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A-1 Introduction The study team reviewed existing literature and domestic and international experience to facilitate the preparation of an annotated list of potential freight funding and financing mechanisms to be considered. The literature review is organized into five sections: â¢ Infrastructure Funding and Program Needs â¢ Existing Revenue Sources and Proposed Changes â¢ Major Financing Sources â¢ Specific Revenue Proposals â¢ Public-Private Partnerships Infrastructure Funding and Program Needs To provide some perspective on the deficiencies in real investments in highways overall, it is useful to refer to the facts presented in a U.S. Senate hearing on âTax and Financing Aspects of Highway Public-Private Partnerships,â before the Subcommittee on Energy, Natural Resources, and Infrastruc- ture of the Committee on Finance (2008). What we have seen during that period [1960 through 2006] in terms of real investment is a decline of 44 percent, and at the same time we have seen a 66-percent increase in our population inside this country. There is also widespread agreement in the literature regarding the large volume of freight moved in the United States every day, the significant increases in volume that are expected in the long run, the inadequacy of existing infrastructure to manage the throughput, as well as the lack of specific programs to address and fund future infrastructure requirements. An example is the U.S. DOTâs 2006 Conditions and Performance report to Con- gress, which highlights the continuing deficiencies: âSupple- mental analysis conducted since the release of the 2000 report indicated that approximately one-third of the connector sys- tem is in need of additional capacityâ (U.S. DOT, Jan. 2007b). Numerous reports cite high growth in the last two decades in vehicle miles traveled (VMT) on the National Highway Sys- tem (NHS), as well as in freight transportation. AASHTO, in Americaâs Freight Challenge (AASHTO, 2007a) and the more recent Unlocking Freight (AASHTO, 2010), provides detailed assessments of the growth in traffic overall and in freight trans- portation on the Interstate highways both from a historical perspective and future projections on the traffic conditions: â¢ Between 1980 and 2006, traffic on the Interstate High- way System increased by 150%, while Interstate capacity increased by only 15%. â¢ In 40 years, overall freight demand will double, from 15 bil- lion tons today to 30 billion tons by 2050. Freight carried by trucks will increase 41%; by rail 38% from todayâs quantities. The number of trucks on the road compared to today will also double. â¢ On average, 10,500 trucks a day travel some segments of the Interstate Highway System. By 2035, this will increase to 22,700 trucks for these portions of the Interstate, with the most heavily used segments seeing upwards of 50,000 trucks a day. â¢ The amount of traffic experiencing congested conditions at peak hours in the nationâs most urban areas on the Interstate system doubled from 32% to over 67%. â¢ Nineteen states see the heaviest use; 88% of all these truck miles occur in six statesâCalifornia, Arkansas, Georgia, Tennessee, Texas, and Pennsylvania. â¢ Estimates of the truck hours of delay for the worst freight- truck bottlenecks show that each of the top 10 highway interchange bottlenecks cause over a million truck hours of delay per year, costing $19 billion overall. A p p e n d i x A Literature Review
A-2 Questions such as how much money is needed and what is the believed magnitude of funding shortfalls compared to the physical capacity needed to move future traffic flows expeditiously are addressed by various studies, and their main findings in this regard are summarized in Figure A-1 from the National Surface Transportation Financing Commission Report (2009). The evidence presented in Figure A-1 suggests that the United States is spending only half or less of what it needs in capital expenditures. Existing Revenue Sources and Proposed Changes Existing Fuel Taxes Receipts from gasoline taxes are the single largest source of revenue for transportation infrastructure investments in the United States. These taxes are largely earmarked revenues for the federal Highway Trust Fund. While the federal Highway Trust Fund contained sufficient revenues at its inception in 1956, presently it is facing difficulties in adequately fund- ing highway infrastructure needs in the United States and in meeting its current obligations. In this section, various factors affecting the solvency of the federal Highway Trust Fund are discussed as well as the main considerations for the Obama Administration in the reauthorization of the Federal Highway Act later this year. The section also describes a parallel stream of more localized funding provided by tolling and more recent state and local efforts at using value or congestion pricing. Alongside these sources, this section describes a variety of feesâdriver license fees, inspection fees, truck registration fees, and container entry feesâas well as vehicle sales taxes that are also used by state and local governments for trans- portation and freight infrastructure funding. Background on the Federal Highway Trust Fund The federal Highway Trust Fund was established in 1956 to provide a dedicated source of federal funding for highways. In 1983, the federal Highway Trust Fund was divided into two accountsâthe Highway Account and the Mass Transit Account. Periodically, Congress enacts multiyear legislation, such as SAFETEA-LU, authorizing federal spending for the nationâs surface transportation programsâincluding highway, transit, highway safety, and motor carrier programsâand setting over- all funding for these activities (U.S. GAO, Apr. 2006). Fund- ing for the Federal-Aid Highway Program is provided through the federal Highway Trust Fund, a âpay-as-you goâ system that uses receipts from highway user excise taxes to fund various sur- face transportation programs (U.S. GAO, Apr. 2006). Receipts for the Highway Trust Fund are derived from two main sourcesâfederal excise taxes on motor fuels (gasoline, diesel, and special fuels taxes) and truck-related taxes (truck and trailer sales, truck tires, and heavy-vehicle use taxes). Oil companies, tire manufacturers, truck and trailer retail- ers, and owners of heavy highway vehicles (trucks weighing 55,000 pounds and over) pay the excise taxes directly to the Highway Trust Fund (U.S. GAO, Apr. 2006). The highway user pays the other taxes indirectly, since these taxes become part of the purchase price of the taxed item. 60 78 87 85 96 118 0 20 40 60 80 100 120 140 C&P 2006/NCHRP Financing Commission Policy Commission C&P 2006/NCHRP Financing Commission Policy Commission 20 08 $ in B illi on s Needed to Maintain Infrastructure Needed to Improve Infrastructure Source: National Surface Transportation Insfrastructure Financing Commission, 2009. Figure A-1. Estimates of infrastructure funding needs.
A-3 Highway Fee Structure and Revenues Table A-1, from FHWA, summarizes the existing federal user fee (tax) structure for fuels, tires, sales, and use taxes (FHWA, Mar. 2007, p. 33). Receipts from the gasoline tax constitute the single largest source of revenue for the Highway Account, and approximately 84% of the receipts from the gasoline tax go to this account. Overall, the Highway Account receives the majority of the tax receipts for the Highway Trust Fund, including all receipts from truck-related taxes. Table A-2 summarizes 2010 and 2015 revenue sources for highway transportation and transit. Factors Affecting the Solvency of the Highway Trust Fund Perhaps the most detailed analysis of the solvency of the Highway Trust Fund, based largely as it is today on fuel taxes, comes from the American Transportation Research Institute (ATRI). This analysis lists multiple factors that have adversely affected federal and state-to-state highway trust funds in Table A-1. FHWA summary of user fee structure. Tax Type Tax Rate Gasoline and gasohol 18.4 cents per gallon Diesel 24.4 cents per gallon Special Fuels: General rate 18.4 cents per gallon Liquefied petroleum gas 18.3 cents per gallon Liquefied natural gas 24.3 cents per gallon M85 (from natural gas) 9.25 cents per gallon Compressed natural gas 18.3 cents per 126.67 cubic feet 0 - 3,500 pounds No Tax Over 3,500 pounds 9.45 cents per each 10 pounds in excess of 3,500 Truck and Trailer Sales 12 percent of retailer's sales price for tractors and trucks over 33,000 pounds gross vehicle weight (GVW) and trailers over 26,000 pounds GVW Heavy Vehicle Use Annual tax: Trucks 55,000 pounds and over GVW, $100 plus $22 for each 1,000 pounds (or fraction thereof) in excess of 55,000 pounds (maximum tax of $550) Tires: (maximum rated load capacity) Source: FHWA, March 2007, p 33. Revenue Mechanism Description Federal Gasoline and Gasohol Tax 18.40 cents/gal, with 15.44 cents going to the Highway Account, 2.86 cents going to the Transit Account, and 0.10 cent going to the Leaking Underground Storage Tank Trust Fund Federal Diesel Tax 24.40 cents/gal, with 21.44 cents going to the Highway Account, 2.86 cents going to the Transit Account, and 0.10 cent going to the Leaking Underground Storage Tank Trust Fund Federal Vehicle Taxes Includes a tax based on tire weight, a retail tax on trucks weighing more than 33,000 pounds, and a heavy vehicle use tax General Fund Appropriations of General Fund dollars for public transportation purposes (assumes it grows with inflation) Revenue Generation 2010 Revenue Generation 2015 $26.9 billion ($22.7 billion Highway Account/$4.2 billion Transit Account) $28.0 billion ($23.6 billion Highway Account/$4.4 billion Transit Account) $10.1 billion ($8.9 billion Highway Account/$1.2 billion Transit Account) $10.8 billion ($9.5 billion Highway Account/$1.3 billion Transit Account) $7.2 billion $10.1 billion $1.9 billion $2.2 billion Source: AASHTO, 2007b, p.51. Table A-2. AASHTO summary of current revenue sources.
A-4 addition to tax rate stagnation. The four categories below have direct relevance to changes that the ATRI study suggests in the Highway Trust Fund as well as the choice of alternative revenue options for freight infrastructure (ATRI, 2007). Exemptions ATRI found the following two losses to the federal High- way Trust Fund from exemptions, totaling $570 million: â¢ Government use vehiclesâ$363 million â¢ School buses and transitâ$146 million â¢ Qualified transitâ$61 million For state highway trust funds, ATRI found the following four losses, totaling $337 million: â¢ Government use vehiclesâ$155 million â¢ Schoolâ$126 million â¢ Federalâ$29 million â¢ USPSâ$27 million Total losses from exemptions were $907 million per year in 2007 (ATRI, 2007). Diversions from the Federal Highway Trust Fund The largest diversion is the loss of 11.1% to mass transit, estimated at a cumulative $50 billion from 1994 through 2005. Interest earned on federal Highway Trust Fund investments diverted to the General Fund is estimated at $2.0 billion/year, and loss to the Environmental Protection Agency for leak- ing fuel storage tanks is $70 million (ATRI, 2007). Legislation H.R. 2847, passed by Congress in March 2010, would restore $19.5 billion to the federal Highway Trust Fund from the Gen- eral Fund as compensation for the loss of interest over many years (Bill Summary, 2010). Work actually stopped on some federally funded highway and bridge projects on Monday, March 1, 2010, demonstrating the precarious condition of the federal Highway Trust Fund. Tax Evasion Estimates range from $1 billion to $9 billion/year, and ATRI calls for greater penalties and enforcement. Inflation Based on the Consumer Price Index, ATRI estimates a 28% decrease in buying power from 1993 to 2006 (ATRI, 2007). Legislative Safeguards Two existing fiduciary mechanisms are intended to safe- guard the solvency of the federal Highway Trust Fund: the Byrd Rule (or Byrd Test) and Revenue Aligned Budget Authority, or RABA. Under the Byrd Test, dating to 1956, the U.S. DOT must compare existing and projected unpaid authorizations to the states with current and projected resources and then reduce the former to match the latter if needed. Reapportion- ments were triggered in 1961 and 2004. Under SAFETEA-LU, however, instead of a 24-month window, U.S. DOT was given a 48-month window, thus rendering the test essentially mean- ingless; the federal Highway Trust Fund would have failed the test in all years following 2004 under the old standard. Like- wise, under TEA-21 in 1998, the U.S. DOT was to undertake essentially the same comparison as part of its annual budget submission to RABA. However, SAFETEA-LU negated that obligation unless the federal Highway Trust Fund balance fell under $6 billion. Testimony by the U.S. Government Account- ability Office (U.S. GAO) to the House Ways and Means Sub- committees on Oversight and Select Revenue Measures in June 2009 detailed how Congress has drifted away from its earlier prudential enactments when faced with the real-world con- sequences of underfunding the federal Highway Trust Fund (U.S. GAO, 2009). Earlier work by TRB (2006) assessed the state and the future of the federal Highway Trust Fund and took a rela- tively sanguine view: âThe risk is not great that the chal- lenges evident today will prevent the highway finance system from maintaining its historical performance over the next 15 years; that is, it should be able to fund growth in capacity and some service improvements, although not at a rate that will reduce overall congestion.â That said, â[T]rav- elers and the public would benefit greatly from a transition to a fee structure that more directly charged vehicle opera- tors for their actual use of roadsâ (TRB, 2006, pp. 2â3). The TRB committee highlighted the exemptions and diversions that weaken the system for attention by Congress (TRB, 2006, p. 5). Reauthorization Current federal highway funding is authorized by SAFETEA- LU, which has been extended through March 31, 2012. Presi- dent Obamaâs administration has developed a proposal for the reauthorization that makes mention of a VMT tax (discussed at more length in the next section), but more recent statements from the administration have claimed that the tax was only part of a draft proposal (Laing, 2011). Barbara Boxer, chair of the Senateâs Environment and Public Works committee, has stated that, as of June 2011, the upcoming surface transportation re- authorization bill will include the following key considerations:
A-5 â¢ Consolidation of numerous programs to focus resources on key national goals and reduce duplicative and wasteful programs. â¢ Consolidation of numerous programs into a more focused freight program that will improve the movement of goods. â¢ Expansion of the TIFIA (Transportation Infrastructure Finance and Innovation Act) loan program, which helps states finance transportation projects of national and regional significance. â¢ Expediting of project delivery without sacrificing the envi- ronment or the rights of people to be heard (Boxer et al., 2011). Other Existing Taxes and Fees Tolling The concept of tolling as a source of revenue generation has a long history in the United States (FHWA, 2010a). Toll- ing (for highways as well as for bridges, tunnels, and other long-lived public infrastructure with high up-front costs and a sustainable stream of benefits) has been considered as a funding mechanism to support long-term borrowing to finance such facilities because it offers a potentially steady stream of revenue (if demand and tolls are properly forecast and set) that can be used to underwrite long-term debt. For a variety of reasons, including the assumption that revenue recovery using tolled facilities would not meet debt servicing requirements when free alternatives were available, the acquisition of âexcess lands,â and the subsequent recapture of improved post-construction land value were initially favored over tolls to finance the Interstate system (FHWA, 2010b). The fundamental arguments support- ing this choice of funding for public roads can be traced back to an influential report to Congress written by Herbert Fairbank (Bureau of Public Roads, 1939). (Also see the National Surface Transportation Policy and Review Commissionâs web page at http://www.transportationfortomorrow.org/final_report/ historical_documents.aspx for access to historically relevant documents in electronic form.) In the post-World War II years, the idea for an Interstate system matured, and funding discussions became more clearly focused on immediate revenue requirements. Reliance on fuel- based taxes as a source of financing, rather than longer term and more speculative land value capture, emerged as the most feasible and equitable method to pay for and rapidly deploy federally sponsored highway construction. Prior to the passing of the Federal-Aid Highway Act of 1956, which established the foundations of the U.S. Interstate system, five states developed intercity highways financed by toll revenues (Lewis, 1997). However, as national policy on intercity highways began to be shaped by the Eisenhower administration, a series of studies and recommendations emerged emphasizing use of fuel-based taxes, rather than toll-based revenues, to underwrite con- struction. Tolling as a source of revenue was only permit- ted for states with elements of the Interstate system already in place and on a case-by case basis thereafter for significant bridge and tunnel construction on the Interstate system (U.S. GAO, Jun. 2006). Due in part to the methods chosen to finance the Inter- state system and the historic rise in both VMT and overall fuel consumption patterns in the 40 years following the adop- tion of fuel-based taxes as a financing mechanism, tolling as a source of revenue generation to support capital investment in highways has not been widely adopted. States, including Mas- sachusetts, have eliminated tolls on portions of their Interstate system (I-90 west of I-495). Other states have considered toll- ing portions of their Interstate systems heretofore supported by state and federal fuel taxes (e.g., Pennsylvaniaâs I-80 and portions of New Jerseyâs I-95), and other states, including Texas and Indiana, have proposed using concessions to grant limited tolling privileges to private operators to maintain and upgrade the capacity of portions of their existing Interstate system. The National Surface Transportation Policy and Revenue Study Commission (Dec. 2007) estimated that there were only 5,100 miles of tolled highway facilities (including bridges and tunnels) in the 50 states as of 2004. An assessment of over- all highway revenues suggested that only 4.5% ($7 billion) of the $145.3 billion of all government-generated funds used for highways and bridges was attributable to toll revenues in 2004 (National Surface Transportation Policy and Revenue Commis- sion, Jan. 2007). (Note that in other technical papers produced for the National Surface Transportation Policy and Revenue Commission, the revenues from tolling were estimated at $6.6 billion and 7% of all highway revenues (National Surface Transportation Policy and Revenue Study Commission, Jan. 2007.) Our own review of the Highway Statistics (Table HF-10) for 2004 through 2007 shows toll revenues at $6.57 b (4.46%) in 2004 and $9.04 billion (5.27%) in 2007.) As of 2007, toll rev- enues collected by all state and local authorities derived directly from road and crossing tolls (tunnel and bridge as reported in Tables SF-3B and LGF-3B) amounted to $10.2 billion (of a total of $22.6 billion in all receipts, which include concessions, bond proceeds, etc.) (FHWA, 2009). Yet, even with the relatively low level of reliance on tolling as a revenue source, as recently as 2006, 23 states were considering adding toll-supported high- ways to their non-Interstate networks, and six states were plan- ning to build toll roads for the first time (U.S. GAO, Jun. 2006). In a series of technical papers assessing the role of tolling in future transportation finance, research undertaken for the National Surface Transportation Policy and Revenue Study Commission identified several important aspects of current and future policy and technology issues (both positive and neg- ative) that could affect the role of tolling in generating revenues
A-6 (National Surface Transportation Policy and Revenue Study Commission, Jan. 2007). Among those listed in their report, the following are most appropriate to tolling issues: â¢ Use of electronic toll collection methods and interoper- ability of toll collection methods (E-ZPass and FasTrak, for example) have reduced the costs of toll collection and made toll collection financially feasible from an operations perspective (manual toll booth operations have historically consumed up to 30% of gross toll revenues). â¢ Advances in electronic tolling technology make open road tolling and other time- and location-sensitive tolling (options that have been impossible to date) possible and technically feasible. â¢ Institutional and legal precedents in the United States and abroad have demonstrated the feasibility of leverag- ing private funding; financial management; and long-term participation in constructing, operating, and maintaining highway infrastructure through the use of committed toll revenues. These reviews and the commentary that accompanied them pointed out that there are likely to be serious issues and impedi- ments to the use of tolling as a substitute for broader-based fuel taxes. One of the primary issues is the legal restriction on using tolls to finance Interstate highways (and, in several states, any public roads). These laws, at both the federal and state levels, would have to be amended. In addition, a practical aspect of tolling revisits the early debate about funding the Interstate system. In rural states, where free and relatively uncongested alternative roadways are available, diversion from tolled roadways and the resulting poor revenue performance will likely make tolling less feasible in these states. This is seen as a major issue for many Midwest- ern and non-coastal Western states where highway demand is characterized by low traffic density, long distances, and free alternative routes. Even in relatively dense urban areas like Orange County, California, and Washington, D.C., tolling is not an unqualified success when measured by revenue genera- tion. The Dulles Greenway (to the airport) was unable to sus- tain forecast revenues in the short term. However, the Dulles Toll Road, serving a high-density area east of the airport, con- tinues to operate profitably and successfully, even helping to support an extension of the Washington Metro. Finally, the public perception is that tolls and fuel taxes are substitutes for each other. Also, federal law relative to Interstate funding has seemed to support this view through the prohibi- tion on the use of tolls on any federally funded portions of the Interstate system (with a few exceptions). Therefore, using tolls to finance repair and replacement, much less operations and maintenance, of existing federally financed highways is seen as âdouble taxation.â The general conclusion from reviewing these series of reports is that tolled facilities are a very small percentage of total miles and total revenues on the current highway system. Addition- ally, the length, density of traffic, and financial requirements to replace, rebuild, and otherwise maintain the existing system are likely too great to finance using tolls for most projects. Tolls will likely only be able to finance a relatively small number of urban capacity expansion and congestion management projects or to replace key bridges and tunnels where free alternatives are lim- ited or too distant to be economically feasible to use. Value pricing (also known as congestion pricing) is a sub- set of tolling that is focused on using tolls (pricing) to charge for the use of available highway capacity during periods of peak demand. Unlike a fixed price (flat rate) toll, value pricing involves adjusting the price charged to use a roadway based on the level of congestion; the more congested the roadway, the more expensive the toll. Prices can range from a fixed charge for use during the peak hour(s) of operation to a dynamically adjusted toll based on minute-by-minute tracking of conges- tion. In the latter case, computation of tolls is designed to estab- lish and maintain free-flow on a highway segment or a network of tolled highways. Therefore, an important distinction exists between tolling, which is primarily revenue-driven to pay for construction and/or operation of a transportation facility, and value pricing, where tolls are set (either statically or dynami- cally) to manage the demand for access to the available capacity of the transportation facility. The former is directly tied to the costs of building and operating the facility; the latter is not. Sev- eral states are proceeding with implementation and testing of the value-pricing concepts, including (but not limited to) Cali- fornia, Texas, Minnesota, Oregon, and Washington. Literature describing the issues involved in implementing and evaluating value pricing are described by Schrank and Lomax (2009), the Washington State Transportation Commission (2006), and the Oregon Department of Transportation (2007 and Nov. 2009). Recent federal highway legislation has begun to offer both justification and limited support for using tolls to provide specific capacity enhancement and demand management options for federally funded highways. Value pricing can be applied in a number of ways, and, under SAFETEA-LU and its predecessors, there has been an ongoing effort to fund value-pricing studies and demonstration projects (see: http:// ops.fhwa.dot.gov/tolling_pricing/value_pricing/index.htm). SAFETEA-LU authorized both high-occupancy toll (HOT) lanes and also pilot projects for using tolls to rehabilitate and reconstruct existing Interstate highways, bridges, and tunnels (the last previously permitted under 23 U.S.C. 129). Currently, there are 72 active toll facility agreements under Section 129 in 24 states, with the earliest such agreement in 1961. Over 60% of these agreements have been negotiated since the Intermodal Surface Transportation Efficiency Act (ISTEA) was enacted in 1991 (FHWA, Oct. 2010). Florida has
A-7 the most tolling agreements (18), with Texas at 11 and Califor- nia with 5. Most of Floridaâs agreements were put into place in the 1990s, and most of Texasâ agreements date from 2002 to 2007. The remaining states have fewer than three facilities listed under Section 129. The U.S. DOT released its Congestion Pricing: A Primer in December 2006. This document contains a detailed descrip- tion of existing authorities and programs related to congestion pricing. In addition, there are three programs or provisions within the Federal-Aid Highway Program that support toll- ing for the purpose of highway financing (see the last three items in the list of existing authorities and programs related to congestion pricing that follow): â¢ Value-Pricing Pilot Program. This program, initially autho- rized in ISTEA as the Congestion Pricing Pilot Program, encourages implementation and evaluation of projects encompassing a variety of strategies to manage congestion on highways, including both tolling of highway facilities and other pricing strategies not involving tolls. This is the only program that provides funding. The Value-Pricing Pilot Pro- gram does currently extend to a fairly broad array of proj- ects, many of which are operational but with some limited to studies. For additional information on the Value-Pricing Pilot Program, visit http://www.fhwa.dot.gov/tolling_pricing/. The U.S. DOT/FHWA value pricing website maintains a full list with details about each of the 73 demonstration proj- ects. While there is no current summary overview of overall program progress, a number of studies on HOT lane pilot projects that are of the most interest to the states have been developed (FHWA, Dec. 2008). â¢ High-Occupancy Vehicle/Toll (HOV/HOT) Facilities. This program allows states to charge tolls to vehicles that do not meet the established occupancy requirements to use an HOV/HOT lane. The state establishes a program that addresses the selection of vehicles allowed in such lanes and procedures for enforcing the restrictions. â¢ Express Lanes Demonstration Program. This program permits tolling on 15 selected demonstration projects to manage congestion, reduce emissions in a non-attainment area, or finance new and existing Interstate lanes for the pur- pose of reducing congestion. Tolls charged on HOV facili- ties under this program must vary according to time of day or level of traffic; variable pricing on non-HOV facilities is optional (U.S. DOT, Dec. 2006). â¢ Interstate System Construction Toll Pilot Program. This program authorizes up to three facilities on the Interstate system to be tolled for the purpose of financing the construc- tion of new Interstate highways. â¢ Interstate System Reconstruction and Rehabilitation Pilot Program. This program allows up to three existing Interstate facilities (highway, bridge, or tunnel) to be tolled to fund needed reconstruction or rehabilitation on Interstate corri- dors that could not be adequately maintained or functionally improved without the collection of tolls. â¢ Title 23 United States Code Section 129 Tolling Agree- ments. Section 129 allows tolling of non-Interstate high- ways as well as Interstate bridges and tunnels. There is no limit to the number of agreements that may be executed. Congestion pricing projects involving tolls are categorized according to the extent of their application, as follows (U.S. DOT, Dec. 2006): â¢ Priced lanes. For priced lanes, pricing is applied on a lim- ited number of lanes of a roadway. â¢ Priced roadways. For priced roadways, pricing is applied on all lanes of a roadway facility. â¢ Zone-based pricing. For zone-based pricing, pricing is applied within a limited zone involving several roadway facilities. â¢ Systemwide pricing. For systemwide pricing, pricing is applied within an entire metropolitan region, state, or country. Truck-only toll projects to date have been studies that have not reached real-world fruition. Three studies have been sponsored by the Value Pricing Program: â¢ California: PierPASS: PierPASS is a system developed to provide incentives to shift cargo movements from peak day- time hours to night and weekend hours in order to reduce congestion and air pollution associated with port operations. The program charges a fee for accessing the port during peak daytime hours, encouraging traffic to shift to night- time hours. The program was intended to reduce queuing at the gates and therefore reduce emissions from idling trucks. The program has been implemented in LA/Long Beach, and the OffPeak and PierPASS programs have exceeded expectations in terms of diverting truck traffic from daytime to evening hours. By 2006, PierPASS had diverted 2 million truck trips (Business Wire, 2006). â¢ Georgia: I-75 South Truck-Only Toll (TOT) Study in Atlanta (Parsons, Brinckerhoff, Quade & Douglas, Inc., 2005): In 2005, the State Road and Tollway Authority com- missioned a study on the potential for the implementation of TOT facilities in the Atlanta region. The study covered three TOT lane alternatives. While not an exhaustive list of the possibilities, the three alternatives were chosen to pro- vide regional results illustrative of the potential benefits of TOT. The report measured long-term performance of each selected scenario to determine whether there were any seri- ous flaws in the TOT concept. The study found that TOT lanes can provide significant time savings to commercial
A-8 vehicles willing to pay a fee and that the implementation of TOT lanes could provide potentially significant congestion reduction in the region. The report also identified some difficulties implementing TOT lanes, including possible difficulties with construction and challenges with public perception, particularly for the scenarios where HOV lanes are converted to TOT lanes. The study recommended a more in-depth analysis as a next step to developing TOT lanes in the Atlanta area. â¢ Georgia: Northwest Truck Tollway (Cambridge Systemat- ics, Inc., 2009): The Northwest Truck Tollway was originally proposed as part of the Savannah Metropolitan Planning Commission Long-Range Transportation Plan and is located between Effingham County, a suburb north of Savannah, and downtown Savannah. In 2009, Cambridge Systematics completed a report summarizing the feasibility of develop- ing the project as a toll road and analyzing whether TOT lanes would be a viable solution to congestion in the area. The study documented the current situation and provided analysis of three possible alternatives for the construction of the road. Ultimately, the proposed model was a toll road for use by cars and trucks, which was aimed at separating through traffic, including traffic from the port of Savannah, from local traffic. The study found that an elevated align- ment with one access point in the middle would provide the greatest benefit to both truck and automobile needs in the region. As next steps, the report suggests an investment grade traffic and revenue study, a detailed financial study, a detailed engineering design, coordination of efforts between local and federal stakeholders, and outreach to the general public regarding the use of tolls in roadway development. Other states, most recently, Oregon, have assessed the feasi- bility of TOT facilities and found them to be difficult, if not impossible, to justify (ODOT, Feb. 2009). The primary issue is that for these facilities to be used, the increased productivity due to avoided congestion and improved travel time must exceed the cost(s) charged for using them and that these differences must take into account the availability of free alternative routes. One noteworthy toll project is the new, interconnecting set of lanes between Tampaâs two major parallel highwaysâ Interstate 4 and the Seldon Crosstown Expressway. Construc- tion started on March 1, 2010, and the project will have 13 lanes, all electronically tolled. The project, costing almost $400 mil- lion, will open in 2012. While there are some dedicated truck- only lanes elsewhere in the United States, this will apparently be the first TOT facility in the country (My TBI, no date). Driverâs License Fees FMCSA currently collects about $75 million in unified carrier registration fees, leaving it about $30 million short compared to state entitlements. FMCSA has published a notice of proposed rulemaking in the Federal Register to address the issue (Fed- eral Register/Vol. 74, No. 170/Thursday, September 3, 2009/ Proposed Rules 45583). By all appearances, this is a limited proceeding geared toward maintenance of current program levels and not toward generation of any contribution to capital needs. No survey of state licensing fees was undertaken, but the most populated state, California, has an initial $94 fee for a 5-year commercial driverâs license (CDL). Significant dif- ferences in CDL license fees can lead trucking companies to simply register their vehicles in another state. Therefore, coordinated action among states would be necessary for gen- erating additional revenue from this source. Inspection Fees The Obama Administrationâs proposed budget for FY11 contains a proposal for the FRA to impose a new safety inspec- tion fee. The FRA establishes and enforces safety standards for U.S. railroads. FRAâs rail safety inspectors work in the field and oversee railroadsâ operating and management practices. The Obama Administration proposed that, starting in 2011, the railroads cover the cost of FRAâs field inspections because railroads benefit directly from government efforts to main- tain high safety standards. The proposed fee would have been similar to existing user charges collected from other industries regulated by federal safety programs (Obama Administration, 2010). Collections from the first year would have totaled $50 million, rising to $80 million in FY12 and slowly there- after. There was no suggestion that the fee would be imposed for any purpose other than cost recovery. If adopted as pro- posed, the base would only have risen to the same approxi- mate magnitude as FMCSAâs licensing fees. An example of how this would affect trucks at the state level can be seen by looking at California. California assesses its truck inspection fee per terminal, starting with $270 for one vehicle and reach- ing a maximum of $1,870 at 91 or more vehicles. Congress did not adopt this proposal, and the Obama Administration did not repeat it in its FY12 budget submission to Congress. Truck Registration Fees Truck registration fees are widespread and have been con- tinuously and successfully imposed by all states. Fee structures vary widely, typically varying with the weight of the truck. In some cases, states charge a flat fee, while in others they use a flat fee along with a weight-based fee. For example, Califor- nia charges a flat fee plus a fee on unladen weight and num- ber of axles. The weight fee ranges from $8 to $1,039 (U.S. DOT, 2008a). The fees defray the costs of operating the state police and department of motor vehicles.
A-9 Container Entry Fees Although widely discussed, there are no container fees in place to generate infrastructure revenue. Port authorities and the marine terminals that operate under their jurisdic- tion assess a mixture of tariff-based and negotiated fees for handling marine cargo. Ports typically charge a mixture of âwharfageâ (assessed against the volume of cargo passing over the wharf) and âdockageâ (assessed against the vessel for the use of the dock) or a fee that combines both. Marine termi- nal operators (stevedores) charge their ocean carrier clients for handling cargo and other services. Ports also typically lease marine terminals to the operators (the stevedores) and receive a stream of rent payments. These and other fees support port and marine terminal operations and capital expenditures. There have been proposals for separate fees on container- ized cargo to support infrastructure development and other cargo-related needs outside the port itself. The best known of such fees is the Cargo Infrastructure Fee, approved by the Ports of Los Angeles and Long Beach in 2008. The initial fee was set at $15 per loaded 20-foot equivalent unit (TEU), or $30 for a loaded 40-foot container (the most common size). The fee was to match funds from Californiaâs âinfrastructure bonds.â Implementation of the fee, however, has been post- poned indefinitely due to declining cargo volumes and the threat of diversion to other ports. The Ports of Los Angeles and Long Beach assess a separate fee for the Clean Truck Program, and similar fees have been considered in Oakland and New York and New Jersey. The PierPASS OffPeak program at Los Angeles and Long Beach assesses a fee for delivery of loaded containers to port terminals during the day shift. Revenue from these two fees, however, is used only to support the two specific programs. None of these fees are used for infrastructure funding. Another fee is charged for use of the Alameda Corridor, the dedicated railroad between the ports of Long Beach and Los Angeles. Just under half of the $2.4 million project costâ $1.165 billionâis covered by revenue bonds. These bonds are to be repaid through a user fee that the railroads serving the harbor area have agreed to pay to the Alameda Corridor Transportation Authority (ACTA), the designated adminis- trator and bond issuer. As of November 24, 2006, railroads pay ACTA a uniform fee of $40 per loaded 45-foot container, $36 per loaded 40-foot container, and $18 per loaded 20-foot container, with reduced fees for empty containers and non- waterborne domestic containers moving between the harbor and inland rail ramps. In turn, the railroads pass these charges on to their shipper and carrier customers, including ocean car- riers. Since April 15, 2002, Transpacific Specialization Agency lines have implemented a pass-through of Alameda Corridor charges to their shipper accounts at the same revenue-neutral levels as those charged to them by the railroads (Transpacific Stabilization Agreement, no date). Given the Alameda Corridorâs funding success, one might wonder why it has not been replicated elsewhere. The lit- erature does not answer that question directly, but appar- ently it has not been possible to assemble all the necessary ingredients in the Alameda Corridorâs winning formula. There is no existing directly targeted federal program, and there is no existing directly targeted funding source. The local partners must assemble their own program, and federal assistance will probably come in the form of a loan guarantee. Broadly based container or other port fees explicitly received support as a freight infrastructure financing mechanism in a submission to the National Surface Transportation Infrastruc- ture Financing Commission by the California Association of Councils of Governments (CALCOG, September 7, 2007). Vehicle Sales Tax Today, new truck sales incur a federal tax of 12% in addi- tion to any applicable state sales taxes, which are typically in the 5% range. New truck sales are currently depressed. According to the Truck and Engine Manufacturers Association, Original Equipment Manufacturers (OEMs) faced the following losses in sales from 2006 to 2009 (TMA, 2009): â¢ Class 6: 70,000 down to 22,000. â¢ Class 7: 91,000 down to 39,000. â¢ Class 8: 284,000 down to 95,000. The general economic downturn has hit construction and heavy equipment harder than any other part of the economy. The mandatory inclusion of diesel engines in emissions stan- dards has also led to declines; while the engines are a major environmental improvement, they have also increased pur- chase prices and fuel consumption. The sales base for any new revenue stream will presum- ably recover over time to sustainable, fleet-replacement levels somewhere between the apparently unsustainable peak of the last expansion and the current trough. Any proposal to impose a new tax on purchases will be sure to elicit strong opposition from an already depressed industry. Additionally, any such revenue source will likely receive cyclically dependent revenues over time, as evidenced by the current economic situation. Major Financing Studies Deficits in the funding of U.S. transportation infrastruc- ture needs have led to several major studies examining the limitations of existing sources of funding as well as the advan- tages and disadvantages of new and modified sources of fund- ing. Major contributions to our understanding of the current
A-10 funding issues and concerns for the future have come from AASHTO and the U.S. Chamber of Commerce, via its affili- ated publishing entity, the National Chamber Foundation (NCF). Two National Surface Transportation Commissions were authorized by Congress with the purpose of developing a vision for the U.S. surface transportation system for the 21st Century. The two main contenders that emerge from these studies as sources of revenue with potential for meeting the funding needs of the next century are a modified fuel tax and VMT fees. Alongside these national studies, there are two recent studies specifically focused on freight infrastructure financ- ing, one by FHWA (FHWA 2007) and the other by TRB (TRB 2009). Both reiterated the importance of a user- charge-based system of financing for freight infrastructure. Additionally, an extensive national public opinion survey about federal transportation tax options is described. The overall findings of these reports, the national public opinion survey, and the evaluations of specific revenue options for freight infrastructure funding are examined in more detail in this section. AASHTO calls for $3 billion a year for freight needs, to come from existing federal Highway Trust Fund sources, as well as a new program with funding sources yielding $6 bil- lion a year from sales tax on motor fuels. Table A-3 captures the estimated revenues associated with various options, mostly short-run changes designed to bolster the federal Highway Trust Fund (AASHTO, Mar. 2007, p. 65). The additional rev- enue sources recommended by the AASHTO report include diversion of existing customs duties and VMT fees. AASHTOâs representation of the revenue amounts that various options would yield for plausible specified values of tax rates, fee rates, duties, and so forth, are shown in Table A-4. The potential for revenue in 2010 and 2015 are the greatest from VMT ($0.01 per mile) on Interstate highways, other than NHS and Federal- Aid Highways, and VMT on Federal-Aid and Non-Federal-Aid Highways. The federal fuels tax indexed to capture the buying power from inflation since 1993 is a close third. The NCF, as early as 2005 and drawing on work by Cam- bridge Systematics, published its list of candidate funding options, shown in Table A-5 (NCF, 2005a, p. 5). Three sets of options are considered: (1) increases in existing sources of revenue for the Highway Trust Fund; (2) new federal revenue from customs duties at ports and for intermodal imports; and (3) other revenue sources that state and local governments and the private sector could use to stimulate investments in trans- portation infrastructure such as tolls, Transportation Infra- structure Finance and Innovation Act of 1998 (TIFIA) credits, bonds, and investment tax credits (ITCs). The NCF report, like the AASHTO report, finds that the federal fuel tax indexed to Revenue Mechanism Description Federal Fuels Tax Increase Across the board increase in cents/gallon tax on gasoline, diesel, gasohol, and specialty fuels Index Federal Fuels Annually adjust cents/gallon fuels tax rates by an inflation index such as the CPI (approximately 0.49 cent/gallon each year) Sales Tax on Motor Fuels Percentage charged on sales revenues for gasoline, diesel, gasohol, and specialty fuels End Revenue Loss from HTF Exemptions Eliminate or finance from the General Fund Federal fuels tax exemptions for state, municipal, and certain agricultural vehicles Recapture Interest on HTF Balances Reinstate interest earnings on HTF balances (assumes minimum combined $10 billion balance and 5 percent interest rate) Sales Tax on Motor Fuels Percentage charged on sales revenues for gasoline, diesel, gasohol, and specialty fuels Customs Duties Allocates a percent of current U.S. Customs duties for port, transportation, and intermodal freight investments Vehicle Miles Traveled - User Fee 1 cent per mile traveled on Interstate, other NHS, and Federal-Aid highways Vehicle Miles Traveled - User Fee 1 cent per mile traveled on Federal-Aid and Non- Federal (local) highways Potential Federal Revenue Options Alternative Longer-Term Federal Revenue Options Revenue Generation 2010 Revenue Generation 2015 1 cent/gal = $1.9 billion 1 cent/gal = $$2.0 billion $0.9 billion $6.2 billion 1 percent = $3.5 billion to $5.5 billion (depends on how tax is imposed) 1 percent - $3.9 billion to $6.0 billion $1.2 billion $1.3 billion $0.5 billion $0.5 billion 1 percent = $3.5 billion to $5.5 billion (depends on how tax is imposed) 1 percent = $3.9 billion to $6.0 billion 5 percent = $1.6 billion 5 percent = $2.0 billion 1 cent/mile = $25.7 billion 1 cent/mil = $28.3 billion 1 cent/mile = $30.2 billion 1 cent/mile = $33.4 billion Source: AASHTO, Mar. 2007, p. 65. Table A-3. AASHTO revenue source recommendations.
A-11 retroactively capture the increase in fuel costs since 1993 is the most remunerative revenue option. The revenue estimates are different in the two reports, primarily due to the differences in the time period considered for revenue generation and slightly different assumptions underlying the estimates. The National Surface Transportation Policy and Revenue Study Commis- sion in its report, Transportation for Tomorrow (Dec. 2007) also called for a variety of measures to boost the solvency of the Highway Trust Fund. The National Surface Transportation Infrastructure Financ- ing Commission in its final report, Paying Our Way (2009), employed a weighted multiattribute utility analysis to come up with its evaluation of what it saw as the range of revenue options ranked based on their strengths and weaknesses Funding Mechanisms Mechanism Yield 2011 (millions) Illustrative Rate Revenues 2011 (millions) Annual Drivers License Surcharge $1.00 Surcharge = $222 $ 5.00 $ 1,110 Annual Highway Miles Traveled Fee (All Light-Duty Vehicles)* 1c/VMT = $6,538 $ 0.02 $ 13,075 Annual Highway Miles Traveled Fee (All Trucks)* 1c/VMT = $977 $ 0.03 $ 2,931 Annual Registration Fee (Light- Duty Vehicles) $1.00 Fee = $261 $ 10.00 $ 2,613 Annual Registration Fee (Trucks) $1.00 Fee - $4.4 $ 15.00 $ 66 Container Tax $1 per TEU = $605 $ 15.00 $ 9,076 Dedicated Income Tax-Personal 1% of current taxes = $1,130 1.00% $ 11,301 Dedicated Income Tax-Business 1% of current taxes = $383 1.00% $ 3,832 Diesel Tax Revenue 1 cent/gal = $386 $ 0.15 $ 5,794 Gas Tax Increase 1 cent/gal = 1,379 $ 0.10 $ 13,795 Harbor Maintenance Tax 0.1% Tax - $1,236 0.50% $ 6,181 HVUT Increase 10% Increase = $97 15.00% $ 146 Imported Oil Tax $1.00/Bbls = $4,217 $1.00 $ 4,217 Sales Tax on Auto-related Parts & Services 1.0% of Sales = $2,567 1.00% $ 2,567 Sales Tax on Gas 1.0% of Sales = $2,987 8.40% $ 25,091 Sales Tax on Diesel 1.0% of Sales = $868 10.60% $ 9,198 Sales Tax on New Light-Duty Vehicles 1.0% of Sales = $2,337 1.00% $ 2,337 Sales Tax on New and Used Light-Duty Vehicles 1.0% of Sales - $3,515 1.00% $ 3,515 Share of US Customs Revenue 1% of Receipts - $333 1.00% $ 333 Tire Tax on Light-Duty Vehicles $1.00 Fee = $1,960 $3.00 $ 5,880 Ton Freight Charge - All Modes 1 cent/ton = $164 $ 0.25 $ 4,111 Ton Freight Charge - Truck Only 1 cent/ton = $113 $ 0.25 $ 2,835 Ton Mile Freight Charge - All Modes 1 cent/ton mile = $43,497 $ 0.05 $ 21,748 Ton Mile Freight Charge - Truck Only 1 cent/ton mile = $12,731 $ 0.05 $ 6,365 Truck/Trailer Sales Tax Increase 1% of Sale = $219 5.00% $ 1,095 Truck Tire Tax Increase 10% Increase = $33 10.00% $ 33 US Freight Bill - All Modes 1% of Sales = $7,612 1.00% $ 7,612 US Freight Bill - Truck Only 1% of Sales = $6,608 1.00% $ 6,608 Total Revenues $ 173,465 *VMT fee estimates refer to miles traveled on Interstate System. Average Revenues 2011-2016 (millions) Total Revenues 2011-2016 (millions) $ 1,165 $ 6,993 $ 13,474 $ 80,843 $ 3,020 $ 18,120 $ 2,741 $ 16,448 $ 66 $ 399 $ 10,658 $ 63,946 $ 11,881 $ 71,285 $ 4,029 $ 24,172 $ 6,052 $ 36,309 $ 14,030 $ 84,183 $ 6,581 $ 39,485 $ 169 $ 1,017 $ 4,356 $ 26,138 $ 2,823 $ 16,938 $ 30,945 $ 185,671 $ 11,484 $ 68,903 $ 2,571 $ 15,427 $ 3,837 $ 23,021 $ 381 $ 2,288 $ 6,168 $ 37,009 $ 4,432 $ 26,592 $ 3,057 $ 18,340 $ 23,446 $ 140,678 $ 6,862 $ 41,174 $ 1,529 $ 9,174 $ 48 $ 286 $ 8,206 $ 49,236 $ 7,124 $ 42,745 $ 191,137 $ 1,146,819 Source: AASHTO, 2011. Table A-4. Surface transportation funding options matrix.
A-12 (see Table A-6) based on an evaluation using weighted criteria (see Table A-7). The Commission found VMT as a top federal revenue option and facility level tolling and pricing as the best state and local revenue option. Other optionsâclassified as strong, moderate, or weakâare listed in Table A-6. The Mineta Institute (MTI), in its report on a national sur- vey of public opinion, asks the question: âWhat Do Ameri- cans Think About Federal Transportation Tax Options?â The preliminary results from Year 2 of this national survey were made public in May 2011. The survey results show: â¢ A majority of Americans would support higher taxes for transportationâunder certain conditions. For example, a gas tax increase of $0.10 per gallon to improve road main- tenance was supported by 62% of respondents, whereas support levels dropped to just under half if the revenues were to be devoted to reducing local air pollution or global warming. For tax options where the revenues were to be spent for undefined transportation purposes, support levels varied considerably by what kind of tax would be imposed, with a sales tax much more popular than either a gas tax increase or a new mileage tax. â¢ The poll also asked respondents about their priorities for government spending on transportation in their state. Over two-thirds of respondents felt that governments should make it a high priority to maintain streets, roads, and high- Options to Close Funding Gap Potential to Close Federal Share of Funding Gap 2005-2015 Potential to Close Non- Federal Share of Funding Gap 2005-2015 Index Federal fuel taxes starting in 2005 $62 billion Index Federal fuel taxes retroactive to 1993 $211 billion Eliminate HTF exemptions $13 billion Recapture interest on HTF balances $9 billion Utilize 5 to 10 percent of current Customs duties for port and intermodal improvements $17 billion at 5 percent* $34 billion at 10 percent* Authorize flexible tolling provisions $12 billion Enhance TIFIA credit instruments $3 billion Authorize private activity bonds (assume $15 billion nominal authorization as proposed by Administration and Senate) $2 billion Authorize tax credit bonds (assume $30 billion not bond proceeds authorization as in Senate-proposed "Build America Bonds") $30 billion available for surface transportation grants through 2010; General Fund supported Authorize freight/intermodal ITCs (assume $500 million annual limit on 20-year tax credits that are monetized over a 5-year period) $6 billion available for freight/intermodal projects through 2009** Federal Revenue Options to Increase Highway Trust Fund Revenues Other Federal Revenue Options Federal Policy Options to Enable and Stimulate Greater Investment by States, Local Governments, and the Private Sector Notes: *Only 30 percent of these amounts are estimated to fund highway-related needs such **These funds would not address the surface transportation needs normally included in the F Reports; however, they would address needs identified in the AASHTO Freight-Rail Bottom L Association of State Highway and Transportation Officials, Freight-Rail Bottom Line Report, W Comments Index fuel tax rates to CPI starting in 2005. Would result in 6.2 cent gas tax increase in 2005 with indexing to CPI thereafter As proposed in President's 2006 budget Declining source as HTF balances are reduced These funds would be set aside for port and intermodal purposes and mostly distributed back to Customs districts of attribution Rough estimate based on extensive and increasing use of tolling and pricing Estimated additional private investment induced Estimated additional private investment induced Debt-oriented financing technique that leverages a Federal tax subsidy to generate new transportation funding. Equity-oriented financing technique that leverages a Federal tax subsidy to generate new transportation funding as intermodal connectors. HWA and AASHTO Needs ine Report (American ashington, D.C., 2003). Source: NCF, 2005a. Table A-5. NCF summary of financing options.
A-13 ways, and almost two-thirds said the same about reducing accidents and improving safety. By contrast, not quite half of respondents placed a high priority on reducing traffic congestion or expanding public transit service. â¢ The survey questions replicate those from a similar survey that MTI conducted in 2010 to establish how public views may have shifted over the past year. The only substantial change in support levels over the 2 years was a jump in sup- port for a gas tax with revenue spent to reduce local air pol- lution. In 2011, the tax had 48% support, compared to 30% in 2010. TRB issued a major report in 2009 entitled Funding Options for Freight Transportation Projects, with the following main findings: â¢ Present financial arrangements are inadequate for main- taining and improving freight transportation system performance. â¢ Finance reforms should be designed to promote produc- tivity gains. â¢ Finance reform options differ in their probable impacts on freight system performance. To finance new programs, the TRB report expressed a preference for projects with user charges: âA projectâs ability to generate revenue from its users is evidence of economic benefit to users and helps ensure that it will be sustainable in operationâ (TRB, 2009, pp. 5â6, 9). Strong Moderate Weak Vehicle miles traveled fee Freight waybill tax Freight ton-mile tax Automobile tire tax Vehicle sales tax Driver's license surcharge Motor fuel tax Harbor maintenance tax Bicycle tire tax Carbon tax/cap and trade General fund transfer Dedicated income tax Customs duties Auto-related sales tax Truck/trailer sales tax Freight ton-based tax Vehicle registration fee General sales tax Heavy Vehicle Use Tax Container fee Tariff on imported oil Sales tax on motor fuels Truck tire tax Facility level tolling and pricing Proceeds of asset sales, leases, and concessions Cordon area pricing Passenger facility charges Federal Options State and Local Options Benefiting from Federal Action For revenue options that are dependent upon utilization of a targeted investment fund as a basic premise for feasibility; such a fund is assumed for evaluation purposes (e.g., for all freight-related funding mechanisms and more specifically those more narrowly targeted to intermodal port and harbor- related investment). * State and local options in this category may have applicability but there is no relevant federal action or role. Not Applicable/Seriously Flawed* Vehicle inspection and traffic citation surcharge Vehicle personal property tax Windfall profits tax Petroleum franchise tax Minerals severance tax Federal tax on local transit fares Federal tax on local parking fees Development and impact fees Tourism-related taxes Tobacco, alcohol, and gambling taxes Source: National Surface Transportation Insfrastructure Financing Commission, 2009. Table A-6. National Surface Transportation Infrastructure Financing Commission summary of financing options. Criteria Weighting Revenue Stream Considerations Revenue potential 14.0% %0.8 ytilibaniatsuS %5.4 ytilibixelF Justification for dedication 4.5% Implementation & Administration Public acceptance/political viability 9.0% Appropriateness for federal use 7.0% Ease/cost of implementation & admin. 7.0% Ease/cost of compliance 4.5% Economic Efficiency/Impact Considerations Promotion of efficient investment 7.0% Promotion of efficient use 14.0% Creates/mitigates side effects 3.5% Equity Considerations User/beneficiary equity 10.0% Equity across income groups 3.5% Geographic equity 3.5% Source: National Surface Transportation Infrastructure Financing Commission, 2009. Table A-7. Criteria for evaluation and weighting.
A-14 The National Surface Transportation Policy and Revenue Study Commission, in Transportation for Tomorrow (Dec. 2007), after considering a variety of options specifically for freight transportation funding, suggested a federal freight feeânot specified as a container charge or waybill chargeâ giving the example of the existing $45 charge imposed by the Port Authority of New York and New Jersey. The report also suggests that an unspecified portion of customs duties would likewise be deposited into a new Surface Transportation Trust Fund, and an ITC for facilities owners would promote expan- sion (National Surface Transportation Policy and Revenue Study Commission, Dec. 2007, pp. 42â43). FHWA, in Financ- ing Freight Improvements (2007), provides detailed informa- tion about both the existing federal funding program structure and operations and the corresponding freight application as well as case studies to show how a variety of intermodal freight facility projects have been funded. To sum up, the NCF led the way with the earliest discussion regarding broad revenue options, and AASHTO fleshed out the basic revenue options outlined in NCF with specific yield estimates. While the national expert studies on transportation support the VMT fee or a modified gas tax, public opinion survey results show that a majority of voters prefer a tax to fee increase, but this depends on how the tax increases are used. While the highway authorization situation has struck most as highly regrettable, perhaps the delay offers one last opportunity for an authorization in anticipation of a major future effort. At the same time, nothing prevents Congress from creating a new program after the omnibus reauthorization. Specific Revenue Proposals Vehicle or Axle Weight Tax According to the U.S. DOT and as cited by the Congressional Budget Office, the current fuel taxes result in an inequity between smaller trucks and larger ones: â[A]ccording to DOTâs most recent calculations, the revenues generated from federal fuel taxes levied on smaller trucks with weight less than 25,000 pounds cover 150 percent of their cost impact, but larger trucks weighing over 100,000 pounds pay only 40 percent of their costsâ (U.S. GAO, 2008, p. 16). The wear and tear imposed by vehicles is exponential, and it has been known for decades that the effect is extreme, such that a 10% increase in axle weighting would yield a 46% increase in wear and tear (Luskin and Wal- ton, 2001, p. 2). Requiring the purchase of overweight permits could roughly capture excessive costs from these vehicles. This permitâs cost could be increased over time and tied more closely to wear and tear. The conceptual case in favor of a highly progressive vehicle weight tax therefore seems to be strong. The question of behav- ioral response would have to be addressed, however. To what extent would loads in the largest trucks be split up into two to avoid vehicle weight taxes? The relationship between weight and wear and tear refers to the axle weight, not the total vehi- cle weight, so an increase in axles could offset the increase in total weight. Therefore, a tax should address weighting per axle rather than the weight of the whole vehicle, providing incen- tive to move less weight per axle. Dedicated Customs Duties Both diversion of customs fees and a surcharge to custom fees have been proposed as freight infrastructure revenue sources, and a critical distinction must be made between the two approaches. Diversion would add no new revenue to the federal budget. Diversion of a portion of customs duties to fund freight-related infrastructure was proposed by Hicks (2003) and recommended by the National Surface Transportation Policy and Revenue Study Commission in their Transportation for Tomorrow report (Dec. 2007). The National Surface Transportation Infrastructure Financing Commission recommended a related 3.5% surcharge on cus- toms duties and fees. AASHTO estimated that if a 5% rate were in effect today, it would yield $1.6 billion in 2011 (See Table A-3). Hicks (2003) envisioned diverted customs revenue as a funding source for maritime infrastructure projects, not as a replacement or supplement for fuel taxes. In contributing to the 2006 California Marine and Intermodal Transportation System Advisory Council (CALMITSAC) report, however, Hicks changed his position. The CALMITSAC report rec- ommends that public policy makers â[a]bandon efforts to secure a âCustoms carve-out, including proposals to capture an increment of growthâ in customs dutiesâ (CALMITSAC, 2006, p. xiv). The CALMITSAC report goes on to note that due to multiple trade agreements, including The North Amer- ican Free Trade Agreement and The Jamaican Republicâ Central AmericaâUnited States Free Trade Agreement, cus- toms duties have not grown with the volume of trade and were not expected to do so in the future. The same report notes that about 30% of customs duties are used to support farm subsidies, making the agricultural sector a potential opponent of customs revenue diversion for other purposes. The CALMITSAC report sums up the reasons for its policy position that âCustoms carve-out proposals are clearly a futile exercise, considering that: â¢ U.S. trade negotiations are whittling away at this source of revenue. â¢ There is no reliable pattern of growth in customs duties. â¢ All previous legislative carve-out proposals have failed. â¢ U.S. farmers are trying to hold on to this important source of agricultural subsidies.
A-15 â¢ Importers and the White House Office of Management and Budget continue be opposed to customs carve-outâ (CALMITSAC, 2006, p. 49). Also, in the context of broad infrastructure funding, there is no connection between the customs duties on various inter- national trade flows and the impact of trade on the maritime, highway, air, or rail transport systems, i.e., custom duties do not meet the user benefit criterion. Customs duties have always been general purpose revenues, going back to the founding of the American Republic. Indeed, in the earliest years, customs duties were the only source of rev- enue for the federal government; there was no internal revenue at all until the first whiskey tax in the Washington Administra- tion. Customs duties do not go to U.S. Customs and Border Protection (CBP), whose budget consists of about $10 billion in appropriated general funds and $1.4 billion in fees. Given CBPâs many duties, the huge throughput it must manage, and the demand for increased port security, it is unlikely that any money could be removed from its budget to sustain capital expenditures. Diverting custom duties to a freight infrastructure fund would impoverish the General Fund to the extent that any new special fund would be enriched. Although the amount seems small in relation to the size of the federal General Fund, a key question would be whether federal appropriators, faced with a reduction in their allocations, would object. Moreover, with trade tariffs being reduced, there would be the long-term problem of a declining tax base and consequent conflict with U.S. trade policy. Passage of the three free trade agreementsâwith Panama, Columbia, and South Koreaâ would reduce customs revenue. Even more so, a successful completion of the admittedly struggling Doha Round would produce declining customs revenues over time across a very broad range of companies. For any given amount of revenue raised, the percentage dedicated to freight infrastructure would have to rise each year to maintain revenue from this source for the freight infrastructure fund. Freight Tonnage Tax Total freight tonnage for all modes increased slightly in 2007 to more than 880 million tons. While the 2007 data do not reflect ongoing economic trends, in 2008, all freight modes showed the effects of the continued economic downturn. Nationally, reported freight transport rates are down from between 11 and 40%. However, the rate of decline is decreasing, and there is some hint of a rebound in some sectors of manufacturing and logistics. Motor carrier data may not directly reflect exact industry tonnage amounts and should only be used to indicate general industry trends. In 2008, motor carrier tonnage was off nearly 20% while truck numbers increased slightly. Rail freight tonnage decreased to slightly less than 10% in 2007, which is again likely related to the overall economic downturn (Missouri Department of Transportation, 2010). The literature does not contain a detailed proposal for a freight tonnage tax, and the interaction of federal and state agencies has not been specified in this regard. Additionally, it is unclear whether there will be self-reporting. If so, how would carriers be audited? At the state level, the record-keeping required to administer a tax can be seen from a discussion by the Missouri Department of Transportation, which tracks freight tonnage by mode annu- ally. Port tonnage is reported to the Missouri Department of Transportation from public ports and the Army Corps of Engi- neers. Air cargo data are collected via mail survey of commer- cial airports with known cargo activity. Rail tonnage is obtained from the Association of American Railroads. The Missouri Department of Transportation calculates motor carrier freight movement using commercial vehicle miles traveled, trip length per shipment, and average truck cargo weight. Freight Weight-Distance/Ton-Mile Tax A weight-distance or ton-mile tax can be seen as a varia- tion of a tonnage tax. The definition of the tax is as follows: A ton-mile tax is one method for a government to generate fund- ing for road construction and maintenance. This would be levied based on the actual weight being carried for each trip and the number of miles traveled. The taxes are set based on the weight of the truck, and for larger trucks, the number of axles is also taken into account. It attempts to allocate the costs based upon the wear and tear that the vehicle puts on the road since a heavier vehicle will cause a road to deteriorate faster. Proponents argue that such a tax gives drivers incentives to drive vehicles that are lighter or spread the weight over more axles. The administrative costs of these taxes appear to be quite high, and some states that previously used ton-mile taxes have repealed them. (USLegal, no date) Multiple proposals have considered assessing a highway user tax based on ton-miles. A ton-mile is the activity involved in transporting one ton a distance of one mile and is a com- mon unit of freight transportation. The tax base options dis- cussed in the literature include gross ton-miles (which include the empty weight of the vehicle); net ton-miles (which include only the weight of the lading and do not include miles traveled empty); and revenue ton-miles (activity for which a for-hire carrier was paid) for different purposes. The State of Oregon uses this tax, but it appears to be a sore point for the trucking industry. The American Trucking Asso- ciations has detailed its objections, considering the following criteria for evaluating business taxes: â¢ Efficiency here stands for the notion that a tax should have a low ratio of administrative cost to the revenue it brings in.
A-16 â¢ Equity means that a tax should be structured so as not to unduly discriminate among segments of the industry, large and small carriers, interstate and intrastate operations, or modes of transportation. A relatively objective test for the equity of a proposed tax, however, is whether it discrimi- nates against a part of the industry in favor of another part, or against trucking as opposed, say, to rail. â¢ Effectiveness goes to the ability of a tax to raise, with rea- sonable rates, the amount of money needed for its purpose. Whether the rates of a tax are reasonable or not may appear a subjective question, but when tax rates are so high as to make a tax uncompetitive or unenforceable, the tax ceases to be effective. Oregonâs weight-distance tax, at more than 13 cents per mile at 80,000 pounds declared weight, seems clearly ineffective by this measure. â¢ Enforceability means that a tax is structured and admin- istered in such a way as not to invite evasion. Structure matters a great deal to enforceability. A tax that depends on self-assessment by a multitude of taxpayers, for exam- ple, will not be readily enforceable. The enforceability of the personal income tax, both at the state and federal level, depends absolutely on the mechanism of tax with- holding. The fuel tax is enforceable in large part because it depends on compliance by a small number of fuel sup- pliers both to collect the tax from their customers and to remit it to the state. A weight-distance tax, on the other hand, and, perhaps to a lesser extent, a general sales or gross receipts tax, are not readily enforceable. Weight- distance tax regimes commonly feature not only burden- some audit and reporting requirements, but they vary by ports of entry as well. â¢ Competitiveness stands for the idea that a tax should not disadvantage businesses located in the taxing state vis a vis out-of-state competitors or motor carriers vis a vis other modes of transportation. â¢ Neutrality means that a tax is structured in such a way that it does not unduly influence business investment decisions or run counter to important state policies. It might be noted that this criterion involves two conditions that may some- times conflict, since state policies may well run counter to neutrality in business investment decisions, and vice versa. â¢ Non-intrusiveness in a tax means that it does not unduly create concerns over privacy, either personal or corporate. For the most part, this criterion has become more impor- tant as automated databases have become more widespread, allowing government, on the one hand, to manipulate masses of data not otherwise available to it and, on the other, to lose, sell, or otherwise mishandle that data. The income tax, however, both individual and corporate, has always been a relatively intrusive taxâwhether unduly so depends on oneâs point of view. In the highway tax area, it might be stated as a general rule that a tax that relies for its enforcement on keeping detailed records of the travels of at least personal passen- ger vehicles is, at least currently, unacceptably intrusive. It might be suggested that a tax that requires government to keep either intimate personal data or proprietary business data without the most rigorous safeguards violates this cri- terion (Pitcher, 2010). Weight-distance tax regimes in the German-speaking countries are described by the NCF in Appendix D of Future Highway and Public Transportation Financing, Phase II (pp. 114â115). The German Toll Collect truck toll system applies to vehicles heavier than 12 metric tons and only to the use of motorwaysâother roads are exempt. The price varies by distance traveled, the number of axles, and the emissions class of the vehicle. The overall fee structure is designed to recoup direct capital and operating costs to the motorway system imposed by truck traffic. The technology supporting Toll Collect involves an OBU equipped with a GPS to determine motorway entry and exit and distance traveled and also a global system for mobile communications (GSM) to communicate billing data to the central computer system. Toll Collect is administered by a private consortium that collects the tolls on behalf of the German government (NCF, 2005b). Switzerland launched its heavy goods vehicle fee (HVF) in January 2001. The HVF applies to all vehicles with a maxi- mum laden weight in excess of 3.5 metric tons. The fee is based on the distance driven (on all Swiss roads, not just the highways), as well as the maximum laden weight and emis- sions class of the vehicle. The price structure is designed to account for both direct and external costs of trucking and to encourage a freight mode shift from road to rail. The support- ing technology includes an on-board unit (OBUs, mandatory for all Swiss vehicles and optional, though encouraged, for foreign vehicles) featuring GPS and a DSRC system, as well as a connection to the vehicleâs tachometer (which includes odometer information). DSRC signals from overhead gantries at border crossings (in the case of primary arteries) and GPS position signals (in the case of smaller roads without DSRC gantries) are used to record the status of the OBU (within Switzerland or traveling abroad), and odometer information is used to register miles driven on Swiss roads. DSRC stations mounted throughout the network are also used to verify the correct functioning of passing trucks as a means to prevent toll evasion (NCF, 2005b, pp. 114â115). By way of compari- son, Swiss registrations of trucks in 2009 were about 326,000, while a comparable figure for the United States, based on the 2002 VIUS, is in excess of 85 million (NCF, 2005b). The domestic literature on ton-mile taxes, weight-distance taxes, and variations is largely conceptual. The weight-distance taxes previously tried by individual states predated OBU/GPS technology and relied heavily on manual record keeping. More recent discussions of ton-mile taxes have largely been sub- sumed by the broader VMT tax concept. The available discussions of ton-mile and weight-distance taxes generally do not delve into distinctions between empty
A-17 and loaded vehicle miles, the differences between actual vehicle tire weight and vehicle weight class, the treatment of govern- ment and service vehicles, or the carriage of lading that is not weighted. Furthermore, a freight ton-mile tax raises significant modal equity questions that are not addressed by the current literature in any detail. If applied only to for-hire and private freight trucking, such a measure would ignore the substantial impacts of non-freight vehicles of all kinds. In 2003, the last year for which Bureau of Transportation Statistics (BTS) data are uniformly available, the average freight revenue per ton-mile was 13.36 cents for truck, 2.28 cents for rail, and 1.77 cents for barge (BTS, 2010). A nominal 1 cent per ton-mile fee would therefore increase average truck rates by around 8%, average rail rates by around 44%, and average barge rates by about 56%. Clearly, a multimodal ton-mile tax would require much more detailed investigation than the current literature reflects. Congestion Pricing and Road Pricing âRoad pricingâ is generally envisioned as being applied to chronically congested urban routes, but the term also some- times includes broader user fee concepts. âCongestion pric- ingâ is typically proposed as a traffic demand management (TDM) strategy, for which revenue generation is of second- ary importance. For this project, the concept of selectively pricing road segments with or without a time dimension is relevant both as a revenue-generation mechanism and as a potentially desirable option for VMT fees or other use fees. In urban areas, the cost of passenger vehiclesâ contribution to congestion is about 10 cents per mile, representing one of the largest sources of external costs of motor vehicle use (CBO, Jan. 2011). In 2007, the U.S. DOT released its National Strategy to Reduce Congestion on Americaâs Transportation Network (U.S. DOT, Jan. 2007a). Then-Secretary Mineta observed, âCongestion is not a fact of life. It is not a scientific mystery, nor is it an uncon- trollable force. Congestion results from poor policy choices and a failure to separate solutions that are effective from those that are notâ (U.S. DOT, Jan. 2007a). The document lays out a plan to address congestion, including implementing a broad congestion pricing or variable toll demonstration project. Actual congestion pricing and road pricing demonstra- tions have been very limited, and there is very little experience with implementation in the United States. Examples are so far largely limited to varying tolls on existing toll roads, bridges, and tunnels, and some experience with variable parking fees (e.g., downtown New York City). An academic article on road pricing puts this tension in a pithy fashion: âAlthough the idea wins intellectually, political acceptability remains a great challenge, and diverse attempts to introduce road pricing have failed politically. The classic tension between the desirable and the politically acceptable is particularly relevant for highways, as we find ourselves in a freeway status quo that is difficult to undoâ (Lindsey, 2006, p. 95). Moreover, the article also points out that on various aspects of the implementation of road pricing, âeconomists disagree over how to set tolls, how much to cover common costs, what to do with any excess revenues, whether and how âlosersâ from tolling previously free roads should be compen- sated, and whether to privatize highwaysâ (p. 96). Resources for the Future modeled the Washington, D.C., metropolitan area with a view towards a single inner cordon for the District of Columbia itself, an outer cordon at I-495/ Beltway, or both; distance- and time-sensitive charges on either freeways or roads generally; and a VMT tax (Safirova, Houde, and Harrington, 2007). Researchers considered not only con- gestion costs but also social costs such as pollution, accidents, climate change, oil dependency, and noise. They found that âcomprehensive variable time-of-day pricing on the entire road network turns out to be by far the most effective and efficient policy when it comes to reducing congestion alone. However, when other social costs are factored in, the performance of the VMT tax is almost as efficientâ (Safirova, Houde, and Harrington, 2007, p. 21). The VMT tax had earlier been esti- mated at 14â15 cents per mile (p. 17). Full social cost pricing would call for cordon entry fees of $3.34 at the Beltway and $5.80 for downtown (Washington D.C. area). In their abstract, Safirova, Houde, and Harrington acknowledge, âWe also find that full social cost pricing requires very high toll levels and therefore, is bound to be controversialâ (Safirova, Houde, and Harrington, 2007, abstract). A sharp illustration of the disagreement in the literature regarding the benefits of road charging is encapsulated by âWar of Words,â a magazine article about a debate between anti-London cordon pricing activist Peter Roberts and pro- pricing Canadian columnist Bern Grush. Roberts asserts that âroad-user charging is a tax too far. It has been exposed as intrusive, expensive, inefficient and authoritarian. We do not want it and no amount of propaganda or heavy-handed per- suasion can change our mindsâ (Cassini, 2008, p. 57). Grush counters with his conclusion: âTo fix funding, congestion and emissions: a) remove registration and fuel taxes; b) charge for road use by time, place, and distance; c) provide better roads and; d) provide better public transportâ (p. 57). In the United States, resistance is indicated in the claim made by ATRI that âin cases where research has included a consid- eration of system end-user interests, findings suggest that sys- tem end-users do not typically support alternative financing approachesâ (ATRI, 2007, p. 2) to the existing fuel/gas tax. A different analytical perspective, considering freight spe- cifically, comes from Rensselaer professor Jose Holguin-Veras, who studied truck deliveries into Manhattan in light of pro- posed London-style cordon entry pricing. He found freight road pricing of limited effectiveness in reducing urban truck traffic because âthe decision about delivery time is made jointly
A-18 between the carrier and the receiver; the carriers have great diffi- culties passing toll costs to receivers; and, in the few cases where toll costs could be passed, the pricing signal reaching receiv- ers is of no consequence compared to receiversâ incremental costs of off-hour deliveriesâ (Holguin-Veras and Silas, 2008, p. 2). Instead, tax deductions to receivers willing to do off- hour deliveries, such as restaurants, would work better to reduce congestion. His simulation showed that a $10,000 tax deduction to receivers could stimulate a 20% shift in deliveries to off hours (p. 12). ATRI echoed this point of view: âPrice changes, however, may not have any effect; a Georgia study showed that delivery time, and thus the time at which trucking operations occur are strongly driven by shipper/manufacturer requirements. Consequently, the attempt to âpriceâ trucks (that have no choice in deliv- ery schedules) out of the commuter traffic mix becomes regressive and inflationaryâ (ATRI, 2007, p. 14). Perhaps the most practical perspective of all on the cost of congestion comes from the Texas Transportation Instituteâs Urban Mobility Report, which estimates the total national con- gestion costs for 437 urban areas in 2007 at a total monetized cost of $78 billion due to a loss of 4.2 billion hours and 2.9 bil- lion gallons of fuel (Schrank and Lomax, 2007, p. 1). Freight Transportation Services/Waybill Tax A tax on freight transportation services would be modeled after the existing air cargo tax of 6.25% and is also sometimes referred to as a bill of lading tax or a waybill tax. A report (pre- pared by PricewaterhouseCoopers) of the American Road and Transportation Builders Association (ARTBA) contains by far the fullest treatment (ARTBA, 2009). Table A-8 contains the specifications of this proposal. PricewaterhouseCoopers puts the gross yield for a 1% tax at $65 billion; taking into consideration deductions for taxes paid from the corporate income tax, the net yield would be $49 billion. Criticallyâand unlike the air cargo taxâthe IRS would have to issue regulations, under Section 482 of the Internal Revenue Code, upon which private trucking fleets would calculate a taxable basis. Today there is no explicitly stated market value. Rep. Adam Smith of Washington previously intro- duced H.R. 2707 to establish the National Freight Mobility Infrastructure Fund. In 2011, the bill was reintroduced as H.R. 3607. According to this proposal, the U.S. DOT would establish a Freight Mobility Infrastructure Improvement Pro- gram to award competitive grants to improve the efficiency of freight. The bill would impose a tax on taxable ground transportation equal to 1% of the fair market value (with some exceptions for federal, state, and local government transportation and transport within a local geographic area) and would require deposits into the new fund of amounts equivalent to the new tax. The Coalition for Americaâs Gate- ways and Trade Corridors supports the Smith proposal as the broadest-based proposal that has been made to sup- port an overall freight program (www.tradecorridors.org). The Waterfront Coalition previously registered its objections to the difficulty of complying with the proposed new tax, which would not, as Pricewaterhouse Coopers detailed, apply to private fleets. Some of the objections voiced by the Waterfront Coalition in a hearing before the Ways and Means Committee are the following: . . . While the tax attempts to fairly capture each and every user of the system, the mechanism still exempts a large segment of highway users. . . . Almost half of all truck moves occur by way of internal trucking or private fleets. Assessing a transaction fee on internal trucking moves would be quite difficult given the fact that a ship- ping document or purchase order is not generated. It is our belief that private fleets should not be exempt from the fee. . . . Establishing a fee collection system that takes into account modern logistics practices could be quite difficult and costly to establish and administer. Today, many domestic moves involving consumer products are originated by electronic interchange between business partners that does not involve a paper shipping document. Often retailers and product suppliers communicate by way of electronic transmission of inventory control data. Shared logistics software then notifies a contracted trucking company to move product to a retailerâs store or con- solidation center. This electronic interchange does not generate any shipping document and the information shared between motor carrier, product supplier and retailer is often proprietary. It would be quite difficult for an agency of the government to tap into this electronic interchange for the purpose of collecting a transaction fee. It is even more difficult to determine which entity in this transaction remains the party responsible for paying and collecting the fee (Waterfront Coalition, 2009). To date, proposals for transportation services taxes or fees do not include methodologies for including the value of transportation provided by private or contract carriers. The proposal outlined in Table A-8 exempts government- provided transportation services, thus failing to address one of the major âholesâ in the current fuel tax system. The proposal does not address the highway impacts of ser- vice vehicles, construction equipment, and so forth. It is mode-specific and does not address rail, marine, or inland waterway modes. Perhaps most critically, the available lit- erature makes no connection between the monetary value of transportation services and the impact of those services on the highway system. Vehicle Miles Traveled (VMT) Fee A fee on vehicle miles traveled (VMT) is the leading can- didate to replace or supplement the highway fuel tax system. VMT is a direct reflection of vehicle activity on streets and roads. VMT user fee variations include the following:
A-19 â¢ VMT fee on all roads or only on Interstates and NHS routes. â¢ VMT fees with or without congestion pricing or other Traffic Demand Management (TDM) options. â¢ VMT fees adjusted by weight class or axle count to reflect the greater impact of heavier vehicles. However, the effect of VMT taxes on overall efficiency also would depend on how much it costs to put the taxes in place and to collect the taxes. Estimates of what it would cost to establish and operate a nationwide program are rough (CBO, Mar. 2011). The most comprehensive reference is NCHRP Web-Only Docu- ment 143 (Sorenson et al., 2009). Nine VMT fee variations were considered by this study: â¢ Self-reported odometer readings. For this option, drivers would report their current mileage each year as part of the annual registration process. â¢ Annual odometer inspections. Similar to the prior option, the key distinction here is that drivers would submit to periodic (likely annual) odometer readings at certified stations as the basis for assessing mileage fees. â¢ Assumed annual mileage with optional odometer inspec- tions. With this approach, vehicle owners would be assessed Issue Explanation Administration The tax would be enacted as part of the Internal Revenue Code and administered by the IRS under Code provisions relating to federal excise taxes. Application of tax The tax would apply to the value of highway transportation services. Liability for tax The purchaser of the highway transportation services would be liable for the tax. Collection and remittance responsibility The tax would be collected and remitted to the U.S. Treasury by the provider of taxable highway transportation services. Taxable highway transportation services In general, taxable highway transportation services would be defined as the movement of property within the United States in a truck with gross vehicle weight rating over 26,000 pounds (Class 7 and Class 8 trucks). Transportation that occurs outside of the United States (the 50 States and the District of Columbia) is not subject to tax. An amount would be treated as paid for taxable highway transportation services if it is directly related and integral to the cost of providing such services, including separately stated charges for fuel and other items. Self-provided and related-party transportation services If taxable highway transportation services are self-provided or provided to a related party, the tax would be imposed on the value of the services. Accessorial services In general, accessorial services, such as warehousing and storage, packing and unpacking, sale of insurance coverage, and rental of containers, would not be subject to tax if separately stated, unless the services can only be provided by the carrier, either directly or subcontracted, and all who use the service are directly or indirectly charged for it. Freight forwarders and shipping agents Amounts received by freight forwarders and shipping agents that arrange but do not provide taxable highway transportation services are not subject to tax. Amounts such persons pay for taxable highway transportation services are subject to tax under the general rules. Multimodal transportation services If an amount paid for transportation services includes both taxable highway transportation services and other modes of transportation, the tax would be imposed only on the value of the taxable highway transportation services. Exemption Transportation services provided by federal, state, and local governments and instrumentalities thereof would be exempt from the tax unless the transportation services are provided for hire, such as by the United States Postal Service. Filing requirement Source: ARTBA, 2009. IRS Form 720, Quarterly Federal Excise Tax Return, would be revised to include the new highway transportation services tax. Table A-8. Specifications for highway transportation services tax.
A-20 an annual VMT fee based on the estimated mileage for the vehicle class (e.g., passenger vehicles vs. commercial trucks). â¢ Fuel consumptionâbased mileage estimates. Under this approach, fuel consumption would serve as the basis for estimating travel distance. All vehicles would be equipped with some form of automated vehicle identifier, or AVI, device (likely a radio frequency identification, or RFID, tag embedded in the license plate or registration sticker). â¢ On-board diagnostics (OBD) II-based mileage meter- ing. For this approach, vehicles would be equipped with an on-board unit (OBU) that serves as the mileage metering device. The OBU would be connected to the on-board diag- nostics port (with a second generation, or OBD II, available on vehicles manufactured since 1996), providing data on vehicle speed that can be integrated over time to compute travel distance. â¢ OBD II/cellular-based mileage metering. Like the previ- ous approach, this would rely on an OBU connected to the OBD II port to meter mileage. The OBU would also be equipped with cellular communications, and this would make it possible to determine, with rough accuracy, the location of travel. â¢ Coarse-resolution GPS-based mileage metering. From the perspective of metering capabilities, this option, employed in the Oregon trials, is identical to the previous approach. The only difference is that the OBU would rely on a coarse- resolution GPS receiver, rather than cellular-based location, to identify the jurisdiction or area of travel. â¢ High-resolution GPS-based mileage metering. This option is similar to the prior approach, but would rely on differ- ential GPS for sufficient accuracy to determine the specific route of travel. â¢ RFID-based tolling on a partial road network. With this option, all vehicles would be equipped with AVI devices featuring RFID tags. These would communicate, via DSRC technology, with gantries set up along the most heavily trav- eled segments of the road network to support facility-based tollsâeither flat tolls or tolls that vary by time and location. In briefly evaluating each of the metering mechanisms described above, the goal of the study was to distinguish a smaller set of options offering the greatest potential for near- term implementation. These judgments were based on several criteria: â¢ Full road network metering. The system should be capa- ble of metering VMT across the entire road network. â¢ Cost vs. metering capabilities. If a system offers limited metering capabilities (that is, the ability to vary rates by vehicle characteristics but not by time or location of travel), then it should also be low cost. â¢ Enforceability. The system should allow for at least reason- ably effective enforcement, both to protect against revenue loss and to avoid resentment among law-abiding citizens. â¢ Minimal required state support. The system should allow for state participation in cases where states would like to levy their own VMT fees; it should not require excessive effort for states not interested in this policy. â¢ Minimal burden on users. Gaining public acceptance for the transition from fuel taxes to VMT fees will likely be dif- ficult in its own right. Increasing the burden on usersâfor instance, by requiring regular odometer inspectionsâwill make this even more difficult. Three options appeared to offer the greatest promise for implementing a national system of VMT fees; each has its own set of advantages and limitations: â¢ Mileage metering based on fuel consumption. Although offering limited metering flexibility, this option would likely prove the least expensive to develop and operate, given the low cost of RFID technology and the ability to expand the existing fuel tax system to encompass fuel retailers rather than developing an entirely new revenue system. The existing fuel taxes could also provide a fallback rev- enue systemâto charge vehicles lacking the required AVI device for road use. Finally, the pay-at-the-pump model could still be used to collect fees for most vehicles if a transition to more sophisticated metering equipment were pursued over the longer term. â¢ OBD II/cellular-based metering. While the technology remains to be demonstrated in the context of road pricing, this option could provide significant metering flexibility at lower cost than the GPS option. â¢ Coarse-resolution GPS-based metering. This option also provides flexible metering options, and the technology has been demonstrated in real-world trials. If the price of the equipment can be reduced through large-scale production and if current privacy concerns associated with the use of GPS can be overcome, this would be a promising option (Sorenson et al., 2009, pp. xixâxxii). Minnesota is beginning technical research into a mileage- based user fee, testing equipment that could eventually be used to implement a VMT tax structure. The study began in July 2011, and a final report is expected in December 2012 (Minnesota Department of Transportation [MnDOT], 2011). Previously, MnDOT has convened focus groups to better understand public understanding of and enthusiasm for mileage-based taxes; the results indicated that most were in favor of a clear pay-for-use type of funding structure, but were concerned about the privacy implications of such a tax (MnDOT, 2008).
A-21 During 2006 and 2007, the Oregon Department of Trans- portation (ODOT) conducted a pilot project in the Portland area, funded by the state, of the first of the three types of VMT fees (mileage metering based on fuel consumption) (ODOT, no date). The project involved about 300 drivers and their passenger vehicles, as well as two retail service stations, and treated the state as consisting of two zones, the Portland area and everywhere else. Drivers were paid about a dollar a day to participate. When a car equipped for the VMT pulled up to a fuel pump at a service station with the proper VMT equipment, the equipment on the pump read, from the carâs equipment, the number of miles the car had driven since it was last fueled at a pump equipped for the tax. For the study, the mileage was determined either by GPS or by on-board computer directly from the carâs odometer. The pump equipment auto- matically applied a cent-per-mile to this mileage figure and subtracted the per-gallon gasoline tax that would have been due on the sale if the VMT had not applied to it. In the pilot, the driver got a bill that showed the VMT and the amount of the subtracted fuel tax separately from the price of the fuel. At the end of the month, the gas station remitted to the state its VMT collections during that period, settling up with ODOT for the difference between that amount and the gas tax it had paid to the wholesaler. The official report noted repeatedly that more development of the equipment and of the details of VMT implementation is needed. Mileage readings were apt to be highly inaccurate. The equipment for both the cars in the study and the service sta- tions had to be specially designed for the pilot; it is unclear how much either would cost if it were mass produced. Adapting cars may cost hundreds of dollars, and retrofitting gas stations thousands of dollars. ODOT concluded that it would be more than 20 years before a VMT tax on cars could be implemented fully in the state. It apparently has no plans to supersede its current system of taxing trucks. Energy Use Tax The Howard H. Baker Jr. Center for Public Policy at the University of TennesseeâKnoxville has proposed an energy user fee instead of a gas tax or VMT fee. Such a tax would cover all forms of energy used to move vehicles with a user fee per unit of energy (such as megajoules). No exceptions would be made for electric, hydrogen, or any other vehicles. The user fee would initially be set at a level that is equivalent to the cur- rent gasoline tax (0.15 cents per megajoule). It would then be indexed to both the average energy efficiency of all vehicles (in miles per megajoule) and to an âappropriate index of inflation for surface transportation construction and maintenanceâ (Greene, 2011). Such a tax would continue to encourage users to seek more efficient means of transportation, regardless of the exact energy source powering the vehicle. The tax would also result in the same level of revenues as a VMT tax. Oil Tax A percentage tax on crude oil and refined petroleum prod- ucts could replace the current taxes on gasoline and diesel fuel, with revenues used to fund highways, public transit, and aviation. Such a tax would simplify the current taxing system by replacing the variety of existing transportation taxes with one single upstream tax. It could be adjusted independently of inflation and would have the benefit of transferring external costs of producing and consuming oil to the producers and consumers of oil instead of the general public. Additionally, while increased taxes are generally considered very unfavor- ably in the eyes of the public, the current political and environ- mental climate may make raising taxes on oil instead of motor fuel much more politically feasible (Crane et al., 2011). Carbon Cap and Trade In 2010, Congress was seriously considering a cap-and-trade regime to reduce carbon, which would produce substantial rev- enues, some portion of which could then be dedicated to freight transportation improvements. This approach would have the additional benefit of spurring a reduction in carbon emissions from congestion or otherwise. No source provided any details as to how such designation might happen, either in percentage amounts or how projects would qualify for such funding. Even so, no source disagreed with the concept. Since the surveyed literature was written, the House of Rep- resentatives in 2009 passed legislation to create a carbon cap- and-trade system (H.R. 2454, the American Clean Energy and Security Act or ACES), which died in the Senate. No similar major legislation has been reintroduced in the 112th Congress While the legislation made provision for various designated uses, transportation efficiency was not one of them. To quote and digest from the summary provided by the office of the speaker: ACES required that major U.S. sources of emissions obtain an allowance for each ton of carbon or its equivalent emitted into the atmosphere. CBO projects that allowance prices in 2005 dollars were expected to be $16 in 2015 and increase to $36 by 2030. At these allowance prices, the total value of the allowances created under the legislation ranged from roughly $70 to $80 billion in 2015 to $90 to $120 billion in 2030 (Offices of Speaker Pelosi et al., 2009). For the period from 2012 through 2025, 55% of the allow- ances were to be used to protect consumers from energy price increases; 19% to assist trade-vulnerable and other industries make the transition to a clean energy economy;
A-22 13% to support investments in clean energy and energy effi- ciency; and 10% for domestic adaptation, worker assistance and training, prevention of deforestation, and international adaptation. The remainder (3% of allowances) was to be used to help ensure that ACES is budget neutral (Offices of Speaker Pelosi et al., 2009). While the concept of designating some portion of carbon allowance fees to freight transportation improvements seems valid, it had no political currency in Congress. The legisla- tive history makes clear that there are numerous other valid uses for the new revenue to be derived from carbon allow- ances as well. Some freight projects may be able to qualify as investments in energy efficiency, although that would not be definitely known until new programs were established and eligibility rules published. However, the last seemingly real- istic chance of passing a carbon allowance and trading based regulation ended in the failure of the Senate to pass similar legislation in July 2010 (Hulse and Herszenhorn, 2010). Investment Tax Credits Contrary to the politically weak possibility of carbon cap- and-trade charges, a railroad ITC enjoys considerable popular- ity. Indeed, the Internal Revenue Code contained a temporary measure, Section 45G, which expired on December 31, 2009. Section 45G created an incentive for short line railroads to invest in track rehabilitation by providing a tax credit of 50 cents for every dollar that the railroad spent on track improvements up to $3,500 per mile of owned or leased track. The credit was capped based on a mileage formula. The bipar- tisan tax agreement of December 2010, enacted as The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, retroactively extended numerous provisions, such as that for short line railroads, that had expired almost a year before and granted a year forward until December 31, 2011. As of late 2011, despite the introduc- tion of S. 1801 by Sen. Snowe of Maine to extend numerous provisions, a substantial possibility exists of another lapse of numerous expiring provisions on January 1, 2012. Rep. Earl Pomeroy of North Dakota, Rep. Jerry Moran of Kansas, Sen. Blanche Lincoln of Arkansas, and Sen. Mike Crapo of Idaho have introduced companion legislation, H.R. 1132 and S. 461, to extend the provision through tax year 2012 and strengthen the short line railroad tax credit, supported by the American Short Line and Regional Rail- road Association. The proposed legislation increases the per mile credit limitation from $3,500 to $4,500 to account for increased construction costs since 2004. However, neither of these bills became law (TCU Legislative Watch, 2011). Two House bills would create a new credit applicable to all railroads, with the principal effect of pertaining to the major Class I carriers. H.R. 1806, introduced by Rep. Kendrick Meek along with 47 cosponsors and referred to the Ways and Means Committee, would create (1) a tax credit for 25% of the cost of new qualified freight-rail infrastructure property and qualified locomotive property and (2) a taxpayer elec- tion to expense the cost of qualified freight-rail infrastructure property (i.e., deduct all costs in the current taxable year) with a 2015 sunset. An earlier Meek bill, H.R. 272, had a 2012 sunset and 70 cosponsors. The Association of American Railroads is supporting the later Meek bill. Another bill, H.R. 1789, introduced by Rep. Corinne Brown, also of Florida, and without any cosponsors, added to the Meek bill the ele- ment of track maintenance as a qualifying expenditure, in effect attempting to unify the pieces of legislation. Initial support for a credit for the large railroads grew out of AASHTOâs Freight-Rail Bottom Line Report (AASHTO, 2003). State highway officials were concerned that, although railroads might be able to invest enough to increase capacity somewhat in coming years, they would not be able to keep pace with growing throughput and would lose overall market share to trucks, with resulting increased highway congestion. AASHTO sees that result as increasing the demand on highways beyond what could possibly be managed. As evidence for its initial conclusions and its concern, AASHTO pointed to two princi- pal pieces of evidence: freight revenue per ton-mile has steadily decreased since deregulation in 1980, and railroadsâ cost of capital, at about 12%, exceeds return on investment of about 8% in the late 1990s (p. 40). At the same time, Class I railroads faced capital expenditures of 17.8% of revenue, as opposed to 3.7% for a composite of manufacturing segments (p. 35). Moreover, since deregulation, the proportion of value of rail stocks in the Standard and Poorâs 500 has declined from 2% to 0.5% (p. 42). In other words, investors are looking for better returns elsewhere. AASHTO saw an unfunded annual invest- ment need of between $2.65 billion to $4.15 billion (p. 45) and concluded, âIf improvements are not made in the freight-rail system, the nationâs freight transportation system will weaken and shippers, highway users, and communities will pay the social, economic, and environmental costsâ (p. 52). The Congressional Budget Office has done a series of three studies on freight transportation (CBO, 2003, 2006, and 2007), the second of which concentrated on rail. Looking at the same evidence and taking note of the AASHTO report, CBO said, âRecent activity suggests that the railroads will continue to expand capacity. Whether growth in supply will keep pace with growth in demand is an open question. It appears that railroads have been able to generate enough profits to finance some investments and attract new capital. The prospect of future profitability is an open question, howeverâ (CBO, 2006, pp. 9, 16). Rather than an ITC, however, CBO looked first to increased charges on trucks and barges for their use of publicly provided facilities and after that at federal assistance in the form of loan guarantees (p. 22).
A-23 Tolls One of the most detailed discussion of tolls in the surveyed literature is also the most negative in its implications for con- gestion, pollution, and accidents (ATRI, 2007). An illustration of this is the New Jersey E-Z Pass System. As much of a techni- cal improvement as it represented, it generated a $469 million deficit owing to high extra interest on bonds not paid off on time and operating expenses at 37% over budget. Even more surprisingly, ATRI cites an FHWA 2005 survey of state toll administrations showing that many of them were operating at a loss (ATRI, 2007, p. 13). The ATRI report goes on to con- clude, âBased on available public financial data, tolling appears to be a far less efficient means of raising transportation revenue than motor fuel taxesâ (p. 14). The concept of â[n]ew toll roads, bridges, and lanes on the Interstate systemâ explicitly received support in a brief submission by the California Association of Councils of Gov- ernments to the Financing Commission in 2007 (CALCOG, September 7, 2007). A fuller treatment came from Washington, where the State Transportation Commission reported to Governor Gregoire that a âkey recommendation of this study is the need to implement non-stop, highway-speed electronic toll collection on any new or enhanced facility. . . . In addition to the Tacoma Narrows Bridge and State Route 167 HOT Lanes Pilot Proj- ect already in development, the study identifies the 520 bridge, Snoqualmie Pass and the Columbia River Crossing in Vancou- ver as other possible projects statewideâ (WSTC, 2006). Public-Private Partnerships Rationale and Definition of Public-Private Partnerships PPPs introduce private capital for public construction and maintenance purposes. Private financiers are able to render predictable future revenue streams into current value and hence to commit private equity in lieu of publicly raised capital. Two reports and numerous case studies have also found that PPPs can save from 6 to 40% of the cost of construction and signifi- cantly limit the potential for overruns (U.S. DOT, Dec. 2006). The private sector has traditionally been involved as con- tractors in the design and construction of highways and in construction and management of railroads. Marine ports have historically been operated by private operators across the country as well. However, most of this involvement has been either through traditional design-bid-build contracts or fully private operations. PPPsâas defined by U.S. GAO (1999) and the definition adopted by U.S. DOT (2004)â refer to nontraditional contractual agreements formed between public-agency and private-sector entities that allow for greater private-sector participation than do traditional methods of private procurement by the public sector. The agreements can involve a public agency contracting with a private entity for any one or more of the following project- related activities: planning, construction, delivery, operation, maintenance, toll collection, management, and financing of projects. Various types of contractual agreements are dis- cussed later in this section. PPPs are used widely in many infrastructure areas and are composed of varying combina- tions of public (federal, state, and local government) and pri- vate resources (Deloitte Research, 2007). In its 2006 Conditions and Performance Report to Congress, the U.S. DOT offered a spectrum as a way to conceive of increasing private responsi- bility across an ordered series of options (see Figure A-2). The next few paragraphs provide a brief description of the historical developments in PPPs across the world, some basic facts about PPPs, and a discussion of the main federal and some significant state policies for promoting PPPs. The benefits and limitations of PPPs (keeping a focus on freight transportation wherever the authors could find relevant cases to illustrate issues raised in the literature) are then discussed. Origin Of PPPs in the United States and Europe Contemporary PPPs (as defined by GAO above) originated in the United States in the 1980s, when seven states adopted Source: U.S. DOT, 2006. Build Operate Transfer (BOT) Design Build Finance Operate (DBFO) Build Own Operate (BOO) Design Bid Build Private Contract or Fee Services Design Build Public Responsibility Private Responsibility Public-Private Partnership Options and Range of Responsibility Figure A-2. PPP options.
A-24 legislation to allow private investments in highway projects. In 1987, Congress approved a pilot program authorizing (approx- imately) 35% federal funding of government-sponsored toll roads (Perez and March, 2006). Wider use of PPPs in the United States emerged in the 1990s when states experienced severe budget constraints, particularly in funding transporta- tion projects, due to the limitations of the mainstay of their revenuesâthe fuel tax. Twenty-one states and one U.S. terri- tory have since passed legislation enabling the use of PPPs for transport infrastructure projects (U.S. DOT, 2008b). Internationally, particularly in Europe, PPPs date back to the 1960s and 1970s (Spain and France), with their wide- spread use emerging after the Maastricht Treaty (1992) and the need to integrate the various countries newly intro- duced into the European Union. Once again, strict deficit control regulations pushed European nations, who were seeking integrated road infrastructure to realize the eco- nomic benefits of their Union, to make a big push toward PPPs. This push was facilitated by supportive policies of the European Commissionâs European Investment Bank and various other European structural funds (Perez and March, 2006; U.S. GAO, Feb. 2008). Early history of PPPs in the United States included sev- eral failed projects, but over time, experience with PPPs has improved results in transportation projects. Significant development in public policy was necessary (more details to follow) to streamline the contract processes that are critical for the success of these arrangements and improve PPP out- comes in transportation projects. Types of PPPs PPPs may either be a brownfield project or a greenfield project. Brownfield projects involve the operation or mainte- nance of an existing infrastructure asset. Most PPP projects for brownfield assets are long-term lease or concessions of exist- ing infrastructure projects (for example, long-term conces- sions on the Chicago Skyway and the Indiana Toll Road both use existing facilitiesâSee Table A-9). Greenfield projects are those involving the development of a new infrastructure asset (for example, Miami Port Tunnel, a long-term concession to design, build, finance, operate, and maintain a tunnel provid- ing access from the Port of Miami to the Florida mainland). Primary forms of innovative contracting for PPPs are design- segatnavdA noitpircseD tcejorP Missouri Safe and Sound Bridge Project Concession to upgrade, finance, operate, and maintain more than 800 bridges in Missouri Leveraged the private sectorâs ability to raise money Reduced costs over time by competitively bidding the work Chicago Skyway Long-term concession to operate and maintain 7.8 mile toll road in Chicago Up-front payment for concession of the toll road provided funding for other projects and made up for funding shortfalls Indiana Toll Road Long-term concession to operate and maintain 157 mile toll road in northern Indiana Long-term concession provided up-front payment to cover debt and make up for funding shortfalls Miami Port Tunnel Concession to design, build, finance, operate, and maintain a tunnel providing access from the Port of Miami to the Florida mainland Cost savings half the original costs projected by Florida DOT by relying on the private sector to construct the project, the state transferred the risk of cost overruns during construction and cost overruns in the long-term operation and maintenance Northwest Parkway Long-term concession to operate and maintain 11-Mile toll road outside of Denver and funding commitment for future expansions Costs $189 million less than originally estimated Virginia Pocahontas Parkway Long-term concession to operate and maintain 14 mile toll connector outside of Richmond and to build Richmond Airport Connector Actual cost came in $10 million below estimated costs Eliminated a potential delay of up to 15 years to raise public funds by relying on private capital Source: U.S. DOT, 2008b, and Deloitte Research, 2007. Table A-9. Advantages of PPPsâselected projects.
A-25 build contracts, design-build-operate-maintain contracts, cost- plus-time bidding, construction manager-general contractor, and construction-manager-at-risk (Fishman, 2009). Innova- tive financing used in PPPs includes project delivery structures occurring when the private sector provides some debt or equity financing. Examples of innovative financing techniques include design-build-finance-operate, build-operate-transfer, and long-term-lease-concessions (Fishman, 2009). Federal and State Policies Several federal programs have been enacted to promote PPPs. SAFETEA-LU amended Section 142 of the Internal Rev- enue Code to permit the issuance of private activity bonds to finance privately developed and operated highway and freight transfer facilities. This change in code allows for the mainte- nance of tax-exempt status of bonds for projects developed, designed, financed, constructed, operated, and maintained by private entities. By providing private capital with access to tax-exempt interest rates, private sources of capital are better be able to compete with public sources of capital (U.S. DOT, 2008b). Another federal program that has provided aid to PPPs is the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA). TIFIA provides federal credit assistance to major transportation investments of national importance. TIFIA credit assistance can take the form of a direct loan, a loan guarantee, or a line of credit. TIFIA credit assistance is available for as much as 33% of total project costs. For direct loans through TIFIA, loan maturity can be as long as 35 years, and the U.S. DOT has significant flexibility to allow for payment deferrals if revenues generated by the project are insufficient to cover the loan repayments (U.S. DOT, 2008b). Because the demand for assistance has exceeded the funding provided by TIFIA, the awarding process has become very competitive (CBO, Jan. 2011). Federal legislation also provided credit assistance for state infrastructure banks (SIBs). SIBs offer low-interest loans and loan guarantees for Federal-Aid highway projects. SAFTEA- LU allowed states to establish infrastructure revolving funds capitalized with federal transportation funds. Federal legisla- tion also provides for public benefit corporations. The estab- lishment of a 63-20 public benefit corporation allows a private company and private project developers to issue tax-exempt debt. SAFTEA-LU also added several programs to promote tolling. Tolling provisions, although not exclusively for PPPs, have aided the ability of private capital to invest in infrastruc- ture projects (Fishman, 2009). Yet another federal program advancing the use of PPPs is Special Experimental Project Number 15 (SEP-15). SEP-15 allows states to identify impediments to their use of PPPs in federal statutes, regulations, and policies governing the high- way program and request exceptions in order to test alternative project delivery mechanisms (U.S. DOT, 2008b). In 2007, the U.S. DOT announced the six Interstate routes to participate in the Corridors of the Future Program, aimed at improving freight movement and reducing congestion. A main objective of the program is to demonstrate the benefits of financing models that include private-sector capital (U.S. DOT, 2008b). SAFETEA-LU created the Public-Private Partnership Pilot Program (Penta-P) to showcase the advantages of PPPs for new fixed-guideway capital projects funded by FTA. The object of the program is to reduce risks, accelerate project delivery, improve reliability of projections of project costs and ben- efits, and enhance project performance (U.S. DOT, 2008b). SAFETEA-LU also created a variety of programs authorizing tolling on Interstate highways. These programs are not specific to PPPs but have facilitated the use of PPPs to implement tolling (U.S. DOT, 2008b). In addition to existing toll facilities, several states have adopted PPPs as a preferred approach for delivery of new transportation capacity and capital improvements. At the state level, there is broad variation in the legislation that states have adopted to authorize PPPs. Currently, 25 states have statutory authority to enter into highway or transit PPPs. The extent and type of legislation enacted âvaries from state to state . . . in the types and amounts of projects that are authorized and in the breadth of the authorization delegated by the legislature to state or local transportation agenciesâ (U.S. DOT, 2008b, p. 28). States with broad-based legisla- tion enabling PPPs include Colorado, Georgia, Florida, Mis- sissippi, Oregon, South Carolina, Texas, Utah, and Virginia. Other states have limited enabling legislation, and some states have legislation enabling only non-highway PPPs (not described here) (U.S. DOT, 2008b). State legislation that enables PPPs accomplishes the fol- lowing (Deloitte Research, 2007): â¢ Public entities are given considerable flexibility in the types of agreements they enter into and the specific procurement process. â¢ Contracts are awarded according to a best-value determi- nation, not just low price. â¢ Authority is given to use a mix of public and private dollars. â¢ Authority is given to have âmixed concessionsâ (the recon- struction or expansion and long-term operation of existing facilities). â¢ Allowance is given for the long-term lease of existing assets. â¢ Authorization is given for procedures to receive and con- sider solicited and unsolicited proposals. â¢ Provisions that would require further legislative action for a project to be authorized or financed, franchise agreement executed, or toll rates changed are avoided.
A-26 Advantages of PPPs The motivation for use of PPPs has consistently been a desire to benefit from the efficiencies from private-sector competition and to enlarge the funding for increasing the supply of public infrastructure. Also, where technology per- mits, PPPs allow a fee-for-service mechanism to make users pay for this infrastructure as they use it in the form of tolls (partially or fully privatizing public infrastructure). The role of PPPs in freight transportation projects is motivated by a number of factors, each of which is discussed below. Assistance in Filling Public Funding Gaps Public support can be difficult to obtain for freight-specific projects because of their indirect benefits. While freight proj- ects can help to grow the economy by providing more efficient transport of goods, this is an indirect benefit to many users, which can make such projects difficult to justify to voting con- stituencies (Hillestad et al., 2009). A long-term concession for Missouriâs Safe and Sound Bridge Project, covering 800 bridges in mostly rural areas, allowed leverage of private capital in a situation where the project could not provide its own revenues via tolling (see Table A-9). Another successful example of a revenue-generating project is the Alameda Corridor, a relatively unique project serving the high-volume ports of Long Beach and Los Angeles. Most recently (2010), the project called the Crescent Corridor, a 2,500-mile rail route stretching across 13 states from New Jersey to Tennessee and Louisiana, would offer significant economic and environmental benefits by creating tens of thou- sands of jobs and moving trucks off crowded highways such as I-81. Five states have joined together in a public-private part- nership to apply for $300 million in federal funding to develop the corridor, which would dramatically increase rail capac- ity along the route and represent one of the largest additions of freight transportation capacity since the Interstate Highway System in 1956. The federal money would leverage more than $140 million in state investment and the $264 million that Norfolk Southern Corporation, whose freight trains operate along the route, has committed to the project (Riley et al., 2010). Availability of Private Capitalâ Domestic and Foreign There is an unprecedented interest among global inves- tors in the potentially stable and long-term returns offered by transport infrastructure projects (HM Treasury, 2006). As of 2007, the total magnitude of PPPs worldwide is $572 bil- lion (U.S. DOT 2008b). Reports by the Financial Times have estimated that private equity has already raised somewhere between $50 billion and $150 billion (U.S. DOT, 2008b). A McKinsey Quarterly report from February 2008 estimated that the worldâs 20 largest infrastructure funds at that time had nearly $130 billion under private management (U.S. DOT, 2008b). By leveraging this capital, even at a relatively conser- vative leverage, significant investments in infrastructure could be made (U.S. DOT, 2008b). Reduction of Costs through Greater Efficiencies This is particularly important on large, usually very com- plex freight mobility projects with multimodal (cross-modal) links that are well suited for PPPs (Coalition for America, Nov. 2007). In most cases, a private role is also necessary for the supply chain in freight transportation (highway, ports, marine terminals, rail, and so forth). In general, there is potential for greater efficiencies, as compared to purely public-sector provision, because private-sector actors are concerned with return on investment and therefore have a greater incentive to deliver infrastructure projects on time. Also, long-term con- cessions, investment, and maintenance decisions are likely to be based on consideration of life-cycle costs versus initial costs of projects (Mayer, 2006). The public sector could also benefit from these cost savings via competitive bidding for projects. Competitive bidding saved Missouri money over time in the Safe and Sound Bridge Project, as did Florida in the Miami Port Tunnel concession, Denver in the E-470 Toll Road, Vir- ginia in the Pocahontas Parkway, and South Carolina in the Eastern Toll Corridor (see Table A-9). Avoidance of Public-Sector Debt Limitations The use of private-sector funding also helps jurisdictions that are limited by the amount of debt they can incur. Because, in some cases, the private sector assumes the risk of a proj- ect, debt limits are not applicable to certain PPPs, allowing more infrastructure to be developed more quickly than if only public-sector funding was used (Deloitte Research, 2007). The cost of municipal public debt in the United States could be as much as 30â35% lower due to the tax exemption of munici- pal debt in federal income tax filing (most investors benefit- ing from such tax exemption have marginal income tax rates in the highest federal income tax bracket). Nonetheless, the gap between the costs of borrowing for the public and the pri- vate sectors has narrowed since the onset of the new millen- nium. This is probably more true in other parts of the world than in the United States, as will be explained further in the discussion on limitations of PPPs. Transportation Services Charging The ability to charge for freight transportation infrastructure across different modes is important for the more expansive private-sector engagement required by PPPs and for benefiting from the PPP. However, it is not required, as seen in the case
A-27 of Missouriâs Safe and Sound Bridge Improvement Program. Charging for services is now more feasible for roads than it has ever been historically, particularly with technologies for vehicle tracking and automated billing, including fees tied to VMT, type of vehicle, type of roadway, and time of use (Hillestad et al., 2009). In terms of value pricing for freight, by charging more per axle, toll roads can recoup some of the cost of addi- tional wear and tear on the road caused by heavy trucks that regular roadways cannot. PPPs have also facilitated the use of technology, such as the PrePASS weigh stations for trucks that use weigh-in-motion technology for weight-based charges. Risk Sharing The private sector can provide important risk mitigation and risk sharing for projects. Risks of major infrastructure projects are associated with the design, regulatory require- ments, financing, and construction of the project. After con- struction, risks are associated with the generation of traffic and revenue for financial viability of the project. Private capi- tal, for a price, can assume the debt for such projects and also the risk of cost and schedule overruns, barring certain cir- cumstances, such as changes requested by the public agency (U.S. DOT, 2008b). In many cases, the private sector will assume the risks associated with financing over the life of the project while the government still maintains a residual right of ownership. The private sector may also have a greater abil- ity to diversify risks, such as across projects in varying loca- tions (Buxbaum and Ortiz, 2009). There is also the possibility of packaging various risk return profiles in a single PPP. Use of equity finance could potentially increase risk taking but, to the extent that this risk is borne by the private entity in the PPP, public resources will not be exposed to added risk. Return on Investment as Funding Basis Since private investors are concerned with returns on their investment, there is a greater incentive to carefully consider a projectâs costs and benefits (U.S. DOT, 2008b). Unfortunately, this is not always the case with public funding; political factors often take precedence over economic and broader social crite- ria. For example, earmarked funding, allocated to specific con- gressional districts in the federal highway bills, can sometimes misallocate resources. The number of earmarks in transporta- tion infrastructure funding has grown significantly, from 10 in 1982 to more than 6,000 in 2005 (National Surface Transpor- tation Policy and Revenue Study Commission, 2007). Limitations of PPPs The most common failure of PPP projects lies in the overesti- mation of potential demand for the transport service, resulting in overpricing. Delivery of efficient services to users at afford- able prices is key to the success of such ventures. Competition at various stages of the project, therefore, is important, typically taking the form of competitive bidding in various stages of the process of PPP award and in the final transfer of rights to the awardees, sale of assets, and so forth. Additionally, legal issues in the processâincluding various government clearances (environmental, right-of-way, and so forth), contract terms and finally transparency to the public, and public perception of the agreements with the private sectorâcan become pitfalls for PPP arrangements for providing infrastructure services. Monopoly Pricing by Toll- or Charge-Setting Private Entity One benefit of PPPs is moving the issue of fee increases away from the political realm to the market. However, there is a concern that since infrastructure facilities are often monop- olies, the private sector can charge unreasonably high fees. Therefore, PPP contracts could be used to limit fee increases to the rate of inflation or some other predetermined rate, or the government can retain the power to set rates based on a similar objective criterion (Deloitte Research, 2007). There are several types of PPPs that do not require the implementation of tolls (for example, design-build, maintenance contracts, and agreements with availability payments/shadow tolls). Shadow tolling involves the government paying the private sector based on traffic flows, while the consumer is not charged directly. This is one method for alleviating public objections to tolling. Whatever the method of revenue generation in the PPP, toll- ing policy and other types of revenues generated/disbursed to the private entity participating in the PPP are an important public responsibility that should be clearly articulated in con- tracts (Buxbaum and Ortiz, 2009). Hazards of Non-Compete Clauses A non-compete clause provides the concessionaire with monopoly power and prevents creation of competing capacity within a specific distance from the facility, or the public sector is required to pay the concessionaire (private entity in the PPP) for the lost revenues on the facility with the concession. In reality, after the experience with strict non-compete clauses in the 91 Express Lanes PPP in California, most PPP deals have included âlimited-competeâ clauses (Buxbaum and Ortiz, 2009). Higher Cost of Capital The cost of municipal public debt in the United States could be as much as 30â35% lower due to the tax exemp- tion (most investors benefiting from such tax exemption have marginal income tax rates in the highest federal income
A-28 tax bracket). This argument contains some truth, but the criticism overlooks the difference between cost of capital and cost of debt (Deloitte Research, 2007). While the cost of municipal, tax-exempt debt is lower in the United States, the private sector is able to combine equity with debt, and private corporate debt is also cheaper than private project debt (Mayer, 2006). Additionally, PPPs leverage creative financing using credit guarantees in which the government provides funds to PPP projects through cash advances and loan agreements, and the private sector pays back these loans to the government after completing the project. Selected private-activity bonds also enjoy tax exemption from federal income taxes (but might still be exposed to the Alternative Minimum Taxes). Additionally, private-sector efficiencies provide risk reduction that lowers the effective cost of capital in PPPs. Valuation of the Public Facilities Valuation of the public facilities involved in the PPP is a critical component. Public-sector experience in valuing public assets is limited, but recent accounting regulations have pushed governments to value their capital assets, providing a baseline for estimation. NCHRP Synthesis 391: Public Sector Decision Making for Public-Private Partnerships (Buxbaum and Ortiz, 2009) highlights the need for public-sector personnel with skills including value engineering, business modeling, risk transfer assessment, capital budgeting, traditional financial problem- solving methodology, and performance auditing. Inadequate Transparency and Public Participation According to NCHRP Synthesis 391, â[t]he Chicago Sky- way and the Indiana Toll Road concessions are particularly noted as examples in which transparency was lacking from the public perspective (as reported through the news media), even though public officials involved in these deals believed the process to be transparent and both transactions were subject to legislative review and approval of final termsâ (Buxbaum and Ortiz, 2009). The perception of a lack of transparency has plagued other recent PPP deals (e.g., the SH-130 in Texas), but after the public backlash, some PPP proponents and decision- makers took notice and are making an effort to communicate and involve the public in the process. In New Jersey, the gov- ernor began to explore the feasibility of leasing public assets, including toll roads, eventually moving to pursue an asset monetization through the creation of a public corporation. Both solicited and unsolicited PPPs have some conflict of interest (Buxbaum and Ortiz, 2007). There are also the related issues raised in the literature about public perception of foreign investments and control of public infrastructure and national security issues in PPPs for public infrastructure projects. PPP Revenue Not Always Directed to Transportation Needs Questions have been asked about the use of the money raised through PPP deals. For example, in the $1.8 billion Chicago Skyway project, the revenue was used partly to pay off the City of Chicagoâs $200 million debt. Twenty-five percent of the revenue from Texas toll roads goes into general funds instead of back to transportation-specific projects, and Indianaâs $3.8 billion toll road has provided a great deal of general gov- ernment funding to surrounding counties (See Appendix E). 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