State Highway Cost Allocation Studies (2008)

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In 1937, Oregon conducted the nation’s first highway cost allocation study (HCAS), a study designed to determine the fair share that each class of road user should pay for the construc- tion, maintenance, operation, improvement, and related costs of state highways, roads, and streets. Since that first HCAS, at least 84 studies have been performed in 30 states. The Oregon “cost-occasioned” approach—based on the principle that costs are occasioned by highway-user classes and can be attributed to each class based on measures of relative travel, space requirements, and loadings—has served as the foundation of nearly every state HCAS. Some of the most significant advancements, however, have occurred as the result of three federal HCASs completed in 1965, 1982, and 1997. In recent years, states have adapted a wide variety of techniques to allocate the costs associated with highway use and to attribute revenue to highway-user classes. Further, new transportation technologies and revenue initiatives have added opportunities and un- certainty regarding highway-user tax structures. Thus, the topic of this synthesis report is both timely and important. This report is designed to aid states by laying the foundation required to build on current thought and improve current HCAS methods. This report addresses numerous issues, including which states have completed cost allocation stud- ies, the conceptual basis of HCAS methods, methods used to allocate the costs associated with many highway program elements, methods for revenue attribution, and emerging HCAS issues. To address these issues, the research team conducted an extensive literature review and implemented a survey, which was distributed to all 50 state departments of transportation. A good representation of state experience was reported, with 33 of the 50 states responding. Nearly all states that are known to have completed an HCAS since the 1982 Federal HCAS responded to the survey. The 33 reporting states also include a good representation of states that have not completed HCASs since 1982. The results of the literature search and survey indicate: • The motivation behind the HCAS is the achievement of equity. Historically, equity has been one of the most important principles driving tax policy, and has been considered when raising revenues and allocating funds for maintenance, capital improvements, operating programs, and services to the public. HCASs can aid in achieving equity- related objectives. • State HCASs aid states in many ways. They can be used to develop recommendations for changes to the highway tax structure or changes in rates in existing tax and fee schedules. They can be helpful in informing legislative proposals that may impact the equity of the tax structure; equity among vehicle classes; equity for users of different parts of the highway system; or equity among users at different times of the day, days of the week, or for different periods of time over a forecast time period. • Any state that does not perform HCASs is subjecting highway users to possible changes in the direction of less equitable tax structures without having credible information to aid decision makers in avoiding such decisions. SUMMARY STATE HIGHWAY COST ALLOCATION STUDIES

• HCASs, by the very nature of the detailed analyses required, can provide highway plan- ners, programmers, policy analysts, financial officers, and top-level decision makers with critically important information to assist in ways to improve their programs. • HCASs can aid states in planning more feasible steps in the direction of improved equity when giant steps toward an ideal tax structure are not feasible for either political or other important policy reasons. • From 1982 to 2007, 25 states are known to have conducted HCASs. In 19 of the 22 stud- ies referenced within this report, estimated payments were less than the cost allocated to heavy-truck classes. • Over the last decade since the 1997 Federal HCAS was completed, no major changes in HCAS practice have occurred. The most significant recent activities in HCAS research have included – Completion of the FHWA’s work on development and refinement of the National Pavement Cost Model (NAPCOM); – FHWA’s development of NAPCOM into a model that can be relatively easily applied in state HCASs; – FHWA’s development of generalized state HCAS software building on the results of the 1997 Federal HCAS and 1999 Oregon HCAS; – As part of the FHWA software development effort, the development of documenta- tion for analyses needed for inputs to the software for state HCASs; – Vermont’s successful use of the FHWA State HCAS Model and documentation with minimal outside consultant effort; – Oregon’s continued evaluation of numerous HCAS issues in the issue papers supporting its HCAS and its continued exploration of performing a full cost-based allocation study where instead of allocating expenditures, the costs that are imposed on the sys- tem are directly allocated to highway user classes; and – FHWA’s continuing refinement of data collection programs by the states as a coop- erative effort, resulting in better comparability of data among the states. • Historically, there has been a surge in the number of HCASs conducted at the state level immediately following the completion of federal HCASs. Ten HCASs have been per- formed since 2000 and two states (Arizona and Oregon) have conducted more than one study during this time. There were a number of reasons cited in the survey for the decline in the number of HCASs being conducted, including an increased emphasis on revenue generation in states facing constrained budgets, an inability on the part of most state tax structures to fully implement HCAS findings, a lack of leadership in address- ing the equity issue in the transportation tax structure, and constrained research budgets that are used on other higher priority research. This synthesis examines the history and evolution of HCAS practice, and assesses the cur- rent state of HCAS practice. It highlights HCAS work that has been performed in 11 key states: Arizona, California, Idaho, Indiana, Kentucky, Maine, Minnesota, Nevada, Oregon, Texas, and Vermont. It also provides a detailed and extensive set of procedures for complet- ing both traditional HCASs and for conducting HCAS analysis in new and emerging areas. Finally, it presents general conclusions and suggestions for further research. 2