I'm
not normally a big fan of public policy nostrums
emanating from the "left" coast of the
United States, but I've got to credit the state of
Oregon for some brilliant thinking about
transportation funding. The fact that it bears
remarkable similarities to formulations that I have advanced
here in Bacon's Rebellion (see "The
Swedish Solution," Sept. 25, 2006) hasn't
influenced my opinion in the slightest... well,
maybe it has a little.
Like
lawmakers in Virginia, the legislators of Oregon
realized a few years ago that they faced a long-term
transportation funding problem. Like the Old
Dominion, the Beaver State depends upon the gasoline
tax for a significant percentage of its
transportation revenues. Like us, Oregonians grasped
that gas tax revenues can't keep pace with the
increase in population and vehicle miles driven.
In
place of the gas tax, Oregon seeks "a
long-term, stable source of funding" for
maintenance and road improvements. If that rhetoric
sounds familiar, it echoes the justification by Gov.
Timothy M. Kaine and his allies in the state Senate
for higher taxes.
But
where self-styled fiscal conservatives in Virginia
seek to address the funding gap by proposing to
raising taxes on anything they
think they can slip past the voters, blue-state Oregonians are exploring an
approach guided by market principles. As outlined in
a
June 2005 report to the legislature, the Oregon
Department of Transportation is proposing to phase
out the gasoline tax over 20 years in favor of a tax
based upon a mileage fee and congestion
pricing.
Oregon's
"road user fee" would use a combination of
odometer readings and satellite technology to track
the number of vehicle miles that Oregon motorists
drive, and to charge the tax when motorists gas up at
the pump. The guiding principles of the tax are the
same that I have propounded for years: The more
miles you drive, the more you pay to maintain the
roads. The more you drive in rush hour congestion,
the more you pay to access scarce road capacity.
The
Oregon Solution is the way to cut the Gordian Knot
of Virginia's gridlocked transportation policy. It
would pump more money into the system. But unlike
general tax increases, which Virginians have
consistently rejected at the polls and in public
opinion surveys, the Oregon approach would charge
people in direct proportion to which they use the
transportation system. Because the underlying
principles are both fair and economically rational,
when they are explained clearly to voters, they will
prove to be politically palatable as well.
As
advocates of tax increases have argued in Virginia
for years, the Old Dominion's 17.5-cent gasoline tax
has failed to produce the revenue needed to fund
highway maintenance and construction needs. Although
the commonwealth collects a lot more gasoline taxes
than it did in 1987, when the tax was last
increased, it's not enough to keep pace with
population growth and inflation.
These
statistics* tell the tale.
71
% |
Increase
in Consumer Price Index (CPI) from 1987 to
2005 |
26
% |
Population
increase, 1987 to 2004 |
115
% |
Compounded
increase of CPI and population |
84
% |
Increase
in gasoline tax receipts, 1987 to 2005 |
31% |
The
gap |
These
numbers actually understate the problem. Inflation
in construction materials has exceeded that of
general inflation by a wide margin. Meanwhile,
maintenance costs are claiming an ever-climbing
share of state transportation revenues. By 2018,
concluded the VTrans2025 study some two years ago,
there will be no state monies left for new
construction.
And
the situation has gotten even more dire since then:
The run-up in gasoline prices in the past two years
has dampened gasoline sales and tax revenues even
more.
The
story gets worse. As the Oregonians realize, an
all-but-inevitable consumer shift to fuel-efficient
hybrid vehicles and, eventually, to non-gasoline
vehicles will lead to a collapse in gas-tax revenues
within a 10- to 20-year time frame. As the report
states. "Oregon is preparing for the day when a
substantial number of motorists [is] driving highly
fuel efficient vehicles and no longer paying enough
gasoline taxes to support their road system."
The
starting point of the Oregon analysis, written by
James M. Whittey and Betsy Imholt, is that gasoline
prices are likely to rise in real,
inflation-adjusted terms as global oil production
levels off. Additionally, they say, political
instability in key oil-producing regions will create
price volatility.
Some
petroleum experts predict that before 2010 the
world production of conventional oil will crest
and enter a permanent decline while others
estimate the midpoint will be reached as late as
2030 if oil consumption growth levels increase at
a 2 percent rate. Furthermore, the recent and
projected increases in global demand for oil
products — owing to growing economies in China,
India and other emerging national economies —
may well cause the peak to arrive earlier than
anticipated. Whichever estimate of the “peak”
is correct, it is now clear that oil supplies will
become constricted in the not too distant future.
After the peak, gasoline prices would increase
significantly. ...
As
the oil reserves of western democracies decline,
their economies are becoming ever more reliant on
the oil production capacity of nations with
potentially volatile political climates. The
world’s nations with the largest remaining oil
reserves – Saudi Arabia, Iran, Iraq, Kuwait, the
United Arab Emirates, Venezuela, Russia, Libya,
Nigeria — all have great potential for political
volatility. Disruptive politics leads to
disruptions in oil production that result in oil
price hikes. … The potential for large price
swings owing to political events are likely not to
be stilled in the near term.
Simultaneously,
new technologies will make automobiles more fuel
efficient than ever. States the report: "The
broad range of advanced fuels and vehicles powered
by non-gasoline sources is no longer exotic and
distant – some are already on the roads and many
others are attainable within a five to ten year time
horizon."
When
the report was written in 2005, every major
automobile manufacturer either had hybrid models on
the market or was planning to introduce them.
According to J.D. Powers and Associates, 35
passenger vehicle models with hybrid electric
options will enter the marketplace by 2008. Fuel
efficiency will range between 35 and 70 miles per
gallon.
The hybrids will be followed within a few years
by a new wave of technology -- fuel cells -- that
run on hydrogen. Every major automaker is working on
hydrogen-fuel technology, and Toyota has indicated
that it would couple fuel-cell with hybrid
technologies to create ultra fuel-efficient cars requiring
no gasoline at all. Fuel cell
technology may take decades to deploy, the authors
acknowledge, because of the length of time it will
take to build an infrastructure to create, store and
distribute the hydrogen fuel. But the consequences
for gasoline consumption, needless to say, will be
momentous if fuel-cells do become ubiquitous.
The
Oregon report neglects to include one other
possibility that I find entirely plausible. In a
scenario sketched in the Wall Street Journal
by R. James Woolsey, former director of the
CIA
and now a champion of energy independence, contended
that advanced battery technologies, plug-ins and
hybrid cars could represent the future of energy and
transportation in the United States. Wrote Woolsey:
The
change is being driven by innovation in the
batteries that now power modern electronics. If
hybrid gasoline-electric cars are provided with
advanced batteries having improved energy and power
density -- variants of the ones in our computers and
cell phones -- dozens of vehicle prototypes are now
demonstrating that these "plug-in hybrids"
can more than double hybrids' overall (gasoline)
mileage. With a plug-in, charging your car overnight
from an ordinary 110-volt socket in your garage lets
you drive 20 miles or more on the electricity stored
in the topped-up battery before the car lapses into
its normal hybrid mode. During those 20 all-electric
miles you will be driving at a cost of between a
penny and three cents a mile instead of the current
10-cent-a-mile cost of gasoline.
The
adoption of plug-in hybrids would be favored over
fuel-cell cars by the fact that the infrastructure
already exists: It's called the electric
power grid. Re-charging at night, Woolsey notes,
"plug-ins will not create a need for a new base
load electricity generation plants until plug-ins
constitute over 84% of the country's 220 million
passenger vehicles."
Automobiles
have run on gasoline for 100 years. The era of the
gasoline-combustion engine is coming to a close. The
decline in gasoline consumption -- and the taxes
generated by it -- will be slow at first, and then
precipitous. The decline is entirely foreseeable.
Indeed, Oregon has already anticipated it and is
acting upon it. There is no excuse -- none -- for
Virginia to fail to do the same.
The
question then becomes: How do we replace the
gasoline tax?
A
number of revenue-raising options have been
proffered during the current transportation debate,
all of them inadequate.
The
Kaine plan. Gov. Timothy M. Kaine would solve
the problem of declining gas consumption by raising
$850 million a year from a mix of revenue sources,
including: (a) dedicating existing auto insurance premium taxes to transportation, (b) raising the sales tax on vehicles from 3 percent to 5 percent, (c) imposing an abuser fee on reckless drivers, (d) increasing the vehicle registration fee by $30 a year, and (e)
increasing the registration fee for heavy trucks.
However,
Kaine's
plan would establish only a weak link between those who
drive and those who pay. The bulk of the funds
would come from car sales tax, insurance premiums
and registration fees. If you own a car, you pay the
tax. But it doesn't matter if you drive 6,000 miles a
year or 26,000. It doesn't matter if you walk,
bicycle, ride the bus, carpool or stick out your
thumb to catch a ride -- you pay the same as the
road warriors who hog the highways with Hummers and
Monster Trucks. There is no reward for doing the
virtuous thing -- seeking alternative modes of
transport -- and no disincentive for contributing to
the problem.
Furthermore,
under the Kaine plan, it doesn't matter where or
when you drive. The person who racks up mileage in a
tranquil small town pays taxes at the same rate as
the person who clogs Fairfax County roads during
rush hour.
The
Senate plan. Easily dispensed with is the idea
advanced by the state Senate to impose a wholesale
gasoline tax. The advantage of such a tax is that,
like a retail gasoline tax, it does establish a direct
connection between how much people drive and how
much they pay. It's not a perfect connection, mind
you. The gas tax makes no distinction between
someone who burns gasoline taking a Sunday drive on
an empty country road and someone contributing to
stop-and-go gridlock on Interstate 95 on the way to
work. But at least there's a discernible link.
The
trouble is, a wholesale gas tax is still a gas
tax! Wholesale, retail, it doesn't matter --
gasoline consumption will decline, and so will
revenues from a gas tax of any kind.
The
House plan. The House of Delegates would fund
road improvements by transferring surplus revenues
from the General Fund and by issuing bonds. The
chief virtue
of the House plan is that it would not require
raising taxes. The most frequently heard criticism,
valid to some degree, is that future funding is
contingent upon the General Fund continuing to run
surpluses. Sooner or later, a recession will hit and
the surplus will dry up.
At
a deeper level of analysis, the House plan has a
more grievous flaw. There is no connection -- not
even a tenuous one -- between those who pay the
taxes and those who benefit from the transportation
improvements. Under the House plan, taxes paid from
a variety of sources -- income taxes, lottery
profits, ABC sales, corporate taxes, etc. -- would
be applied to transportation. All mediated by the
politicians, of course. The Kaine plan at least
would tax people who own automobiles. The House
alternative would obliterate any nexus between roads
and automobiles, taxpayers and beneficiaries.
The
Oregon plan. By
contrast, Oregon's "mileage fee" would
establish a direct connection. Not only would it
halt the erosion of transportation revenues, but by
increasing the cost of driving in a direct and
transparent way, it would incentivize people to
drive less. News flash: When people drive less,
they reduce the need for road and highway spending!
Here's
how the Oregon plan would work: All new vehicles
would be equipped with manufacturer-installed
instruments that record the odometer and synchronize
with a GPS satellite system. Motorists driving older
(or out-of-state) vehicles would continue to pay the
fuels tax at the pump. New car drivers also would
pay at the pump, but they would pay on the basis of
the number of vehicle miles they'd driven, and their
user fee would be bundled with the gas payment --
just like now. "Motorists would experience no
change in the payment process."
The
Oregon task force has taken pains to address the
obvious objections. Yes, the technology has been
vetted. No, privacy would not be invaded -- no one
could trace you, for instance, when you pull your
car into the No-Tell Motel for an afternoon tryst.
I'll
leave it to others to decide whether the Oregon
system will work as the authors claim it will. No
one is suggesting that Virginia adopt Oregon's
system lock, stock and tailpipe. New technologies
undoubtedly will become available, and new solutions
engineered. The point is that we start examining an
Oregon-like alternative now.
The
Bacon plan would differ somewhat from the Oregon
plan by applying the user-pays logic with relentless
consistency. As described in "The Swedish
Solution," I would propose a two-cylinder
solution: a mileage fee that funds maintenance costs
only, and a congestion fee that funds
corridor-specific transportation improvements only.
Conceptually,
the mileage fee would go like this: The Virginia
Department of Transportation would estimate each
year how much money it would need to maintain state
and local roads. Virginia's 5.4 million licensed
drivers would pay their pro rata share of the
maintenance budget based upon the number of miles
they drive, adjusted, as deemed necessary, by the
size and weight of their vehicles to reflect the
wear and tear the put on roads. The system would
be completely transparent. The mileage fee would be
widely publicized, and taxpayers would understand
that there is a direct connection between how many
miles they drive and what they pay into the system.
The
tax would be adjusted annually to reflect rising or
falling maintenance costs. If raw material costs
surged one year, the mileage fee would go up. If
VDOT successfully implemented an asset-management
plan that cut maintenance costs, the fee would drop.
If a plethora of expensive-to-maintain subdivision
roads were admitted into the state road system, the
cost would go up. The burning issue of where to
raise the money for maintaining Virginia’s roads
would be relegated to the musty, General Assembly
archives, but the transparency of the mileage-fee
system would increase accountability to taxpayers.
The
second part of the solution would be to charge
congestion fees. VDOT and/or local governments could
set up congestion zones -- either along corridors
like Interstate 95 or cordons around congested areas
like Tysons Corner. (See
my companion piece, "When
All Else Fails, Try Capitalism.") Motorists would be charged an
additional fee for entering these zones during
congested periods of the day. The fee would vary
according to the level of congestion, and the prices
would be set to reduce congestion to a level that
allowed maximum throughput of traffic. Traffic
capacity would increase -- and as a bonus, VDOT
would generate funds for traffic improvements.
Now
this is crucial: The congestion fees would not be
dumped back into the VDOT slush fund to be divvied
up for projects around the state according to the
dictates of the outmoded funding allocation formula,
or as modified by lobbyists and politicians. Funds would be plowed back into improvements in the
congestion zone from which they came. That way,
taxpayers who paid congestion fees to a Tysons
Traffic Authority could
be reassured that their payments weren't being used
to build a circumferential highway around Richmond
or a bridge across Hampton Roads for the purpose of
local "economic development."
Politically,
mileage fees and congestion fees are the closest
things there are to a perfect funding solution. An
Oregon-like schema would treat all regions of the
state fairly. No one would be taxed for improvements
they don't need, and those who are taxed would be
assured that the money stays close to home -- not
sent to the other end of the state.
It's
a solution, too, that environmentalists,
conservationists and smart growthers could love. It
would dry up funds for extending roads into virgin
territory for the benefit of builders, land
speculators and the politicians on their payroll.
Furthermore, if people paid the full costs of their
driving, they would choose to drive less and
ride-share more -- a big environmentalist goal.
It's
a solution that the Big Roads lobby should love --
it injects more money into the system. But it's also
a system that fiscal conservatives should love.
Mileage fees and congestion fees really, truly are
different from taxes -- the users get direct
benefits in exchange for what they pay. The
road-funding system is transparent and less subject
to abuse by scheming lobbyists and politicians.
The
Oregon solution is not a complete transportation
solution. We still need to reform land use and
governance structures, and we still need to
creatively apply technologies. But it is a complete
transportation funding solution.
--
January 8, 2007
*
These numbers can be found on the Virginia
Petroleum, Gasoline and Convenience Association website.
|