Frittered away

| September 01, 2006

One dollar of every $6 in gasoline tax revenue goes to non-highway spending.

Tucked amid the many important infrastructure projects in the $286 billion transportation bill President Bush signed in 2005 is Alaska’s proposed Gravina Island Bridge. The $223 million structure would replace the 7-minute ferry ride that currently connects Ketchikan, Alaska, population 8,000, to Gravina Island, at a cost of $4.5 million for each of the island’s 50 residents.

Dubbed the “Bridge to Nowhere,” the project has been widely criticized as an outrageous example of pork-barrel spending. Also called earmarking, “pork” is funding that is paid for by all taxpayers but that brings economic benefits only to a few – in this case, the constituents of U.S. Rep. Don Young, R-Alaska, who heads the House Transportation Committee.

Such projects raise the ire of many, including watchdog groups such as Taxpayers for Common Sense. “The preponderance of these member projects indicates a transportation-funding program that is heading down the proverbial road to ruin,” Erich Zimmermann, a TCS senior policy analyst, told the U.S. Senate during a May 2005 briefing.

Zimmermann’s comments echo those of experts who warn of a fiscal crisis that will keep our overburdened highways at the mercy of congestion that now costs our economy $168 billion each year. While projects such as the Gravina Island Bridge garner the most media attention, in reality, such earmarks siphon off only about 8 percent of the highway budget. Other factors, such as declining Highway Trust Fund revenues, diversion of highway funds to non-highway projects, and excessive bureaucratic hurdles all conspire to thwart highway improvements.

Recognizing the seriousness of the situation, Congress in 2005 created the 12-person National Surface Transportation Policy and Revenue Study Commission. Its task: study highway needs and recommend alternatives to fuel taxes for highway funding. At the commission’s June 26 meeting in Washington, D.C., Federal Highway Administrator Rick Capka told attendees the Highway Trust Fund “is no longer sustainable in its current form.”

Established 50 years ago this summer to ensure a dependable source of federal funding for highways, the fund receives revenue from two main sources: taxes on motor fuels, including gasoline and diesel; and truck-related taxes, including the heavy-vehicle tax and taxes on truck, trailer and tire sales. Congress in 1983 divided the fund into two accounts: the Highway Account, which receives the bulk of the fuel-tax receipts and all the truck-related receipts, and the Mass Transit Account.

In the past four decades Congress has increased the federal fuel tax three times: in 1983, 1990 and 1993. But because federal fuel-tax rates are not indexed to inflation, they have lost a third of their purchasing power since the last adjustment in 1993, according to a 2005 report from the National Chamber Foundation of the U.S. Chamber of Commerce.

This funding shortfall has huge implications. Consider that through 2015, annual Highway Trust Fund revenues will fall $23 billion short of maintaining highway and transit systems and $48 billion short of improving the systems, according to the chamber. The most recent highway act – the Safe, Accountable, Flexible and Efficient Transportation Equity Act – A Legacy for Users (SAFETEA-LU) – guarantees $286 billion in federal funding for highway and transit capital improvements through 2009. Yet the chamber estimates that revenue coming into the Highway Trust Fund during this period will total only about $231 billion. Under current financial models, the fund will go bankrupt in 2008.

And federal funding is only part of the story. While about 42 percent of the capital investment in highway improvements comes from the federal government, the remainder comes from state and local sources. To maintain the current system, all levels of government must invest increasing amounts, from $235 billion this year to $304 billion in 2015, according to chamber estimates. Current revenue streams will fall short of these levels by $500 billion through 2015. That shortfall doubles to $1.1 trillion if the goal is to improve, rather than merely maintain, the system.

In real terms, federal fuel tax revenue will drop 50 percent by 2030 due in part to increasingly fuel-efficient vehicles, including trucks, John Conti of the U.S. Department of Energy told the commission at its June 26 meeting. “That doesn’t count the penetration of alternative fuels that are not taxed.” The DOE forecasts that 5.7 million alternate-fuel vehicles will be sold annually by 2030, a quarter of all vehicles sold.

While revenue drops, costs continue to climb. The American Road and Transportation Builders Association estimates the cost to build highways has increased 17 percent since last year, primarily because of skyrocketing materials costs, notably asphalt, steel and iron. Cost increases are compounded by regulatory delays that slow projects down and bring inflation into play, says Jack Basso of the American Association of State Highway and Transportation Officials. “You’re always chasing your tail,” he says. “The more time goes on, the more costs go up.”

Diversion of Highway Trust Fund dollars to non-highway projects also thwarts improvements that could ease congestion. Alaska’s Gravina Island Bridge is only one example of the more than $24 billion earmarked for more than 6,000 projects in SAFETEA-LU, many of them unrelated to highways. Capka told the commission that 16 percent of the federal gasoline tax and 12 percent of the federal diesel tax is diverted to non-highway use.

“Once the interstate highway system was declared complete, the Highway Trust Fund didn’t go away, but the idea for what could be eligible became broader and broader until any interest group that had anything to do with transportation wanted money from the program,” says Greg Cohen, president and CEO of the American Highway Users Alliance.

Too much funding gets diverted to projects such as light rail, Cohen says, in an effort to relieve congestion by focusing on commuters. But commuters make up only about 11 percent of vehicle miles traveled. “Light rail is a terrible drain on the Highway Trust Fund,” Cohen says. “It’s paid for almost entirely by truckers and other motorists.”

With a shrinking financial pie and a growing number of projects clamoring for a slice, transportation experts are seeking creative solutions. Presenting his National Strategy to Reduce Congestion on America’s Transportation Network in Washington, D.C., in May, then-Transportation Secretary Norman Mineta called for more private investment in transportation. He highlighted such projects as the $1.8 billion, 99-year lease of the Chicago Skyway and the $3.8 billion, 75-year lease of the Indiana Toll Road as examples of private – and sometimes offshore – partnerships that can fund roadway improvements.

While such investments often are met with skepticism and even legal challenges, “our members want discretionary authority to engage in these partnerships,” says AASHTO’s Basso, whose association represents state transportation officials.

Private investment, though, is no silver bullet, he adds. “If you have a $50 billion gap, public-private partnerships aren’t going to close that gap,” he says, because toll roads represent only about 5 percent of annual revenue and investment activity. “One way or the other, we’re going to have to ramp up revenue coming into the Highway Trust Fund if we want to close the gap.”

That was the conclusion of the National Chamber Foundation’s 2005 report, which outlined strategies for investing in transportation systems. The most immediate recommendation is indexing federal motor fuel taxes to inflation.

Of the approximately 60 cents per mile that an average citizen pays for all costs related to operating a car, only 1 cent goes toward the Highway Trust Fund. “Paying an additional half-cent per mile into the fund would currently fully fund the federal share of needs to maintain the nation’s highway and transit systems,” the report says.

Long-term recommendations from the chamber include: closing exemptions to the Highway Trust Fund so that revenue dedicated to transportation is spent on transportation; collecting a vehicle fee to capture payments from alternative vehicles; and implementing a mileage-based transportation fund, to keep fuel efficiency from starving road-building.

These strategies would require strong government leadership and public buy-in, experts say. Any new funding plans must be understood and accepted by the public, transportation consultant Alan Pisarski told state transportation officials in June at an AASHTO meeting. If the public knew it was getting a benefit of $6 for each dollar spent, he said it would beg to have taxes raised.

“It’s an opportunity by the end of the decade to have a new plan in place with policy that is hopefully nearly as easy to understand as building the interstate system,” says Cohen of the American Highway Users Alliance. “We’ll probably have to accept a bump up in fuel tax along the way. But for truckers and others to accept a few pennies more in taxes, there has to be a comfort level that it will be spent on projects that will benefit those who pay this tax.”

“Transportation investments must be wise investments,” the FHA’s Capka told the surface transportation commission. “Whatever we do, a significant portion of the nation’s wealth will be wrapped up in it.”

Andy Duncan contributed to this article.


POTENTIAL HIGHWAY FUNDING SOLUTIONS

  1. Increasing the number of toll roads.

  2. Indexing federal motor fuel taxes to inflation.
  3. Ending non-highway use of Highway Trust Fund spending.
  4. Collecting a vehicle fee to make up for lost fuel taxes from alternative vehicles.
  5. Implementing a mileage-based revenue system, so that fuel efficiency doesn’t starve roads.

PORK CHOPS: GROUPS LOOK TO CUT EARMARKS
Think the transportation bill funds only transportation projects? Not so. How about $2.3 million to enhance landscaping along the Ronald Reagan Freeway in California? Or $1.5 million for a University of Michigan auto crash notification system? Or $5.6 million for a pedestrian walkway in New York’s Hudson River Park?

Such projects may seem insignificant within the framework of a $286 billion transportation bill, but they do add up. In the most recent highway bill, the non-partisan budget watchdog group Taxpayers for Common Sense identified 6,373 earmarked projects – often called “pork” – worth more than $24 billion.

Originally, such discretionary spending was well intentioned. Mary Peters, a former federal highway administrator now a member of the National Surface Transportation Policy and Revenue Study Commission, told the commission’s June 26 meeting that earmarking was designed to move money wherever it was most needed every year. Now, she said, it does the opposite.

Earmarks sometimes go to waste, Peters said. Once funds are earmarked, they must be spent on that purpose or not at all. Sometimes the state or locality refuses to match the federal money, so the federal money just sits there unused, she said. That happened to $91.5 million in federal funds authorized in 1991 for a Wisconsin commuter rail system, said another commission member, Frank Busalacchi, Wisconsin transportation secretary.

With record federal spending and rising budget deficits, momentum is building for limiting earmarks, if not cutting them altogether. Taxpayers for Common Sense wants Congress to set a maximum number of allowable earmarks at no greater than 50 percent of the previous year’s levels for the next five years. The Heritage Foundation, a conservative think tank, has asked for full disclosure of all parties involved in any earmarks and for a requirement that all earmarks be subject to vote. Most pork projects now are simply included in unofficial reports that are not voted on. The foundation also supports giving the president line-item veto authority.

But the biggest bacon basher may be U.S. Sen. Tom Coburn, R-Okla., who chairs the Subcommittee on Federal Financial Management. He has vowed to challenge every earmark this year, “even if it means bringing the entire appropriations process to a virtual standstill,” according to his website.

That could be bad news for many on Capitol Hill, especially U.S. Sen. Robert Byrd, D-W.Va., whose 30 namesake public works projects earned him the title “King of Pork” from Citizens Against Public Waste. Not surprising from a man who famously said: “You might as well slap my wife as take away my highway money.”
LINDA LONGTON


MASS DIVERSIONS?
Sandra Bushue, deputy federal transit administrator, began her June presentation to the National Surface Transportation Policy and Revenue Study Commission by saying: “I have the best job in the world, because transit is hot!”

She cited a June 20 Wall Street Journal headline on the popularity of commuter buses, trains and trolleys: “Mass transit is gaining riders and cachet as gas prices climb.” Thirty million Americans use mass transit every day, says Art Guzzetti of the American Public Transportation Association, which represents mass-transit operations. In the 2004 elections, voters approved every mass-transit referendum put before them but one, Bushue said.

Unlike the 20th-century interstate planners, today’s highway planners must incorporate mass transit into their projects, Guzzetti says. “That’s the way to alleviate congestion,” he says.

Critics argue that mass transit systems suck needed funds away from highways. Only 23 percent of transit revenue comes from passenger fares, which tend to be artificially low to encourage riders, says Richard Steinmann of the Federal Transit Administration. Fuel taxes make up another 15 percent. In many cities, toll road revenues help subsidize mass transit.
ANDY DUNCAN


END RUNS ON CONGESTION
Don’t like the idea of higher fuel taxes? Consider other trends that might relieve urban congestion, as noted by transportation consultant Alan Pisarski before the National Surface Transportation Policy and Revenue Study Commission:

CARPOOLING. Because so many are recent immigrants with few assets, about a third of Hispanics carpool, Pisarski said. This may not last, he added, because like most Americans, immigrants aspire to own a car.

TELECOMMUTING. Working from home is gaining popularity, partially in response to congestion, Pisarski said. “In the future, the world of commuting will look a lot more like part-time work.”

ECONOMIC UNCERTAINTY. Given the shrinking work force – a problem for a host of industries, not just trucking – and the imminent retirement of millions of baby boomers, “Our problem may be too few commuters, not too many,” Pisarski said.

Remember that congestion, like many American problems, is a problem of affluence, Pisarski said. The more income Americans have, the more they drive, but the reverse is also true. When Matt Lauer asked Pisarski on Today what could be done about congestion, Pisarski replied: “Ten percent unemployment ought to do it.”
ANDY DUNCAN

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