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Part II: Finding a Sustainable Highway Funding Source

Yesterday we discussed how the U.S. highway trust fund is “running dry” and how solutions such as general fund transfers and gas tax increases are short term solutions. Today I want to detail the most promising long-term solution: mileage based user fees (MBUF) 

MBUFs charge drivers based on the distance they travel. They can also charge by the time of day people travel and the type of road they use. 

MBUFs are controversial to some. Privacy advocates do not like MBUFs because they worry that government or a private company could track folks. Truckers do not like MBUFs because they would have to pay the real cost imposed on roads. (Trucks wear out roads 10 times faster, on average, than cars, but pay only twice as much in fuel taxes.) And others view MBUFs as an academic exercise for university professors with nothing better to do. 

But none of these issues is insurmountable. States such as Oregon that have permanent MBUF programs provide options. Drivers can use a GPS system to pay differing rates based on how far and when they travel. But if privacy is an issue drivers can also use a simple odometer reading that measures how far they travel but not when or where. Drivers can also opt to pay a flat fee regardless of how far they travel. Drivers using the GPS system get the biggest discount; those who choose a simple odometer reading get a smaller discount while those who pay a flat fee get no discount at all. But in the third option neither the government nor the private sector knows where you have traveled, how far you traveled or when you traveled. 

The trucking community has raised a big stink about mileage based user fees. The issue is that trucks wear out roads faster than cars. Truckers know this but want to pay as little to use roads as possible. While trucks wear out roads ten times faster than cars, nobody is proposing they pay ten times as much. A small increase would cover trucks usage. Trucks provide valuable goods and services. No one wants to exponentially increase trucking costs; this would cause significant harm to our economy.

MBUFs may have started as an academic exercise but the states of Minnesota, Nevada, Oregon and Washington have proven that they work in the real world. Such real-world studies have focused on ease of implementation and providing drives with a choice of MBUF equipment. States implementing MBUFs have created several innovative implementation options. 

MBUFs are still in the trial stage. As states experiment with the technology, more options become available and nationwide implementation becomes more feasible. 

One problem, however, is that some gas transportation stakeholders seem to be living in an alternate realty. Gas tax advocates pretend that we can raise the gas tax by ten cents and fix all of our long-term transportation problems. Smart Growth advocates think denser development will solve the problem. Still others tear apart mileage based user fees because of their own self-interest. The 112th Congress reached a low point when Representative Chip Cravaack, Republican from Minnesota, sponsored, and the House passed, a bill that prevented the study of MBUFs. This was the first bill that prevented a study to determine the feasibility of a new transportation concept. 

The only thing stopping MBUFs implementation is a lack of will and misinformation. Fortunately or unfortunately, we are approaching a time when the gas tax will become unrealistic. And barring some new innovative funding solution, MBUFs will remain the best option to solve our funding challenges. We need to work together to create an MBUF system, and now is a good time to get started.

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Finding a Sustainable Highway Funding Source Part I

The U.S. highway trust fund is scheduled to “run dry” by August. Washington policymakers are doing their best to attract media attention in hopes that it will inspire Congress to find money from somewhere. Secretary of Transportation Anthony Foxx noted, “Come August or September we’re going to be in a hole.” Senate Budget Committee Chairman Patty Murray was less subtle, “The Highway Trust Fund is heading toward an avoidable crisis as early as July, and if we don’t act could lead to a construction shutdown on our nation’s roads and bridges.”

So what could Congress do? There are several potential solutions, but in an election year nobody wants to upset voters with user fee increases or program cuts so despite claims to the contrary it is likely that the House and the Senate will again transfer money from the general fund to the transportation trust fund. Since 2008 Congress has transferred $54 billion from the general fund in this manner. 

However, there are numerous problems with these one-time ad hoc transfers. 

It is poor policy. U.S. highway policy is based on a user-pay/user-benefit system. Drivers pay a gas tax that funds highway construction and maintenance. General fund revenues have no link to how much people drive. People who drive very few miles are subsidizing folks who drive long distances. In an era where most U.S. policy encourages conservation, this policy is a bizarre outlier. 

It is poor economics. Due to these transfers we have spent more money on transportation than we have collected in gas taxes. Spending more than we collect lowers our credit rating and will lead to a day of reckoning. 

It prevents state departments of transportation from engaging in long-term planning. Transportation projects take many years, typically eight to twelve, to plan and construct. Some state DOTs that rely on federal funds for Interstates and other major roads are delaying projects that they planned to build this year. Colorado is considering delaying Denver Interstate reconstruction projects; Nevada has delayed a transportation efficiency study; Oregon has delayed plans to widen US 26; These are just the short-term projects; few states are bothering to engage in serious long-range planning with funding a day-to-day issue. 

What Congress needs to do is find a long-term solution. Many advocacy groups are pleading with Congress to raise the gas tax. But the gas tax has its own problems. It is an increasingly unfair payment mechanism as wealthier commuters who can afford hybrids or totally electric vehicles pay far less in gas tax than other commuters. Drivers who own older cars, and typically have lower incomes, pay far more in gas taxes since older vehicles are less fuel efficient. A small but significant amount of the gas tax supports non-road expenses including rail transit, recreational trails and non-native weed removal. Finally and most importantly, raising the gas tax is a short-term solution. Even if we raised the gas tax by 15 cents and indexed it to inflation, it would buy us 10-15 years until changes in the vehicle fleet would require another substantial gas tax increase. So most researchers and members of Congress who can afford to think long-term do not see the gas tax as a long-term solution. 

What other funding options are available? Draconian land-use restrictions, forcing people to live on small overpriced lots, could reduce the distance traveled but that would merely shift the roadway infrastructure needed from freeways to local roads. Such land-use restrictions would also cause major economic harm. A national sales tax, lacking any user-pay user-benefit link is a particularly bad way to pay for transportation. Other potential mechanisms include raising license plate fees, millage rates and income taxes, which have no relationship to the distance that people drive, are even worse. Increasing some of these taxes could do real harm to the economy. 

What is the best potential funding solution? Part two will explain tomorrow.

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