How to pay for the Nation's roads - a case for public private partnerships

How to pay for the roads still traveled

Notwithstanding increasing mass transit ridership and more prudent use of cars, automobiles will dominate U.S. transportation for decades to come. So how do we pay for roads? Variable tolling is one answer, and in the age of GPS the logical next step should also be explored: a fee on miles traveled everywhere by individual vehicles.
By Matt Rosenberg
October 21, 2008.

I had a telling conversation with an old friend several months ago, a devoted environmentalist who's a community college biology teacher living south of San Francisco in a pleasant small town abutting the Pacific. I don't recall how it came up, but she declared, "We've just got to get more people out of their cars." Then came a pregnant pause, followed by her admission that of course, because of where they lived and worked and their packed daily schedules, she and her husband drove themselves and their children everywhere.

I've been thinking about this lately because, well, the roads are still chock full of cars and trucks, and despite an uptick in transit and bicycle use, traffic is still congested here in metro Seattle, and metro regions nationwide. Meanwhile, U.S. surface transportation needs will require some $12.5 trillion (yes, with a "t") over the next 50 years, according to a landmark federal report issued this year. But the way we fund such projects is broken, relying too much on dwindling by-the-gallon gas taxes due to improved fuel efficiency, and ever more difficult local and regional sales tax hikes.

The historical trends show whopping increases in U.S. miles driven and gasoline supplied. We've gone from 2 million barrels of gas a day in the 1950s to more than 9 million per day by 2007, the U.S. Energy Information Administration reports. The U.S. Bureau of Transportation Statistics reports that U.S. vehicle miles traveled (VMT) multiplied more than fourfold from 1960 to three trillion in 2006. Though the term "highway" is sometimes attached to VMT, they are estimated monthly for all U.S. roads and streets, drawing from data gathered at 4,000 continuous traffic counting locations.

What of the future?

BTS projects that VMT will grow by more than half the current level to 4.7 trillion in 2030, while U.S. population grows about 23 percent from 2005 to 2030. In Washington state, annual VMT nearly doubled between 1980 and 2007, and is projected to rise another 54 percent by 2030.

In the four core counties of metro Puget Sound, daily VMT has more than doubled between 1980 and 2007.

During the oil and gas price run-up earlier this year, drawing considerable media attention were marginal decreases, of a few percentage points only, in monthly and calendar year-to-date U.S. VMT compared to a year ago. Even a slight dip in VMT draws notice in a time when some celebrate the end of suburbia and advocate "carectomies."

One can hope. These days, it seems that every seminar addressing surface transportation and every green "visioning" session includes earnest discussion of how to "reduce vehicle miles traveled." To the skeptic, the imperative sounds like one of those wishful commands sported on the seven-bumper-stickered Subaru Outbacks endemic to Seattle, like "World Peace Now," or "End Poverty." It's an appealing idea, sure. But the devil is in the details.
The infrastructure crumbles

In the meantime, there's still a pressing need to deal with roadway and bridge wear and tear, and increased congestion resulting from exponential VMT growth during a post-Interstate-building era when transportation investment chronically lagged. One reminder comes via veteran Chicago Tribune transportation reporter Jon Hilkevitch, who this month wrote that despite a five percent regional drop in VMT, traffic congestion there has remained high. One big reason:

Roadways were already so badly saturated with traffic before the recent spikes in fuel prices that the decline in miles traveled hasn't significantly loosened the gridlock.

Most daily trips in metro regions actually aren't to and from work, a point often overlooked. But many of those trips by their nature are less likely to involve transit. If you're going to Costco or Lowe's or Target, to your in-laws in Olympia or friends in Lynnwood, to curriculum night at your kid's school across town, or your cottage on Whidbey Island, you're most likely to be driving. Of total daily trips in the four-county core of the Puget Sound region, only 4 percent were via scheduled public transit, according to a 2006 Puget Sound Regional Council survey (second paragraph of p. E-6, here).

Work-related travel is somewhat more predictable, and there's more room, potentially, to change behavior and actually get some people out of their cars, some of the time. But progress there had been scant. The BTS also reports that — based on federal surveys and Census data — between 1989 and 2006 the percentage of U.S. workers for whom the principal means of transport to work was solo driving remained at 76. Those workers usually carpooling declined very slightly, to 10 percent of the workforce over the same 17-year stretch, and those usually taking public transportation decreased from 4.6 percent to 4.3 percent. Walking, biking, taxi, and "other" principal means of conveyance to work grew from a combined 4.7 percent of the workforce in 1989 to 5 percent in 2006, while telecommuting increased from 2.6 percent to 3.9 percent.

Numbers for 2007 and 2008 will likely show some decrease in solo driving to work, and a shade more transit use nationally, but without drawing up a whole new landscape, prospects remain iffy for reducing VMT or merely curtailing its growth.

As politically unpalatable as it seems now — and that would be "very" — some experts believe within a few decades we'll be tolling not just managed highway lanes with time- or congestion-related variable fees but tolling every mile traveled, via GPS devices planted on most if not all vehicles. "VMT tolling" or "mileage fees" have already been studied in Puget Sound and Oregon, and imposed on heavy trucks in Germany. This month, the Atlanta Regional Commission mused publicly about the unsustainability of the federal gas tax and the attractiveness of mileage fees. The Atlanta Journal-Constitution reported:

The board of the Atlanta Regional Commission is studying the idea of eventually dropping the federal gas tax, the main source of transportation funding, as it looks for "sustainable" transportation funding. The gas tax doesn't rise with inflation and gets weaker every year. The ARC, metro Atlanta's planning agency, hasn't approved a final statement on the issue and has no authority to implement it. The agency is giving its recommendations to Congress, as it begins to look toward renewing the multiyear federal transportation funding law.

The gas tax is charged as cents-per-gallon instead of cents-per-dollar, so the same size tank always reaps the same amount of money in taxes, no matter how much the price of gas goes up. In addition, as people get more fuel-efficient cars, they use less gas, and so pay less gas tax. The ARC suggests more research on one of the more talked-about ideas, an odometer charge, or vehicle miles traveled. Such a charge would tax drivers by the amount of miles they drive. The idea is for drivers to pay for the wear they put on the roads. Depending on how sophisticated the tracking is, it could send the tax paid directly to the jurisdictions whose roads the driver uses. To avoid getting weaker every year, as the gas tax does, it would have to be designed to rise with inflation.

For now, to untie Atlanta's grimly congested traffic, the state transportation department is pushing a $400 million-plus plan to convert the region's 44 miles of carpool lanes to electronically-tolled high-occupancy and toll (HOT) lanes, which are open to carpoolers and transit for free, and to solo drivers for a variable fee depending on time of day or congestion levels. Nearly half of the spending would be for added bus service and park-and-ride lots along the HOT lane corridors.

Closer to home, the rationale for considering mileage fees was also well-stated by Oregon officials. A report from ODOT to the Legislature makes the case for advance planning even if political acceptance isn't an immediate prospect.

The first question people ask about the pilot program for mileage fees is, "Why are you doing this?" The answer is simple. Oregon is preparing for the day when a substantial number of motorists are driving highly fuel efficient vehicles and no longer paying enough gasoline taxes to support their road system. ... that day may come about ten years from now. No one in Oregon proposes immediate implementation of an electronically collected mileage fee. Investigation and preparation for a new revenue system, however, is warranted because of the long lead time necessary for any change.

The Los Angeles Times, in an editorial last month titled "America's Broken Infrastructure," provocatively argued:

The vehicle mileage tax is probably the answer. Rather than taxing people based on the amount of gas they buy, it would tax them based on the number of miles they drive. Most likely, this would be done by installing tamper-proof devices in vehicles that would transmit mileage information to a tax office, though the data also could simply be confirmed by a certified mechanic. Some states are performing pilot studies on mileage taxes, but they're a long way from having all the bugs worked out — there are serious technical and logistics questions, not to mention privacy concerns (many people are uncomfortable beaming information about their driving habits to the government). Nonetheless, a mileage tax makes sense because it rightly puts the burden for building and maintaining roads on the shoulders of those who use them, even if they happen to drive high-mileage cars.

I'll admit to deep ambivalence about tolling every mile traveled. It's not about the privacy concerns, which to me seem exaggerated. But mileage fees feel like pervasive fiscal over-reach, no matter how reasonable the peak-hour charges and how meaty the off-peak discounts which would need to be part of any such package. I always eschew a car rental agreement that includes any kind of mileage fee. So I'm not supporting mileage fees here, and Cascadia Center has made no such endorsement, either. But we have hosted public conversations on the topic, and the national dialog on mileage fees will continue to gain impetus because tax funding for surface transportation will need to be leavened more and more with a variety of updated pay-as-you-go strategies.

Whatever one's feelings — and they are likely to be intense — mileage fees with off-peak discounts, and a robust but revenue-neutral national carbon tax could drive increased off-peak travel, greater transit usage, and tele-work.

How soon any of this will happen, if ever, is unclear. What's more clear now is that we like living in the suburbs and that driving is often a necessity. In the suburbs, housing costs are less, though bargains have crept toward the edges, which in turn increases VMT. Suburban public schools aren't always ideal but are much less problematic than urban public schools. More and more jobs are dispersed across metro regions, in varied suburban locales. Meanwhile, the vision of "living close to work" is reality only for a lucky, small slice of the populace.
The shortcomings of present gas taxation

Puget Sound voters will get a chance to weigh in on a $17.9 billion second-phase Sound Transit proposal next month that would extend the starter north-south light rail line in both directions and east, and add to existing ST express bus and commuter rail service. Other regional needs include replacing the shaky Alaskan Way Viaduct and the Highway 520 bridge across Lake Washington; fixing dangerous Highway 2 in Snohomish County; revising tangled interchanges and repairing cracked pavement on Interstate 5 in Seattle (a crucial but unfunded $2 billion job that's rarely discussed); and building key missing links in Pierce County, such as the Cross-Base Highway and the Highway 167 connector to the Port of Tacoma.

Funding the roads piece, and any major additions to the regional transit infrastructure beyond the pending "Sound Transit 2" plan, will be daunting. Regional taxpayers here aren't a bottomless well. And the federal role in surface transportation funding has been heading into permanent decline, as Atlanta's planners and the Los Angeles Times both pointedly note. The federal gas tax hasn't been raised since 1993, and no amount of Beltway jabber and finagling will produce any substantive hike in it soon, or quite possibly ever again. The federal gas tax trust fund was poised to land about $4.3 billion in the red by last month's end, but as Logistics Management reports, Congress threw the troubled account a one-year life preserver of $8 billion from the U.S. Treasury General Fund.

State gas taxes, which often support state bonding for transportation projects, are losing buying power, too. Oklahoma's road and bridge bonds are getting pricier because of tighter credit. Connecticut couldn't find a refinancing deal for highly-rated transportation project bonds worth nearly half a billion dollars, a never-before challenge for a state with serious surface transportation needs. Syndicated columnist Neil Peirce writes in The Seattle Times, "The Wall Street fiscal crisis effectively shut the state-local government sector out of borrowing." Well before that storm hit, state transportation project budgets had already been smacked by sharply rising costs for construction materials and equipment fuel, plus a tightening global labor market. India, China, and other fast-developing nations are on a global road building binge.

It's true that a proposed U.S. infrastructure bank could raise some $60 billion over 10 years for deserving projects. That'd be a start, but as Congressional Quarterly reports, the National Surface Transportation Policy and Revenue Study Commission, in a major report issued earlier this year, said $225 billion per annum is needed for the next 50 years for repairs and upgrades to meet future needs. That's $12.5 trillion. The commission noted that current expenditures are less than 40 percent of their recommended yearly nut and that future funding will need to be closely tied to cost-benefit analyses and performance-based outcomes. Expect some major wrangling next year when the new Congress takes up reauthorization of the surface transportation bill, which is rather hopefully named the Safe, Accountable, Flexible, Efficient, Transportation Equity Act, a Legacy for Users — or SAFETEA-LU to you. The commission's scarifying estimate dovetails, roughly, with one by the American Society of Civil Engineers: Just to get moving on vital projects, the nation's infrastructure needs an infusion of $1.6 trillion over the next five years.

A promising development, as much or more for its cost-saving peak-hour rationing incentives as for its revenue-raising potential — is variable-fee highway tolling, now spreading across the U.S., often in so-called HOT lanes. A HOT lane pilot project is under way on Highway 167 in metro Puget Sound, and a federal grant to help fund the Highway 520 bridge replacement requires state legislative approval of pricing on 520.
Even Democrats embrace public-private partnerships

Whether Puget Sound decides to move toward regional variable-fee highway tolling, there's another important tool we're going to be hearing more about: public-private partnerships, or P3s, which help share taxpayer risk and dramatically speed up project delivery. They're not a solution for every occasion, but they deserve leeway to support more of our region's and nation's staggering surface infrastructure needs. P3s are widespread in Europe, Canada, and Australia and now are beginning to gather steam stateside.

High-profile Democrats such as Pennsylvania governor Ed Rendell, House Speaker Nancy Pelosi, Los Angeles Mayor Antonio Villaraigosa, and Chicago Mayor Richard M. Daley are all supporters. The new, Democratic Governor of New York, David Paterson, is interested in transportation P3s, too.

P3s need not involve the sale of public assets such as highways and bridges or transit systems but, rather, the leasing of such facilities, which then yield toll or fare revenue for the private operators. These operators are not reviled foreign sovereign concerns. They are either transit service firms or special "private" infrastructure investment groups which may be headquartered in Europe or Australia but are increasingly bankrolled by U.S. public employee union pension funds or those of building trades unions. Those funds have lost some value in their stock portfolios lately, but they're still flush and see infrastructure as good risk diversification for their long-term obligations to pensioners.

The Washington State Investment Board, representing a slew of state employee retirement funds, plans to invest 5 percent of its sizeable portfolio in infrastructure. The board explains here (p. 2) that it has come to view "tangible asset types" (other than real estate and) including infrastructure as capable of producing "long-term" and "high-quality" revenue streams. A number of others public employee union pension funds in North America have invested in infrastructure, and more have announced similar plans.

They tend to go with the private infrastructure investment groups because directly buying state highway bonds doesn't meet their fiduciary duties to pensioners. Interest earnings on state bonds are tax-exempt, so interest rates are correspondingly a bit lower. Yet public pension funds are already granted a tax exemption on interest earned, so unlike individual investors they have no financial incentive to go for the state bonds. In fact, they have a disincentive, as Robert Poole of the Reason Foundation explains.

For the WSIB and most other public-employee pension fund managers, investing in privately held companies is simply a part of smart portfolio diversification and risk management. As of last year, WSIB had already earned $9.7 billion in private equity profits since 1981 and had one-seventh of its portfolio in private equity.
The proliferation of P3

Can P3 investments that are paid off in toll revenue still prove viable as worries persist about gas prices and road travel volume? In a word, yes. Travelers value their time most of all; private vehicles are usually more direct, flexible and faster than transit; and tolls for managed lanes guaranteed to maintain traffic flow of 45 mph or higher yield a valued benefit, like housing, utilities, and groceries. This perspective cuts across income levels. UCLA and USC researchers in a case study released this year found a sizable percentage of lower-income drivers used HOT lanes and that it was less regressive in terms of tax policy for them to pay related tolls versus sales taxes for transportation projects.

Fears tend to be overblown about runaway toll rates to cover P3 finance costs and profit margins. Governments retain control over P3 toll rates and transit fares. The contracts between private partners and governments are long-term, usually 35 years or more. That's plenty of time to make the margins. In the meantime, P3s deliver transportation projects sooner rather than later or not at all, thus providing quantifiable economic benefits that are rarely counted by critics.

A slew of P3s and traditional-procurement projects studied by The University of Melbourne showed the P3s were up to 30.8 percent more cost-efficient from inception; that cost overruns were nearly non-existent for P3s; that they were completed faster, even when large; were far more transparent; and their benefits tended to be underestimated because the hefty value to the public of quicker project completion and integrated professional management aren't part of the present calculus.

Cal Marsella, the Executive Director of Denver's Regional Transportation District, which is now pursuing a P3 bid process (and, yes, perhaps a small sales tax hike) to complete an over-budget regional light rail program within the original timeline, states in this presentation that P3s can save 10 percent to 25 percent in the design-build phase and 10 percent to 30 percent in the course of operations and maintenance.

This approach to P3s emphasizes bundling of design, construction, operations, and maintenance services provided by private consortiums of industry-leading transportation firms. The payments occur over time and can be pegged to strict contractual performance standards. Exemplified in British Columbia, it's a strategy well-suited to controlling cost overruns during construction, meeting construction deadlines, limiting operations and maintenance costs after project delivery, and ensuring good service. Partnerships BC has employed design-build-operate P3 contracts, or some variation thereof, to construct a new rapid rail line to the airport and the suburban center of Richmond, to rebuild the treacherous road north to Whistler before the 2010 Winter Olympics, and to develop an electronically-tolled bridge across the Fraser River in Vancouver's east suburbs.

The American Public Transit Association in a white paper on public transit P3s says they're no silver bullet but need to be encouraged as part of the financing mix and as a good management tool. Europe, Asia, Australia, and South America are far ahead of the U.S. in implementing public transit P3s, APTA says, although Houston, the Bay Area, and Denver are highlighting the approach. Private investment in transit-oriented development is a related tack and should be encouraged, according to APTA, by working with developers to learn their needs and by encouraging value-capture strategies pegged to new development around transit stations. To facilitate broader consideration of highway and transit P3s, APTA's P3 task force has drafted model legislation for state governments to consider.

Another organization, the National Council For Public-Private Partnerships, holds a special conference this week on transit P3s, including officials from the regions of Boston, Miami, Atlanta, Dallas, and Charlotte, as well as federal figures and private firms.
Zero miles, shared miles, efficient miles

While the U.S. struggles to fund the surface transportation infrastructure backlog and shift the balance from fossil-fueled vehicles to greener alternatives, the world is undergoing a vehicle population boom. A New York University study projects total vehicle stock will more than double globally between 2002 and 2030, with the highest annual percentage growth rates in vehicles per 1,000 population in Asia and South America.

BTS data show that since 1960, the number of passenger vehicles in use globally has about quadrupled, while the U.S. share of that total has decreased more than five-fold. Global commercial truck population is five times greater over the same period, with the U.S. share holding steady at less than a third.

However, in the U.S. we tend to drive longer distances and use a disproportionate share of available fossil fuels. The holy grail in the auto industry is substitution of renewable-source electricity for fossil fuels, in "flex-fuel" plug-in hybrid cars. The vision is that they'll be able to run not only on clean electricity (itself a major undertaking) but also net-green second generation bio-fuels, which don't require acres of food-producing farmland to grow.

GM, Toyota, Ford, and Chrysler are among the automakers focused on bringing plug-in electric flex-fuel hybrids to market in the next few years, with lithium ion battery packs. Those haven't been fully debugged, but engineering teams are working hard to do so. Congress has passed a tax exemption of up to $7,500 per vehicle for plug-in buyers, and large government and corporate fleet purchases would allow manufacturers to scale up production for the masses.

There are still environmental and financial reasons to try to engineer boundaries on growth of vehicle miles traveled. A good framework was provided last month in Redmond by Microsoft Chief Environmental Strategist Rob Bernard at Cascadia Center's "Beyond Oil: Transforming Transportation" conference. (TVW video of Bernard and a full transcript of his remarks.)

Bernard set out a hierarchy of descending transportation preferences that he calls "zero miles, shared miles, and efficient miles":

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The first priority entails schedule-juggling and trip avoidance through tele-work from home, with small meetings as needed in locales near workers' home bases. More than a few Microsoft employees have discovered they can meet near home at a coffee shop rather than drive to Redmond, Bernard said. An astounding 40 percent of the workforce at British Telecom (a Microsoft client) work from home regularly, Bernard said.

With current virtual conferencing tools, and an emphasis on "deliverables" from tele-workers, many other employers — albeit not those in fields such as manufacturing, construction, or retail — could raise their percentage of tele-workers.
*

"Shared miles" would cover public transit, but at present transit routes here just aren't convenient for that many people, said Bernard. He evangelized for an alternative of matching ride-sharers on the fly through smart carpooling, using networked real-time data on the shifting locations and schedules of riders. The same basic principles could help better consolidate freight shipments, said Bernard.
*

"Efficient miles" entail alternative fuel breakthroughs and more of the real-time traffic data purveyed by companies such as the Microsoft spin-off Inrix, of Kirkland, to help drivers optimize routes and departure times.

As far as behavior change around driving, there's a long way to go. If we were constantly reminded of the cost to the infrastructure every time we used it, would that change our actions enough to make a difference, a "zero miles more often" difference? It's not unimaginable.

For surface transportation funding, the federal teat is running dry. States and especially regions will shoulder the brunt in coming decades as we try to catch up before the rising tide of population threatens to overwhelms us. So we're going to have to do a few things differently. We can start sooner, or we can start later. But the longer we wait, the higher the price.

Matt Rosenberg is a senior fellow at the Cascadia Center for Regional Development, a transportation think tank that is part of the Discovery Institute in Seattle. E-mail him at mattr@discovery.org.
View this story online at: http://crosscut.com/2008/10/21/transportation/18586/

Us Sec of Transportation advocates tolls over gas tax

Transportation chief says tolls should replace federal gas tax

By Mike Lindblom

Seattle Times transportation reporter

U.S. Secretary of Transportation Mary Peters

U.S. Transportation Secretary Mary Peters wants to lower gas taxes.

But in return, drivers would pay tolls on highways around the country, under a "congestion-pricing" system. Tolls would rise in heavy traffic and drop in light traffic, in an effort to reduce congestion at peak times.

Peters aired her views Friday to the Washington Roundtable, a group of business executives who have backed transportation campaigns. She argued that Americans lack "investor confidence" in higher gasoline taxes, because she said the money is spent inefficiently and hasn't reduced congestion.

Toll income should eventually replace the federal gas tax, she said.

"I think we should step it down in time, as these new revenue sources go on line, and see it go away," Peters said.

The federal government collects 18.4 cents a gallon in gas taxes. When that is coupled with the state's gasoline tax, Washington residents will pay a total of 55.9 cents a gallon when the latest increase kicks in July 1.

Seattle plays a huge role in Peters' tolling argument.

Her department is offering $139 million to launch congestion-price tolling on the Highway 520 floating bridge by September 2009.

Peters said the federal government will yank a similar grant from New York City if the state fails on Monday to approve a toll for driving into Manhattan.

The Washington Legislature passed a bill supporting tolls but didn't set specific rates or timetables, leaving those tough decisions until next winter's session. Meanwhile, the state Department of Transportation figures it could take a year to design, build and test a toll system for Highway 520.

Peters wants the state to design its toll project and prepare bidding documents well before the 2009 Legislature to meet the federal deadline. Tolls might be $6 to $7 round-trip at peak times, state studies show.

She also said federal law allows tolls on the nearby Interstate 90 Floating Bridge — but local leaders must decide whether to impose those.

She praised an experiment on Highway 167 that begins April 26, when solo drivers will be able to pay to enter the uncrowded high-occupancy-vehicle lanes.

Extreme High Cost of Fixing Infrastructure Hurting all over the US

Posted on Sun, Mar. 23, 2008

By Paul Nussbaum

Inquirer Staff Writer

So how much would you pay to get out of that traffic jam under I-95?

And what's your preferred form of payment? Gas tax? Tolls? Sales tax? Income tax?

As aging interstate bridges - such as the I-95 span in Port Richmond - crumble, the immediate focus may be on concrete and steel, but the long-term issue is all about money.

Pennsylvania has spent $3.8 billion since 2003 to repair 1,381 bridges, yet the number of structurally deficient bridges increased - from 5,600 to 6,000. Even with one of the highest gas taxes in the nation - and with a newly enacted plan to impose tolls on I-80 - Pennsylvania can't keep up.

The picture is similarly grim around the nation. States are grappling with a 50-year-old interstate highway system that cost much less to build than it does to maintain. Federal and state gas taxes no longer cover the bill.

"I suspect that, with the latest news from Philadelphia, Congress is going to turn its attention to this in a major way," said C. Kenneth Orski, a public-policy consultant in Potomac, Md. "I do see a rising consciousness about the problems of infrastructure, compared to two or three years ago. And I think the I-95 incident will add fuel to the fire."

Pennsylvania's Department of Transportation estimated last year that it would take $11 billion to fix all 6,000 structurally deficient bridges. That would represent nearly 40 percent of the state's budget.

Nationwide, it would cost $188 billion to repair inadequate and deteriorating bridges, according to the American Society of Civil Engineers.

Ultimately, that money will come from motorists or taxpayers, or both. There are many creative financing proposals - including public-private partnerships such as turnpike leases - but eventually the money comes from two sources: user fees and taxes.

Gov. Rendell, standing beneath the then-closed section of I-95 on Tuesday, said the emergency shutdown of that highway and a closure of the Birmingham Bridge in Pittsburgh last month "are a wake-up for us. . . . This incident clearly demonstrates that we need a greater investment in our infrastructure - here in Pennsylvania and across the nation."

Rendell joined California Gov. Arnold Schwarzenegger and New York City Mayor Michael Bloomberg in January to create a coalition of state and local officials to seek more federal money for infrastructure.

Rendell wants to lease the Pennsylvania Turnpike to a private operator to raise as much as $20 billion for transportation funding. And in his budget proposal this year, he urged borrowing $200 million a year to repair bridges.

That's on top of $192.5 million for bridges from newly enacted Act 44, which calls for higher tolls on the turnpike and installation of tolls on I-80 by 2010.

All told, in the current fiscal year, Pennsylvania will spend $1.2 billion on bridges, and Rendell wants to spend $1.6 billion next year.

In New Jersey, where the state's transportation fund is nearly tapped out, Gov. Corzine wants to raise highway tolls by more than 50 percent every four years until 2022 to fund transportation projects and to pay down state debt.

To those who object to such big hikes - and polls indicate that's most New Jersey residents - Corzine says, pick your poison. The alternatives to those toll increases, Corzine says, would be a 20 percent rise in income taxes, a 2-cent hike in the current 7-cent sales tax, or a 50-cent raise in the gas tax.

In Pennsylvania, a Transportation Funding and Reform Commission appointed by Rendell concluded in late 2006 that it would take a 12.5-cents-per-gallon increase in taxes to raise $965 million a year for roads and bridges. That would give Pennsylvania the nation's highest gas taxes - 63.2 cents a gallon, including federal taxes - according to American Petroleum Institute data.

A national commission established to examine transportation needs recommended in January that the federal gas tax, currently 18.4 cents per gallon, be raised by as much as 40 cents over the next five years. It also called for higher state gas taxes, for increased use of tolls, and for peak-hour "congestion pricing" on highways, which would mean higher tolls during the busiest periods.

There has been little enthusiasm in state capitals or in Washington for upping gas taxes, especially as motorists are already facing much higher prices at the pump because of rising oil costs.

The Bush administration has opposed any fuel-tax increase, arguing instead for toll roads, public-private partnerships such as toll-road leases, and other user fees.

"Replacement of fuel taxes by a variety of direct user charges (which can be varied by time of day, congestion, vehicle characteristics, and location . . . ) can and should be expedited as a matter of national policy," said U.S. Transportation Secretary Mary Peters and two other dissenting members of the National Surface Transportation Policy and Revenue Study Commission in January, arguing against the majority's recommendation for higher federal gas taxes.

And a bill has been introduced in the U.S. Senate to create a National Infrastructure Bank. The bank would borrow $60 billion to use for infrastructure projects of "substantial regional and national significance."

Motorists need to accept that they're going to have to pay more to rebuild bridges and highways, said AAA Mid-Atlantic spokeswoman Cathy Rossi. But "we have to reevaluate options and make sure we are allocating scarce resources effectively," she said.

"Polls have told us that motorists are willing to fork out more money if they see a visible difference in roads and bridges," Rossi said. "They want improved safety, less congestion, new roads - or at least newly paved roads - for their money. One thing is for sure: The status quo cannot continue."

Impact of Prop 1 on Household Tax Burden

Part II: Your Transportation Tax Burden
Transportation taxes would climb 24% or to as much as $1,689 if the RTID/ST2 package is approved by voters in November.

By Michael Ennis, Director, Center for Transportation Policy

April 2007

• Every year Puget Sound residents pay an average of $1,257 per household in transportation related taxes.
• Public officials are asking voters to approve a multi-billion dollar roads and transit package that would increase the current transportation tax burden by as much as 24% per family.
• The added tax burden from the combined Sound Transit and Regional Transportation Investment District (ST2/RTID) package would be $286 per year for families, increasing the three county average to $1,544.
• Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person, annually. If the ST2/RTID measure passes, the added sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections.
• If the ST2/RTID measure is approved, car tabs will climb an average of $68 per vehicle and the average family will pay about $137 more a year for registering a vehicle.
• Washington Policy Center's new Transportation Tax Index allows for the first time, Puget Sound families to have the economic context to fully understand how proposed tax increases for transportation projects stack up with how much a family currently pays.

Summary

Every year Puget Sound residents pay an average of $1,257 per household in transportation taxes. Public officials are asking voters to approve a multi-billion dollar roads and transit package in November that would increase the current transportation tax burden by as much as 24% per household.

The unbalanced tax proposal combines two areas of spending. The roads piece, commonly known as the Regional Transportation Investment District (RTID), would fund about $14 billion in regional road improvements. And the public transportation portion, Sound Transit phase 2 (ST2), would spend about $23 billion more on light rail, bus and commuter rail service.[1]

RTID proposes to raise the sales tax in Pierce, Snohomish and King Counties by 0.1% and impose a 0.8% increase in the Motor Vehicle Excise Tax (MVET). Sound Transit would increase the sales tax in the three counties by an additional 0.5%.

If the RTID/ST2 ballot measure passes, the sales tax rate in the three counties will climb a total of .6%. In other words, the sales tax rate in most areas of the three counties will range between 9.1% and 9.5%. To put this in perspective, Washington led the country in per capita sales tax collections in 2004, collecting an average of $1,577 per person annually.[2] Further increasing the sales tax rate will push the annual amount collected beyond $1,600 per citizen and continue to ensure that Washington remains the leader in per capita sales tax collections.

If the RTID/ST2 package is approved, the average household with one vehicle would pay about $218 per year in additional transportation taxes, or $286 per year for households with two vehicles.[3]

To determine how these amounts compare to a household’s current transportation tax burden, it is important to identify the various taxes and fees that are measurable and have a consistent impact on a household budget.

Household Transportation Tax Index

There are five types of public entities that have the authority to impose and collect taxes related to transportation in the Puget Sound. These are the federal government, state government, counties, cities and special districts created by the state, such as Sound Transit and the RTID.

These groups have a variety of financial powers that are used to support transportation related services. For example, the state has more than 60 types of transportation taxes and fees. Most of these assessments however, do not affect many people and therefore do not have a consistent impact on a household budget. Some of these include aircraft fuel taxes, log truck permits, and vessel fees.

Other taxes are paid out of a family budget more consistently and can be measured in a household transportation tax index. They include sales and fuel taxes, annual vehicle registration fees and the motor vehicle excise tax.

Until now, it has been difficult to understand how these tax burdens add up in the context of an average family budget. Both RTID and Sound Transit attempt to illustrate their ‘bottom line’ costs, but without the perspective of how much we currently pay it is difficult for taxpayers to judge the actual burden.

Furthermore, the agencies’ estimates are not always accurate and typically jump between household tax burdens and individual tax burdens. For example, RTID’s revised Blueprint for Progress estimates that if the combined package is approved, the average cost per household will be $218.[4]

But this estimate only assumes a vehicle ownership rate of one car per household. Since the RTID measure proposes a 0.8% increase in the MVET, the average vehicle ownership rate per household is important to gain an accurate estimate. In reality, the average vehicle ownership rate in Washington is 2.01.[5] This means the true household tax burden for the ST2/RTID package is actually $286 per year.

Creating a regional transportation tax index shows how much the average household currently pays in transportation related taxes in King, Pierce and Snohomish Counties, and defines how the ST2/RTID proposal will stack up against how much residents currently pay.

• Public Transportation
  There are four county or city public transportation systems in King, Pierce, and Snohomish Counties. Each system possesses a sales tax authority to fund its own services. Pierce Transit and Everett Transit impose a 0.6% sales tax and King County Metro and Snohomish Community Transit impose a 0.9% sales tax. Generally, each 0.1% sales tax cost a household about $25 per year.[6] So the average family in King County pays about $225 per year in sales taxes to fund King County Metro.

• Car Tabs
  Vehicle owners must pay an annual vehicle registration fee for the privilege of driving a car in Washington. The base registration fee is $30 a year. Car tabs also include a weight fee, which is based on the gross vehicle weight. The scale is $10 for vehicle weights between 0-4000 lbs, $20 for weights between 4001-6000 lbs, and $30 for vehicles weighing between 6001-8000 lbs.[7] This Policy Brief assumes an average vehicle weight fee of $10 per vehicle and an average of 2.01 vehicles per household when calculating the total annual vehicle registration fee. Therefore, on average, a household pays about $80 per year in vehicle registration fees.[8]

• Seattle Street Maintenance Proposition
  In 2006, voters in Seattle approved a road maintenance measure, which increased property tax collections in the city by $365 million over nine years. Seattle households now pay an average of $144 more per year for the street maintenance proposition.[9]

• Sound Transit, Phase 1
  In 1996, Puget Sound voters approved Sound Move, the first phase of Sound Transit. The plan imposed a ten-year 0.4% sales and use tax increase and a 0.3% Motor Vehicle Excise Tax (MVET) and consisted of a commuter rail service, a regional bus system connecting Pierce, Snohomish and King Counties, and Washington’s first light rail segment. At the time Sound Transit officials said it would cost $3.9 billion (in 1995 dollars) and take 10 years to complete. Sound Transit now says the cost of its first phase is approaching $15 billion (Year of Expenditure) and they will not complete it until 2020.
  
  In addition, Sound Transit officials now say they intend to collect the 0.4% sales tax forever, even after the first phase is complete in 2020.
  
  Generally, each 0.1% sales tax reduces household income about $25 more per year and each .1% MVET equals $17.88 per vehicle.[10] Combining the sales tax and MVET, shows that households currently pay an average of $208 per year for the first phase of Sound Transit.

• Fuel Tax
  Washington drivers must pay both a state and federal per-gallon gas tax when purchasing fuel. The current federal gas tax is 18.4 cents per gallon and the state gas tax (as of July 2007) is 36 cents per gallon. Fuel tax estimates are based on an average of 15,000 miles per year at 22 mpg. The gas tax amounts also assume 2.01 cars per household. This means the average family pays about $745 in annual fuel taxes.

The following table shows the current transportation tax burden for the average household in Pierce, King and Snohomish Counties.

Table 1: Annual Household Transportation Tax Index in King, Pierce and Snohomish Counties [11]

	If you live here...
	King (not Seattle)	Seattle	Pierce	Snohomish (not Everett)	Everett
	You pay these transportation taxes --
Transportation Taxes
Sound Transit, Phase 1	$208	$208	$208	$208	$208
Federal Gas Tax	$252	$252	$252	$252	$252
WA State Gas Tax	$493	$493	$493	$493	$493
Pierce Transit	$0	$0	$150	$0	$0
King County Metro	$225	$225	$0	$0	$0
Snohomish Comm. Transit	$0	$0	$0	$225	$0
Everett Transit System	$0	$0	$0	$0	$150
City of Seattle Prop. 1	$0	$144	$0	$0	$0
Annual Vehicle Registration Fees	$80	$80	$80	$80	$80
Total Annual Tax Burden	$1,259	$1,403	$1,184	$1,259	$1,184

Households in Seattle currently pay the most in transportation taxes, more than $1,400 per year. Pierce County and Everett residents pay the least, with an annual burden of about $1,184 per year. Combining all the current transportation related taxes shows the average households in Pierce, Snohomish and King Counties pay about $1,257 per year.

With an average of 57%, state and federal fuel taxes impose the greatest burden on households throughout the three counties. The state portion of the fuel tax represents between 34% and 41% of the overall transportation tax burden, while the federal portion is between 18% and 21%.

Another significant taxing area is funding for public transportation. On average, transit represents about 32% of a family's overall tax burden.

Rounding out the field of transportation taxes is the annual vehicle registration fee, which represents between 6% and 7% of a household’s transportation tax index.

These distributions can be seen in more detail in the appendix of this Policy Brief.

If voters approve the ST2/RTID tax package this November, these transportation tax burdens would increase substantially. The following table compares the current annual transportation tax burden with the proposed increases from RTID and ST2.

Table 2: Comparing Current Transportation Taxes with Proposed ST2/RTID Package, by Household

	King (not Seattle)	Seattle	Pierce	Snohomish (not Everett)	Everett
Transportation Taxes
ST2/RTID -- proposed	$286	$286	$286	$286	$286
Current Transportation Tax Burden	$1,259	$1,403	$1,184	$1,259	$1,184
..
Total Proposed Tax Burden	$1,545	$1,689	$1,470	$1,545	$1,470
Percentage Increase	23%	20%	24%	23%	24%

On average, every household in Pierce, King and Snohomish County would experience a 22% increase in annual transportation taxes. Pierce County and Everett households would see the largest percentage increase, with 24%, and Seattle residents would see the lowest percentage increase, 20%.

Conclusion

Defining how much households currently pay in transportation taxes builds the context needed for taxpayers to evaluate the impact of the proposed RTID/ST2 package in November. With an average transportation tax increase of 22% per household or an additional $286 per year, residents, for the first time ever, now have the financial context to decide for themselves how the proposal stacks up.

Appendix

---

[1] RTID and ST2 costs are Year of Expenditure estimates and do include debt service.

[2] dor.wa.gov/docs/reports/2006/Compare06/Table10.pdf

[3] Each .1% sales tax equals $25 per household. RTID calculates $80 for every $10,000 of the vehicle's worth. RTID also calculates the average value of all vehicles in the tri-county region is $8,500. This translates to $68 per vehicle at the average value.

[4] http://www.rtid.org/blueprint.html

[5] RTID estimates a household tax burden based on the assumption of one vehicle per household. According to a report from the WSDOT, Travel Indicators and Trends in Washington State, data collected from the National Household Travel Survey (NHTS) indicates that the Washington State household vehicle ownership rate in 2001 was 2.01. Consequently, this Policy Brief assumes a household vehicle ownership rate of 2.01.

[6] The sales tax calculation is the generally accepted model for public agencies and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates.

[7] http://www.dol.wa.gov/vehicleregistration/fees.html

[8] It should also be noted that most households pay the MVET in combination with their vehicle registration fees. So car tabs will appear larger than the average of $40 per vehicle listed here. This Policy Brief does include the MVET, but only in combination with the agencies that impose it.

[9] A $400,000 home in Seattle would have an increased property tax burden of $144 annually.

[10] The sales tax calculation is the generally accepted model and is the same assumption adopted by the RTID, Sound Transit and King County for their financial estimates. The MVET calculation is based on RTID’s estimates in its Blueprint for Progress; RTID calculates $143 in MVET for each vehicle owned. As a result, using the average value of a vehicle, each .1% of MVET translates to $17.88 per vehicle. Also assume 2.01 cars per household.

[11] The total transportation amounts do not include local taxes (except for Seattle's recently voter-approved road maintenance proposition) or various other state fees. The taxes and fees were chosen based on whether they could be accurately measured and if they had a consistent or annual effect on a household budget.

Analysis of Ref 51 by the Washington Policy Center

Will Referendum 51 Solve Our Traffic Problems?


by Eric Montague
October 2, 2002


The need for increasing the capacity of our state's 80,000-mile network of roads, highways and bridges is clear. Over the past 30 years Washington's road system has not kept pace with the needs of a population that has grown nearly 75% during that time. While there are many opinions about how to keep up with growing roadway demand, few will argue that seemingly endless congestion and hazardous safety conditions severely hamper the state's social and economic development.

Attempts to ease congestion through higher public transit spending and strict Growth Management rules have failed. Despite the efforts of planners to alter people's preference for auto travel, people in Washington continue to choose the freedom of a car for more than 93% of daily trips. After all, at no point in history have people wanted less mobility. So in November the governor and legislature are asking voters to decide if Referendum 51, or some future alternative, is the best solution for meeting the state's increasing transportation needs.

Referendum 51 is a statewide ballot measure that raises taxes and fees to pay for road building improvements. Money from the referendum would be distributed to a list of about 100 projects approved by the legislature. Here is a brief summary of what the referendum says. (A full, plain-English description is in our study "An Overview of Referendum 51," available at www.washingtonpolicy.org under "publications," or by calling (206) 937-9691.)

The measure has five parts. Part one would create a Transportation Accountability Board, with nine members appointed by the governor and confirmed by the legislature, to assist in monitoring the new spending. Part two would increase truck and license fees by 30% over two years, bringing in an estimated $232 million.

Part three would increase the gas tax by nine cents over two years, raising $3 billion. The current gas tax is 23 cents a gallon, the thirteenth highest state tax in the nation. The federal government imposes an additional 18.4 cents per gallon. Referendum 51 would increase the state gas tax to 32 cents per gallon, making our state tax the highest in the nation.

New and used auto sales are now subject to a 6.5% sales tax. Part four of the referendum would raise the tax to 7.5% beginning April 1st, bringing in $1.16 billion more, most of which would be used for subsidized mass transit.

Part five of the referendum authorizes the state to sell $4.5 billion in bonds. Proceeds would be used to pay for highway construction and maintenance. This section also authorizes a separate sale of $100 million in bonds, most of which would be spent on mass transit.

An additional source of funding not mentioned in the referendum would be the interest earned on new revenue, which would bring in about $78 million over ten years. Total revenue from all sources under Referendum 51 is estimated at $7.8 billion. Here's a summary of the new revenues.

Summary of New Revenues Under Referendum 51
9-cent gas tax phased in over two years
$ 3,039,269,000
30% increase in vehicle weight fees $ 232,989,000
1% sales tax increase on new and used autos $ 1,160,178,000
Sales tax on transportation construction $ 165,204,000
Interest earnings $ 78,106,000
Bond proceeds
$ 4,600,000,000
Less debt service $(1,460,805,000)
Total new revenue $7,814,941,000

If voters approve Referendum 51, the new tax money would be spent on projects across the state. The projects fall into twelve categories.


Referendum 51 Planned Spending
% of Total
Roads - GP $4,292,776,000 53.2%
Roads - Improvements $ 299,781,000 3.7%
Roads - HOV $ 733,531,000 9.1%
Public Transit $ 819,900,999 10.2%
Planning $ 25,315,100 0.3%
Freight Mobility $ 133,000,000 1.6%
Safety $ 92,622,160 1.1%
Environmental Retrofit $ 26,253,000 0.3%
Ferries $ 711,192,000 8.8%
Rail - Passenger $ 809,938,000 10.0%
Rail - Freight $ 96,940,000 1.2%
Economic Development $ 30,000,000 0.4%
Total Planned Spending: $8,071,249,259 100.0%

Definitions for Figure Above

· Roads - GP: These are General Purpose (GP) lanes open to all traffic.
· Roads - Improvements: These are upgrades of existing roads, such as better surfaces, road widening, adding climbing lanes on steep grades, etc.
· Roads - HOV: New High Occupancy Vehicle lanes.
· Public Transit: Government operated transit services.
· Planning: Planning includes engineering, environmental studies and other regulatory requirements that must be completed before road construction can begin.
· Freight Mobility: Projects designed to improve the movement of freight.
· Safety: Projects designed specifically to improve the safety of certain roadways and transportation corridors.
· Environmental Retrofit: Upgrades to meet current environmental regulations.
· Ferries: Dock improvements and new ferries for the State Ferry System.
· Rail - Passenger: Rail projects designed for passenger rail improvements, primarily high-speed commuter rail corridors in the Puget Sound region.
· Rail - Freight: Projects designed to improve the movement of freight by rail.
· Economic Development: Projects intended to spur economic growth in certain areas.

You might notice there is a $257 million difference between the revenue projections and planned spending. That is because some projects will take longer than ten years to complete, and because budget planners assume the federal government will provide money for passenger rail service.

Referendum 51 would fund major new projects and would help transportation spending keep up with inflation, but by itself it would not allow us to build our way out of traffic congestion. Determining whether Referendum 51 offers the best solution, or whether legislators will have to tackle the issue afresh when they meet in January, will be up to
Washington voters on Election Day.

Holder 4

taxes