The Case For Transportation User Fees

by James A. Bacon

Say this about Governor Bob McDonnell’s plan to scrap the gasoline tax and substitute a sales tax to fund transportation: Virginia has plenty of company around the country when it come to abandoning the user-pays principle. Americans apparently consider free roads, bridges and highways as an inalienable birth right — right up there with Medicare, Social Security, cheap mortgages, subsidized college tuition loans and the entire array of middle-class entitlements.

According to the Tax Foundation, state and local governments raised $37 billion in motor fuel taxes and $12 billion in tolls and non-fuel taxes, but spent $155 billion on highways. This, state user fees covered about 32% of total highway expenses. (Important caveat: Tax Foundation numbers include federal spending, most of which is funded by a gas tax, in spending figures but not in the state user-fee numbers.)

The ratios vary somewhat for other transportation modes, all of which rely upon a combination of user fees and subsidies. Air transportation was least dependent upon subsidies, at 22%. Transit relied the most upon subsidies, about 78%.

Virginia does not stray far from the national average. User fees (not including the federal gas tax) cover only 31.5% of road and highway spending and 39.8% of all transportation spending. By eliminating about $900 million a year in gasoline taxes, the McDonnell tax plan would largely sever any connection between how much people drive and how much they pay to maintain and grow the state road network.

Why is this a bad thing? For anyone conversant with economics, the value of user fees is self evident. I shall try to make the logic clear. People should pay the cost of the goods and services they consume unless there is a compelling public policy justification to do otherwise. If people get something for less than it costs, they demand more of it than they would otherwise. In the case of roads, that demand leads to an incremental increase in travel, traffic congestion and higher costs imposed indirectly upon the driving public in the form of gasoline consumed, vehicle depreciation and lost time.

Mark Burris with the Texas A&M Transportation Institute has said that eliminating the 17.5-cent-per-gallon gasoline tax would increase the number of miles driven in Virginia might by about 1.25%. That’s enough to add measurable stress to the transportation system — there’s a multiplier effect in which a one-percent increase in traffic will lead to two or three percent increase in congestion — but not enough to materially improve economic opportunity or the quality of life.

If schools, why not roads? Proponents of subsidies for roads use the analogy of the K-12 schools system. We subsidize schools, why not roads? Here’s why: A significant percentage of the population could not afford schooling if it were not free. The social spillover benefits of educating lower- and middle-income Americans so they can participate in the workforce — greater economic productivity, higher incomes, more taxes paid — is vast. Indeed, a modern economy cannot function without an educated workforce. By contrast, eliminating the gas tax will not suddenly make automobiles affordable for millions of people who do not now own cars — a few, perhaps, but not many. That’s because gasoline taxes represent a relatively small fraction of the total cost of automobile ownership. And even if it did, the economic benefit of subsidizing more automobile travel is incremental at best.

Everybody benefits from roads. Then there’s the argument that roads are necessary for commerce, therefore, everyone benefits whether they drive, walk, ride a bike, take the bus or work at home. Your employer probably benefits from having roads, goes this line of logic, so you benefit indirectly. Goods are cheaper at the store, so, if you buy stuff, you benefit indirectly.

By this reasoning, why not make roads totally free for everyone, including heavy trucks, which are directly engaged in commerce? After all, everybody benefits. The reason is that it would sent distorted price signals that lead to inefficient behavior, diverting containers from rail or barge, for instance, to trucks. Likewise, making roads free for commuters changes their economic calculus, leading to more driving and less walking, biking, ride sharing that otherwise. Electricity helps our economy function, too, but we don’t charge less than it costs. Likewise, Internet access greases the wheels of commerce, but we don’t give it away for free either.

We subsidize transit, why not cars? This may be the worst argument of all. We do subsidize transit, and transit operations constitute a running sore on the public fisc. (Just ask the Washington Metropolitan Area Transit Authority where it expects to raise $10 billion or more to replace depreciated track, stations and rolling stock!) We desperately need to find a fiscally sustainable model for transit. But as long as we subsidize cars, defenders of the transit status quo will respond with “We subsidize cars, why not subsidize transit” as an excuse not to reform. The solution is for all transportation modes to absorb their full costs so society can make rational choices, not to make the true costs opaque for everybody.

The argument that we subsidize X, therefore, why not Y, is a creeping sickness permeating our entire economy, justifying the mis-allocation of trillions of dollars. And look where it’s leading us. We’re deeper than ever in debt and economy is more sluggish than any time in U.S. history. This pernicious  thinking simply must change.

14 Responses to The Case For Transportation User Fees

  1. one of the most important aspects overlooked in my view is how citizens view the issue.

    and here’s my take:

    the gas tax should be indexed and it should pay for Maintenance only.

    Each locality and it’s citizens should be provided with the money spent on maintenance and operations – for the taxes they pay.

    If a locality needs to build a new road – they should be provided with options which would include paying for it themselves through property or fuel or other taxes OR tolls and they could access a state-level infrastructure loan fund – like the literary fund for schools – so they could build the road in a timely manner and pay it back like they would for a new school or jail.

    This would go for regional roads also. If a region needed/wanted a new road – they would go about it in a similar way but perhaps have priority access to Federal tax monies.

    The State would build only roads of statewide significance and they would do so with tolls or with direct appropriations for the road – like we have done with roads like Route 58 or US 460.

    I do not think people are stupid. I think the process is.

    People understand how schools are financed… how jails and parks and rec and water/sewer are financed but roads? forget it.

    this is a key reason why people are opposed to increasing the gas tax; they believe the money is wasted or goes to another jurisdiction , etc.

    we need to develop a transparent and accountable system where people can decide how much they want to pay for roads much like we do that with schools.

  2. One day Jim Bacon and LarryG were hiking in the woods when they came across some tracks.

    “Deer tracks”, said Bacon.
    “Elk tracks”, said LarryG.
    “Deer tracks!”, repeated Bacon.
    “Elk tracks!”, insisted LarryG.
    “Deer tracks”, yelled Bacon.
    “Elk tracks”, screamed LarryG.

    While they were arguing a train came by and ran them both over.

    You guys both think you are looking at an economic issue. You are not. It is a political issue.

    The stump stupid General Assembly has refused to acknowledge the existence of inflation by freezing the gas tax (in cents per gallon) for 27 years. Forty eight states have raised their gas tax since Virginia last raised its tax. Only oil drenched Alaska has gone longer without a gas tax increase.

    Jim, you seem to like yapping about economics. Do you believe that inflation erodes buying power? If so, do you acknowledge that the General Assembly is missing a pretty major economic thought when it refuses to believe in inflation? Which is worse – McDonnell’s lack of a “user pays” perspective or the Imperial Clown Show in Richmond’s ignorance of the effects of inflation on buying power?

    Now, Jim, there have been multiple efforts to keep transportation taxes in line with inflation through some form of “user fee” approach. A simple increase in the gas tax is one example. An approach that indexes the gas tax to inflation is another. Both were put forth but your beloved Republicans in the General Assembly defeated both ideas on multiple occasions.

    Now what, Jimbo? Propose a VMT? That’s a joke, right? The RPV dimbulbs don’t believe in inflation but they’ll understand the virtue of a VMT?

    There’s an old saying – You can’t fix stupid. McDonnell understands this. So, he’s going to raise transportation revenues through the sales tax while eliminating the gas tax. That appeals to the simpletons in his own party. They can get all warm and fuzzy thinking about the end of one tax even as they sputter and spit about an increase in the rate of another tax. In the end, they’ll find a bug to stare at and their angst will end. Meanwhile, McDonnell’s new tax will automatically inflate so his colleagues in the GA won’t be able to forget about inflation for another 27 years.

    Like I said, this is a political issue not an economic issue.

  3. re: the elk and the train…. gee willikers DJ… I just don’t know what to say.. I’m truly speechless…

    for a nanosecond… now on to the rest.

    I’m glad you finally came off your delusional fairy tale about the GOP and the fuel tax. Now you are rehabilitated.

    and I’d join you in piling on to that Bacon dude because he apparently thinks the same “conservatives” who oppose increasing taxes even to keep up with inflation – would actually sign on to a VMT tax that requires a govt mile-tracker in each car.

    This is what happens to RINOs. They have good hearts and the best interests of society at heart but they can’t bear the thought of not belong to the rest of the GOP even as they are booted out of the door so they pine away for their former RINO lovers – the GOP who have moved on and now are engaged in a tempestuous affair with the Tea Pot shrew.

    You know.. it’s a terrible thing. the best chance we had at making progress on some of these issues was the coalition of RINOs and Blue Dog Dems…but both are now in the ditch after being shoved under the bus.

  4. “would actually sign on to a VMT tax that requires a govt mile-tracker in each car.”.

    There is no need for a government mile-tracker. Every car has an odometer. The odometer reading is taken every time you get an annual inspection. The VMT could simply be this year’s reading minus last year’s reading. The owner of the car would get a bill for the VMT within 30 days of getting his or her inspection and would have another 30 days to pay.

    Of course, that would let out of state drivers drive for free. Then again, today’s Virginia gas tax lets people who live in Maryland and work in NoVa drive without paying Virginia gas taxes (assuming they buy their gas close to home). The sales tax idea would also let out of state drivers drive for free, I guess (as long as they don’t buy anything but gas in Virginia).

    So, a VMT could be easily implemented. The state could even tax heavier vehicles at a higher tax than lighter vehicles on the assumption that heavier vehicles do more damage to the roads.

    Will a VMT be implemented? Oh hell no! Some car dealer who sells a lot of SUVs will whine about the extra tax for heavy vehicles. Somebody who lives in Virginia but works in North Carolina will claim that they are paying Virginia taxes when they drive in North Carolina. People will cry buckets of tears over the out of state driver issue. If Democrats put forth the bill, Republicans will oppose it (and visa versa). There will be no indexing of the VMT tax to anything so the Imperial Clown Show in Richmond will continue to pretend inflation doesn’t exist and it will end up no better than the present gas tax.

  5. Here is why many of us in NoVa don’t give a rat’s ass about the theoretical niceties of “user pays” or regressive taxes:

    http://www.politifact.com/virginia/statements/2012/dec/20/bob-mcdonnell/mcdonnell-says-northern-virginia-has-ther-nations-/

    The Imperial Clown Show in Richmond has created an epic disaster in Northern Virginia. The time for debating theory is over. McDonnell’s plan will work and it should be adopted.

  6. re: VMT – I see big problems – administratively whether it be manual or automatic.

    You take a trip to Oregon and Va is going to charge you VMT?

    someone puts a lot of miles on a vehicle and they know they’re gonna get whacked at inspection time so they sell the car.

    you buy a car out of state and get it inspected.. then sell it out of state… before the next inspection is due.

    you’ll have to have an brand new state agency whose job it is to track down fraud and fee evasion.

    re: traffic congestion – as the politfact pointed out:

    ” While traffic is bad around Washington, not all experts agree it’s the worst in the nation. We found reports by other transportation organizations that ranked the region sixth and third. But we don’t fault the governor for relying on the TTI study — the industry standard for measuring traffic. ”

    but this is really meaningless in many respects UNLESS people are willing to buy down the congestion themselves rather than expecting someone who is not involved in the congestion to pay for those who are part of it.

    That’s not going to fly.

    you blame the GA – but in many respects, the elected are basically representing the interests of their constituents – many of whom earn half the salary of NoVa folks and basically drive locally a few miles to their jobs and then home to houses worth 1/10 of what they sell for in NoVa.

    convincing these folks that they should pay to subsidize the ride of someone who lives in NoVa is whistling Dixie and that’s the name of the game in Richmond.

    Even if you succeeded in increasing the gas tax on RoVa folks – they just don’t drive the distances that NoVa folks do.

    Many of them have 10 year old cars with less than 50K on the odometer but folks like DJ cannot fathom that in their thinking – but it’s true.

    getting RoVa to pay for NoVa congestion is like squeezing blood from a stone.. ain’t going to happen.

    • Q: How does it work in other, fast growing areas like Charlotte?
      A: North Carolina has a gas tax that is twice as high as Virginia’s.

      You want NoVa to pay for everybody’s schools but everybody shouldn’t pay for roads?

      Do the right thing – if you can’t work like other states work – let NoVa join Maryland’s DC suburbs and Washington, DC in forming a new state. A state that gives DC residents Congressional representation.

      Then, you won’t have to worry about our roads.

      Puerto Rico just voted to become a US state. 51 stars makes for an ugly flag. 52 stars would be much better.

  7. re: the NC Tax – DJ – are you account for the current .5% sales tax for transportation in Va? That brings in the equivalent of 10 cents gas tax.

    2nd – NC tranpo is broke – and now looking into more toll roads including dynamic congestion pricing in Charlotte.

    what this proves is that no matter how much money is devoted to Transpo – it will get spent – and there are no metrics to show that more money yields less congestion better performing roads.

    If that were true – they’d not need to institute dynamic tolls in Charlotte, for instance.

    re: schools

    NoVa does not pay for anyone’s schools.

    The state levies a state-wide sales tax to fund schools – state-wide based on allocation formula to ensure equitable access to education resources. Every state does something like this – including NC.

    This is a continuing canard from NoVa which refuses to take responsibility for it’s own self-induced congestion and lack of adequate transpo funding from the people who live there and cause the congestion.

    You want the state and Vdot to be more transparent and accountable. How about NoVa?

    Take a look at what they’re likely to do in LA – Cordon Tolls.

    http://goo.gl/RcCy0

    how about Cordon Tolls for NoVa?

    then everyone who needs to travel for economic purposes will be paying their fair share of the cost of providing infrastructure to support their economic necessities?

    Both NoVa and Hampton Roads have essentially irresponsible attitudes about who should pay for their infrastructure needs.

    The State’s basic core responsibility is to connect the state so that commerce can occur across the state.

    Once you get to a city or a region – there needs to be some level of responsibility beyond the silly idea that everyone else in the state should pay for your needs.

    If Richmond, Charlottesville, Harrisonburg, Lynchburg, etc had that same attitude – you urbanized areas would all be fighting over taxing RoVa to get your roads built.

    you’re fighting to tax people who make less than half what your region’s average salary is and those folks live in homes that are about 1/10 as valuable and many barely get by …

    and you and the other urbanized areas of the state want to tax the 15% of Va that constitutes RoVa (by population and wealth)?

    what kind of rational sense does that make?

    you call Richmond a clown show.

    I call such attitudes about taxing RoVa a Clown Show. It’s totally unrealistic both politically and financially and it evades basic responsibility for your own regions self-created “needs”.

    and you think Richmond is a Clown show because they won’t listen to you and try to fund your needs by taxing RoVa?

    come on DJ – fess up guy.. this is a foolish idea that goes nowhere and even if it did get into law..just how much money do you think it would generate for NoVa?

    it’s almost as if you want to punish the people in RoVa because you’re unable to take care of your own region’s transportation affairs.

    If I were NoVa – right now – I’d demand a full accounting of any statewide sales tax and a rule – that says – any/all tax receipts that are generated in NoVa – stay in NoVa.

    that would be a lot more productive than thinking you’re going to get money from RoVa and more importantly, it would demonstrate that you’ve finally accepted the reality that NoVa needs to take more responsibility for the issue than they have been.

    You have an MPO and you have the ability to collect taxes .. you have multiple options for taxes for more/better transportation but you can’t get past this RoVa-envy thing.

    • Are you watching the gun control legislation in the Clown Show, LarryG?

      1. Requirement that lost or stolen guns be reported – defeated.
      2. Limit of 10 rounds per magazine – defeated.
      3. Authority for localities to set limits on guns – defeated.

      Needless to say, all of these defeats occurred in committee so the full Clown Show didn’t have to vote.

      The votes basically came down to the same committee members in the Senate Courts of Justice voting the same way for each bill.

      The split was pretty much rural vs urban / suburban.

      So, if you think these votes mean that 30 round magazines will remain legal regardless of what the people in a given locality want, you’d be half right. Or, more accurately, you’d be 30% right.

      Why?

      Because 30 round magazines are archaic. The new, highest capacity magazines are double barrel magazines that can pre-load 100 rounds.

      http://en.wikipedia.org/wiki/Beta_C-Mag

      “In 1994, the United States Federal Assault Weapons Ban passed, prohibiting manufacture of magazines with capacity of more than 10 rounds for civilian use. Civilian purchase and ownership of previously manufactured magazines was legal, though as a result of a limited supply, the C-Mags became rare and expensive. The ban expired on September 13, 2004, and Beta Company has resumed production of the C-Mag for the civilian market. However, some states have enacted their own laws against “high capacity” magazines.”.

      See, LarryG – it’s not just about transportation. The RoVa members of the committee are voting against common sense gun regulation – such as limiting the number of rounds in a magazine.

      Then, those same nitwits are voting to prohibit localities that disagree with them from enacting their own limits.

      And, of course, this is being done in committee so the full General Assembly never has to dirty their hands with “on the record votes”.

      You just don’t get it, LarryG. You never have gotten it and I fear you never will.

      Hopefully, some madman with a 100 round Beta C-Mag equipped semi-automatic weapon won’t ruin the lives of people in your community.

      However, if that does happen – you’ll really have only yourself to blame. Your love of letting a corrupt General Assembly dictate to every locality will be the root of the next Virginia Tech style massacre.

      And there will be a next Virginia Tech style massacre – sadly, you can bet on that.

  8. Here you go, LarryG ….

    http://www.youtube.com/watch?v=rnN0s1G2ZzA

    This represents your idea of good governance.

    Let me double check to make sure that you understand the implications of your bright ideas and clever thoughts ….

    1. A reasonable proposal to limit gun magazines was brought before the General Assembly. The limit would be 10 rounds per magazine. This is 2 rounds more than American troops carried onto the beaches of Normandy in their M1 Garands.

    2. A group of seven state senators from urban and suburban areas wanted to report the bill out of committee. In other words, they wanted it to progress toward a full General Assembly vote. Those senators are: Norment, Saslaw, Marsh, Howell, Lucas, Puller, McEachin.

    3. A group of seven state senators from rural areas decided that there was no reason to even let the full General Assembly debate and vote on the bill. Those senators were: Obenshain, McDougle, Stuart, Vogel, Stanley, Reeves, Garrett.

    Remember, these people weren’t voting on whether to pass the bill. They were voting on whether the full state senate should get to discuss and then vote on it.

    You following me so far, LarryG?

    Now, LarryG – follow me here.

    The same Clown Show members who just heard the urban and suburban committee members say that they wanted limits on magazine capacity had to consider a bill that would allow localities to make their own laws limiting weapons (within the constitution, of course).

    Presumably, this wouldn’t affect the constituents of the senators who voted in favor of large magazines since those localities would never limit firearms. However, it would allow the urban and suburban localities to limit magazines to 10 bullets, for example.

    What do you think happened, LarryG?

    The same clowns voted to prevent this from getting to the full senate for deliberation, debate and a vote.

    Voting to move the legislation forward: Saslaw, Marsh, Howell, Lucas, Puller, McEachin

    Voting to shut down debate and avoid a full senate vote: Norment, Obenshain, McDougle, Stuart, Vogel, Stanley, Reeves, Garrett.

    This is you system at work LarryG. Congratulations.

  9. well.. we’re probably on the same wavelength on this subject but rural Va is by and large, if nothing else , Grover Norquist and NRA territory.

    and that’s just a reality we have to accept – it’s how our founding fathers set the country up to run – for good or bad and I prefer that over kings or benevolent dictators.

    I just don’ think it’s makes good political sense to pit NoVa against RoVa on finances – on taxes and roads. It’s a losing proposition so work the areas that you can work and move forward on the things you can move forward on and realize that if you get into RoVa’s knickers.. it will probably be like trying to run through a brier patch.

  10. Take a look at the simple paragraph in today’s article in the WaPo.

    “For decades, regional, partisan and philosophical divides have stalled efforts to devise a long-term funding method for roads. In heavily congested Northern Virginia and Hampton Roads, there have been calls for more funding. But rural areas were largely content as long as their roads were maintained.” http://www.washingtonpost.com/local/va-politics/overhaul-likely-just-starting-on-va-transportation-plan/2013/01/19/a1815ce0-61aa-11e2-a389-ee565c81c565_story.html?hpid=z3

    DJR has it correct on his analysis of the situation – it’s political, not economic. Read the above paragraph again. Why would a senator or delegate support a VMT or higher gas taxes when his/her constituents’ needs are being met today?

    On the other hand, his hope that more money will improve traffic is about as realistic as the visions obtained during an LSD trip. Traffic will get worse no matter what we spend. Let’s not kid ourselves. We have more development than we can ever afford to address.

  11. re: ” when his/her constituents’ needs are being met today?”

    is that the part that DJ has “correct”?

    ;-)

    that statement seem incongruous given the agitated attitudes of NoVa when it comes to transportation issues.

    i’m sure I misunderstand the point.. so tell me.

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