State Highway Cost Allocation Studies (2008)

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5In 1937, Oregon conducted the nation’s first HCAS. Oregon, more than any other state, was an early pioneer in terms of both the development and implementation of state HCASs, conducting five studies before the groundbreaking Federal HCAS completed in 1982 and implementing a three-tier sys- tem of highway taxation (registration fees, fuel taxes, and weight-mile taxes on heavy trucks) with the flexibility to fully implement the findings of the HCAS. Ten other states performed HCASs before the 1982 federal study—Arkansas, Colorado, Florida, Georgia, Kansas, Maine, Mississippi, New Mexico, Washington, and Wyoming. Federal HCASs were conducted in 1965, 1982, and 1997. HIGHWAY COST ALLOCATION STUDY METHODS Before the 1982 Federal HCAS, the methodology used in most state HCASs was some form of what is called the “In- cremental Method,” which was the set of methods developed in Oregon and refined in the major benchmark Federal HCAS conducted between 1957 and 1965 and published in 1965. The Incremental Method assigns responsibility for highway costs by first determining the costs of constructing and maintaining facilities for the lightest vehicle class and then building the facility up to account for the costs attributed to each increment of larger and heavier vehicles. All vehicles are allocated the costs of the base highway system in propor- tion to their usage of the highway system, as if they all had the same size and weight. The additional costs of accommo- dating heavier and larger vehicles are defined as their occa- sioned incremental costs, which could be avoided if those additional classes were excluded from the highway system. Following the 1982 Federal HCAS, states across the nation adopted the “Federal Method.” The Federal Recom- mended Method, or simply the Federal Method, was devel- oped during the 1979 to 1982 Federal HCAS by adapting the older Incremental Method procedures for some expenditure elements and by developing new procedures for other ele- ments. The Federal Method is a mixed approach. It applies a consumption approach to pavement rehabilitation and some related work, while applying the traditional Incremental Approach or other methods for expenditure elements that could not be viewed as consumed by highway use. One reason for the shift from the Incremental to the Federal Method was that the former approach gave larger and heavier vehicles the undeserved benefit of economies of scale inherent in the provision of pavement strength. That is, each additional inch of pavement depth up to a certain point can support an increasing number of equivalent single-axle loads (ESALs) during the design life of the pavement. What made the shift possible was the revolution in computer technology combined with major achievements in relevant highway research. The Federal Method, or variations on the Federal Method, gradually became accepted practice during the 1980s. The 1996 to 1997 Federal HCAS used this basic approach with several important refinements, the most significant of which was the development and application of the National Pavement Cost Model or NAPCOM. The FHWA continued to develop and refine NAPCOM over a 10-year period dur- ing the 1990s. Refinements made as part of the 1997 Federal HCAS made the model practical for use by states. NAPCOM applies a set of pavement deterioration analy- ses to a large sample of pavement sections to determine what types of deterioration will occur and which vehicles are responsible for each type of deterioration. Heavy axles cause more damage per passage than light axles. For some types of pavement deterioration, doubling the axle load causes 15 to 20 times as much damage; for other types of deterioration, doubling the load only doubles the damage. NAPCOM was developed because traditional approaches using simplistic ESALs did not mesh well with empirical data on pavement wear (Federal Highway Cost Allocation Study Final Report 1997). The 1999 Oregon HCAS was the first state study to use NAPCOM to allocate pavement costs (Stowers et al. 1999). Several state HCASs developed and applied both the In- cremental Method and the Federal Method, including the first California study (1985 to 1987), the 1989 to 1990 Vermont study, and the 1989 to 1991 Minnesota study. These have been the two most commonly used methods in the United States. Almost all of the more recent state HCASs have used the Federal Method and variations or refinements of that approach [Arizona (1991 to 1995), Nevada (1992), California (1995 to 1997), Idaho (1994 and 2000), and several others]. Oregon has explored performing a full cost-based alloca- tion study that moves away from allocation of highway CHAPTER TWO HISTORY AND EVOLUTION OF HIGHWAY COST ALLOCATION STUDIES

expenditures and includes external or social costs. The most recent Oregon HCAS presented two examples to illustrate the difference between cost- and expenditure-based ap- proaches. When considering studded tire damage, the costs far exceed the expenditures, as evidenced by the extensive presence of rutted roads in that state. To the extent that road expenditures fall short of what is required to fix the problem, the full costs are not allocated to the highway users. Also, Oregon has embarked on a major bridge rehabilitation pro- gram with related expenditures having a significant effect on the results of the HCAS. The expenditures associated with this major restoration effort will bear little resemblance to the costs imposed on the system during the period when the reconstruction is occurring. Thus, nearly all HCASs do not allocate full costs; rather, they allocate responsibility for the expenditures tied to the highway program. States have also considered applying the benefits-based approach. In this approach, the benefits tied to the use of roadway systems would be measured and allocated to high- way users. This method results in an extension of HCASs to non-users. Extending the study to non-users is theoretically valid to the extent that non-users, or society, benefit directly from the roadway network; however, this approach is com- plicated because the great bulk of non-user benefits are actually second- or third-round benefits passed on through benefits to highway users. It is very difficult to distinguish such pass-through non-user benefits from other non-user benefits. Basing the HCAS on benefits received would en- hance efficiency, as those who benefit from the road system would be required to pay in proportion to the benefits re- ceived. This approach, however, has not been used at the state level for a number of reasons. First, the benefits cannot be measured directly. Second, the data required to under- stand the full benefits of the system and allocate those costs between competing interests would be much larger than current HCAS data requirements. Third, benefits accrue to individuals as both a user and a non-user of a system. Further, some benefits are already allocated in the marketplace. For example, the benefits tied to the transport of goods by heavy trucks are recovered through shipping costs, which are paid by the ultimate consumers of products. Thus, it would be dif- ficult to accurately capture the full range of benefits that need to be considered in the benefits-based approach. STATE HIGHWAY COST ALLOCATION STUDIES Table 1 presents the results and basic methods used in 85 state HCASs performed in the United States. Much of the data pre- sented in the table were obtained from the 2005 Oregon High- way Cost Allocation Study conducted by ECONorthwest (2005). The data were updated based on the knowledge of the research team and survey responses. Based on these sources, the research team found 85 HCASs performed in 30 states. Undoubtedly, there are a small number of HCASs that have not been captured in Table 1. Indeed, the survey process demonstrated that there exists a general lack of institutional 6 knowledge with respect to state HCASs in several states. This was discovered when on several occasions the respon- dent mistakenly indicated that no study had been done when the research team was aware of a previous study conducted in the respondent’s state. The research team was able to as- sist the respondent in correcting the survey in some instances whereas in others, the research team was aware of but did not possess the study in question. Thus, the responses summa- rized in Appendix B may in some cases not capture the full extent of the state HCAS experience owing to the absence of institutional knowledge. Table 1 identifies each state that has performed an HCAS (column 1) and the years in which the studies were com- pleted (column 2). The column 3 results demonstrate that the Incremental and Federal Methods have historically been the principal methods used to conduct state HCASs. Each of these methods is commonly referred to under the umbrella of the cost-occasioned approach. The cost-occasioned approach determines cost responsibility based on the costs occasioned by various highway-user classes. This approach attempts to allocate cost responsibility based on the costs imposed by each class of highway users rather than simply allocating the costs based on relative use. The percent of heavy-truck cost responsibility is pre- sented in column 4. The historic results of state HCASs have varied widely with heavy-truck responsibility, from a low of 18.9% in the 1987 California HCAS to a high of 64.5% in the 1979 Florida HCAS. The heavy-truck share varies widely based primarily on the scope and type of expenditures in- cluded, but is also influenced by the proportion and type of heavy-truck traffic, the definition of the heavy-truck class [generally classified as vehicles weighing in excess of some weight threshold between 10,000-lb and 26,000-lb GVW (gross vehicle weight)], the methods used in the study, and the types of expenditures examined. The majority of the state HCASs conducted to date have allocated between 30% and 50% of the costs to the heavy-truck class. The fifth column in Table 1 identifies the key allocators used in the state HCASs conducted to date. The allocator, or measure used to allocate costs to highway-user classes, is generally tied to either travel (e.g., VMT), the space vehicles take up on roads [e.g., passenger car equivalents (PCEs)], ve- hicle loads (e.g., ESALs), or a combination of these measures (e.g., ESAL-miles, ton-miles, axle-miles, and PCE-VMT). Historically, state HCASs have focused on expenditures from state revenue systems and state tax systems; however, once the Interstate network was complete and federal and state funds became more interchangeable, recent studies have in most cases examined at least state and federal funds (Virginia and Wisconsin), whereas others have examined federal, state, and local funds in combination and in some cases separately as well (Arizona, California, Idaho, Indiana, Nevada, and Oregon).

State HCAS Years Completed Method % Heavy Vehicle Cost Responsibility Key Allocators Types of Revenues Examined Arizona 1993, 1999, 2000, 2001, 2002, 2005 Federal 31.4% (1999) VMT, Axle-Load, Gross Weight State, Federal, and Local Funds Combined Arkansas 1978 Incremental/Cost Function California 1987, 1997 Federal and Incremental 18.9% ESAL-Miles State, Federal, and Local Funds Analyzed Separately Colorado 1981, 1988 Federal 37% VMT, Truck-VMT, ESALs, Ton-Miles Delaware 1992, 1993 Federal and Incremental 20.33% VMT, PCE-Miles, ESALs, Axle-Miles, Registrations State and Federal Funds Combined Only Florida 1979 Incremental 64.5% VMT, ESALs, Axle-Miles, Registrations State and Federal Georgia 1979, 1982 Incremental 51.2% (1979) VMT, GVW, ESALs, AMT State and Federal Idaho 1987, 1994, 2002 Prospective Cost-Occasioned 37.29% VMT State, Federal, and Local Funds Combined Indiana 1984, 1988, 1989, 2000 Incremental/ Consumption 53.2% ESAL State, Federal, and Local Iowa 1983, 1984 Federal 48.94% ESAL, Ton-Miles, AMT, PCE, VMT Kansas 1978, 1985 Hybrid 41.85% Number of Vehicles, VMT, AMT, Ton-Miles, PCE-VMT, ESAL-Miles State Funds Kentucky 1992, 1994, 1996, 1998, 2000 Federal 54.92% VMT, ESAL-VMT, PCE-VMT, Axle-Miles State and Federal Funds Combined Maine 1956, 1961, 1982, 1989 Hybrid/Expenditure Allocation 35.6% VMT, ESALs, PCE, Delphi, TMT, Standard Vehicle Equivalent State and Federal funds Maryland 1989 State and Local Funds Minnesota 1990 Federal and Incremental 19.2% VMT, Truck-VMT TABLE 1 STATE HIGHWAY COST ALLOCATION STUDY METHODS AND RESULTS (Continued on next page)

State HCAS Years Completed Method % Heavy Vehicle Cost Responsibility Key Allocators Types of Revenues Examined Mississippi 1980 Incremental 36% VMT, Truck-VMT Missouri 1984, 1987, 1990 Federal Vehicle Size, Vehicle Weight, VMT Montana 1992, 1999 Federal 33% VMT, ESAL-MT, AMT Nevada 1984, 1985, 1988, 1990, 1992, 1994, 1999 Modified Incremental 39.3% ESALs, VMT, Axle-Miles, Ton-Miles State, Federal, and Local Separately and Combined New Mexico 1972 North Carolina 1983 Federal PCE, ESALs, VMT, Weight Axle-Miles State and Federal Funds Ohio 1982 Federal/Incremental VMT Oregon 1937, 1947, 1963, 1974, 1980, 1984, 1986, 1990, 1992, 1994, 1999, 2001, 2003, 2005, 2007 Cost-Occasioned with NAPCOM for Pavement Costs (Since 1999) 34.1% Congested PCE, VMT, Uphill PCE, Truck-VMT, Basic Vehicle VMT State, Federal, and Local Combined for Cost Allocation Purposes but State Only for Revenue Attribution Purposes Pennsylvania 1989, 1990 Federal/Cost-Occasioned Texas 1984, 1985, 1994, 2002 Vermont 1990, 1993, 2006 Federal 25.7% VMT, ADT, ESAL State and Federal Funds Virginia 1991, 1992 Federal 21.7% ESALs, VMT, ADT State and Federal Funds Combined Washington 1977 Incremental Wisconsin 1982, 1992 Federal (1982) 31.7% ESAL, VMT, PCE, Ton-Miles State and Federal Funds Combined Wyoming 1981, 1999 FHWA State HCAS Model 55.8% VMT, Vehicle Size, Horsepower, Weight Adapted from ECONorthwest et al. (2005). TABLE 1 (continued)

9EQUITY FINDINGS IN STATE HIGHWAY COST ALLOCATION STUDIES From 1982 to 2007, 26 states are known to have conducted HCASs. Table 2 presents the results of 22 of these studies with respect to the equity ratios for the heavy-truck class. The heavy-truck class is defined differently among states, but gen- erally includes all vehicles weighing in excess of a certain weight threshold (e.g., 10,000 lb) and includes trucks, buses, and single-unit and combination trucks. The equity ratio is measured as the total tax payments attributable to a user class divided by its cost responsibility. To the extent that payments fall short of cost responsibility as measured through the HCAS, the equity ratio would be below 1.0. In 19 of the 22 studies referenced in Table 2, payments from the heavy-truck class fell short of cost responsibility. In three states (Delaware, Montana, and Oregon), heavy-truck payments were equal to or greater than their cost responsibilities (Stowers et al. 1999). A large part of the explanation of the results is tied to the dif- ferences in the state tax structures. Note for example that one of the three states (Oregon) in the over 1.0 equity ratio cate- gory had weight-distance taxes at the time of the study, and another (Delaware) collected a high proportion of its heavy- truck revenue fees from out-of-state based trailers. Most state HCASs focus on equity between basic and heavy vehicles calculating equity ratios for each highway-user class. Resolution at this level, however, often fails to capture the full picture as it relates to equity within the state trans- portation tax structure. For example, the 1999 Arizona HCAS when applying the base HCAS model generated equity ratios ranging from 0.90% to 0.93% for buses, single-unit trucks, and combination trucks when examining the tax structure from a prospective view (1999 to 2003), but found that when historic data (1988 to 1998) were added to the calculation the equity ratios for buses fell to 0.67, single-unit trucks fell to 0.78, and the combination truck equity ratio was calculated at 0.89 (Carey 1999). The 2000 Kentucky HCASs presents equity ratios for six highway-user classes (cars, buses, pickups and vans, light trucks, medium trucks, and heavy trucks) with equity ratios within the truck classes ranging from 0.90 for heavy trucks (registered vehicle weights in excess of 60,000 lb) to 1.52 for light trucks (Osborne et al. 2000). Oregon HCASs examine equity in a detailed manner with both cost responsibility and revenue attribution assigned in 2,000-lb increments above 8,000-lb registered gross weight. The most recent Oregon HCAS found that although the heavy-truck class as a whole met its cost responsibility, the equity ratio for the light truck class with declared weights between 10,001 and 26,000 lb was 1.26, whereas payments from operators of heavy trucks with declared weights of between 80,001 and 105,500 lb fell short of cost responsibility by 16.4% (ECONorthwest 2007). Equity Ratio for Heavy Vehicles State and Year of Study <0.60 Maryland (1982), Colorado (1988), Georgia (1991), Texas (1994), Nevada (1999), Vermont (2006) 0.60–0.80 Connecticut (1982), Missouri (1984), Indiana (1988), Minnesota (1990) 0.80–1.00 Wisconsin (1982), North Carolina (1983), Kansas (1985), California (1987), Maine (1989), Pennsylvania (1990), Arizona (1999), Kentucky (2000), Idaho (2002) >1.00 Delaware (1992), Montana (1992), Oregon (2007) Adapted from Stowers et al. (1999). TABLE 2 SUMMARY OF RESULTS OF STATE HIGHWAY COST ALLOCATION STUDIES (1982–2007): EQUITY OF TAX STRUCTURE FOR HEAVY VEHICLES