gas tax

No easy or cheap fix for America’s infrastructure

Posted on by j.giglio

Earlier this month, the American Society of Civil Engineers’ “2017 Infrastructure Report Card,” which looks at 16 categories of infrastructure from schools to airports to dams, gave the nation an overall grade of D+. Creative approaches can be used to finance some of the needed improvements, but others will need to be paid for the old-fashioned way.

The report is yet another in a series of reports making the case that America has under invested in infrastructure for decades. Such chronicles of wretched conditions are a national sport that is nearly as popular as the Kardashians. But although much of the material is familiar, infrastructure is a gift that keeps on giving; there always seems to be something new to chew on.

The report card projects that $4.59 trillion will be required to bring America’s infrastructure to a grade of B. That is more than the nation’s annual budget of about $4 trillion.

Americans can quibble about the actual size of these projections, just as maritime historians quibble about the size of the iceberg that sank the Titanic. But it scarcely matters whether the estimates are off by 5 or 10 percent (give or take). What matters are the general proportions of these needs and the risks for the U.S. economy if they are not addressed. The longer we wait, the bigger the problem becomes.

Most who deal with this issue agree that the country’s infrastructure is in a bad way, but there is much partisan disagreement over how to pay for the fix.

Using public-private partnerships to invest in infrastructure was one of President Trump’s major campaign promises, but fiscal conservatives in Congress are reluctant to back massive spending that exacerbates the federal budget deficit and skyrocketing federal debt.

Democrats, on the other hand, are for more direct federal spending. By reducing taxes on overseas profits, they believe some of the estimated $2-$3 trillion companies have kept outside the U.S. could be repatriated. The result is that the political hills come alive with the sound of heated debates over proposals to address the infrastructure gap.

The permanent political aristocracy’s failure to deal with infrastructure reflects the simple fact that talking about balancing the budget is easy, but doing the things you have to do to balance it is hard. By the very nature of the process, politicians are focused on the very near term.

Upcoming elections, like hangings, have a way of focusing the mind on the here and now. That is why the federal gasoline tax of 18.4 cents per gallon and the diesel tax of 24.4 cents per gallon, the most important sources of federal transportation funding, have not risen since 1993. During that time, they have lost about 40 percent of their purchasing power due to inflation. Fuel tax revenues can no longer keep pace with needs.

This is not just a problem with politicians, it’s also a problem with voters, who say the deficit is a major concern, yet favor lower taxes, more benefits and fixing our infrastructure. Put simply, they don’t want to pay for the government they want.

It’s time to get real. Nothing works without a funding source and we will need hard cash to correct our under-investment in infrastructure. The feds, state and local governments, and the private sector have plenty of access to capital markets to finance infrastructure; the real issue is identifying revenue sources such as user fees or taxes to repay the debt.

A partial solution is to minimize the need for scarce government dollars by recruiting private firms as partners to help start, fund, and run infrastructure projects that have predictable revenue streams, like toll roads. But a larger universe of projects such as schools, dams, and local roads, for example, cannot be monetized.

Infrastructure’s biggest challenge is funding. In the real world, that comes down to a choice between taxes and user fees. There is no free lunch.

originally published: April 1, 2017

Put a money-back guarantee on infrastructure work

Posted on by j.giglio

Americans are told that the most serious problem facing the nation’s transportation infrastructure is a lack of money. Perhaps people would be willing to pay more if they receive a money-back guarantee in return.

Today’s roadway funding depends primarily on motor-vehicle fuel taxes and state and local appropriations. But federal fuel tax revenues no longer keep pace with needs because of the self-serving assumption that it’s become politically impossible to “raise taxes.” Everyone wants better roads and bridges, but almost no one wants to pay for them.

All this makes finding adequate funding to rehabilitate the nation’s highway system, add new lanes and highway corridors a major challenge. Between 2005 and 2015, there were two five-year federal surface transportation reauthorization bills and 34 short-term funding extensions. To maintain the committed level of funding, the federal government was forced to raid the General Fund for an average of $10 billion per year to supplement the dwindling Highway Trust Fund

Even so, Congress struggled to find the revenues to support a long-term bill without increasing the fuel tax, which has remained at 18.4 cents per gallon for cars since 1991. Congressmen have moved in unison to avoid dealing with an increase in the federal fuel tax.

In real terms, fuel tax revenue is actually projected to decline as the nation’s motor vehicle fleet becomes more fuel efficient. It is safe to say that the fuel tax is like a marriage that dies long before divorce papers are filed.

At the same time, state and local government budgets are increasingly burdened with funding demands for education, fighting crime, better security against terrorist threats and a host of other deserving services. Roadway funding inevitability gets shortchanged which is relatively easy to do, since it takes a while for the impact to become apparent.

A new U.S. Department of Transportation “conditions and performance” report estimates that there is a $926 billion backlog of needed highway and transit infrastructure projects, and that many more billions more will be needed to keep up with demand over the next 20 years. The congressionally mandated biennial report identifies an $836 billion highway and bridge backlog.

The public can quibble about the size of these numbers, just as maritime historians do about the size of the iceberg that sank the Titanic. But their magnitude is so enormous that it scarcely matters whether the estimates are off by 5 or 10 percent. What matters is that the needs are enormous, and the longer you wait to address them, the worse they become.

Senate Democrats just unveiled a 10-year, $1 trillion infrastructure plan that includes $210 billion to repair “crumbling” roads and bridges, but they are vague about how to finance it other than through direct federal spending. During the campaign, President Trump also called for a $1 trillion infrastructure investment that proposed leveraging new revenues and using public-private partnerships to incentivize investment and spare taxpayers from bearing the burden.

At one end of the funding spectrum are people who think the public should pay for it via tolls. At the other end are those who argue that the benefits transportation infrastructure provides aren’t confined to users, so society as a whole should pay out of general tax revenues. Between these extremes lies a range of payment mechanisms.

But for a plan to be accepted by American motorists, it must be perceived to deliver superior travel service with appropriate regard for equity and environmental considerations. One thought is to pair any increase in taxes or user fees with a money-back performance guarantee so customers can rest assure that they will get guaranteed travel-time savings in return for paying for access to surface transportation such as highways. This gives the travelling public confidence that they are getting their money’s worth.

The rapid introduction of intelligent transportation technologies facilitates an efficient way to implement a money-back guarantee. The result would be a dramatically transformed approach to transportation infrastructure.

originally published: February 4, 2017

Fees for using roads could foster economic growth

Posted on by j.giglio

There is again talk of raising the state gas tax to address the dramatic under- funding of transportation infrastructure. But even when a road network is fully supported by the fuel tax, there is still a disconnect in most motorists’ minds between what they pay and the act of driving.

Common goods like public schools or parks are collectively owned by society rather than by its individual members. They are normally supported by tax revenues and responsibility for operating and maintaining them is (usually) assigned to government.

This is the standard pattern for metropolitan road systems in the United States.

They are built and maintained by a combination of state and local governments that fund most of their costs out of general tax revenues, often supplemented by user taxes on motor vehicle fuel.

The result is an instinctive sense among motorists that roads are free. This mistaken view further complicates already difficult issues around how much road capacity we need and how it should be managed.

The basic problem is illustrated by Garret Hardin’s metaphor of a community that has a publicly owned pasture where local farmers can graze their cows without paying user charges. The farmers seek to graze as many cows as possible in the pasture, because each will increase the farmer’s milk production with no additional feeding cost.

But it only works so long as the total number of cows remains within the pasture’s feeding capacity. Once the farmers exceed this limit, the pasture begins to break down as the cows consume grass faster than the pasture can replenish itself. As a result, the pasture produces less nourishment for each cow.

Since each farmer’s cows are producing less milk for him to sell, his response is to buy still more cows and add them to the overused pasture.

When all the farmers do this, the result can only be declining milk production for everyone.

In Hardin’ words: “Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination towards which all men rush, each pursuing his own best interest in a society that believes in the freedom of the common.”

When the commons in question is the nation’s roads, especially congested ones in metropolitan areas, some believe their livelihoods depend on free use of the roadways and propose expanding them to support more vehicles.

They believe the purpose of the commons should keep pace with economic growth.

And since, like the pasture, roads are publicly owned, the cost of expanding them should be paid out of general tax revenues so its users can continue to obtain benefits without having to pay for them directly.

Others insist the real problem is not too little supply, but too much demand.

They argue that the time has come to “think green” about the future of public commons.

Then there are those who suggest the time has come to begin charging motorists per-mile user fees. In this way, each will pay more directly for the benefits received .

By using a sensible pricing system to allocate the use of scarce resources, each motorist will be  motivated to make the most efficient use of them, making discretionary trips at times when roadways are less congested and, depending on the pricing system, cheaper. When it becomes necessary to expand the public commons, income from user fees – not new taxes or more debt – can cover expansion costs.

The most sensible solution to the pasture problem is to charge the farmers grazing fees.

The same is true when it comes to roads, especially in metropolitan areas where traffic congestion is afflicting residents and choking off economic growth.

originally published: October 12, 2011