The Fuel Tax and Alternatives for Transportation Funding Special Report 285 (2006) / Chapter Skim
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2 Present Finance Arrangements
2 Present Finance Arrangements
Pages 23-61
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From page 23... ...
Therefore, the final section of the chapter examines developments that may affect the via bility of the finance system. These include trends in the share of highway user fee revenues applied to purposes other than highways, adjustments of user tax rates to allow for inflation and changes in costs, devolution of transportation responsibilities to local governments, reliance on revenues other than user fees, and revenue adequacy and stability.
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From page 24... ...
. Funding Sources State and local governments dedicate, by law, certain revenues from highway user fees and other taxes to pay for highways.
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From page 25... ...
Most rev enues in the "other user taxes and fees" category in Table 2-2 are from vehicle reg istration and operator license fees. The majority of state and local user fee revenues are from fuel taxes.
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From page 26... ...
Definition of highway user revenues or of highway user fees (as the pay ments are sometimes called) is complicated by the great diversity of fed eral, state, and local tax provisions that must be taken into account.
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From page 27... ...
This report accepts the FHWA classification of payments qualifying as highway user revenues and refers to these payments as highway user fees. By this classification, highway user fees include all excise taxes paid on highway fuels, vehicles, and parts that are not paid on similar purchases for nonhighway use; highway vehicle registration and permit fees; driver's license fees; and tolls.
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From page 28... ...
is smaller than the ratio of federal highway user fee revenue to total user fee revenue (34 percent in 2004; see Table 2-2) because the federal govern ment devotes a larger share of its user fee revenue to transit than do state and local governments.
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From page 29... ...
Registration fees and miscel laneous other federal, state, and local taxes and fees (that is, all user fees except fuel taxes and tolls) averaged $125 per registered vehicle in 2004 (FHWA 2005a, Tables SDF, LDF, FE-210, VM-1)
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From page 30... ...
Combination vehicles, which account for 5 percent of all vehicle miles, pay 19 percent of all user fees in the USDOT estimates. The cost allocation study estimates did not count fed eral motor fuel tax revenues not credited to the Federal Highway Trust Fund as user fees and so understate user fees according to the definition used elsewhere in this chapter (USDOT 1997, Tables II-6, IV-8, IV-11)
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From page 31... ...
The main features of the federal-aid program are as follows (FHWA 1999) : · Periodic federal surface transportation acts provide multiyear funding authorizations for federal highway and mass transportation capital grant programs and set program rules and highway user taxes.
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From page 32... ...
The Highway Trust Fund is a bookkeeping device to make apparent the relation of user fee collections to spending. Authorizations in the surface transportation acts are limited by the balance in the fund and the projected deposits from user tax revenues.
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From page 33... ...
. Most fed eral funding depends on revenue from the federal highway motor fuel tax, includ ing the $0.0286 per gallon share dedicated by Congress to the Mass Transit Account of the Highway Trust Fund as well as funds in certain categories of the federal-aid highway program that states and localities can transfer to transit.
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From page 34... ...
In con trast, reports of state and local governments to USDOT tab ulated in Highway Statistics (Tables SDF, LDF, HDF) show $1.3 billion in state fuel tax revenue and $3.2 billion in total state and local highway user fee revenue distributed to tran sit in 2000 (in addition to $5.1 billion in federal highway user revenue to transit)
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From page 35... ...
. These trends are in contrast to the experience of the high way sector: average highway user fees (per vehicle mile)
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From page 36... ...
In assessing alternatives to these arrangements, a broader perspective derived from comparisons with finance arrangements for 45,000 40,000 35,000 ) s 30,000 million 25,000 (2001 20,000 sra 15,000 Doll 10,000 5,000 0 1961 1966 1971 1976 1981 1986 1991 1996 2001 2003 Year Expenditures (capital and operating)
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From page 37... ...
public utilities and transportation systems in other countries may be helpful. The characteristic features of these arrangements include the degree of reliance on revenue from users and other sources, the structure of user fees, and the spheres of involvement of the national, regional, and local governments and of the private sector.
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From page 38... ...
No rule that determines the extent of federal involvement or the extent to which public expenditures are covered by user fees in these industries is evident. Substantial federal involvement in highways and in airports and air traffic con trol and low involvement in water and sewer may be roughly consistent with the mix of national and local services that these systems provide.
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From page 39... ...
For example, the gap between highway user fee revenue and expenditures is in part the consequence of local governments' lack of practical methods of charging for use of local streets. Road user fees and highway finance in Europe show some marked contrasts to U.S.
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From page 40... ...
The first is that future oil price increases, advances in automotive technology, and new pollution and energy regulations will substan tially reduce fuel tax revenues and thereby threaten the viability of the present finance system. The second is that the viability of the present system is threat ened by an accumulation of structural changes that have caused it to diverge from the original concept of the user feetrust fund system.
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From page 41... ...
· To the extent that the user fee finance system historically has had a positive effect on program performance, divergence from the principle has been harmful. The subsections below describe developments in five areas of finance practices: · Application of highway user fee revenue to nonhighway purposes and ear marking of federal aid, · Legislative action to adjust user fees to keep up with inflation and cost changes, · Devolution of responsibilities to local governments and related trends in reliance on user fee revenue, · Revenue adequacy, and · Revenue stability.
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From page 42... ...
States also devote funds from nonhighway sources to highways. In national totals, states' revenues from highway users nearly equal their highway spending: the sum of all state-imposed highway user fee revenues and Federal Highway Trust Fund aid received by states was $94.7 billion in 2004
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From page 43... ...
Since 1987, a small portion of the fuel tax (0.1 cents per gallon) has been devoted to the Leaking Underground Storage Tank Trust Fund.
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From page 44... ...
In 2004, three states- New York, Pennsylvania, and Maryland -- accounted for 58 percent of such distributions; 23 percent of highway user fee revenues collected by these three state governments was devoted to transit. In the remaining states, 3 percent of state highway user fee revenue was devoted to transit (FHWA 2005a, Table SDF)
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From page 45... ...
Authorizations for projects specifically designated by Congress jumped from about 1 percent of the highway program in the 1982 and 1987 federal aid highway acts to 5 to 6 percent in the 1991 and 1998 acts and to over 10 percent in the 2005 surface transportation aid program reauthorization legisla tion (SAFETEA-LU) (Table 2-8)
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From page 46... ...
Most inland waterways and ports authorizations are for specifically identified projects. Legislative Adjustments of User Fee Rates Because fuel tax rates are defined in cents per gallon, state and federal legisla tive action is required to adjust for the effects of inflation on revenues.
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From page 47... ...
. As the first section of this chapter described, in spite of these potential obsta cles to maintaining highway user fee revenue, the average constant-dollar user fee paid per vehicle mile of highway travel has been fairly constant since the late 1970s.
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From page 48... ...
In assessing the willingness of state legislatures to adjust highway user taxes, it is instructive to compare overall state government tax effort with highway user fee revenues. In the 1960s and 1970s, revenue from all state taxes grew much faster than state highway user fee revenue (Figure 2-7)
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From page 49... ...
. Changes in law in 1997 (when $0.043 per gallon that had been credited to the general fund began to be credited to the trust fund)
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Whereas state government highway programs are predominantly funded by state-imposed user fees (fuel taxes and registration and licensing fees) and federal aid derived from federal user fees, local governments historically have relied mainly on property and sales taxes to pay for transportation programs.
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From page 51... ...
The growth in local dedicated taxes has been driven in part by growing local expenditures on transit and the absence of secure funding sources for transit analogous to the state and federal highway user fees dedicated to highways (Ernst et al. 2002, Goldman and Wachs 2003, McMillan 2004)
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From page 52... ...
account for most spending not supported by user fee revenues. In 2004, local user fee revenue plus local highway grant receipts that derived from state and federal highway user fees equaled 32 percent of local highway spending (FHWA 2005a, Table HF-10)
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From page 53... ...
Comparison of local government shares of transit plus highway spending in 1991 and 2002 in the United States and in the six states with the most spending illustrate the variation (Table 2-9)
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From page 54... ...
SOURCES: FHWA 1992, FHWA 1993, FHWA 1994, FHWA 2003, FHWA 2004; Tables HF-2, LGF-2, SF-2, MT-1A, MT-2A, MT-2B. local government control of federal grants, observes: "Metropolitan areas make decisions that dispose of only about 10 cents of every transportation dollar they generate even though local governments within metropolitan areas own and maintain the vast majority of the transportation infrastructure." However, con sidering only highways, state governments in 2003 owned and operated roads that carried 64 percent of all vehicle miles of travel, and state government direct spending on highways was 64 percent of all highway spending (FHWA 2004, Tables HM-81, VM-1, HF-10)
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From page 55... ...
reports the conclusion of the Federal Highway Administrator in an address that the current fuel-tax-based sys tem of financing highways is likely to fall short of covering identified needs, and a Brookings Institution study of fuel tax revenues concludes that because of stag nant revenues, "states do not have the financial wherewithal to address a wide variety of transportation concerns" (Puentes and Prince 2003)
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From page 56... ...
The average annual growth rate for vehicle miles in the same period was 3.2 percent. The FHWA measure, which uses a definition somewhat different from BEA's, indicates that net capital stock (defined as the sum of all past investment, less retirements, adjusted for efficiency decline of the stock as it ages)
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From page 57... ...
An investment rule that called for increas ing capital spending, capital stock, or lane miles of roads at the rate of increase of traffic would yield poor results, since such a rule would fail to take into account the circumstances that determine the return on highway investment. These cir cumstances include the capacity and condition of the highway system at the out set of the period under consideration (e.g., whether it was over- or underbuilt)
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From page 58... ...
. A more common view may be that stability and pre dictability are among the strengths of the user feetrust fund mechanism com pared with funding dependent on annual legislative appropriations, even though lags between changes in the external factors affecting fuel tax revenue and legislative adjustments of rates have at times disrupted funding.
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From page 59... ...
2005. West Virginia Fuel Tax Increases.
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From page 60... ...
2003. Report to the 72nd Oregon Legislative Assembly on the Possible Alternatives to the Current System of Taxing Highway Use Through Motor Vehicle Fuel Taxes.
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From page 61... ...
1997. 1997 Federal Highway Cost Allocation Study.
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