. High-speed electronic tolling has been gaining national attention because it allows for tolls to be collected for a much lower price.
Congestion pricing was also recommended as a way to alleviate traffic back-ups and improve transportation. Congestion pricing aims to reduce congestion during peak travel times by charging higher tolls at that time. The hope is that drivers will adjust their driving habits to avoid the higher tolls. However, the report noted that congestion pricing could very likely not change driving habits for companies in the commerce sector. “Shippers determine pick-up and delivery times and trucking operators have little or no influence over these decisions. Because tolls are not easily passed directly by the carrier to the customer, there is little incentive for the shipper or receiver to adjust their schedules.”
The report noted that trucking companies would be hit hard by congestion pricing and would not have the opportunity to adjust their driving schedules. The report also noted that the current Hours of Service regulations are not conducive to congestion pricing, as drivers are required to drive 11 hours and don’t make allowances for stopping and starting.
One thing is clear, lots of money is needed, quickly
How Congress decides to meet the funding challenge is still to be decided. What is certain is that large sums of money need to be raised in a very short amount of time, or Congress could be facing funding shortages in the billions just to maintain the status quo. Congress is expected to decide how to deal with the funding shortfalls during this year’s Congressional Session.
About the Commission
The report was authored by the National Surface Transportation Policy and Revenue Study Commission, established three years ago by the Safe, Accountable, Flexible, Efficient Transportation Equity Act—A Legacy for Users (SAFETEA-LU). The Commission was comprised of leaders in the transportation sector including Peters, several State DOT heads, business leaders and others. The Commission approved the report by a vote of 9 – 3.
Look for upcoming article to learn about the Commissions’ recommendation to restructure the DOT
Another major recommendation of the Commission was to restructure how transportation departments are organized. Look for an upcoming article from Foley Services exploring the Commission’s recommendations in this area.
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