This coming Monday, January 30, CEI will hold a Capitol Hill briefing regarding recent congressional proposals to fund federal surface transportation investments by directing into the Highway Trust Fund revenue raised from expanded energy production. This is widely known as “drilling for roads.” While we certainly support expanding domestic oil and gas drilling, there are major problems with such a proposal. I previously blogged on this topic here and here.
If the federal government is going to continue funding highways at the level that it currently does, it will need additional revenue. The current program faces several major challenges:
- Much of the Interstate system is nearly 50 years old, the intended life of the infrastructure. This means that much of it will need to be completely reconstructed — not just resurfaced — in the near future.
- The federal fuel excise tax rates have not been raised since 1993, and are currently set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel. Inflation has reduced the buying power of those taxes by well over one-third, and federal fuel taxes raise the vast majority of Highway Trust Fund revenue. Furthermore, a fifth of Highway Trust Fund revenue is now diverted to mass transit projects.
- It is quite likely that passenger vehicle-miles traveled are plateauing, or at least the rate of increase of passenger VMT will be significantly lower in the future than it has been in the past. Freight VMT, however, will continue to increase, which will put more wear-and-tear on our highways per vehicle-mile traveled.
- Finally, the U.S. vehicle fleet is expected to become significantly more fuel efficient in the coming decades [PDF, see p. 30; or PDF, see p. 13], which will reduce the user taxes collected per vehicle-mile traveled. Due to this reality, there are also major equity concerns, as it is the upper-income drivers who can afford to purchase the most fuel efficient vehicles, such as hybrids. This means that the fuel tax burden will further shift to lower-income drivers.
Something clearly needs to be done in the long-run. Even for the short-run, Congress must act or within months the Highway Trust Fund will be insolvent. But one thing we do not want to see is “drilling for roads.” Primarily, our opposition stems from the proposal’s weakening of the “user-pays/user-benefits principle,” which guides the Highway Trust Fund that has been around since the Interstate Highway System was created in 1956. The trust fund relies primarily on user taxes on gasoline and diesel, which are collected by the Treasury and credited to the Highway Trust Fund.
Congress’s rationale for the taxes and Highway Trust Fund was to link highway use with highway infrastructure investment. General revenue funding of federal-aid highways — going all the way back to 1916 — had proven woefully inadequate.
- It is fair. In the economic literature, user-pays is also known as “beneficiary pays,” because it is the users who directly benefit from the infrastructure improvements their tax payments generate.
- It is proportional to use. If you drive more, you pay more. If you drive less, you pay less. And if you don’t drive, you don’t pay. Policy makers can also determine which driving uses impose which costs, such as long-distance trucks that do a disproportionate amount of damage to roads, and then adjust rates accordingly.
- It allows for funding predictability because highway use, and therefore highway-user revenues, does not fluctuate wildly in the near-term.
- It provides an important investment signal. Since highway user revenue more-or-less tracks use, policy makers can observe these trends and then make determinations as to how much future investment is needed to maintain the efficiency of the system.
- The Highway Trust Fund is shielded from typical appropriations debates under a provision of the 1974 Budget Control Act. However, the trust fund is only exempt if at least 90 percent of revenue is collected from users.
Weakening user-pays by depositing oil and gas lease royalty revenue into the Highway Trust Fund calls into question the purpose of having a federal trust fund at all. If that were to happen, the chorus for outright abolition of user-pays would only grow louder. And rather than learning from our pre-1956 mistakes, we could begin making them all over again. Moreover, weakening user-pays by creating a taxpayer-pays “drilling for roads” revenue stream sets a terrible precedent for fiscal conservatives, who have long argued that infrastructure and operations for all modes of transportation should rely on user-generated revenue. CEI has long supported variable tolling (which incorporates congestion pricing), as well as public-private partnerships and public road divestitures to private companies that would need to rely on such a mechanism.
We believe this issue is so important that the Monday Hill event is also being sponsored by the Natural Resource Defense Council, an environmental group that often takes positions opposite to CEI. But NRDC, along with fiscal watchdog Taxpayers for Common Sense and the libertarian Reason Foundation, strongly agrees that preserving the user-pays principle is a must for highway bill reauthorization. Doing otherwise would endanger the future health of our transportation infrastructure, as well as undermine fiscally conservative principles.
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this is a well stated and well reasoned statement. the loss of the user pays principle would further diminish the trust fund and the whole concept of a balanced relationship between spending and use. the user pays approach should be a model for government and applied in many other places and cases rather than lost. many who are willing to see it destroyed would prefer the idea of fungible highway funds available to any idea to do “good things”.
Alan E. Pisarski
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