If
you thought the transportation "crisis"
was over, it's not. It's only in temporary abeyance
while the political system digests the new revenue
sources bequeathed by lawmakers this year. Panic will resurface as soon as it's obvious
that the financial underpinnings of Virginia's
transportation program are still deteriorating. Disturbing news from the
U.S. Department of Transportation suggests that
Virginia and other states may be getting less money
in fiscal 2010 than previously anticipated from the
federal highway trust fund, a major source of state
transportation revenues. And the shortfall in DOT
funding is the tip of an iceberg: a dip in federal and
state gasoline tax revenues stemming from the
fact that people are driving less.
The
federal Highway Trust Fund sent Virginia about
$1,011 million in fiscal 2006 and $1,355 last year
to cover construction of new road, rail and other transportation projects such as
bicycle trails and pedestrian bridges. In its
six-year financial plan, the Virginia Department of
Transportation conservatively projected federal contributions in 2010 and beyond: in the $1,000
million to $1,050 million range.
What
the actual number will be in 2010, however, is
anyone's guess. The highway trust fund has nearly
spent down its cash cushion, and gasoline tax receipts have
fallen below expectations this year. There is reason
to believe that gasoline consumption will not revert
to its old trend line. Without corrective action by
Congress, federal dispensations could fall farther
and farther behind projections in the years ahead.
That's
the story I got from my trip to the U.S. Department
of Transportation last week to meet with Tyler D.
Duvall, the assistant secretary for transportation
policy, and Quintin C. Kendall, DOT's deputy
assistant secretary for management and budget. Along
with Bacon's Rebellion intern Lyle Solla-Yates,
we chatted about transportation policy over lunch in
the DOT executive dining room. The Bush
administration is pushing some very promising
market-oriented approaches to transportation, but
the big news to emerge from our conversation was
the coming budget crunch.
Duvall
and Kendall see a short-term problem and a long-term problem. The short-term problem reflects
the way Congress has chosen to spend the federal gas
tax revenues that flow into the federal highway
trust fund. Traditionally, the DOT kept a healthy
cash balance in the fund -- $13 billion as recently
as 2004. But in the current six-year authorization
bill, Congress decided to spend down the cash
balance.
The good news was, the states
get more
money during the six years covered by the bill.
Here's the bad news: If
the feds continue doling out money at the rate they
have been, the highway trust fund will face annual
deficits of roughly $5 billion annually. Unless a future
Congress and U.S. president decide to increase the
federal gasoline tax -- a controversial proposition,
to say the least -- the Department of Transportation will have no
choice but to cut back. The highway
trust fund will be able to funnel money to the
states only as fast
as gas receipts come in. Aggravating the situation,
when Uncle Sam has no surplus money in the bank, it
won't be able to pay as promptly as it has done in
the past, potentially creating cash-flow issues for
some states.
That brings us to the longer-term problem. The money
isn't coming in as fast. Between 1980 and 2005,
federal receipts from gasoline taxes had
increased at an average rate of 2.7 percent per
year. In the early part of 2007, according to a DOT
presentation on highway trust fund balances,
Americans drove fewer miles than the same period the
year before -- for the first time ever. When
Americans drive less, they buy less gasoline and pay
less in gasoline taxes.
There
are reasons to believe the gas tax shortfall will get
worse. As Duvall and Kendall observe, the major
thrust of federal energy and environmental policy in
both the Republican Bush administration and the
Democratic Congress is to reduce gasoline
consumption. The federal government is
encouraging the purchase of gallon-pinching
hybrid-electric engines, and House Speaker Nancy
Pelosi has called for increasing the average-fuel
economy standard to 35 miles per gallon by 2020.
Meanwhile, the feds are subsidizing research into
new technologies such as hydrogen-powered fuel cells,
with the goal of creating engines that require no
gasoline at all.
Recent
projections reported by the Transportation Research
Board suggest that with current technology, fuel
economy improvements of 15 percent
to 25 percent are
possible within the next two decades. If
Americans drive their automobiles fewer miles and
get better gas mileage while they do it, the U.S.
will face a steady decline in the number of gallons
of gasoline sold and taxed. The
implications have yet to be factored
into federal transportation policy.
Barbara
Reese, chief financial officer of the Virginia
Department of Transportation, insists that VDOT's
six-year financial plan is based on conservative
financial assumptions. The DOT highway trust fund
issues highlighted by Duvall and Kendall have been
widely discussed in the transportation community,
she says. Indeed, Kendall recently addressed the
Virginia Transportation Construction Alliance at the
Homestead. "These
issues have been talked about," Reese says.
"Everyone should have
anticipated them."
Beyond
fiscal 2009, Reese says, VDOT budgeted no increase
in revenue from the federal highway trust fund, no
special earmarks from Congress and a growth in gasoline tax
receipts of a modest one percent annually.
Hopefully,
VDOT's precautions will spare
Virginia from a funding crisis should Duvall's worst
fears come true. But disciplined accounting can't
make up for declining tax receipts if motorists
continue to drive less and get better gas mileage. And there's no sign that Virginia
lawmakers are preparing for the day when the
gasoline tax fails to deliver.
As
I've argued before in Bacon's Rebellion,
Virginia needs to shift to a "user/beneficiary
pays" system for building and maintaining
roads. (See "The
Oregon Solution," Jan. 8, 2007.) That can be best accomplished through a
combination of charging drivers a road-maintenance
fee based on the number of miles they drive each
year, and charging congestion tolls to allocate
scarce roadway capacity.
There
is no move yet to restructure the gasoline tax into
a mileage-based user fee. But the policy wonks in the
Department of Transportation are big boosters
of congestion tolls. So is the Kaine administration,
at least when applied to HOT lanes (see "Coming
to an Interstate Near You," July 16, 2007).
The
combination of a road-maintenance fee and congestion
tolls could create a stable, long-term funding
sources capable of taking up the slack for the gasoline tax.
Unfortunately, the level of political support for tolls, which
many politicians regard as just another tax, is thin
in Virginia. It may take another transportation
funding "crisis" soon after the last one
was putatively solved to persuade citizens that the
current system isn't working.
--
July 16, 2007
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