Collision Course: How do we fund roads and rail?

Much a mess and amiss in all the talk about how to fund roads and rail.

One assumption is that roads and rails are separate issues.  A second assumption is we can fund both. Both assumptions are wrong.

Yonah Freemark (see his April 12 post) cites a great case where Pennsylvania tried to fund rail using a toll tax on the highway. That turns out to be not legal. 

But this is even more fascinating. California and other states are raising taxes on highway use, such as license fees. But raising prices actually depresses demand.  With driving on the decline, higher taxes for cars, licenses and fines will only accelerate the decline in driving, yielding even less income for states.

So taxing drivers more won't help to fund highways, much less trains. How do you think we should fund either roads or rail? Tell us your ideas.

Comments

[D. P. Lubic]

I think we need to acknowledge that motor fuel and the cost of access to the highway system is badly underpriced. According to Highway Statistics (USDOT website and publications), combined motor fuel taxes and tolls at all levels only account for 51% of highway expenditures in 2008; the rest came from sales taxes, general taxes, and so on, in other words, a subsidy of 49%!

http://www.fhwa.dot.gov/policyinformation/statistics/2008/hf10.cfm

http://www.fhwa.dot.gov/policyinformation/statistics/2008/balchrt.cfm

In 2008, this country consumed 174.5 billion gallons of gasoline (it’s been going down a bit in recent years, as noted in the chart below):

http://www.fhwa.dot.gov/policyinformation/statistics/2008/mf21.cfm

If you divide this 174.5 billion figure into the 49% subsidy level of $88 billion (I’m rounding off numbers here), you come up with a subsidy cost per gallon of over 50 cents per gallon. The total amount--$88 billion--also happens to be 11 times that of the recently ballyhooed high speed rail money. I also find it interesting that in all the statistics shown in these charts and numbers from the USDOT, this is not among them; you have to work it out from the two tables yourself.

I’ll also mention again that this is only a cash-flow analysis; it doesn’t include the costs of deferred maintenance, compromises in design and construction due to inadequate capital, and external costs such as air pollution and an oil war or two. My seat-of-the-pants estimate of the real cost of gasoline is about $7 per gallon, and I’m conservative compared to these folks:

http://www.progress.org/gasoline.htm

Some other reports on the subject:

http://www.energyandcapital.com/articles/oil-gas-crude/461

http://www.iags.org/costofoil.html

http://www.iags.org/n1030034.htm

http://cta.ornl.gov/cta/Publications/Reports/ORNL_TM2005_45.pdf

http://cta.ornl.gov/cta/Publications/Reports/ORNL_TM_2000_152.pdf

Make no mistake, we are paying this outlandish figure for our gas, hidden in our income taxes, our sales taxes, our car insurance, and so on.
Now, the car crowd won’t like hearing this at all. They’ll think you want to tax gas to $10 per gallon or something. They’ll revolt for real–and if this is all you do, it would be understandable. What we need to do is place the tax where the cost is (oil addiction), and remove it from the productive goose that lays gold eggs (income taxes, property taxes, etc.) That will make it possible for private enterprise to run transit services again. It can’t do so now because the game is rigged. We need to unrig the game.

Now, we are still going to need roads, but we also need to come up with a new way to pay for them. Ironically, I wouldn’t use gas taxes for this! Why? Ask yourself what would happen to the road revenue we do have if suddenly everybody gets even a few million Chevy Volts and Tesla roadsters on the road–vehicles that use little gasoline, or even none at all. Gas taxes made sense when everyone drove Stovebolt Chevys and Flathead Fords, and still made sense in the days of small blocks, Y-blocks, and wedge-heads (V8s from GM, Ford, and Chrysler, respectively), but it makes little sense now with everything from Hummers to hybrids and a war against terrorists who are at least partially financed with our oil imports. Basically, we need to divorce road revenue from fuel consumption. I would suggest tolls for limited access roads and fixed yearly taxes for the rest, like the license fee; others have suggested a mileage fee based on information from a transponder in your car (but many, including myself, have privacy issues with that approach).

One thing I think would help sell the hard-to-sell or marginal supporters (and also strengthen the support from the younger crowd) would be to frame rail service in all its forms–freight, light rail, trolley transit, intercity, HrSR (higher-speed rail, about 110 mph toop speed), regional and eventually intercity HSR–as a national security issue in regard to energy independence. We import 65% of the oil we use in this country, and 65% of our total consumption is for transportation. Gasoline makes up 48% of the total, and the diesel fuel trucks us is another 6%. That’s 54% of total oil use, including heating, chemicals, power generation, etc. (Power generation from oil, by the way, is about 3% of total oil demand, and supplies about 3% of our electricity.) Our highway system is our Achilles heel!

When do I get a royalty check? :-)