Fixing the Financing of Transportation

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Although it seems like a lifetime, it was just three short weeks ago that NRDC and the American Public Transportation Association sponsored an event at one of the nation’s most impressive train stations, Union Station in Washington, D.C. National Journal organized the event, with veteran reporter Ron Brownstein moderating.

The topic was transportation policy in the new Administration, including the fact that the transportation program is up for reauthorization by Congress in less than a year. The top issues were financing maintenance and expansion of the system, and achieving energy/climate security. We were privileged to have a top-notch panel made up of a former Transportation Secretary from the Reagan era, someone from the Chamber of Commerce, my friend Michael Replogle from the Environmental Defense Fund, and -- most importantly -- senior representatives from the McCain and Obama campaigns

To see and hear the event, click here.

Financing is a real challenge due to recent trends, especially this past year, as the current Transportation Secretary Mary Peters points out here: Growth in vehicle miles of travel has stalled, while transit ridership is booming. While some claim we’re in the midst of a reversal of the former trend, that's pretty unlikely, especially with others claiming that the era of high oil prices is just dawning. Why does this matter? Transportation investments are pretty dependent on gas tax revenues, and those revenues are dependent on receipts from retailers. Fewer miles traveled means lower revenues. Exacerbating the drop in revenues is the fact that the U.S. hasn’t increased gas taxes in fifteen years, while inflation has driven costs of construction materials and labor up.

This is why Congress recently had to “patch” the transportation trust fund, which relies on gas tax revenue, with an $8 billion transfer of money from the general fund. We can expect more of the same in the near future.

What’s to be done? Basically, we need to overhaul the way the system is financed. This is a real opportunity for improving environmental performance, since there is a perverse incentive at work here: The more gasoline used, the more revenue. So the state and federal transportation departments are well-served by policies and projects that boost gasoline consumption. That’s a real problem for a nation concerned about oil addiction and global warming pollution from vehicles.

One long-term possibility is to charge fees based on the use of roads, sort of like toll lanes but covering more of the road network. Oregon – the state that pioneered the gas tax in 1919 – recently ran a pilot program, which you can learn about in this cool video from the Oregon Dept. of Transportation. Their experiment was simple to administer, since it required payment at the pumps at two designated gas stations, making it easier on the motorist, business owners and government than a new billing system. In the long run, this would also allow for phasing in alongside the gasoline tax, with new vehicles charged in this new way. As the fleet turns over, the new fee would take over.

As the late University of Iowa Professor Forkenbrock (an expert on road pricing) noted, the charge can even be varied to address other policy goals, for example via variation according to time-of-day to lower congestion and according to fuel ecomony to reward the purchase of more efficient vehicles. Volunteers in Oregon were certainly pleased with the new system – 91 percent of those participating in the pilot said they would continue with the program if it were adopted at all service stations.

As prices and new energy policy help wean the nation off gasoline, we need to think creatively about financing for transportation. Charging based on miles traveled is a big idea that should be taken seriously, since it connects price for a limited good – pavement – with use of that good, and it would provide an incentive to cut down on driving and therefore pollution.