Thursday, 1 March 2012

Bloomberg editorial supports tolls and road pricing to fix US federal highway funding crisis

Bloomberg has published an editorial suggesting various approaches to address the looming bankruptcy of the US Federal Highway Trust Fund.  The Fund is facing a crisis because most of its revenue comes from a US$0.184 per gallon tax on fuel (for those of us in the metric world it is only U$0.04 per litre).  As that tax has not increased since 1993, a combination of inflation and improving fuel efficiency has eroded revenues to the point where additional funding is claimed from other sources to try to bridge the difference.

The three main political proposals to address it are all fundamentally flawed. The President wants to use savings from reduced defence spending to transfer to expenditure on highways.  Not exactly sustainable and in effect a subsidy from all taxpayers (and future taxpayers whilst the US remains in budget deficit) to highways.  It is unlikely this could buy more than a few years in any case.

The Senate has proposed a tax on imported vehicles and to raid another trust fund set up to fix leaking underground storage tanks.  This is even more esoteric and unsustainable. 

The House of Representatives bill proposes ending the funding the Highway Trust Fund provides to urban mass transit (to make the Fund last a bit longer) and to get funds from royalties for future oil drilling projects.   It also proposes abolishing "earmarks" (dedication of specific funds for specific projects in Federal legislation, effectively bypassing any processes of appraisal and comparison for such projects).  Again, whilst the first part might buy some time (and raise another issue), the second seems an odd cross subsidy.   However, opposing earmarks is gaining increasing support.

Neither of the main political parties advocates an increase in fuel tax, so the obvious answer is blocked.   The Bloomberg editorial proposes some alternatives which appear to be off the radar at the Federal level, but strongly advocated by some states and think tanks:

- The long term solution proposed is distance charging (vehicle mileage tax or VMT in US parlance), which is widely considered to provide the platform for optimal forms of road pricing.  However, although the article wrongly thinks the technology doesn't exist to do it (it does and it is being used today), the big issue is rolling it out for all vehicles.

- In the shorter term, the article proposes greater use of tolls and congestion pricing, as is already being seen.  

- It also advocates more PPPs for new capital works and governance reform to reduce bureaucracy.

It is good to see more media coverage of the need to develop long term solutions to highways funding in the US.  VMT is an obvious option to replace fuel taxation, but it may be that more private investment could be the way to facilitate that as well.   What's important is that a rational debate proceed on this issue, but it is telling that the level of political debate on this issue remains extremely short-term focused, indicating that neither major party is willing to really move substantively on doing something to make highways financing in the US at the Federal level truly sustainable (and yes, one way to do for the medium term would be to inflation adjust fuel tax every year, although that would not address the issue of improving fuel efficiency and alternatively fueled vehicles).

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