Thoughts on Question 1 and transportation funding in general

It's been a few weeks since the November elections, so I'm chiming in a bit late, but there's no real hurry. There weren't really any surprises with the state-wide office elections, and I don't know how that will all shake out in the new year when the new officials take office. But the success of Question 1 was a bit of a surprise to me. Part of that is the almost complete unreliability of polling on such questions. But also because Question 1 was so obviously a "Tea Party temper tantrum" that I figured Massachusetts voters would see through it.

In the past year, the legislature had finally taken some responsibility for transportation funding -- after twenty years of denial. They raised the gasoline excise tax by 3 cents, not enough to make up for the value lost through inflation, but something. And more importantly, they arranged an "indexing mechanism" that would ensure that we would not suffer through another twenty year period of fiscal farce. The "indexing mechanism" would keep the value of the excise tax steady over the years, ensuring that the regular effect of inflation would not become a source of de facto tax cuts.

Question 1 repealed the "indexing mechanism", thereby spurning the fiscally responsible step taken by the state legislature. Therefore, the gasoline tax will, in effect, receive an automatic tax cut every year going forward, again. Voters here have rejected irresponsible tax cuts in the past, so it's a bit of a head-scratcher, but hopefully not a trend-setter. In any case, if you are ever in conversation with a voter who claims to be "fiscally responsible" ask them if they voted for Question 1: if so, you can safely call them a hypocrite.

So what happens now? Well, the legislature is going to have to scramble a bit to find funding for some things. There are still plenty of failing bridges, potholes aren't going away, the T has 45-year-old subway cars that can't go without replacement, and buses have to be replaced on a regular schedule. It appears that the latter two are not in danger, and neither is the important Green Line Extension project through Somerville. But funding for everything else is questionable. That includes part of the cost of the Allston Interchange project that will replace the failing riverfront viaduct of the Mass Pike and reshape the area, fixing many of the problems that the existing highway afflicts on the neighborhood. There's the River Street and Western Ave bridges, which are crumbling. And several hundred other overpass and bridge repair or replacement projects that I could scarcely begin to enumerate. Roads ain't free, despite the feverishly held beliefs of the mostly suburban, mostly automobile-dependent voters who forced Question 1 on us.

Meanwhile, MBTA bus and train fares are virtually guaranteed to go up by about 5% every two years. Somehow, once again, public transit riders have been left holding the short straw, while drivers continue to reap steadily increasing subsidies in the form of inflation-driven gas tax cuts. Funny how that always seems to happen.

Paul McMorrow has suggested that we should adopt the idea of regionally-based taxes to pay for transportation projects. Ballot questions enacting regional sales or payroll taxes are popular in many western states. But it's not constitutional in Massachusetts, so this would require some fancy footwork or a change. And there's a bigger problem: we will end up with a system where transit projects are funded via additional regional taxes, while highway builders get to keep helping themselves from the general fund. Not a good dynamic. If Boston is forced to tax itself just to keep the MBTA running, then why should Boston subsidize highways in central and western Massachusetts? Either all transportation projects should be considered regionally, or none at all -- because we're all in this together.

For a few ideas to consider, check out the report last month from the Urban Institute about how the various states are handling the gas tax. Some have indexed the price in various ways to the going wholesale price of gasoline, which is one way to simulate a percentage-based tax like sales taxes. Oregon and Virginia are piloting a major reform that replaces gas taxes with vehicle-miles-traveled taxes. This is thought to better represent the cost to society of operating a vehicle on the public ways. The Federal government has also floated the idea of allowing tolling to be used on interstate highways (where it was not grandfathered). Tolling would be a fair way to obtain funding for highways, the counterpart of paying a fare to ride a train or bus. Used properly, it would also have the benefit of actually reducing congestion: with automated electronic tolling it's hassle-free, and part of the proceeds can be used to fund really good public transportation for people who don't or can't drive.

Here's a reform package I've been thinking about:

• Apply sales tax to gasoline. Right now, gas is exempt from the sales tax, which is a hugely regressive subsidy to drivers at the expense of lower-income families. If we were to instead apply the sales tax to gasoline, then the overall rate could be lowered, so that other goods and products that everyone buys would not be subsidizing gasoline (at least, not as much). This could be designed in such a way that any increase in cost for gasoline would be made up for by decreased cost in everything else.
• Change the purpose of the gasoline excise tax: instead of funding transportation, an excise tax on gasoline should fund clean-up of the pollution caused by gasoline usage, and also public health efforts to mitigate the damage to human health caused by gasoline usage. The rate of the gas tax would be set at the level needed to achieve these public health goals, which include the Healthy Transportation Directive and the Mode Shift Goal.
• Other excise taxes should go into the general fund.
• Transportation should be funded out of the general fund based on the merits and cost-effectiveness of each project in question. Such projects should have to compete with other worthy projects in other departments, such as schools, housing assistance, health care, and yes, even tax cuts.
• Ridiculously bad boondoggles such as South Coast Rail, which is expected to cost the state over $500,000 per projected rider, should be discarded until somebody finds a way to get the costs under control.
• All congested highways should be outfitted with variable, automated, electronic tolling. The tolls would vary from free (when there is little demand) up to whatever amount is required to clear out congestion at that time of day. The precise formula would have to be carefully designed in order to avoid surprising people. The revenue from the tolls can be used in several ways, and there is a reasonable argument that some of it should be used to ease the regressive effect of the tolls. Part can go to boosting public transportation capacity and frequency along the corridor, making it a real, serious option for many more people. This has the nice side effect of bringing the benefit of the transportation infrastructure to the many people who cannot drive, for whatever reason. Another part can go towards income tax relief for the low-income users of the highway who still need to drive. The rest should go into the general fund.
• End all parking subsidies. That includes the minimum parking quotas found poisoning most zoning codes. The authority to impose such quotas, which are an intrusion on private property rights, comes from enabling legislation in the General laws, so it should be possible to retract that authority at the state level. Minimum parking quotas waste land, destroy healthy environments, raise housing prices, and, in general, these kinds of subsidies help cause traffic congestion. It's hard to imagine a more self-destructive set of regulations.

Does this package have a chance of ever passing? I doubt it. There's too much powerful, vested interest in the status quo. As we saw with Question 1, people don't like it when you end their subsidies, even if they are really harmful, self-destructive subsidies that cost the rest of us dearly.

I'd be interested to hear other people's ideas about transportation funding reform.

The Senate transportation bill

The version of the transportation financing bill passed yesterday by the State Senate is an improvement on the House version. The key features are an immediate increase in the gasoline excise tax by 3 cents, the annual indexing of the tax to inflation (by CPI), an increase in cigarette taxes, an investigation into the sale of naming rights to stations, a commitment to obtain revenue from utility easements on public rights-of-way, and a cap on fare hikes of no more than 5% every 2 years. There are also some other interesting aspects that have not been discussed as widely.

• A "value capture commission" to study the best practices of other jurisdictions regarding how to obtain benefits from public investment in transportation, then to submit a report with recommendations. This was also present in the House version, although I missed it before writing my critique a few days ago. The usefulness of this provision will depend on how well it is implemented; it seems pretty weak, though, and I don't think it really addresses my concern about land use. But it is something.
• Explicit identification of the Green Line Extension and South Coast Rail as priorities.
• The creation of a report discovering and describing fare evasion statistics, as well as methods to address the problem.
• Language allowing for a "high occupancy toll lane" facility to be developed.
• A study of taxicab markets and needs in the Commonwealth.
• A premium parking pilot program in select MBTA parking garages; this allows users to pay a higher fee for a guaranteed, convenient parking space.
• Calls for the MBTA to issue a request for proposals from business, civic, and non-profit entities to enter into sponsorship agreements for providing late night transportation services.
• Allows for tolling facilities to be constructed on the various highways as they cross over into Massachusetts from neighboring states.
• The Underground Storage tank fee would also be indexed to inflation annually (by CPI).

We will have to wait and see what the conference committee comes up with and whether that is acceptable to Governor Patrick.

Roads and highways are heavily subsidized

Interstate highway I-93 in Boston, part of the Big Dig (source)

Many people who own cars believe that they "pay their way," through the gas tax, when it comes to road construction and maintenance. That impression is a myth. To begin with, every single state in the country receives more highway funds than they contribute in gas taxes. Congress has appropriated an extra $30 billion to build and maintain interstate highways since 2008, taken from general funds. Many toll roads run deficits. The United States has one of the lowest gas taxes in the world. The Federal gas tax has not changed from the early 90s, it is a flat 18.4 cents per gallon. It is far too low to cover costs. According to the BLS inflation calculator, the buying power of the original tax has diminished by about a third, to 11 cents.

The situation at the Massachusetts state level is just as dire, if not more so:

The Finance Commission estimates that there is a funding gap of approximately $9 billion between what will be needed to bring the road and bridge system to a state of good repair and expected state and Federal funds.

Some have proposed a pay-per-mile tax (or VMT tax). As I've discussed before, this is a somewhat creepy and overly intrusive solution. It is much more reasonable to require only that commercial vehicles pay for VMT. Since commercial vehicles (trucks, buses) are already tracked by their operations managers, and they are not private passenger cars, it should be much easier and less objectionable to implement. Long-haul large trucks are already restricted to certain roads. Also, trucks and buses do the most damage to the roads, while passenger cars do relatively little.

Rocky Mountain Double (source)

Arguably, it should be car owners who have the most interest in this kind of proper taxation. The damage done to the road appears to be approximately proportional to axle load raised to some power between three and four. That means trucks and buses do extreme amounts of damage to roads compared to passenger cars. Only a few states even care about truck weight, and none of them come close to recovering the costs proportionally. So, ordinary drivers are paying much of the costs of trucking.

Modern freight rail container shipping (source)

There is a wider benefit to having roads. I'm not opposed to using public funds for road projects, I'm opposed to people who pretend that we don't do that. Roads are not free, and they are heavily subsidized by state and federal governments. To claim otherwise is dishonest. The gasoline and diesel fuel taxes must be brought into line with year 2012 costs, and set on a solid track for the future. States should strongly consider recovering the true cost of supporting heavy freight trucking on their roads through a commercial VMT tax, instead of putting the burden on the ordinary taxpayer. Businesses that need to transport freight long distances would go back to more appropriate modes, such as the railroads, which have improved their operations tremendously in the last 30 years. Not only would this reduce the cost of maintenance on our highways, but it would increase safety and reduce congestion at the same time.

The current, nearly 20 years old, Federal gasoline tax rate should be indexed to inflation, and raised from 18.4 cents per gallon to 28.8 cents per gallon (38.2 cents per gallon of diesel). This data on trucks and VMT in 2002 suggests that the majority of trucks are in the 60,001lb to 80,000lb range, traveling about 77 billion miles on our roads, out of approximately 145 billion truck miles overall. Presumably, these numbers have only gotten larger in the last ten years. Still, at those rates, an average tax rate of 10 cents per mile would recover over $14 billion that would be directly correlated with road damage. To be fair, lower weight trucks should pay significantly less than higher weight trucks - perhaps even following the power law to some extent. For example, if 80,000lb trucks pay 20 cents per mile, then 10,000lb trucks could fairly pay 0.04 cents per mile, given some simplifying assumptions. Of course, to get a real idea of the effect of VMT fees, it will be necessary to model the reduction in truck traffic (and reduction in road damage) that would result, as well as the costs of administration.

Update:
Do Roads Pay for Themselves?:

Since 1947, the amount of money spent on highways, roads and streets has exceeded the amount raised through gasoline taxes and other so-called “user fees” by $600 billion (2005 dollars), representing a massive transfer of general government funds to highways.

Rank hypocrisy on 'subsidies':

Today, over-the-road heavy trucks pay approximately $14,000 per year in combined fuel and other highway taxes. This amount does not come close to paying for the damage to roads and bridges caused by trucks, let alone the capital cost of the highway system or for new or expanded road and bridge construction.