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Prospectus Blog Team Obama Rejects Gas Tax Hike; Boosting User Fee Prospects

Reuters reports that U.S. Transportation Secretary Ray LaHood told a senate committee the administration of President Barack Obama will not sign off on any hike in the increasingly ineffective federal gas tax, though Congress may propose that.

LaHood’s declaration signaled that the Obama administration will take the same stance as former President George W. Bush. Revenue generated by the tax of 18.4 cents on each gallon of gas sold in the country goes into the Highway Trust Fund to fix U.S. roads and public transit. That fund has already been depleted once and Congress had to pass emergency measures last summer to replenish it. The tax has not been raised since the early 1990s…
The Bush administration also opposed a tax hike and last summer suggested looking beyond taxes to privately run electronic tolling systems and tax incentives for transportation investments. LaHood told the hearing that there are “a number of other things that will help us raise the revenue to satisfy the needs that we want to meet here.”

True, the Obama administration’s current position on the gas tax does not rule out a modest hike when the economy recovers, but even then and even if indexed to inflation, by-the-gallon fuel levies by the federal government and the states will provide only marginal cash compared to growing system needs fueled by dramatic increases in road usage over the past 50 years, and ongoing U.S. population growth. Additionally, today’s vehicles are much more fuel-efficient, depressing revenue growth, and the “price signal” sent by the gas tax is weak.
Even if the federal gas tax were raised another 10 cents a gallon (about the limit politically), and a state’s gas tax raised another five cents or so, what conclusions would the average motorist draw given that pump prices fluctuated more than two dollars per gallon in recent years and are headed toward settling at far higher levels than in decades past? The motorist’s obvious quick take is correct: there are a number of factors more influential than how often and how far they drive – including geo-politics, oil supply and demand, and oil company prerogatives – that influence price at the gas pump.
If what we’re looking for is to is allocate scarce roadway capacity, use it more efficiently, and broaden adoption of alternatives to peak-hour solo driving, the connection between choices and costs must be far more direct. We need something which unites the choice of driving on roads and highways and bridges, with the hefty costs of operating, maintaining and in some cases, replacing them.
An alternative set of options includes politically-charged strategies such as raising state gas taxes, county sales taxes, or regional vehicle excise taxes. Another, better type of approach is sometimes called “the user pays,” and it’s more direct than a fuel tax can ever be. This menu includes:

  • electronic tolling of new highway express lanes in major metro regions, with higher charges at peak hours and lower charges off-peak (transit and ride-share vehicles go free);
  • creating a network of such electronic, variably-tolled express lanes on all major highways in populous regions, which would exist side-by-side with more congested free lanes;
  • Electronic time-variable tolling of all lanes of all major highways in a metro region;
  • Carefully-designed regional or state plans to charge vehicles by the mile for travel on all streets and highways, with discounts for off-peak travel, travel on less-congested routes, vehicle weight and fuel efficiency.
  • The latter would likely involve mandatory GPS tracking devices on all vehicles by a year certain (either built-in or retrofitted), though other technologies are also being discussed. Strict privacy protections are understood to be crucial.
    Lanes managed under electronic time-variable tolling are already in use in a variety of locales, with some eyeing full-on regional systems of these “managed lanes” encompassing a number of major highways and state routes. They typically involve overhead gantries and windshield transponders keyed to prepaid or billed user accounts, although currently, automated cameras snapping pictures of license plates can replace or augment that approach.
    Then there is the conversation about so-called “public-private partnerships” in surface transportation, which will surely continue to advance in the U.S. as atomic rhetoric is supplanted by calm and accurate analysis, of their variety and applicability.
    In its final, February 2009 report “Paying Our Way,” the congressionally-created National Surface Transportation Infrastructure Financing Commission concluded motor fuel taxes won’t get us from here to there. (End of Chapter 4, “Paying By The Gallon: Motor Fuel Taxes”.)

    …a variety of factors are converging to challenge the preeminence of (motor fuel taxes) as the primary source of surface transportation funding. Due to a combination of travel growth, system deterioration, increasing construction costs, and lack of indexing, fuel tax revenues are becoming increasingly inadequate to meet investment needs. This inadequacy will likely be exacerbated as improved fuel efficiency and alternative fuel vehicles reduce fuel consumption. Moreover, the public’s willingness to pay for the required investments through an increase in motor fuel taxes appears to be weak and may be declining…In urban congested areas, it is possible that charging users of the system more directly will not only raise revenues, but also influence driver behavior and lead to reductions in both congestion levels and the investment that is needed.

    The real take-away from the nation’s capital is not that we should start laying odds on when the federal gas tax will finally be raised, and by how much, but that “user pays” is the road map to the future.