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Mixed Results for Local Sales Tax Hikes for Transportation

Leonard Gilroy
November 4, 2008, 1:35am

By my count, there were 16 transportation-related sales tax hikes on local ballots on Tuesday. I'll be digging through all of the results in coming days, but at this point it looks like many could go down in defeat (generally a good thing, as I explain later). Here are the biggies: In my home state of Arizona, we narrowly avoided a 1-cent statewide sales tax increase to fund $42 billion in new transportation projects after the TIME initiative was thrown off the ballot earlier this summer. In discussions and debates on this measure, I frequently made the seemingly intuitive point that sales taxes are a horrible way to fund transportation. One of the problems we have with the gas tax is that the taxes collected have no clear nexus to the demands placed on the system— assuming equivalent travel patterns, a Hummer owner pays far more in gas taxes than a Prius driver even though they occupy the same amount of road space. This lack of nexus between taxes paid and system usage is one of the reasons that economists are so keen on shifting away from indirect fuel taxes to more direct pricing of road use, such as vehicle-miles-traveled pricing (pay-as-you-drive). And the other obvious argument against sales taxes for transportation is risk—you would end up subjecting infrastructure investment to the whims of highly-variable sales tax revenue receipts. As the Arizona Republic reported today, this strategy can come back to bite you. Maricopa County voters passed an extension of a half-cent sales tax several years ago to fund a bundle of road and transit projects. But the expected revenues haven't materialized and now Phoenix-area transportation planners are trying to figure out how to trim about $4.5 billion from the 20-year transportation plan. Put differently, the voters who approved the sales tax extension several years ago along with a set of defined projects to be funded through it...well, those voters now are seeing promises broken and projects pulled because they were sold such a poorly conceived plan to begin with. So be wary Seattle and Albuquerque, you could end up in the same boat as Phoenix. You may wish you had the opportunity for a mulligan today. We have a dire need for more infrastructure investment, but we have an equally dire need to change the way we pay for it. We should be embracing direct pricing for infrastructure and public-private partnerships to deliver it, not sales taxes and other indirect mechanisms that involve the government (and taxpayers) bearing the enormous risks that costs go up or monies don't materialize. Transferring such risks to the private sector is one of the many benefits public-private partnerships offer that's such a huge improvement over the status quo. » Reason's Transportation Research and Commentary

Leonard Gilroy is Director of Government Reform


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