Washington Notebook: AASHTO recommends gas tax alternative

   The organization representing state transportation departments last week proposed substituting the federal fuel tax on motor vehicles with a sales tax on fuel to pay for highway and transit infrastructure that experts say requires massive investment for maintenance and upgrades to keep up with rising traffic levels.
   In a keynote address to the Transportation Research Board’s annual convention in Washington, John Horsley, executive director of the American Association of State Highway and Transportation Officials (AASHTO), called for replacing the 18.4-cent per gallon excise tax on gasoline (24.4 cents per gallon for diesel) with an 8.4 percent sales on gasoline and a 10.6 percent rate for diesel fuel. He also endorsed a bill by Sens. Ron Wyden, D-Ore., and Jon Hoeven, R-N.D., to authorize a $50 billion tax credit bond program that would distribute $1 billion over six years to every state for transportation investments.
   During the past 30 years, traffic volume on the nation’s highways has increased 150 percent, but capacity has only increased 15 percent, according to transportation officials. The resulting congestion and bottlenecks is an economic constraint, experts say, because workers face delays getting to job sites and businesses can’t deliver freight in an efficient manner.
   Last summer, Congress passed a two-year bill authorizing $105 billion in spending for construction and safety programs administered by the Department of Transportation. The bill was a compromise because of disagreements over how to fund a five-or-six-year bill as revenues in the Highway Trust Fund continue to erode due to the use of more fuel-efficient cars and slower economic activity. Congress, for several years, has made up the shortfall in the HTF with transfers from the general fund. Under the MAP-21 (Moving Ahead for Progress in the 21st Century) spending plan, Congress provided a $21.2 billion bailout for the HTF, $2.4 billion of which came from a trust fund for remediation of leaking underground fuel-storage tanks.
   The Department of Transportation has contract authority for $40 billion this year, but revenues from fuel and other excise taxes is projected to total between $33 billion and $34 billion, according to the Congressional Budget Office.
   On Oct. 1, 2014, transportation programs face their own fiscal cliff unless Congress acts. Spending authority for federal aid to reimburse states for highway projects will drop from $40 billion to $6 billion, if the balance in the HTF is used as the only source of revenue, Horsely warned. Spending authority for transit programs would drop from $11 billion to $3 billion.
   “We need to make sure we don’t become a second-class country when it comes to infrastructure. We have always been number one, but we’re falling behind,” Transportation Secretary Ray LaHood said in his remarks to a luncheon audience of about 2,500 transportation planners, researchers and officials at the TRB event.
   One of the problems with the gas tax, transportation advocates say, is that it has not been increased since 1993. Some have called for indexing the gas tax to inflation so that its purchasing power doesn’t erode over time. Horsely noted the sales tax-concept is based on a percentage and the amount collected would increase as fuel prices rise.
   Horsley, who is set to retire Feb. 1, said his proposal would bring in $350 billion for highway and transit programs over six years, compared to $236 billion if excise tax revenues were relied on. In the first year, it would collect $52 billion instead of $37 billion.   
  “Fully supporting the program through highway user fees, rather than through transfers from the U.S. Treasury, would reduce the federal deficit by $150 billion over 10 years,” Horsley said in a statement. “The cost of the reform to taxpayers would be less than $1 per week, per vehicle.”
   The $150 billion figure represents about $15 billion per year that the fund is expected to spend to meet state obligations versus what it receives. Paying states for obligations undertaken often lags the spending authority, which explains why annual HTF balances differ from future commitments.
   Twelve states, including North Carolina and New York, levy sales tax on fuels. Those states are achieving greater revenue gains from the sales tax than the fuel tax, Horsley said.
   Virginia Gov. Robert McDonnell recently proposed scraping the state fuel tax in exchange for a slight increase in the general sales tax, with a higher portion of the money raised dedicated to transportation. Horsley explained after his speech that AASHTO’s concept maintains the user-fee approach.
   “We’re talking about shifting from a cents-per-gallon excise tax on fuels to a sales tax on fuels, but we set the rate high enough to restore solvency to the Highway Trust Fund,” he said.
   The AASHTO proposal meets the budget test of House Republicans for revenue increases that don’t increasing tax rates, Horsley added.
   The Wyden-Hoeven bill would create Transportation and Regional Infrastructure Project (TRIP) tax-credit bonds to leverage private infrastructure investment. The principle cost of the bonds would be covered by a trust fund composed of Customs user fees. The bonds would originate with state infrastructure banks and each state would be allocated $1 billion to use at its discretion.
   AASHTO said Sen. Mark Warner, D-Va., has expressed interest in its proposal and that it is working with the Americans for Transportation Mobility Coalition led by the U.S. Chamber of Commerce to develop bipartisan support for the concept in the Senate. – Eric Kulisch