Dedicated Revenue Mechanisms for Freight Transportation Investment (2012)

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16 Candidate Revenue Mechanisms This study started with a very broad look at possible revenue mechanisms based on a review of the literature and current (early 2010) proposals. The research team developed a list of over 30 possible revenue mechanisms in eight major categories: • VMT fees – Distance-only VMT fees – VMT fees with congestion pricing or TDM options • International trade fees – Container fees – Harbor Maintenance Tax increase – Ad valorem import/export fees – Customs revenue • Vehicle, sales, and excise taxes and fees – Truck/trailer tire tax – Truck/trailer sales tax – Truck registration fee – Vehicle inspection fee – Vehicle weight tax – Axle weight fee – Commercial driver’s license fee • Freight activity and value taxes or fees – Freight waybill/bill of lading tax – Freight ton-mile tax – Heavy vehicle fee – Freight tonnage tax – Freight transportation value tax • Fuel tax reform – Fuel tax rate increase – Fuel tax rate indexing – Reduced exemptions – Recapturing interest earned – Reduced diversions – Coverage of alternative fuels – Diesel fuel tax supplement – British thermal unit (BTU) fee • Carbon taxes – Carbon tax – Cap-and-trade proceeds • Investment incentives – PPPs – ITCs • Tolling – Tolling new roads – Tolling existing roads – Tolling truck lanes – Congestion pricing Most of the proposals are user fees intended to link the cost of building and maintaining infrastructure to its use for moving freight. Most discussions of infrastructure finance also anticipate a major role for PPPs or ITCs to encourage private investment in freight infrastructure and leverage public resources. Screening Criteria Screening criteria for the candidate revenue mechanisms entailed more than just revenue yield. Although the primary purpose of these proposals is to generate revenue, they are also expected to promote efficiency, reduce environmental impacts, and promote equity. The screening criteria reflect a mix of factors that can be quantified or decided in some definitive way (such as the legal status of Harbor Mainte- nance Taxes) and others that rely on more qualitative factors (such as public acceptance). The criteria used include the following: • Technical and legal feasibility • Institutional feasibility • Revenue potential • Public-sector implementation, collection, and enforcement cost C h a p t e r 2 Option Screening

17 • Private-sector implementation and compliance cost • Incentives for efficiency • Environmental incentives and impacts • Modal impacts • Economic impacts • Potential for TDM, congestion pricing, or road pricing • Indications of public acceptance Options Screened Out The following revenue mechanism options were screened out—international trade fees, freight tonnage or ton-mile fees, freight value or value-added, waybill taxes, and carbon taxes or cap-and-trade proceeds. A discussion of each of the screened-out revenue mechanism options follows. International Trade Fees International trade fees (container fees, Harbor Main- tenance Taxes, customs fee diversion) do not appear to be viable options to fund domestic freight infrastructure. Fees assessed on international containers may be a means to fund port-area infrastructure or other projects directly related to international container movements, but were not found to be an appropriate mechanism to fund the broad range of U.S. freight infrastructure. Likewise, dedicating a portion of customs fees (or adding a surcharge) for the broad range of U.S. domestic freight infrastructure does not appear practical and, furthermore, could complicate or violate international trade agreements. Also, diverting existing fees would not increase the total resources available. For situations in which international trade fees are legal, they appear more suitable to project-specific or port-area infrastructure funding. Freight Tonnage or Ton-Mile Fees Freight tonnage or ton-mile fees that depend on the actual weight of freight being moved were found to be impractical, if feasible at all. The difficulties with using these kinds of fees include the following: • Most freight shipments are not weighed, and attempting to weigh all such shipments would be costly, slow, and cumbersome. • The weight of vehicles varies during multistop trips, and attempting to account for such changes would be extremely burdensome. • Freight tonnage or ton-mile measures would not apply to heavy service vehicles with impacts and infrastructure needs similar to those of freight vehicles. The Oregon State “ton-mile tax” cited in some literature discussions is actually based on the declared maximum gross weight of the vehicle, not on the actual weight of freight. Freight Value or Value-Added The value of goods being shipped and the value created through freight transportation were reviewed as possible bases for taxes or fees, but were found to be infeasible for the following reasons: • Freight value and value-added are only tenuously related to freight infrastructure requirements or impacts. • The value of many (if not most) freight shipments is unknown or undocumented and not readily established. Both value and value-added are conceptually hard to define for movements such as solid waste, used shipping containers, or empty trailers. • While an estimation method for shipment-by-shipment value-added is valid conceptually, it would be extremely difficult to implement and would likely lead to market distortions. Waybill Taxes Taxes or fees on the cost of transportation service (“waybill” or “bill of lading” taxes) have been discussed in the literature on a conceptual level. Canada taxes transportation services as part of a broader sales tax system, as do some European countries. A waybill tax seems conceptually simple, does not need any technology, and would apply to all modes. As a practical matter, however, a waybill tax would have serious drawbacks. Some difficulties with waybill taxes are the following: • The cost of freight transportation and the invoice amount to the transportation customer are poor proxies for infra- structure impact or needs. • Much, if not most, highway freight transportation is conducted by private fleet operations in which no trans- portation bill or invoice is generated. (See Appendix B.) An attempt to estimate the implicit cost of private fleet transportation would be highly complex, difficult to imple- ment, and likely to create market distortions. A tax on waybills, bills of lading, or transportation services thus appears to have very limited potential as a freight infra- structure funding mechanism. Carbon Taxes or Cap-and-Trade Proceeds For the foreseeable future, carbon taxes are a conceptu- ally attractive but pragmatically difficult revenue-generation

18 mechanism for freight infrastructure. Carbon taxes have some potential advantages: • They can be mode neutral, especially carbon production taxes that are embedded in fuel costs. • The collection costs would be low, with no technology requirements. • Carbon taxes could offer a clean slate for narrowing or eliminating fuel tax exemptions. For transportation, however, a carbon tax is essentially a fuel tax. Carbon taxes are ordinarily viewed as environmental initiatives, and funding sources for mitigation and remediation programs, not infrastructure. To fund infrastructure, carbon taxes would have to be much higher and transportation given a much larger revenue share than in any proposals to date. Imposing carbon taxes on other modes and on exempt users that do not pay fuel taxes would create additional acceptance barriers. Public-Private Partnerships and Investment Tax Credits Public-Private Partnerships PPPs have received considerable attention in the literature and are frequently included in proposed strategies for infra- structure funding. The research team analyzed the different types of PPPs used in transportation infrastructure projects and evaluated the potential opportunities to leverage public funding with private sources of funding or to obtain other financial advantages. In reviewing existing projects described as PPPs, three categories of PPPs were selected for analysis— concession agreements, grant agreements, and other types of agreements. PPPs appear to be a viable means of facilitating project- specific funding, thereby reducing the pressure on nationwide funding mechanisms. The research team determined that the major value of PPPs is not in providing capital that would otherwise be inaccessible, but in facilitating more rapid capi- tal investment at a comparable or even lower financing cost. The sources of PPP funding can, for the most part, be accessed through revenue bonds or other instruments. The efficiency attributes of private-sector development and operation are, theoretically, accessible through outsourcing and design-build contracts without private financing. PPPs, however, may prove to be a quicker and more flexible means of tapping those fund- ing sources and efficiencies. In that respect, the true function of PPPs may be more institutional than economic. PPPs are given extensive treatment in Appendix E. Investment Tax Credits For railroads, and potentially for other modes, ITCs for capacity enhancements are widely considered a viable means of inducing additional beneficial private investment. The research team reviewed the ITC program for short line railroads as a guide to the form of potential multimodal applications. An ITC can be effective in encouraging additional private investment of a particular type or in a general development direction. As such, an ITC can supplement the public sectors’ own infrastructure investment efforts. There is very limited evidence, however, on the amount of new private investment that is induced by ITCs. ITCs appear to be a potentially valuable part of a com- prehensive freight transportation financing package but can do only part of the job by themselves. The usefulness and effectiveness of ITCs for infrastructure funding will depend heavily on what projects are eligible, what the tax credit rate is, and how permanent the ITC becomes. Investment tax credits are also treated at greater length in Appendix E. Leading Candidates The research team narrowed the field to three conceptual candidates—fuel tax surcharges, VMT fees, and federal vehicle registration fees. The three leading revenue mechanism candi- dates are analyzed in the following three chapters and compared in the final chapter. The basis for comparison includes: • Revenue potential • Technical feasibility • Implementation costs and efficiency • Indication of public acceptance • Incentives • Modal coverage and impacts • Equity • Linkage between use and payment • Transportation system impacts As noted in the introduction, the various revenue mech- anism proposals are largely conceptual. With few excep- tions, the amounts, coverage, collection mechanisms, and so forth have not been worked out in detail. Accordingly, the research team has assembled information and models from multiple sources and developed detailed scenarios to enable relative comparisons. For purposes of those comparisons, the research team set a common annual gross revenue goal of $5 billion for all three options. The comparisons at the $5 bil- lion target level are supplemented by estimates at other levels to illustrate the presence or lack of scale economies.