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23 CHAPTER FOUR IMPACTS OF HIGHWAY COST ALLOCATION STUDIES Generally, there has been a surge in the number of HCASs HCAS and demonstrates that there have been fewer of them conducted at the state level immediately following the com- conducted since the last federal study. pletion of a federal HCAS. As new HCAS methods and data are developed and tested at the federal level, they are used There could be a number of reasons for the decline in the and in some cases enhanced at the state level. The research number of HCASs being conducted, including an increased team identified the following state HCASs conducted since emphasis on revenue generation within states facing con- the 1997 Federal HCAS: strained budgets, an inability on the part of most state tax structures to fully implement study findings, and constrained Arizona (1999, 2000, 2001, 2002, 2005), research budgets that are used on other higher priority re- Idaho (2002), search. Some reasons for this recent trend are explored in the Indiana (2000), next section of this report. Kentucky (1998, 2000), Montana (1999), Of the 33 states that completed surveys for this study, 26 in- Nevada (1999), dicated that the primary motivation for conducting an HCAS Oregon (1999, 2001, 2003, 2005, 2007), was to determine if its highway-user tax system was equitable, Texas (2002), and 12 indicated that the desire to use the study findings to Vermont (2005), and adjust taxes and fees to become more equitable was the prin- Wyoming (1999). cipal reason for doing the study. Survey results suggest that the ability of most states to fully achieve cost responsibility by im- Since the last federal HCAS was performed in 1997, ten plementing HCAS findings has become increasingly difficult states have performed HCASs but only three (Arizona, for at least two reasons: (1) the shift away from mileage-based Kentucky, and Oregon) have performed more than one forms of taxation, and (2) a political landscape that increas- HCAS. Oregon has completed five HCASs since 1997 and ingly focuses on revenue generation from feasible sources today is required to complete an HCAS every two years. In rather than equity among highway-user classes. 1999, the Oregon Senate passed Senate Joint Resolution (SJR) 44, an amendment to the Oregon Constitution requir- The concept of cost responsibility is often broken down ing that revenues from fuel taxes and fees on motor vehicles into two categories: horizontal and vertical equity. Horizon- be generated in a manner that ensures that classes of high- tal equity refers to the fair treatment of user classes with the way vehicles pay a fair and proportionate share of costs same vehicle class, whereas vertical equity refers to the fair imposed on the highway system. Under SJR 44, the Oregon treatment of different user classes with respect to each other. Legislative Assembly is required to provide for a biennial Horizontal and vertical equity are not fully achievable in review and, if necessary, adjust highway-user tax and most state transportation tax structures owing to the heavy re- fee rates to ensure fairness and proportionality (Oregon liance on registration fees, non-mileage-based weight fees, Legislative Assembly 1999). SJR 44 referred the proposed and motor fuel taxes. amendment to the citizens of Oregon. The measure was approved by Oregon voters in the November 1999 special Mileage-based taxes and fees can be used to more com- election. pletely achieve equity and fully implement the findings of HCASs. In recent years, however, mileage-based systems, The experience in Oregon, however, has become the ex- such as the weight-mile tax paid by heavy trucks, have been re- ception rather than the rule. In recent years, the number of pealed in several states (Figure 2). Today, weight-distance state HCASs being performed has been in decline, as illus- taxes are imposed in only four states (Kentucky, New Mexico, trated in Figure 1, which charts the number of state HCASs New York, and Oregon), although many states once adminis- being performed across time. Years in which federal HCASs tered some form of weight-distance tax (Schultz 1994). were performed are highlighted with vertical lines. The trend line represents a four-period moving average. The figure In the absence of a mileage-based tax system, HCAS study clearly shows the surge in the number of HCASs performed findings can still be implemented to achieve equity between in the years immediately following completion of a federal broad vehicle classes through non-mileage-based weight fees

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24 7 Federal HCAS Federal HCAS 6 Number of HCASs Conducted 5 4 3 2 1 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year FIGURE 1 State HCAS frequency distribution (19802007). or graduated registration fees, but cannot completely achieve responsibility (1999 Highway Cost Allocation Study 1999). equity within weight classes. HCASs can be used to evaluate In Kentucky, studies were completed every two years be- the current tax structure and generate recommended adjust- tween 1992 and 2000; however, disagreements over the ex- ments to enhance equity generally among all highway-user tent to which evasion should be factored into the study and classes. other considerations ended the practice. Some states surveyed for this study indicated that it has In Oregon, the responsibility for conducting the HCAS become increasingly difficult to implement the findings of its was transferred from the Oregon DOT, the agency that pio- HCAS owing to both internal and external political influ- neered the HCAS, to the Oregon Department of Administra- ences that have complicated the process and led to an uneven tion Services. The Oregon Department of Administrative application of study findings. In Nevada, the findings of the Services convened a study review team that included repre- state's HCAS have not been implemented since 1990, and sentation from the American Automobile Association, state the most recent HCAS performed in 1999 found that heavy- agencies, academia, and trucking and shipping interests to truck fees would need to be increased by $133.7 million refine the study's methodology and hired a contractor to con- to achieve an equitable balance between revenue and cost duct the study (Stowers et al. 1999). Although Oregon's detailed weight-mile tax schedule would enable a full imple- mentation of the HCAS results, the Oregon Legislature since 1999 has moved all weight-mile tax rates in unison. There- fore, when the Oregon HCAS finds that heavy-truck tax pay- ments are forecast to exceed cost responsibility by 5%, the Oregon Legislature responds by reducing all weight-mile tax rates by 5%. This practice has led to a disparity in terms of the cost responsibility among heavy-truck classes with the most recent Oregon HCAS projecting that tax payments from vehicles with declared weights of between 10,000 and 26,000 lb would exceed their cost responsibility by 26%, whereas tax payments from heavy trucks weighing between States with weight-distance taxes 80,000 and 105,500 lb would fall short of cost responsibility by 16% (ECONorthwest 2007). States that have rescinded weight- distance taxes One issue in planning HCASs that often affects the likeli- FIGURE 2 Weight-distance tax states. hood of implementation is the stated set of conditions for

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25 studies. An example of such a condition often made is that concerned that a study may lead to a recommendation for a an HCAS will exclude consideration of "highway needs." significant fee increase for vehicles in that class. Another Another example of a condition that is sometimes made is possible outcome might be an agreement on a quid pro quo that recommendations for any changes in tax structure will be solution--for example, a tax or fee increase offset in value by balanced so that the results will be revenue neutral for the a favorable change in a non-tax condition, such as liberaliza- overall highway tax structure. This condition is often made in tion on vehicle combination or length limits or restrictions on cases where one particular highway-user group is seriously access to more parts of the highway network.