April 1, 2013
With looming insolvency, a vehicle mileage-based user fee is a viable, but challenging option for creating revenue.
By Tina Grady Barbaccia
Financing scenarios for current and future transportation are challenging with a Highway Trust Fund (HTF) that is always facing insolvency and the frequent uncertainty with funding legislation that’s always much less than what is actually needed to both maintain and improve our current system.
Although the current surface transportation legislation, “Moving Ahead for Progress in the 21st Century (MAP-21),” has provided some short-term funding certainty — at least until the end of next September when the two-year bill expires — and made some reforms that arguably have made the highway program more efficient through program consolidation and environmental streaming, the lack of clarity for new revenue streams is still a major problem.
Revenue streams for the HTF are insufficient, and, despite several proposals to increase funding, there have not been any substantial new programs or solutions to solve the problem.
The report, “The Impact of Fuel Use Trends on the Highway Trust Fund’s Present and Future,” however, provides analysis on potential methods to increase revenue streams to stabilize the HTF and provide funding. The objective of the study was to document the challenges facing the HTF fund and to encourage “creative thinking about how to fund federal infrastructure programs.”
Conducted by Devin Braun, Ryan Endorf, and Stephen Parker at the College of William & Mary’s Thomas Jefferson Program in Public Policy (TJPPP) and prepared for the Associated Equipment Distributors (AED), the report found that indexing the federal gas tax for inflation in 1993, when the gas tax was last increased, would have generated an additional $64.4 billion in revenue during the last two decades, Christian Klein, vice president of government affairs & Washington Counsel for AED, wrote in the report’s forward. The TJPPP researchers also projected that higher fuel efficiency standards “would further erode the value of the gas tax,” Klein wrote. The researchers also noted in the report that “failing to change the existing tax structure could lead to a $365.50 billion shortfall for the HTF — between current spending and anticipated revenues — over the next 23 years.”
They also noted that indexing a vehicle mileage-based user fee (VMBUF) would generate $136.8 billion in additional revenue, and that “there is a strong indication that increases in fuel efficiency and inflation have hurt the Highway Trust Fund’s investment capabilities in recent years.”
However, the “historical attractiveness of the VMBUF is mitigated by the administrative difficulties” that it would have incurred. The basic infrastructure of this type of system would involve an in-car monitoring technology. This may elicit privacy concerns. In the report, though, potential ways have been outlined for policy officials to alleviate the concerns within the VMBUF framework that have been tested at the state level.
Other concerns, according to the report, include “the fear of a VMBUF being socio-economically regressive, how a VMBUF might be implemented at the state and local level, and whether a VMBUF removes a powerful incentive to purchase more fuel-efficient automobiles.”
A VMBUF will also require investment in an advanced, nationwide technological infrastructure to collect mileage information from vehicles. “The manpower and cost of installing an interoperable and national deployable system in every state that operates without impeding or slowing the flow of traffic will not only tax the resource of federal and, likely, state and local governments, but be a long, time-consuming process,” the report states. Estimates are that it could take eight to 10 years to fully construct, according to a RAND Interim Report. In the Netherlands, a nationwide VMBUF system is in the late stages of implementation, and in Oregon, a wide-scale pilot project for a VMBUF system has been in place since 2006.
For this type of system to be effective, according to the report, planning and conversations need to begin right away. “Because of a phase-in period and the more general mathematical logic, we recommend that inflation-indexed fuel tax rates be implemented as soon as possible — either as part of contemporary tax reform or for the next federal highway reauthorization in 2014,” the report notes. “The starting point for these rates should be the rates that would have occurred if fuel taxes had been indexed to inflation in 1993.
“Gains from such a policy would be immediate and would allow for the discussion and potential implementation of a VMBUF to be planned,” the report continues. “In eight to 10 years, the country may feel less angst with a VMBUF system, but if not, at least the HTF would be on the way toward greater fiscal solvency than is currently projected…The Highway Trust Fund was designed to be a fiscally self-sustaining way to fund federal aid for highway projects, and with some key institution reforms, it can remain so into the future.”
Findings of future projections in the report include the following:
• Rising fuel efficiencies because of increasing Corporate Average Fuel Economy (CAFE) standards suggest that gasoline consumption will fall in the long-run, meaning that fuel tax revenues will also decline.
• Vehicle miles traveled is projected to increase over the same span, which suggests that a tax structure based on mileage-based user fees may be a more stable revenue source.
• Failing to change the existing tax structure could cause the Highway Account to incur a deficit of $365.50 billion over the next 23 years.
• Indexing current fuel taxes to inflation reduces the projected deficit to $186.70 billion during the 23-year span.
• Switching to a revenue-neutral VMBUF in 2021 leads to a deficit of $183.60 billion.
• Indexing the VMBUF starting in 2021 leads to a deficit of $78.0 billion, a $287.0 billion savings.
For a downloadable PDF of the full report, go to http://www.aggman.com/?p=26962.