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Appendix J Additional Detail on Funding and Financing Options This appendix provides additional detail on options for funding the needed investments in the Interstate Highway System to supplement the discussion of funding options in Chapter 6. The appendix first elaborates in turn on mileage-based user fees and the use of revenues from carbon pricing and cap-and-trade programs, including pilot programs testing these approaches. The second section examines the possibility of financing improvement proj- ects where traffic is of sufficient volume to allow for borrowing the neces- sary funds and paying them back with revenues from fees charged to users. The third section details the National Surface Transportation Infrastructure Financing Commissionâs evaluation of potential taxes and fees associated with highway transportation. The fourth section provides context for the options reviewed in Chapter 6 and this appendix by presenting a high-level review of funding and finance options in other industrialized democracies.1 The final section provides a rough estimate of federal motor fuel taxes or per-mile fees necessary to raise the additional revenue of the magnitude described in Chapter 6. 1 The committee appreciates the assistance of Thomas Boast, THB, New York; Remy Cohen, Cohen & Co., Milan; and Jose Manuel Vassallo, Universidad PolitÃ©cnica de Madrid, for the review of the international perspective in this appendix and provision of helpful references and information about recent developments as of May 2018. 549
550 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM ADDITIONAL FUNDING OPTIONS Mileage-Based User Fee (MBUF) for All Roads2 Both of the national commissions the Congress established in SAFETEA-LU recommend evaluating and moving toward vehicle-miles traveled (VMT) fees3 to ultimately replace motor fuels taxes.4 Since those reports were published in 2007 and 2009, the term âVMT feeâ has been replaced by âmileage-based user feesâ (MBUFs). In the Fixing Americaâs Surface Transportation (FAST) Act of 2015, Congress approved a $92 million pilot program in which many states are participating. As described below, preliminary results are being reported even as several pilots are continuing to collect and analyze data. At the time of this writing, MBUF pilot projects are under way in California, Colorado, Delaware, Hawaii, Oregon, Washington, and other states, including a 14-state coalition of Western states and the Eastern states participating in the I-95 Corridor Coalition (both coalitions are participat- ing as part of state-funded pilots). Prior research and state pilot projects have explored several important interrelated issues about MBUFs, among them are: â¢ Public understanding and acceptance, particularly regarding pri- vacy issues; â¢ Charging criteria (i.e., whether to charge by functional class of highway and jurisdiction, which would allow multiple fees to be collected at the same time, and how to assess the charge, for ex- ample, odometer readings, location-based devices, or âpay-at-the- pumpâ technology that does not include use of particular roads); â¢ Revenue redistribution (i.e., how to credit mileage accrued outside of statesâ or localitiesâ jurisdictions or how to distribute it back to other appropriate jurisdictions); and â¢ Equity. Understanding and Acceptance Public awareness and acceptance of the concept of charging a MBUF ap- pear to be quite low (Agrawal et al. 2016), which is not surprising given the novel nature of the concept to most of the public. Opinion polls conducted 2 This appendix also draws on Kirk and Levinson (2016). 3 VMT fee is a road charge based on the miles driven by a specific vehicle. 4 The committee appreciates the assistance of Adrian Moore, Ph.D., Vice President for Education, Mileage-Based User Fee Alliance, for his review and comments on an earlier draft of this section.
APPENDIX J 551 for the Washington State and Oregon MBUF pilot projects support this finding (Oregon: Oregon DOT 2017; Washington State Transportation Commission and Washington State DOT 2017). States have used their pilot projects, in part, to test how the publicâs response changes as experience and familiarity with the concept grows.5 Support by users has been mixed in early trials. A survey of the participants in Californiaâs trial found that â78% were satisfied with the security of their data, 73% agree that road charge is more fair than a gas tax, and 61% were very satisfied with the concept of road chargingâ (California State Transportation Agency 2017). However, because the participants in this trial were volunteers, there is some question of whether these results are representative of the general, motoring public in California or elsewhere (California State Transportation Agency 2017). In contrast, for example, a majority of the 500 Minnesota volunteers in a pre-FAST Act pilot MBUF program continued to prefer fuel taxes over a MBUF that tracked mileage using a GPS-based system.6 Considered to be key aspects of public acceptance, both privacy and the security of data are being explored in most of the pilot projects under way. Among the state pilots, Hawaii is only testing initially for how to charge for mileage based on odometer readings; most other state pilots are testing a variety of mechanisms that would allow for charging by type of road used, jurisdiction, and congestion levels. Minnesota found in its earlier pilot program that participants in its GPS-based program were not particularly concerned about the systemâs vendor having records of their trips, but were very concerned about hackers gaining access to their data. Political acceptance is also an issue. For instance, political leaders in Massachusetts and Connecticut resisted plans for pilot projects out of con- cern that the MBUF would be viewed by the public as laying the ground- work for a new tax (Connecticut: Lee 2017; Massachusetts: Buell 2016). Additional states to those already participating in pilot tests, however, are either moving forward with, or seriously considering, their own evalua- tions (Missouri: Schmitt 2018; Utah: UDOT 2018). This experience raises an important issue about the viability of MBUFs as a replacement for, or supplement to, fuel taxesâif political leaders are unwilling to raise fuel taxes, would they be any more willing to institute an MBUF and keep its level current with demands for highway investment? 5 Public sentiment in Stockholm ran against congestion pricing when a large-scale pilot project began, but this shifted to favorable as residents became familiar with the approach (Eliasson 2014). 6 This $5 million study was funded by the state and completed before the FAST Act pilot program was established. The complexity of the Minnesota trial, which included safety and trip time estimation in addition to assessing a fee and relied on early generation smart phone technologies, may have affected respondent opinions (Rephlo 2013).
552 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM What to Charge for and How Oregonâs evaluation of the initial phase of its pilot program pointed to limitations in all the technology options explored, reporting that imbed- ded devices did not work in all vehicles, fuel consumption could not be accurately estimated in all vehicles, and devices could be removed from vehicles for periods of time and thereby avoid paying the MBUF (Oregon DOT 2017). Oregon recommended designing systems that are âtechnology agnosticâ as MBUF technology evolves and suggests that MBUFs may have to start at a simple level and mature with technology and public acceptance. Final results from Californiaâs pilot, however, suggest that the simple sys- tems that might be rolled out initially are the most expensive to operate and enforce (California State Transportation Agency 2017, 7), whereas the most technologically sophisticated systems (with and without location information) show promise but require refinement. At the time of this writ- ing, California has embarked on an evaluation of the âpay at the pumpâ MBUF option, developed earlier by Oregon (Whitty and Svadlenak 2009), because of the publicâs acceptance and familiarity with paying gas taxes. A subsequent phase of Oregonâs pilot will evaluate other technologies, which combined with evaluations under way in other states and consortia of states, may find more promising options that reduce overall costs and allow for sophisticated pricing. Crediting Mileage to Jurisdiction Aside from Hawaiiâs pilot (where out-of-state mileage concerns are ir- relevant), most pilots are evaluating whether and how to credit mileage accrued in other states. This interest appears to be driven by concerns about fairness and public acceptance. If it proves feasible to document such multi-jurisdictional mileage efficiently, it raises the question of how to transfer funds among states. The complexity of this problem grows with the variety of different charges that states may choose to impose and the num- ber of other jurisdictions with which they exchange funds; this complexity contributes to the relatively high cost of administering MBUF programs (described below). At the time of this writing, the Western state coalition is studying this issue (through the grants to Oregon and California), as is the I-95 Corridor Coalition effort (which is based on Delawareâs pilot) and will also test interoperability with toll roads. Cost of Collection Initial estimates of the cost of collecting MBUFs are in the range of 5 to 13 percent compared with about 1 percent for the fuel tax (Kirk and Levinson
APPENDIX J 553 2016, 4). The federal fuel tax is collected on fewer than 1,000 transactions to fuel wholesalers. A nation-wide MBUF would have to collect informa- tion on and bill more than 250 million vehicle owners, so it would, of ne- cessity, be a more complex and expensive proposition. The Western states coalition is exploring the concept of a single multi-state system for collect- ing data across states, billing users, and handling cross-state transfers in order to achieve needed economies of scale. Clearly, a new approach with a much higher administrative cost than the existing one has an additional hurdle to gaining public acceptance. Equity Available summaries from interim results of state pilot projects address some of the equity implications of MBUFs, that Congress asked that pilot projects address. The equity of road pricing strategies are more complex than it might seem on the surface, since equity has so many dimensions (such as income, geography, and user responsibility, among others), and because the equity consequences depend not just on who pays but on how the revenues are used, including cross-subsidies to rural roads and offering alternatives or rebates to those least able to pay (TRB 2011). Some state pilot projects consider the concern that rural residents would pay more than urban residents, but Oregonâs study finds the opposite. Urban drivers tend to drive smaller, more fuel-efficient vehicles than rural drivers, so switch- ing to a per-mile traveled fee would cause them to pay more under the MBUF program (Oregon DOT 2017, 6). In general, higher income vehicle owners would pay more than lower income vehicle owners because they drive more. Revenue raising mechanisms that rely on payment from a bank account or by credit card, however, raise an immediate threshold issue for the 7 percent of the population that is âunbankedâ (FDIC 2017) and would therefore have difficulty paying unless some subsidy or cash alternative were provided. In terms of equity among tax payers, MBUFs should be a fairer charge to road users than fuel taxes (since electric vehicles do not pay and hybrids pay less that gasoline/diesel-fueled vehicles) and should also be fairer than using general revenues to pay for roads since payment of income and sales taxes does not reflect road use. ProâMBUFs are potentially an efficiently targeted user fee because they could be adjusted by weight (to account for road wear), congestion, environmental impact (using vehicle fuel economy as a proxy), and for other purposes. Several ongoing pilot projects have demonstrated technical feasibility, albeit all variations have some important shortcomings. MBUF variations are in use in Europe and New Zealand. European models are re- stricted to trucks and are applied to assess environmental and road damage. New Zealand does not collect fuel taxes on diesel-fueled vehicles to avoid
554 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM taxing diesel fuel for farm vehicles. A mileage-based fee has been assessed to New Zealand diesel-powered personal vehicles (based on odometer read- ings) since 1977 (Kirk and Levinson 2016). ConâIt would be legally questionable for the federal government to require states to impose a MBUF for Interstate use since the Constitution does not give the federal government the ability to compel states to raise fees, but the mandate could probably be conditioned on receipt of federal aid (Kirk and Levinson 2016). An MBUF for the purpose of collecting fees may require location-based devices that generate privacy concerns in order to estimate use of roads within specific jurisdictions or on various road systems. Public awareness and acceptance of the concept of charging a MBUF appear to be low in baseline opinion polls, but experience and familiarity may turn this around. The concept of using pilot studies to explore replacing the fuel tax with a MBUF became politicized in at least two states, indicating political challenges that would have to be overcome. In both cases opponents alleged that the pilot was a stepping stone to a new tax. (Regarding concerns about systems that track driversâ trips, a âpay at the pumpâ system tested in the earliest Oregon trials demonstrated that such a system could work without tracking drivers, but it would not be able to estimate usage on specific segments of the highway system and, of course, it would not be feasible for alternative fuel vehicles [Whitty and Svadlenak 2009].) As with toll roads, a MBUF would have a higher collec- tion costâestimated to be in the range of 5 to 13 percent. The cost could be driven down by relying exclusively on electronic transactions, but would have equity concerns because of the individuals not having bank accounts or credit cards. The technology that would be used invokes other complica- tions. An after-market device that would be added to existing vehicles could be easily disconnected. Reliance on devices built into new vehicles could avoid this problem, but given that it takes about 20 years or more for the light-duty fleet to turn over, it would take decades before all vehicles were paying in the same way. Californiaâs final report recommends evaluating a pricing system based on mileage measurements gathered from in-vehicle telematics systems, which all new vehicles are expected to have by model year 2020 (California State Transportation Agency 2017, 8). Other possible disadvantages of an electronic MBUF are the cybersecurity vulnerabilities of both the device in vehicles and billing records. One often unconsidered issue is that establishing a rate for per-mile charging may be no less politically fraught than raising the fuel tax (TRB 2006). Also lacking consideration is what level of government would establish the rates. Given that local condi- tions (such as traffic, construction costs, and feasible alternatives) will be highly influential in determining an appropriate rate, fairness may imply that states and local governments should set rates within their jurisdictions.
APPENDIX J 555 As concluded by the Policy Commission, given the growing limitations of the fuel tax, the need to find a replacement or supplement to it, and wide- spread experimentation with MBUFs, it appears that workable solutions for at least a simple MBUF could be found. It may, however, take considerable time for the public to understand and accept this approach (and it may not) and for implementation to proceed in an incremental fashion. For a general MBUF for all roads to work as a funding source for the Interstate Highway System, some sort of location-based approach may be needed to record trips on the Interstates, and the technology required for this raises the most concerns about privacy invasion (see, however, the MBUF for the Interstates section of Chapter 6 for a possible approach to this problem). Some variations on an MBUF are feasible in the foreseeable future, but a decade or more may pass before they achieve widespread public acceptance and resolve concerns about technology and cost. Carbon Pricing and Cap-and-Trade Revenues for Transportation If the nation and individual states were to follow most economistsâ recom- mendation to tax carbon as the most efficient way to reduce fossil fuel emis- sions, it would generate a substantial revenue stream that could be invested in transportation among other options. The Finance Commission viewed these options as potentially strong revenue sources for highway funding and recommended that, if imposed, some share of the funding should be dedi- cated to the Highway Trust Fund. Lacking specificity about such strategies in the United States, however, the Commission declined to recommend a specific amount or share of the resources. Carbon cap-and-trade programs are seen as a more politically viable approach to regulating carbon emissions than pure carbon taxes. Carbon cap-and-trade programs are in place in some nations and in California. In 2017, Californiaâs legislature revised and extended its program to 2030. Under the previous program, 60 percent of funding generated through auctions has been dedicated to transportation, including high-speed rail, transit, affordable housing (linked to transit), and rebates for purchase of electric vehicles among others (California Air Resources Board 2017). Political debates about the California cap-and-trade program has created uncertainty about the program and the revenues it generates. Although transportation has been a major beneficiary, funds have not been dedicated to highway construction, maintenance, or repair because the purpose of the funding is to reduce carbon emissions. Funds have been invested in transit and other transportation projects and programs believed to reduce carbon emissions. As described in Chapter 6, there are carbon emission reduction strategies that could be employed on Interstate highways to facilitate the adoption of long-distance zero- or low-carbon emission vehicles.
556 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM FINANCE OPTIONS Financing those projects that have sufficient traffic to pay for themselves could serve as a useful supplement to funding. Financing implies that proj- ects that have sufficient demand could be funded by borrowing with the repayment based on revenues charged to users. Many network links, par- ticularly in rural areas, however, may be unable to pay for themselves in this way. Thus, financing should be viewed as a supplemental option to fund- ing. This section reviews publicâprivate partnerships (instruments that can design, finance, implement, maintain, and operate projects); bond finance (a mechanism to attract capital); public sector loans, and loan guarantees (means of extending the creditworthiness of projects). PublicâPrivate Partnerships In recent years, the private role in designing, building, operating, maintain- ing, and financing highways has grown through publicâprivate partnerships (P3s). P3s offer the potential to harness the private sectorâs ability to design and construct projects faster than the public sector while also bringing in additional funds through equity contributions.7 P3s can take myriad forms, ranging from relatively simple projects, where the partnership designs and builds a project to be owned and operated by the public sector, to ar- rangements where a P3 designs, builds, finances, operates, and maintains a highway, bridge, or tunnel, sometimes for decades. P3s depend on either a revenue stream derived from tolls or future public payments, often referred to as âavailability paymentsâ to the private partners to reimburse their up- front capital investment and provide a profit. These future payments are typically derived from expected federal or state funding and are similar in some regard to revenue bonds (described separately below). U.S. experience with P3s in the highway industry has been slowly expanding since the 1980s. Following 1987 authorizing legislation that permitted pilot projects, subsequent federal authorizing legislation up until the present has tended to expand the opportunities for public agencies to partner with the private sector, particularly by allowing wider use of tolls on federal-aid highways (with the exceptions of existing Interstate lane- miles). Investors in P3s are attracted to larger, more expensive projects because they represent a better opportunity to recoup the large up-front costs associated with negotiating with the public sector and funding the costs of moving projects through the lengthy environmental review process. Partly for this reason, P3s, despite their growth, represent a fairly small share of total highway investment. From the quarter of a century from the 7 This section draws considerably from Mallett (2014).
APPENDIX J 557 late 1980s through mid-2015, a total of 21 P3 projects worth $24.6 billion were under way compared to nearly $250 billion in total highway spending by all levels of government in 2014 alone (FHWA 2016, 4, Appendix C).8 Furthermore, some would argue that such projects merely represent a form of federal borrowing and doing so at a higher effective rate than that at which the government can itself borrow. ProâP3s could be attractive for future investments in the Interstate Highway System by accelerating construction or reconstruction and by pro- viding up-front capital to help make these projects possible. Projects that proceed with limited up-front public investment also allow existing annual authorized funding to be spread over more projects. To the extent that P3s can design, build, and complete projects faster than the public sector, they can also reduce total construction costs. ConâP3s that include private financing that depend on tolls are greatly limited by federal restrictions on tolling existing Interstate roadways. For P3s that depend on âavailability payments,â it is not obvious what the advantage to the states would be in the long term beyond the fact that a P3 might be able complete some projects faster than a state could with âpay-as-you-goâ funding. As with toll roads in general, some P3s have defaulted and required additional state and or federal funding (see Mallett 2014, 5â9). Moreover, not all projects have been deemed to be good deals for the public. Finally, the growth of P3s would not necessarily represent net new funding for transportation if policy makers choose to authorize or appropriate less funding with the expectation that privately financed projects will fill the gap. P3s do provide opportunities to expand the resource base for future Interstate Highway System funding and could play an important role in maintaining and expanding segments of the Interstate System, particularly if Congress lifts the limits on tolls for existing Interstates. The growth in experience with P3s and availability of technical assistance from the Federal Highway Administration (FHWA) and private-sector advisors may help weed out projects that do not have the potential to succeed. Net benefits depend on whether Congress would view private financing as a supplement to public funding rather than a substitute. Tax Exempt, Tax Credit, and Revenue Bonds Financing of public infrastructure improvement projects typically relies on the bond market to raise the up-front capital required. In 2014, the most recent year for which complete data are available, bond proceeds of all types represented 18.8 percent of spending on highways and roads by 8 For total spending on highways, see Mallett and Driessen (2016, Table 2).
558 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM states and 9.5 percent of such spending by local governments (Mallett and Driessen 2016, Table 2). Most state and local government borrowing for roads relies on tax-exempt bonds, referred to as municipal bonds (munis). Munis typically have a lower risk than other bonds because they are backed by the taxing power of the government issuing the debt, which lowers the cost of the project to the issuer of the bonds. Munis also exempt interest payments from federal taxes (and state taxes in many states), which makes the investment attractive, particularly to high-income investors. It should be noted, however, that most pension funds and certain kinds of international investors, both of which are important potential investors in long-term infrastructure projects, are exempt from federal income taxes, so these tax advantages would not necessarily drive investor behavior. Revenue bonds are a form of muni in which the revenues from a par- ticular source are used to repay bond holders rather than relying on the general taxing authority of the issuing government. They have the same exemption from taxation on interest earned as other munis. However, they pay a slightly higher interest rate due to the lack of backing by the issuing entityâs general tax authority. Revenue bonds are typically used to fund capital improvements in municipal water and sewer authorities with repay- ment based on the revenues earned from ratepayers. In principal, a revenue bond could be repaid from expected future federal or state aid, similar to âavailability paymentsâ in P3s, but would likely pay a risk premium due to the uncertainty about future reauthorization of federal and state trans- portation programs. Debt issued by private entities of P3s for infrastructure projects can also use qualified private activity bonds, which provide tax exemptions like mu- nicipal bonds but are issued by private entities. There is currently a federal ceiling on total issuance of such bonds for transportation infrastructure of $15 billion, of which $6.6 billion had been allocated as of the beginning of 2017 (Build America Bureau n.d.). Private issues of bond debt have also relied on various forms of tax-credit bonds, which provide a tax credit or direct payment to either the issuer of the bond or the investors in the bonds. Congress has authorized tax-credit bonds for limited periods for specific purposes. Recent examples used in transportation infrastructure projects have been Build America Bonds (BABs), for which authority expired in 2011 (Driessen and Stupak 2016, 4). A previous Transportation Research Board study that examined public financial assistance to private financers of transportation infrastructure recommended that Congress treat public and private issuers alike in the case of financing public transportation in- frastructure (TRB 2009). ProâFederal subsidies for bonds related to infrastructure expand the potential investment in infrastructure beyond the levels provided in direct grants. Governments have long experience with such bond programs and some states rely heavily on them.
APPENDIX J 559 ConâTax exemption and tax credits reduce funding to the U.S. De- partment of the Treasury and thereby require additional borrowing, which increases the federal deficit. Such efforts may depress total economic growth by shifting resources away from the highest-yielding investments. Congress has long supported subsidies for municipal bonds, and oc- casionally for private activity and tax credit bonds, in recognition of the benefits of attracting private investment into infrastructure. They appear to be an important part of P3 financing. Public Loans and Loan Guarantees Congress authorized the Transportation Infrastructure Finance and Innova- tion Act (TIFIA) in 1998 as part of the Transportation Efficiency Act and has subsequently reauthorized, and usually expanded, TIFIA in each surface transportation authorization (see Mallett and Driessen 2016, 11â13). TIFIA provides secured loans, loan guarantees, and lines of credit to assist P3s and others. Several features of TIFIA are attractive to issuers, especially lower interest rates available from the federal government, and to investors, especially assurance of debt repayment. TIFIA loans must receive invest- ment grade rating and take other steps to protect the U.S. Department of the Treasury from defaults on loan repayments. Many P3s have relied, in part, on the TIFIA program. Authorization of funding for TIFIA reached an annual level of about $1 billion in 2015 under MAP-21; using a 10 to 1 approximation applied to the TIFIA program, this level of funding was expected to support more than $15 billion in total investment. Applications from states, however, quickly reached the level of funding made available (Mallett 2014, 21). Moreover, TIFIAâs authorized funding was reduced to $275 million annually in direct authorization in the FAST Act. (The FAST Act, however, also allows states to draw from the two largest federal-aid programs to help fund TIFIA loans, which could, at state discretion, greatly exceed the $275 million direct authorization.) A National Infrastructure Bank has often been proposed to provide similar services as those provided by DOTâs TIFIA program, but not re- stricted to transportation. Congress has consistently declined to authorize a national bank, but has allowed states to set up their own state banks. Although Congress has resisted previous administrationsâ efforts to estab- lish a national infrastructure bank, the FAST Act did authorize FHWA to establish an officeâthe Build America Bureau (BAB)âto manage two ex- isting loan programs within the U.S. Department of Transportation and to provide states and local governments with assistance in the use of private financing and P3s. For transportation infrastructure, the BAB functions much like a national infrastructure bank would, but without the indepen- dence such a bank would have.
560 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM ProâDirect loans and loan guarantees from the federal government can reduce borrowing costs to the issuer and risks for private and other investors and therefore expand the total investment available to transporta- tion infrastructure. ConâAlthough TIFIA loans must be investment-grade rated, they do increase the risk of (a) expanding loans and loan guarantees to projects that are not fully creditworthy and (b) possible subsequent defaults by private investors and, ultimately, losses to the U.S. Department of the Treasury. Although the TIFIA program does involve risk, the conservative ap- proach taken to providing loans and loan guarantees has resulted in a good track record. Of 51 active projects at the end of 2015, only 3 (6 percent) were performing below expectations regarding progress and debt repay- ment (U.S. DOT 2016). TIFIA, or a similar program to provide low-interest and guaranteed loans, is likely to be an important part of expanding private investment in future Interstate reconstruction and expansion. FINANCE COMMISSION EVALUATION OF OPTIONS The National Surface Transportation Infrastructure Financing Commission (Finance Commission) considered a wide range of potential taxes and fees associated with highway transportation, which it culled from numerous examples considered by the National Surface Transportation Policy and Revenue Study Commission, government, the American Association of State Highway and Transportation Officials (AASHTO), Transportation Research Board/National Cooperative Highway Research Program reports, and other sources (National Surface Transportation Infrastructure Financing Commission 2009). The Finance Commissionâs review included five extant taxes whose revenues are dedicated to the Highway Trust Fund (HTF) and more than 25 other potential taxes and fees (Exhibit 3-8 of Finance Commission report). The Commission estimated the revenue potential of these sources based on what it considered plausible, politically feasible rates. It then evaluated each of these options based on 13 different criteria such as revenue potential, sustainability, economic efficiency, justification for dedication to the HTF, political feasibility/public acceptance, cost/difficulty of administration and compliance, and various dimensions of equity (for criteria, see Exhibit J-1 of this appendix). Based on its evaluation, the Commission then classified the options as strong, moderate, weak, or inappropriate for further consideration. Following the Commissionâs report, AASHTO developed a matrix that provides updated, illustrative estimates of the potential revenues from many of the options the Finance Commission evaluated (see Exhibit J-2 of this appendix). The following paragraphs summarize key points from the Commissionâs evaluations of the options it
APPENDIX J 561 rated as strong or moderate and provides a brief overview of the other taxes and fees considered, but largely dismissed, in the Commissionâs report. Strong Options Existing Federal Taxes Dedicated to Highway Trust Fund (HTF) Motor Fuels Tax9âMotor fuels taxes on gasoline and diesel provide 87 percent of the revenues to the federal Highway Trust Fund (HTF), thereby meeting the criterion of revenue potential. These taxes also score well on justification for dedication to the HTF, public and political acceptance (though federal politicians have been unwilling to raise the federal tax rate since 1993), appropriateness as a federal revenue source, and ease of administration (collection costs are estimated to require about 1 percent of revenue). Because the amount of tax paid increases with distance traveled, the motor fuels tax approximates a user fee that equates the taxes paid with the amount of road use, thereby performing better than most other taxes in terms of the user beneficiary/user pay criterion. This advantage, however, is eroding as vehicles become increasingly more fuel-efficient and rely on energy sources other than gasoline or diesel fuels. As an excise tax, the main disadvantage of a motor fuels tax is that the flat rate is undercut by inflation over time. In earlier periods, Congress raised the tax to account for inflation and demand. Between 1956 and 1993, for example, Congress increased the rate eight times, or about once every 4.6 years over a 37-year period. This compares with zero times over the most recent 25 years. Ironically, had the 1956 rate of 3 cents per gallon of gasoline been indexed to inflation, it would exceed the current rate of 18.4 cents by more than 30 percent (see Exhibit 4-1 of Commission report). An unsustainable attribute of fuels taxes is that they generate less revenue as more fuel-efficient and alternative-fueled vehicles become a larger share of the vehicle fleet. Evasion of the diesel tax has also been an ongoing is- sue.10 The Commission views the motor fuels tax as having a weak linkage between efficient use and investment because the taxes do not account for the value of using scarce urban highway capacity at peak periods as would a toll or congestion fee. Nor are the revenues earned directly targeted to the corridors with the greatest demand. Furthermore, at current rates, the taxes do not reflect the environmental damages associated with the use 9 This summary is drawn from National Surface Transportation Infrastructure Financing Commission (2009, 100â108). 10 Typical methods of fuel tax evasion include failing to file tax information, filing false claims for refunds of fuel taxes, failing to pay the assessed taxes, filing false exemptions, and blending waste products or other untaxed products with fuel.
562 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM of motor fuels. Finally, the gasoline tax is a regressive taxâlower-income individuals spend a larger share of income on motor fuels taxes than other income groups. Heavy Vehicle Use Tax (HVUT)11âThe HVUT is imposed on vehicles of 55,000 gross vehicle weight (GVW) at a base rate of $100 plus $22 for each 1,000 lbs GVW in excess of 55,000 lbs, up to a maximum of $550. This tax has a strong correlation between the tax and the benefit (charges for nega- tive impacts) given the disproportionate impact that heavy vehicles have on pavement damage. It has justifiable reasons for being dedicated to the HTF, and the benefit of a federal tax is that it establishes a consistent rate (rather than having state-by-state rates). A 50 percent increase in existing HVUT revenues would yield an additional $550 million. (In its evaluation, the Commission did not estimate the effects of a change in the structure of the tax; it only estimated the percentage increase in overall revenues from the tax.) The main disadvantages of the HVUT are that the rate would require a substantial increase in order to raise significant revenues (although the Commission views this as justifiable since it has not been raised since 1983 and its revenues have therefore been substantially eroded by inflation) and that the tax has a history of compliance and administrative issues and costs that would be compounded by a substantial increase. Truck/Trailer Sales Tax12âThe federal government imposes a 12 percent sales tax on the first sale of all trucks and tractors rated more than 33,000 lbs GVW. The tax applies to trailers with a GVW rating more than 26,000 lbs. Strengths of this tax include sustainability (sales tax yields increase with inflation); long history of dedication to the HTF; reasonable political acceptance; the national-level nature of the tax creates a level playing field across states; and partial recovery of the costs heavy trucks impose on the system. A 10 percent increase in the revenues from this tax would yield an additional $330 million. Weaknesses of this tax include its lack of revenue potential given that the 12 percent rate is already viewed as being fairly high; there is a lack of direct relationship between the tax paid and the amount of use; federal sales taxes are unpopular; and federal increases may reduce the ability of states to impose their own increases. Truck Tire Tax13âThis tax applies to truck tires with a load rating ex- ceeding 3,500 lbs at a rate of 9.45 cents for every additional 10 lbs over 3,500 lbs. The tax helps recover the damage caused by heavy trucks; has 11 See National Surface Transportation Infrastructure Financing Commission (2009, 73). 12 See National Surface Transportation Infrastructure Financing Commission (2009, 71â72). 13 See National Surface Transportation Infrastructure Financing Commission (2009, 72â73).
APPENDIX J 563 long been dedicated to the HTF; is viewed as cost-effective to administer; has a reasonable degree of political acceptance; and a federal tax provides an equal rate across state borders. The main disadvantages are that a large increase would be required to raise significant new revenues (a 10 percent increase in revenues from the tax would raise only $4 million in its first year); and when imposed as a flat tax it is eroded by inflation (hampering funding sustainability). Potential New Taxes and Fees Automobile Tire Tax14âA tax on automobile tires would create a coun- terpart to the existing tax on truck tires. It could raise a modest level of revenue (about $280 million per year based on $1 per tire in tax). Its sus- tainability should be good if it were to be imposed as a percentage tax like a sales tax. It could be justified for dedication to the HTF under the same rationale as the tax on heavy truck tires, and it has a moderate relationship between tax user benefit/impact. The ability of such a tax to influence ef- ficient use of the system would be weak, however, due to a lack of a strong relationship between the incidence of the tax and use of the system. To the extent that an increase in cost contributed to delay in replacing tires, it could have a detrimental effect on safety. Customs Duties15âCustoms duties are imposed on all imported goods, and a surcharge could be added and dedicated to the HTF. Current duties are dedicated to the General Fund of the U.S. Department of the Treasury. A 1 percent surcharge could yield $286 million annually. The advantage of such a surcharge is that a small percentage increase yields substantial revenues, and because almost all international freight relies on highways for some part of its trip, an argument can be made for dedicating such a surcharge to the HTF. There would be little or no additional administrative cost of collection. The main disadvantages are the potential for triggering international trade disputes; the fee would do little to promote efficient system investment or use; there would be no direct relationship between the tax and any positive or negative impacts on the system and/or its users; and a surcharge would divert potential new revenues from customs duties away from the General Fund (and raise costs to consumers of imported items). Further considerations include fairnessâa similar surcharge would not be imposed on outbound freight and many imported goods are duty-free under 14 See National Surface Transportation Infrastructure Financing Commission (2009, 78). 15 See National Surface Transportation Infrastructure Financing Commission (2009, 87â88, 114â119).
564 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM existing trade agreements, thus the duty would fall on certain shippers and not others. Vehicle Registration Fee16âA federal fee of $3 to $5 per car or truck could yield about $1 billion annually, and such a fee would be small relative to the average $185 annual fee currently imposed by the states. The advan- tages are that a small increase could raise substantial revenue and would be sustainable if indexed to the value of the vehicles. There would be a relationship between the fee and highway use, and the administrative cost could be small if simply added to fees states already charge. In principle, the fee could be varied to cover environmental costs of low efficiency/high polluting vehicles, but it would have to be substantially more than $3 to $5 to have any effect on purchase behavior. The weaknesses include the gen- eral unpopularity of registration fees; the lack of any efficiency incentives; potential duplication with the HVUT; and competition with the states for the same revenue base. Container Fee17âA fee could be charged on inbound and outbound con- tainers as they move through U.S. ports. A $10 fee per container could raise $500 million each year. The advantages are the ability to raise a moderate amount of new funding; moderate costs for administration and compli- ance; a sustainable revenue source; and a certain amount of justification for dedication to the HTF since most containers make at least part of their trips on highways. The disadvantages of this option are a lack of incentives for efficient use; potential international trade conflicts; and increased costs to consumers. There has also been little consideration of how a container fee would be implemented or how it might affect competition between U.S. ports and, particularly, Canadian and Mexican container ports. It would also treat freight differentially unless a comparable fee were imposed on non-containerized commodities. Tariff on Imported Oil18âA modest tax on imported oil could raise sub- stantial revenueâa 23 cent tax per barrel would raise $1 billion annually based on 2007 imports. Other advantages are that distillates of petro- leumâgasoline and dieselâare heavily relied on by highway transportation vehicles, creating a linkage between usage and dedication to the HTF. Such a tax could also serve as an indirect carbon tax and promote U.S. energy independence. The considerable disadvantages of a tariff on imported oil 16 See National Surface Transportation Infrastructure Financing Commission (2009, 75â76). 17 See National Surface Transportation Infrastructure Financing Commission (2009, 86, 114â119). 18 See National Surface Transportation Infrastructure Financing Commission (2009, 81â82).
APPENDIX J 565 include the fact that imported petroleum is also used for home heating, most heavily in the northern states, and a tariff dedicated to highways would be taxing homeowners (disproportionately northern homeowners) for transportation. Such a tariff could have a negative implication for trade agreements. The sustainability of the revenues would also be reduced by growing domestic production, and export, of petroleum products. Sales Tax on Motor Fuels19âIn some states motor fuels are subject to some or all of the statewide general sales tax, in addition to the traditional cent per gallon tax. A national sales tax on motor fuels could generate substan- tial revenuesâa national sales tax of 1 percent on gasoline at prices/gallon ranging between $2 and $4 could raise $3.6 to $7.2 billion annually. Aside from the revenue advantages, a justification could be made for dedication to the HTF and the revenues would be sustainable for the short term. The main disadvantage of sales taxes on commodities like fuels, which vary considerably based on ever-shifting world supply and demand, is that the revenues can also vary considerablyâboth up and down. Furthermore, as with the excise tax on motor fuels, in the longer run the revenues will be undermined by increasing fuel efficiency and alternative fuels. Moreover, such taxes can be politically unpopular during price spikes (and even be waived or eliminated) and the incidence of the tax is unrelated to the use of particular facilities or at particular times of day. Targeted Tolls20âThe Finance Commission views tolling favorably, but considers this option to be most suited to local and specific circumstances (specific routes) and less applicable to addressing national road and high- way funding needs. Tolls can raise substantial revenues in circumstances where sufficient traffic exists, and, once established, the revenue stream is sustainable. As discussed in Chapter 6, electronic toll collection can reduce collection costs, which can otherwise be considerable. The equity implica- tions depend on options available to the traveler to avoid or minimize tolls. Among its disadvantages, tolling doesnât work in low volume situations and can divert traffic to less safe routes and routes not suitable for heavy traffic. Tolling of existing routes is frequently resisted politically, whereas tolls for new routes or lanes (in the case of High-Occupancy Toll [HOT] lanes) can minimize this problem. The administrative costs are typically higher than for motor fuels taxes. Although the Commission report notes the widespread use of tolls for motorways in other nations, it does not consider the option of tolling a 19 See National Surface Transportation Infrastructure Financing Commission (2009, 82). Note that this option is not included in the AASHTO Matrix (AASHTO 2015). 20 See National Surface Transportation Infrastructure Financing Commission (2009, 90â91).
566 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM network like the Interstates. The Commission does, however, encourage giving congested metropolitan areas the option of tolling urban Interstates with congestion fees, both on new and existing lanes. Vehicle-Miles Traveled Fee21âThe Finance Commission reviewed the con- cept of a vehicle-miles traveled (VMT) fee in some detail (since the Finance Commissionâs report was completed, mileage-based user fees [MBUFs] have become the most commonly used term to describe this concept). The Finance Commission devoted much of Chapter 6 of its Paying Our Way report to the topic (National Surface Transportation Infrastructure Financ- ing Commission 2009). It ultimately recommended VMT fees as the best possible alternative to motor vehicle taxes, but noted that it was an uncon- ventional approach that would require testing and analysis to determine its practicality and political feasibility. (Since the Commission report was issued in 2009, several pilot projects are currently under way, to evaluate various dimensions of mileage-based fees.) Some of the advantages of a VMT fee include its substantial revenue potential (the Commission estimates it could raise as much as motor fuels taxes at rates of 0.9 cents/mi for passenger vehicles and 5 cents/mi for trucks); could be justifiably dedicated to the HTF, and would incentivize efficiency by providing a clear price signal for the extent of use. With ap- propriate technologies, a VMT fee could also be coupled with fees penal- izing low-fuel-economy vehicles, which would reduce emissions, and charge extra for using highways at peak periods, which would improve traffic flow. The Commissionâs report cited a number of then-current estimates of how much a congestion fee could reduce demand and costs of adding capacity. At the time of the Commissionâs report, the administrative and enforcement costs of collecting a VMT fee were unknown, but have been subsequently estimated at roughly 5 to 13 percent of the collections if based on an all- electronic charging system (Kirk and Levinson 2016). Some of the disadvantages of a VMT fee include lack of public famil- iarity and reticence about tolling in general; uncertainty about the optimal toll to charge; perceptions that travel is a right and should not be priced; possible inconsistencies in fees across jurisdictional boundaries (including discrimination against out-of-state travelers); and potential for route diver- sion by heavy trucks. The Commission recognized the opposition of the motor carrier industry, and also noted that (a) fairness argues for charging all users according to the costs they impose, (b) setting optimal prices is challenging, and (c) there is risk of discrimination against heavy out-of-state trucks in the setting of fees. Also of importance are a broad set of social 21 See National Surface Transportation Infrastructure Financing Commission (2009, 90â91, Chapter 6).
APPENDIX J 567 equity concerns that would need to be addressed. Concerns about privacy are also present, including the importance of developing designs that miti- gate privacy invasion. Finally, the report recognizes that technologies to support implementation require further testing and analysis. Moderate Options Freight Waybill Tax22âA tax on waybills (carrier documents describing the shipment of goods) would essentially be a sales tax on freight shipping charges. Because of the large volume and value of freight shipped by truck, such a tax could raise significant revenues, would provide a sustainable revenue stream, and could be justified for dedication to the HTF. Disadvan- tages include a lack of a price signal to encourage efficiency; the substantial cost and challenge of charging private fleets; the fee would be based on the value of shipments and not the costs that truck movements would have on infrastructure wear and tear; and it could result in trucks being charged more than the costs they impose. Vehicle Sales Tax23âA 2.2 percent tax on new vehicles or a 1.2 percent tax on new and used vehicles could raise $1 billion annually, thus a mod- est tax rate for personal vehicles, modeled on the existing tax for trucks, could raise considerable resources. It should be a sustainable revenue source given the popularity of vehicles, and revenues could justifiably be dedicated to the HTF. However, the fee would have an indirect relationship between the fee and highway use; would face political opposition; would be viewed as impinging on sales taxes imposed by states and local governments, and creates administrative and compliance issues. Harbor Maintenance Tax24âThis tax is currently imposed on 0.125 per- cent of the value of imports moved through federally maintained harbors. The purpose of the collected revenues is to fund harbor maintenance con- ducted by the federal government, such as U.S. Army Corps of Engineers harbor activities (specially, dredging) and St. Lawrence Seaway Develop- ment Corporation operations and maintenance costs. Advantages would include its strong sustainability due to the magnitude and value of import commerce moved through U.S. ports and few additional implementation or administrative costs associated with levying the tax. Disadvantages include lack of raising substantial revenues (at its current scale), legal challenges, and, by taxing waterborne commerce, a weak connection to 22 See National Surface Transportation Infrastructure Financing Commission (2009, 86â87). 23 See National Surface Transportation Infrastructure Financing Commission (2009, 76â77). 24 See National Surface Transportation Infrastructure Financing Commission (2009, 87).
568 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM highway consumption. It also excludes exports, which would raise issues about fairness. General Fund Transfer25âThe Finance Commission recognized the growing use of general fund transfers to the HTF, noting the considerable revenue potential, political acceptance, and ease of administration and compliance. Such an approach, however, has very weak justification for dedication to the HTF, would not promote efficient investment, and is not based on use of highways. The Finance Commission noted the competing demands for general fund revenues and questioned the sustainability of this source given the growing federal deficit. Weak/Inappropriate Options The Commission evaluated many other potential revenue options that it classified as not applicable/seriously flawed options for highway funding. These options are not discussed herein. They are evaluated in Chapter 3 of the Commissionâs report and include the following: freight ton-mile tax; driverâs license surcharge; bicycle tire tax; dedicated portion of federal income tax; auto-related sales taxes; general sales taxes; vehicle inspection and traffic citation surcharge; vehicle personal property tax; windfall profits tax; petroleum franchise tax; minerals severance tax; federal tax on transit fares; and a federal tax on local parking fees. Exhibit J-1 Finance Commission Revenue Evaluation Criteria (from Chap- ter 3 of Commission Report) Revenue Potentialâthe extent to which the mechanismâs revenue potential at politically viable rates matches investment needs over the target time frame. Sustainabilityâthe extent to which the mechanism self-adjusts or can be adjusted easily by system operators or policy makers from year to year in order to meet needs, including but not limited to adjusting for inflation. Flexibilityâthe extent to which the mechanism is appropriate for a wide (and potentially changing) range of investments and can be redirected to meet changing objectives, market dynamics, technology options, etc. Justification for Dedication of Revenues to Surface Transportationâthe extent to which it is appropriate to dedicate revenue from a particular 25 See National Surface Transportation Infrastructure Financing Commission (2009, 84â85).
APPENDIX J 569 mechanism to a specific use or set of uses, whether surface transportation generally or discrete subsets of surface transportation investment. Public Acceptance and Legal/Political Viabilityâthe relative feasibility of gaining public and political acceptance of the mechanism compared with other mechanisms. Appropriateness for Federal Useâthe appropriateness of federal implemen- tation, including consideration of the impact on lower levels of government if the federal government imposes or increases a certain charge or set of charges. Ease/Cost of Implementation and Administrationâthe ease and cost to implement and administer relative to other mechanisms and to the revenue- raising potential. Ease/Cost of Complianceâthe extent to which the mechanism minimizes evasion and the cost of enforcement compared with other alternatives. Promotion of Efficient Use (Consumption) and Investment (Production)â the extent to which the mechanism provides incentives for efficient use of the system by influencing travel choices and behavior and, in turn, efficient investment in response to the funding demand signals and based on trans- parent performance-based criteria. Creates and/or Mitigates Adverse Side Effects and Enables Chargesâthe extent to which the mechanism causes and/or mitigates adverse side effects and can facilitate appropriate charges for such effects. User/Beneficiary Equity (User/Beneficiary Pay Principle)âthe extent to which the mechanism can be structured to charge those who directly use or otherwise benefit from the funded investment. Equity Across Income Groupsâthe extent to which the mechanism limits costs for those who face the most difficulty in paying, including but not limited to the avoidance of regressive tax structures. Geographic Equityâthe extent to which the cost allocation/impact of the mechanism can be structured to match the geographic distribution of the benefit of the funded investments.
570 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM Exhibit J-2 Matrix of Illustrative Surface Transportation Revenue Options Existing Highway Trust Fund Revenue Mechanisms Illustrative Rate or Percentage Increase Definition of Mechanism/ Increase Assumed 2014 Yield ($ billions) Forecast Yield (2015â 2200) ($ billions) Motor fuels taxâdiesel 15 cents Cent/gal increase (approx. 10% increase) $6.54 $41.79 Motor fuels taxâgasoline 10 cents Cent/gal increase (approx. 10% increase) $13.21 $78.12 Heavy vehicle use tax 50% Increase in revenues (structure not defined) $0.55 $3.42 Sales taxâtrucks and trailers 10% Increase in revenues (structure not defined) $0.33 $2.19 Tire taxâtrucks 10% Increase in revenues (structure not defined) $0.04 $0.23 Potential Highway Trust Fund Revenue Mechanisms Illustrative Rate or Percentage Increase Definition of Mechanism/ Increase Assumed 2014 Yield ($ billions)a Total Escalated Yield 2015â2020a Container tax $15.00 Dollar per TEU $0.66 $4.26 Customs revenues 5% Increase/reallocate existing revenues/structure not defined $1.8 $11.66 Driverâs license surcharge $5.00 Dollars annually $1.08 $6.98 Freight Bill-trucks only 0.5% % of gross freight revenue (primary shipments only) $3.07 $19.90 Freight Bill-all modes 0.5% % of gross freight revenue (primary shipments only) $3.8 $24.6 Freight charge/ ton trucks 10 cents Cent/ton of domestic shipments $1.17 $7.54 Freight charge/ ton all modes 10 cents Cent/ton of domestic shipments $1.44 $9.29 Freight charge/ ton-mile truck 0.10 cents Cent/ton-mile of domestic shipments $1.41 $9.15 Freight ton-mile (all modes) 0.10 cents Cent/ton-mile of domestic shipments $3.48 $22.52 Harbor maintenance tax 25% Increase/reallocate existing revenues/structure not defined $0.43 $2.79 Imported oil tax $2.50 Dollars/barrel $5.76 $37.28
APPENDIX J 571 Potential Highway Trust Fund Revenue Mechanisms Illustrative Rate or Percentage Increase Definition of Mechanism/ Increase Assumed 2014 Yield ($ billions)a Total Escalated Yield 2015â2020a Income taxâbusiness 1% Increase/reallocate existing revenues/structure not defined $2.79 $18.06 Income taxâpersonal 0.5% Increase/reallocate existing revenues/structure not defined $6.70 $43.36 Diesel motor fuel tax indexed to CPI â Cent/gallon excise tax â $5.22 Gasoline motor fuel tax indexed to CPI â Cent/gallon excise tax â $10.87 Oil, gas, and minerals receipts 25% Increase/reallocate existing revenues/structure not defined $2.20 $14.25 Registration feeâ Electric light duty vehicles (LDVs)b $100 Dollar annually $0.01 $0.06 Registration feeâ hybrid LDVs $50 Dollar annually $0.17 $1.12 Registration feeâ all LDVs $15 Dollar annually $3.57 $23.11 Registration feeâtrucks $150 Dollar annually $1.63 $10.54 Registration feeâ all vehicles $20 Dollar annually $4.98 $32.21 Sales taxâauto- related parts and services 1.0% Percentage of sales $2.32 $15.04 Sales taxâbicycles 1.0% Percentage of sales $0.06 $0.38 Sales taxâdiesel 7.6% Percentage of sales (excluding excise tax) $9.65 $62.50 Sales taxâgasoline 5.6% Percentage of sales (excluding excise tax) $24.05 $155.66 Sales taxânew LDVs 1.0% Percentage of sales $2.41 $15.61 Sales taxânew and used LDVs 1.0% Percentage of sales $3.46 $22.40 Exhibit J-2 Continued continued
572 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM AN INTERNATIONAL OVERVIEW OF MOTORWAY FUNDING AND FINANCE IN INDUSTRIALIZED DEMOCRACIES Different models exist internationally for paying for intercity highways: government funding from user taxes; government funding from general revenues; and financing using borrowed funds that are repaid by either tolls, distance-based fees, or from general revenues. The United States uses the first approach, which is increasingly rare around the world, perhaps because of its governance structure. This overview of international practice is followed by brief descriptions of motorway funding and finance pro- grams in selected countries. This appendix is a high-level overview. There are many subtleties, complexities, and ongoing changes in the funding and financing arrangements of individual nations that cannot be fully captured in a short document such as this. International Comparison Nations vary widely in how they plan for, manage, and fund or finance their motorways. As described next, four important distinctions apply: (a) the role of the national government in decision making about motorways, (b) the sources of funds and whether they are dedicated specifically to highway construction and maintenance, (c) reliance on direct user charges such as tolls or distance-based fees, and (d) the role of supplemental loan programs. Potential Highway Trust Fund Revenue Mechanisms Illustrative Rate or Percentage Increase Definition of Mechanism/ Increase Assumed 2014 Yield ($ billions)a Total Escalated Yield 2015â2020a Tire taxâbicycles $2.50 Dollar per bicycle tire $0.08 $0.53 Tire taxâLDVs 1.0% Of sales of LDV tires $0.33 $2.12 Transit passenger mile traveled fee 1.5 cents Cents/passenger mile all transit modes $0.84 $5.45 VMT feeâall LDVs 1.0 cent Cents/vehicle-mile traveled on all roads $27.12 $175.58 VMT feeâtrucks 4.0 cents Cents/truck-mile traveled on all roads $10.93 $70.73 VMT feeâall vehicles â Cents/vehicle-mile traveled on all roads $38.05 $246.31 NOTE: LDV = light-duty vehicle; VMT = vehicle-miles traveled. aBase annual yield escalated using CPI-U. bLDVs are vehicles that weigh less than 10,000 lbs. SOURCE: AASHTO 2015.. Exhibit J-2 Continued
APPENDIX J 573 National Role In terms of governance, the United States is most similar to Australia and Canada. All three nations have a central government that helps fund motor- ways, but depend on states or provinces to make decisions about, plan for, build, own, and maintain highways. Perhaps for this reason, these countries have similar funding arrangementsâvarious forms of supplemental na- tional fundingâto encourage and facilitate construction and maintenance of an interconnected system of motorways. In western Europe, Japan, and New Zealand, the national governments take a much more centralized role in planning, constructing, and funding motorways and are somewhat more likely to rely on tolls or distance-based fees, though not exclusively. For example, although more centralized than the United States, in some western European countries, such as France, Germany, and Italy, regional govern- ments play a role in developing and funding motorways, albeit usually with funds provided by the national government. Dedicated Funding In northern Europe, Australia, and Canada, motorways are funded by gen- eral revenues, although Australia and Canada formerly relied on dedicated taxes and fees from motor fuels taxes and other user charges and several European countries have begun to impose distance-based user fees on heavy trucks using motorways. As described below, motorways in southern Eu- rope are more likely to be tolled motorways, but Spain and other countries also have national systems of un-tolled motorways funded by their central governments from general revenues and, to a lesser extent by grants and loans from the European Union (EU). In the United States, the principal source of funding for the Interstate System has come from fuel taxes and other user fees at the federal and state levels, the revenues from which are dedicated to highway funding. At a time when vehicle-miles of travel were increasing sharply and political leaders were willing to raise motor fuel taxes to keep up with inflation, this approach provided ample funds for Interstate highway construction. Throughout most of western Europe, fuel taxes, which are considerably higher than in the United States, are general taxes whose revenues flow to national treasuries and are not typically dedicated to highway funding. (Road user charges and associated taxes and fees generate more revenues for European nations than are spent on roads [Gomez and Vassallo 2014].) Australia and Canada, and, to a much lesser extent, Japan, have also relied on dedicated motor fuel taxes and other user fees to fund motorways when building their systems. All three of these nations, however, have ended this practice and now rely on general fund appropriations for non-tolled high- ways. The United States is one among a small number of other counties,
574 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM such as the Netherlands, New Zealand, and Switzerland, that rely on trust funds for highways at the national level that are funded through road user charges. Direct User Charges TollsâAbout 40 percent of western European motorways26 are tolled for cars and trucks (see Table J-1) (not including heavy truck mileage fees that apply in Austria, Germany, and Switzerland as described in the next section) and almost all of Japanâs expressways are tolled. By way of com- parison, about 7 percent of the U.S. Interstate system is tolled (Kirk 2017). Western European countries have roughly 66,600 kilometers of motorways, whose design is roughly comparable to that of the U.S. Interstate System (see Table J-1). In those same nations, about 43,000 kilometers of main highways are operated as toll roads, most of which are motorways, but not exclusively. Over the past decade, the extent of tolled roads has increased 18 percent across nations listed in Table J-1. France, Greece, Italy, Japan, Portugal, and Spain have been the most dependent on tolls to finance their motorways. Most toll roads in these nations are now operated by private concessionaires, but, with the excep- tion of Spain, where concessionaires have always been private, most were formerly public toll authorities. (Japan is a bit of a special case, as its com- mercial toll authorities are not privatized in the western sense.) In most other western European countries, the toll authorities tend to be public and there is little reliance on tolls beyond high-cost tunnels and bridges. This tendency is changing, however, in response to the EU directive on pricing of heavy truck use of motorways, as discussed in the next section. In France, Italy, Japan, and Portugal private concessionaires manage three-quarters or more of motorways; that share drops to about one- quarter in Spain (Albalate et al. 2009). Privatization of toll authorities in France, Italy, and Portugal since 2000 has had mixed results. The privatiza- tion wave in Europe was partly due to EU directives for nations to reduce debt. In response, toll authorities were sold to private investors, but many private toll roads retained favorable loans, loan guarantees, and other public subsidies (Albalate et al. 2009). The wave of privatization has been accompanied by increased regulation of private concessionaires, including regulations applying to toll increases. It has also sparked consolidation of the industry as private concessionaires from multiple countries have been 26 Analogous to U.S. Interstates.
APPENDIX J 575 TABLE J-1 Motorways and Tolled Roads in Selected Nations Country Motorwaysa (km) Tolled Main Roadsb (km) Increase in Tolled Road Length (km) 2006â2016 (%) Austria 1,719 2,199 6.6 Belgiumc 1,763 1.4 â Denmark 1,216 34 0 Finland 810 â â France 11,552 9,137 10.1 Germanyd (trucks only) 12,917 15,276 â Greece 1,558 1,843 101.0 Italy 6,751 6,003 6.3 Japane 11,000 14,000 â Netherlands 2,678 24 20.0 New Zealand (diesel vehicles only)f 200 10,916 n/a Norway 392 911 36.0 Portugal 3,065 2,943 91.6 Spain 14,981 3,404 9.8 Sweden 2,057 â â Switzerlandg (trucks only) 1,419 18,013 n/a United Kingdom 3,760 42 0.0 United Statesh 72,243 3,838 16.8 aExtent of toll roads as of end of 2013. Data limited to members of the EURF (European Union Road Federation 2017). bNote that tolled roads do not necessarily correspond with motorways. Also note that the extent of tolled routes is available mostly for members of the association. There may be other tolled kilometers managed by toll authorities or nations that are not ASECAP members (ASECAP 2017). cBelgium statistics as of 2009, the last year of ASECAP membership. dTruck emission tolls applied to motorways and other principal roads. eSee section above on Japan for data sources. fTrucks and cars using diesel fuel in New Zealand pay a per-mile fee based on vehicle class, weight, and distance traveled based on odometer readings. National highway mileage from International Road Federation (2014). gSwitzerland has electronic truck tolls on its motorways as well as all other Swiss roads. Passenger cars are required to have sticker that is paid for annually for a nominal fee (40 Swiss Francs). Motorway and national highway mileage from International Road Federation (2014). hThe increase in toll length in the United States are from 2007 to 2017 (FHWA n.d.-b).
576 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM bought and combined by investors.27 As noted in the section that follows on individual countries, the financial crisis of the late 2000s has complicated the financial viability of some toll roads in Spain and Portugal. Japan also financed its expressways through public toll corporations, which it subse- quently re-organized into more commercialized, but still publicly owned, enterprises when some of the corporations were unable to collect sufficient tolls to repay their debts. In Australia, Canada, and New Zealand tolls on motorways are rare. Australia has seven intra-urban tolled motorways of 20 to 40 kilometers in length (about 206 kilometers) that operate in New South Wales, Victoria, and Queensland, but no interstate tolled motorways (Australian Govern- ment Department of Infrastructure and Regional Development 2016). Canada has three tolled motorways, also intra-provincial, which represent far less than 1 percent of its motorways. New Zealand has three short tolled highways, but diesel-powered commercial vehicles and passenger vehicles pay distance-based road user charges, as described next. Distance-Based Fees on Trucks In line with an EU directive encouraging nations to charge trucks for using main highways (European Parliament 2017), truck distance-based fees are imposed on more than 35,000 of Western Europeâs highways in Austria, Germany, and Switzerland (see Table J-1). These fees are based on trucks weighing more than 3.5 tons and the distance traveled, and travel is tracked and fees charged electronically. In Germany, these truck fees apply to mo- torways and most other principal highways28 and in Switzerland they apply to all roads (Luechinger and Roth 2016). Also, unlike motor fuel taxes and other user fees, the revenues earned from these truck distance charges are dedicated to transportation (Doll et al. 2017). As countries located in the middle of Europe, these nations carry a considerable share of through truck traffic, which perhaps explains their choice of this funding mechanism. A similar approach to truck distance-based fees was rejected in France due to opposition from truckers (Todd 2017). In addition to tolled highways, Belgium, Denmark, Luxembourg, the Netherlands, and Sweden require 27 As of May 1, 2018, Autostrade in Italy was purchased by the Benetton Group, which changed the name to Autostrade per lâItalia, and combined it with Benettonâs Atlantia. Italyâs other main concessionaire is the Gavio Group. In France, the main concessionaires are Eiffa- geup, Vinci, and Abertis, the latter of which is also the most important concessionaire in Spain and Portugal. Atlantia, together with Hochtief from Germany, subsequently acquired Abertis, transforming Atlantia into a world leader. (Information provided by Remy Cohen, Cohen & Co., Milan, in private correspondence.) 28 Although the funds are used to maintain motorways, the highways were built with other funds before tolls were imposed. Tolls are imposed on heavy trucks consistent with EU policy.
APPENDIX J 577 trucks to purchase vignettes29 to operate on their motorways (Gomez and Vassallo 2014). Vignette systems are time-based rather than distance-based, but can serve as precursors to electronic charging systems, as used in Aus- tria, Germany, and Switzerland. Commercial vehicles using diesel fuel in New Zealand have paid a road user charge based on vehicle weight and distance traveled since 1977 (see reporting in next section on selected na- tions). Unlike many toll programs, which generate revenues to repay loans related to specific highway segments, distance-based fees provide revenues for general motorway reconstruction and maintenance. Supplemental Loan Programs The EU and the European Investment Bank (EIB) have provided supplemen- tal sources for co-funding and financing major highways and motorways in Europe providing cross-continental routes. A variety of EU programs de- signed to connect the infrastructure of the EU across member nations have been important partial sources of funding for roads in general as well as for loans and loan guarantees mostly provided by the EIB. These sources are estimated to have provided nearly 47 billion euros for roads for EU mem- ber states between 2000 and 2013 (Pantelias et al. 2010, Table 1).30 The role of the EIB was particularly important during the financial crisis when private funding for infrastructure was in limited supply. Since 1990, the EIB has encouraged use of P3s through co-funding and partial financing of individual motorway improvement projects in Belgium, France, Germany, Ireland, the Netherlands, Norway, and the United Kingdom (European Investment Bank 2018). These loans are typically, though not exclusively, repaid by the national governments through availability payments funded from general revenues. Funding and Financing of Motorways in Selected Nations Austria In 1982, Austria created a government-owned company to plan, finance, construct, and operate a national motorway system of 2,000 kilometers; in 1997 the company was given authority to impose direct user charges.31 Previously, motorways were funded out of general revenues, but relatively 29 Vignettes are time-based flat fees that permit a vehicle user to operate in a specific area or on specific roads. They are typically displayed as stickers on the vehicle. 30 This source estimates that motorways received about â¬9 billion in EU cohesion funds between 2000 and 2013. 31 This paragraph was drawn from Rothengatter (2005).
578 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM few kilometers were constructed after World War II. The Austrian system consists of a time-related vignette (10 days, 1 month, or annual stickers only) for vehicles weighing less than or equal to 3.5 tons and motorcycles and a distance-related electronic toll for vehicles weighing more than 3.5 tons.32 Plans are currently in development to switch to electronic tolling for passenger vehicles based on license plate readers. Fees for vehicles with a maximum gross vehicle weight exceeding 3.5 tons are collected electroni- cally via a free flow, multi-lane, digital short-range communications (DSRC) system. Australia Australiaâs federal structure and highway program is similar to that of the United States. The federal government provides funding to support motor- ways and other roads constructed and maintained by the states and local governments (The Law Library of Congress 2014). The federal government ended dedication of federal fuel and heavy vehicle taxes and other user fees to road construction in 1959, but continues to fund programs supporting roads maintained by states and local governments, including a program focused on state highways of national significance. Beginning in 2014, the federal government began expressing interest in placing greater reliance on toll roads, but to date none are intercity motorways. As of 2016, Australia had 16 tolled facilities, seven of which are on intra-urban highways and all others of which are on tunnels and river and harbor crossings (Austra- lian Government Department of Infrastructure and Regional Development 2016). Between 2010 and 2016, the number of toll operators declined from nine to six. One toll operator, Transurban, dominates the market with 73 percent of toll revenues. Beginning in 2014, the national government began promoting the con- cept of asset recycling, through which states that sold or leased infrastruc- ture assets to the private sector would receive 15 percent federal funding on top of the payout received if the state reinvested the funds in greenfield infrastructure. The concept has been proposed for consideration in the United States (Varne and Kline 2017). The Australian program ended in 2016, before the available funds were fully allocated, apparently due to fun- damental issues such as that income-generating assets were sold to finance new investments that did not generate income (Quiggen 2017). There is a recent proposal within Australia for reviving it (McIlroy 2018). 32 Austrian national report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016).
APPENDIX J 579 Canada Canadaâs constitution places responsibility for highways with its provinces and territories (The Law Library of Congress 2014). Canadaâs federal structure is analogous to that of the United States, but the national gov- ernment is not as involved in the countryâs intercity highways. The federal government has historically provided supplemental funding for highway infrastructure on an ad hoc rather than long-term basis; this supplemental funding for provincial and territorial highways has been typically provided on a cost-share arrangement for specific routes. The national government does collect motor fuel taxes and heavy vehicle taxes, but these funds are not earmarked to highways. Provinces also collect motor fuel, vehicle regis- tration fees, and other taxes, but, with the exception of Nova Scotia, these funds are not dedicated for roads. The Canadian National Highway System (NHS) is made up of more than 38,000 lane-kilometers, about 73 percent of these lane-kilometers are on the âcoreâ system of intercity highways (Transport Canada 2017, 23). The remainder are feeder routes and northern/remote routes. Canada has about 17,000 kilometers of motorways (International Road Federa- tion 2014, Table 2.1). Only three intercity routes are tolled. The longest is the 407 Express Toll Route, a 137.8-kilometer all-electronic toll highway within Ontario. Also tolled is a 45-kilometer stretch in Nova Scotia and a short, 10-kilometer highway that connects two other highways in Ontario. France France embarked on a concerted national program to build motorways beginning in 1960, which had grown from 170 kilometers in that year to 10,400 by 2005, roughly three-quarters of which were tolled.33 France re- lied on public corporations collecting toll revenues throughout this period; tolled motorways also received considerable public subsidy, and loans were typically guaranteed by the nation. In 2003, as France was beginning to privatize its concessionaires, public funding for tolled roads nearly matched expenditures of toll revenues for motorway construction, operation, and maintenance. France now has an extensive set of tollways operated by several con- cessionaires that includes most of the nationâs principal intercity highways. Payments are made at toll plazas by any mechanism (electronic reader, credit card, check, cash).34 After 2000, France privatized its seven largest, formerly public corporations, but the government retains ownership of the 33 The paragraph on France is drawn from Fayard et al. (2005). 34 French national report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016).
580 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM assets and regulatory control over their operations (Bonnafous 2015). As part of the sale, most public subsidies were withdrawn and the toll roads were allowed to increase tolls, which one analyst suggests are on conditions favorable to investors (Cave 2014). In addition to its existing toll roads, which affect passenger cars and trucks alike, the French parliament agreed in 2013 to follow EU policy re- garding charging a fee on trucks in excess of 3.5 tons on other, non-tolled national highways (10,000 kilometers) and local roads (5,000 kilometers), with funds received dedicated to transportation improvements (Ptolemus Consulting Group 2015). In response to violent protests in Brittany and protests in other regions, the scope of the proposal was reduced in 2014 to 4,000 kilometers and was subsequently abandoned. Germany Motorway construction in Germany, which began before World War II, has been funded from national general tax revenues. Motorists currently pay a fuel tax and ecological tax, as well as a Value Added Tax (VAT) on the fuel tax.35 Motorists pay more such taxes for use of roads into the nationâs general fund than are invested in the national road system. With limited exceptions, motoristsâ taxes have not been earmarked for transportation purposes. Around 2000, Germany began planning to charge tolls on heavy trucks to both shift some truck traffic to rail and water modes and to pro- vide funds to maintain major highways, railroads, and waterways. Located in the middle of the EU, Germanyâs motorways and main highways are used heavily as through routes for trucks. Since 2005, the German government has been implementing the 1999 EU Directive per- mitting distance-based charges on all trucks (at or above 7.5 tons) for its entire motorway network and main highways.36 Most German highways used as truck routes are now covered by the fee. Part of the rationale for the charge is to encourage freight to shift to freight railroads. Ninety-four percent of revenues are collected via a system of on-board units (OBUs) that are tracked by satellite. European trucking firms using German roads have registered more than 950,000 OBUs. Truck tolls can also be paid at toll stations and by direct billing. Although the German system tracks travel comprehensively and accurately, and with little evasion, the administrative costs are fairly highâroughly 13 percent of revenues earned (GAO 2012, 27). Light-duty and passenger vehicles do not pay tolls except for use of two tunnels. 35 The paragraph on Germany is drawn from Rothengatter (2005). 36 This paragraph is drawn from German national report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016).
APPENDIX J 581 Italy Italy began its motorways development with toll roads in the 1920s, but these failed.37 When motorway development began anew in the 1950s, Italy again relied on government-owned concessionaires. By 1970, Italy had almost 4,000 kilometers under concession. Concessionaires were financed by toll revenues and state subsidy (roughly one-third or less before 1960 and up to 50 percent afterward). Italyâs tolled network, which represents most of its motorways, extends the length of the country along both coasts, but is more heavily concen- trated around Rome and in the northern third of the country.38 Tolls can be paid electronically or by other means at toll plazas. Tolls apply to both light-duty and heavy-duty vehicles. Traffic on tolled roads fell sharply after the 2008 financial crisis and remained 10 to 15 percent below the 2008 peak as of 2015. Italyâs toll roads were privatized around 2000. Autostrade, which controlled about 60 percent of Italyâs roads under concession in 2009, was a public agency until 1999 (Albalate et al. 2009). Japan The national government of Japan began a program of national express- ways in 1956, which totals about 10,000 kilometers.39 These intercity highways were designed, constructed, and maintained by public corpora- tions, which borrowed funds that were to be repaid by tolls. The public corporations also received low-interest loans and other subsidies (The Law Library of Congress 2014, 60â66). The four corporations were reshaped into six government-owned, commercially oriented enterprises in 2005 when it became clear that more kilometers of expressways had been built than could be repaid using tolls. A debt repayment organization was estab- lished to lease the governmentâs expressways to the new enterprises. As a government-owned organization, it is able to borrow at government rates and lend funds at low or no interest to the new enterprises. It is repaying the outstanding loans of the former corporations using toll revenues provided by the lessees. Japan plans to build about 14,000 kilometers of intercity highways, which will mostly be the tolled expressways described above, but it will also include about 2,500 kilometers of national highways that are managed by the national government. These highways are funded, in part, from national motor fuels taxes and other user fees that went into a dedicated fund for 37 The paragraph on Italy is drawn from Greco and Ragazzi (2005). 38 This paragraph is drawn from Italian National report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016). 39 This paragraph draws heavily from Vasallo (2008).
582 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM Japanese roads and highways. Dedication of user fees for highways at the national level ended in 2009. Japan now relies on the national general fund for its national highways. The Netherlands Motorways in The Netherlands are funded from a variety of motor fuel taxes, registration fees, sales taxes, heavy-vehicle taxes and other fees that flow to a national fund for infrastructure, which is managed at the national level (The Law Library of Congress 2014, 69â72). The country has about 2,000 kilometers of motorways and another 1,000 kilometers of expressways that are also high-speed routes but are not built to motorway standards (Wikipedia n.d.). Motorways and expressways are not tolled, but the Netherlands has joined in a vignette program for heavy trucks with neighboring countries. The Netherlands case is of interest because its dedication of user taxes, as in the United States, and because in 2009 the national government gave serious consideration to abolishing the gasoline tax (more than $1 U.S./liter) and replacing it with a distance-based fee. This proposal, however, was withdrawn following a change of governments (Sorenson 2013). New Zealand New Zealand began its program of national road building in the 1920s.40 The New Zealand Transport Agency administers roughly 11,000 kilome- ters of state roads, about 200 kilometers of which are motorways. Three roads are tolled. In general, New Zealand relies on fuel tax and other user charges to pay for state roads and motorways, the revenues from which are dedicated to a national fund for investing in roads and highways. Most passenger vehicle users pay for highways through motor fuels taxes, but vehicles that rely on diesel fuel pay a road user charge based on distance traveled. (A motor fuels tax on diesel is not imposed because a substantial share of New Zealand diesel use is off road, primarily in agriculture.) The fee for trucks over 3.5 kg includes an assessment based on the lesser of the vehicleâs gross mass (fully loaded) or its maximum allowable loaded mass. Diesel-fueled light-duty vehicles (LDVs) weighing less than 3.5 kg must buy distance licenses in increments of 1,000 kilometers. New Zealand is among a handful of nations that charge commercial vehicles based on the distance traveled and weight and its system. In place since 1977, New Zealand has a unique approach to implementation and enforcement (GAO 2012). Enforcement of LDV compliance is carried out by spot-checking odometer 40 Unless otherwise specified, information cited is taken from NZTA (n.d.).
APPENDIX J 583 readings by police, but they have no way of knowing whether the odometer is operating properly. Commercial vehicles, in contrast, must use a specified technology to ensure accuracy.41 GAOâs (2012) report cites a fee of roughly 43 cents (U.S.) per mile for a 40,000 lb 3-axle truck and 35 cents (U.S.) for a vehicle of similar weight that has five axles. Enforcement of commercial vehicle compliance is carried out manually at inspection stations. Although the overall cost of manual enforcement is relatively low compared with revenues earned through the system (about 2.5 percent), roughly 4 percent of commercial vehicle revenues are estimated to be lost due to evasion. Portugal Portugalâs motorway network, 92 percent of which is tolled, is managed by 17 different concessionaires.42 Tolled operations began in 1972 and have been expanded by the government over time. Some roads were built and maintained by concessionaires that were paid shadow tolls (road users not charged directly) by the national government. Subsequently, seven roads operating under shadow tolls were shifted to direct tolls because of the cost burden imposed on the national government (Fernandes and Viegas 2005). In 2007, Portugal shifted to operating its national road authority as a pub- lic agency to a private concessionaire, which, in turn, manages all other sub-concessionaires. New routes were opened exclusively with electronic toll collection. Most of the countryâs motorways are operated by private concessionaires, but, as of 2013, several private toll roads were short of sufficient traffic to remain viable. Scandinavia The Scandinavian countries of Denmark and Sweden have mostly relied on general funds for highways, whereas Norway has also relied on tolls for major tunnels and bridges as well as for highways.43 Denmark has tolls on two long road/rail bridges linking Denmarkâs two largest islands and mainland with Sweden. Its motorways are otherwise un-tolled for passenger vehicles. Swedenâs highways and motorways are mostly publicly funded, with the exception of the tolled bridge it shares with Denmark. Sweden and Denmark, in partnership with Luxembourg and the Netherlands, have fairly recently partnered on a vignette for trucks in excess of 12 tons for motorway use in all four nations (Skatteverket n.d.). Norway has relied 41 The following sentences are from GAO (2012). 42 Portuguese national report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016). 43 This paragraph draws from BrÃ¥then (2005).
584 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM on tolling for many projects, but unlike some southern European nations, Norway expects toll projects to be self-funded by tolls (without public sub- sidy). Road users in Denmark and Norway pay far more in fuel, vehicle, and license taxes (which are not dedicated to road funding) than are spent on motorways and highways. (Comparable statistics for Sweden not avail- able from primary source for this paragraph.) Spain Spain has a large network of national highways, about 15,000 kilometers, compared to about 3,500 kilometers of privately operated toll roads (see Table J-1). Although most national highways were funded publicly starting in the 1970s, Spain relies on private companies to build and operate toll roads that the public sector could not afford to build (Acrete et al. 2009). Up until 1980, almost 80 percent of motorways were tolled, but by 2003, this share had dropped to 20 percent (Bel and Fageda 2005). In response to the 2007â2008 financial crisis, traffic on toll roads that had peaked in 2006 fell sharply after 2007 (about 30 percent) and, had barely recovered to the 2006 peak by 2016.44 The Spanish network of un-tolled roads offers alternatives to tolled roads, which subsequently suffered from inadequate traffic during Spainâs financial crisis. As of 2016, low traffic had forced nine concessionaires, representing more than one-fifth of the tolled roads, into bankruptcy proceedings (Ptolemus Consulting Group 2015, 80â83). As of 2016, eight concessionaires were in the final stages of bankruptcy. Spain proposes to tender the routes managed by these concessionaires again and continue to rely on tolls.45 Switzerland Following a national vote taken in 1958, the Swiss embarked on a program of building motorways exclusively funded publicly.46 By the end of 2002, the network had reached more than 1,300 kilometers (almost its current extent). The main sources of revenues have been the fuel tax and a heavy vehicle vignette (which turned into a distance and weight-based fee) that are dedicated to this purpose. As a nation at the crossroads of Europe, Switzerland had attempted to restrict heavy truck traffic by weight (up to 28 tons) and to night hours in an effort to shift cross-national freight to rail. After lengthy negotiation with the EU, in 2002 Switzerland lifted its restrictions on heavy trucks (to 40 tons) and imposed heavy vehicle use 44 Spanish national reports ASECAP (2015) and ASECAP (2016). 45 Personal communication, Jose M. Vassallo. 46 This paragraph draws from Rudel et al. (2005).
APPENDIX J 585 tolls with a system comparable to, but with higher tolls than, Austriaâs and Germanyâs. A recent paper finds a modest decline in heavy truck traffic and reductions in vehicle emissions (Luechinger and Roth 2016). Unlike these nations, Switzerlandâs fees apply to truck use of all roads. The revenues from these tolls flow to a fund dedicated to the transalpine railway infra- structure and other major rail improvements. United Kingdom The United Kingdom began its highway program in the 1920s with the expectation that road user taxes would be dedicated for the purposes of building and maintaining roads, but this principle was severed in practice and subsequently abandoned.47 Although almost all highways have been funded with public funds, road users pay more in fuel and other taxes than is spent on highways. The only tolled section of motorway in the United Kingdom occurs on a 42-kilometer section of the M6 motorway.48 About 540 miles of motorway are financed by shadow tolls (Albalate et al. 2009). A few motorway improvements financed through the EIB are repaid through availability payments. Table J-2 also summarizes the current funding mechanisms and the extent of their motorway network for a selected group of industrialized nations, including the United States. MOTOR FUEL AND PER-MILE RATES REQUIRED TO RAISE FUNDS NEEDED TO PAY FOR INTERSTATE MODERNIZATION BY 2036 As described in Chapter 5, the cost to modernize the Interstates ranges between roughly an additional $20 billion to $50 billion per year beyond the current investment. This section estimates what would federal (i) motor fuel tax rates or (ii) per-mile fees need to be to increase the revenue by $20 billion annually. Estimated Future Rates In order to raise a fixed amount of funds from highway users in the future, the rates to be paid depend on the estimated amount of future VMT, fuel economy, and number of vehicles being operated on the road. 47 This paragraph draws from Mackie and Smith (2005). 48 UK national report to ASECAP Study and Information Days, Madrid, May 23â25, 2016 (ASECAP 2016).
586 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM TABLE J-2 Current Funding Mechanism for Motorways in Selected Nations Country Motorways, mi. (km) Current Funding Mechanism Austriaa 1,068 (1,719) A public corporation imposes direct user fees for motorways. Belgiumb 1,095 (1,763) The Belgian government funds motorways from general revenues. Francec 7,178 (11,552) Concessionaires build, operate, and maintain approximately 75 percent of the French motorway network. A public corporation finances those private sector motorway operators for motorway construction. For publicly operated and maintained motorways, general tax revenues supply the funding. Germanya (trucks only) 8,026 (12,917) The German federal government appropriates general revenues for motorways and federal roads. The government levies taxes on gasoline, motor vehicles, and truck traffic for funding. Italyd 4,195 (6,751) Italy generally funds its motorways through tolling. Japane 6,835 (11,000) Six private toll road operators build and manage Japanâs motorway system. A portion of the revenues from tolling are paid to a public corporation that controls the leases for the motorways. The public corporation in turn provides financing to the toll road operators for new construction. For motorways directly managed by government, the national government pays 75 percent and prefectural governments pay 25 percent of the construction costs. Netherlandse 1,664 (2,678) The Netherlands funds its motorways through several taxes, including a motor vehicle registration fee and a tax on heavy trucks. In addition, the Netherlands has authorized the use of publicâprivate partnerships to fund motorways. Portugalc 1,905 (3,065) Portugal relies predominantly on tolling to fund its motorways, which are operated by more than a dozen concessionaires.
APPENDIX J 587 Country Motorways, mi. (km) Current Funding Mechanism Spaine 9,309 (14,981) Although the 2008 financial crisis caused several concessionaires to enter bankruptcy, Spain maintains its reliance on toll revenue collected by concessionaires to fund the motorway network. Swedene 1,278 (2,057) Sweden funds its public network of motorways through state and local taxes. United Kingdome 2,336 (3,760) The UK motorway network predominantly relies on revenues from the fuel and other taxes for building and maintenance. Shadow tolls finance a limited portion of the motorway network. United Statesf 49,455 (79,590) Revenues for Interstate and other federal-aid highway funding derive from federal motor fuel taxes and taxes on heavy trucks and truck tires. aFederal parliamentary republic. bFederal parliamentary democracy under a constitutional monarchy. cSemi-presidential republic. dParliamentary republic. eParliamentary constitutional monarchy. fConstitutional federal republic. SOURCES: Acosta 2014; Biatour et al. 2017; World Road Association n.d. TABLE J-2 Continued Motor Fuels Tax Revenues The amount of revenue to be raised from motor fuels taxes is calculated by multiplying the projected number of gallons of gasoline or diesel fuel consumed times the tax rates appropriate for light-duty vehicles (LDVs) (gasoline) and straight and combination trucks (diesel).49 With a 20-year modernization effort in mind, the year 2026 is used to illustrate potential future rates necessary to raise the desired amounts. Projected rates by 2026 would allow time for rates to be phased in over time, for a construc- tion program to ramp up, and, in the case of per-mile fees, for necessary electronic charging infrastructure to be installed. The year 2026 is also 10 years out from the baseline year for which aggregate statistics are available 49 To simplify, all medium-duty trucks are assumed to use diesel.
588 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM for LDVs and trucks on VMT, fuel economy,50 and number of registered vehicles (FHWA 2017, Table VM-1).51 Mileage-Based User Fee Revenues The amount of revenue to be raised from a mileage-based fee begins with the amounts being paid through motor fuels taxes, as calculated above, but is limited to VMT on the Interstates. The per-mile rates needed to raise the needed funds are calculated based on projected VMT and vehicles operat- ing and the rates needed at future traffic levels to generate the amounts required. Estimated Mileage Traveled To calculate future VMT for LDVs and medium- and heavy-duty trucks, this analysis used the committeeâs annual VMT growth rates (0.75 percent, 1.5 percent, and 2.0 percent). VMT, registered vehicle, and average miles per gallon (MPG) estimates from Highway Statistics 2016, Table VM-1 are used as the baseline year, which are projected for LDV, straight truck, and combination trucks through 2026. Note that for the calculations in this analysis, the VMT traveled by classes of vehicles is for use of all roads and not just the Interstates since it is not possible to charge a different fuel rate for use of different classes of local roads and highways. Thus, the money raised for the Interstates would have to be raised from users of all classes of roads and highways. Estimated Fleet Average Fuel Economy For LDVs, the Energy Information Administration (EIA) has projected fleet average fuel economy from 2016 to 2050 (EIA 2018) (although the analysis described in this document only uses EIA projections for 10 years out since it estimates revenues needed and rates required in 2026). For future truck fuel economy, the analysis relies on a recent paper by Burke and Zhao (2017), which simulates future medium- and heavy-duty truck MPGs for 2030 and 2050 and compares them to baseline EPA projections. These simulations were conducted for selected medium- and heavy-duty trucks. Rather than use the estimated truck fuel economy estimates from 50 Fuel economy only considers gas/diesel vehicles, it does not include phase-in of all electric vehicles. 51 Because VMT, MPG, and the number of vehicles increase over time, the amount of funds raised in a given year will constantly change. In the early years revenues will be below the target and in later years, the revenues will be above the target. Picking a middle year provides an estimate of the median revenues brought in.
APPENDIX J 589 Burke and Zhaoâs (2017) paper, the average annual percentage changes in MPG from their simulations were applied to straight truck and combina- tion truck fleet MPG beginning in 2016 from FHWA (2017, Table VM-1). The rates of change in this calculation of improved fuel economy for trucks are at or below those for LDVs, and since class 8 tractors used in combi- nation trucks in long-distance trucking turn over about every 4 to 6 years (compared with much longer durations for LDVs), this approximation may provide a reasonable estimate. The fuel economy estimates assumed for the analysis are illustrated in Figure J-1; as mentioned earlier, only the first 10 years (2016â2026) contributed to the calculations and results described later in this section. Registered Vehicles Since one goal of this analysis is to illustrate what the average user would pay in the future, it is necessary to estimate the number of vehicles in the future in order to calculate an average. The projected number of vehicles in 2026 is based on the growth rate in vehicle registrations over the previ- ous 10 years. FIGURE J-1 Estimated fuel economy, 2016â2036. APPENDIX J J-43 PREPUBLICATION COPYâUncorrected Proofs FIGURE J-1 Esti ated fuel economy from 2016 to 2036. Registered Vehicles Since one goal of this analysis is to illustrate what the average user would pay in the future, it is necessary to estimate the number of vehicles in the future in order to calculate an average. The projected number of vehicles in 2026 is based on the growth rate in vehicle registrations over the previous 10 years. Rate Increases Required Motor Fuels Rates As an illustration, this analysis estimated the motor fuel tax rate increases needed for raising an additional $20 billion per year. For the calculation, MPG and VMT were first projected for each class of vehicle for 0.75 percent, 1.5 percent, and 2.0 percent annual VMT growth rates. The estimate of total gallons consumed was then calculated simply by dividing the total VMT by MPG. The number of gallons was multiplied by the fuel tax rates needed to achieve total revenues. Starting with the baseline tax rates, interpolation was used to determine the rate 0 5 10 15 20 25 30 35 20 16 20 18 20 20 20 22 20 24 20 26 20 28 20 30 20 32 20 34 20 36 M ile s p er g al lo n Light-duty vehicles Medium Duty Trucks Heavy-Duty Trucks
590 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM Rate Increases Required Motor Fuels Rates As an illustration, this analysis estimated the motor fuels tax rate increases needed for raising an additional $20 billion per year. For the calculation, MPG and VMT were first projected for each class of vehicle for 0.75 per- cent, 1.5 percent, and 2.0 percent annual VMT growth rates. The estimate of total gallons consumed was then calculated simply by dividing the to- tal VMT by MPG. The number of gallons was multiplied by the fuel tax rates needed to achieve total revenues. Starting with the baseline tax rates, interpolation was used to determine the rate required to raise the desired level of revenue in 2026. In this calculation, the current ratio of gasoline to diesel tax rates was kept constant so that the future tax rates paid by LDVs and trucks would be based on the ratio of the rates paid today. Using conventional approaches to apportioning costs to highway users, the actual rates to be charged would more appropriately be based on an updated cost allocation study, which would estimate the share of cost for highway construction and repair based on the share of design requirements required for, and damage caused by, each vehicle class. By 2026, and using the mid-range VMT forecast (1.5 percent annual growth), the estimated rates for LDVs to raise an additional $20 billion would have to increase from 18.4 cents per gallon to 30.0 cents per gallon. Diesel rates for trucks would have to increase from 24.4 cents per gallon to 40.0 cents per gallon. These rate increases would be roughly 60 percent over current rates in current dollars. Table J-3 shows the rates and changes to raise $20 billion in new revenue. Note that this analysis does not adjust for any reductions in projected travel because of the increased cost of travel that would result from the projected rates, although this cost would, presumably, have a small effect on demand.52 Nor does the analysis account for shifting from gasoline or diesel vehicles to alternatively fueled vehicles that would be induced by higher fuel taxes, though, again, presumably this would have an effect of some magnitude, but it would be offset to the extent that alternatively fueled vehicles were charged fees for highway use able to raise equivalent revenues, per mile traveled, as those charged to users of gasoline or diesel. Per-Mile Rates Charging a mileage fee to Interstate users, as described in the MBUF op- tion in Chapter 6 of the report, would enhance both efficiency and equity. 52 In the case of potential mode shift from truck to rail, the shift would likely be fairly mod- est. A recent working paper from the Congressional Budget Office estimates that truck tax rates of greater magnitudes than those described herein would cause about 3 percent of truck freight to shift to rail (see Austin 2015).
APPENDIX J 591 If this option were pursued, the amount of funds to be raised would have to be increased to account for the cost of converting the Interstates to an all-electronic tolling system (AET); this cost would be about $55.5 billion, as estimated in Chapter 6. Also for simplicity, we assume that this invest- ment would have a 10-year replacement cycle and that the cost would be amortized over that period; hence adding $5.5 billion per year to the cost of converting the Interstate System to AET. For simplicity, the cost of ad- ministration is estimated for the purpose of this analysis to be 10 percent of revenues earned. As a result, instead of needing to raise an additional $20 billion by 2026, the amounts required would be $27.55 billion in cur- rent dollars. If the amount in current motor fuels taxes was converted to a per-mile fee, LDVs would pay about 0.84 cents per mile for use of the Interstates and trucks would pay about 3.28 cents per mile. These rates per mile are well below the average per mile charged for cars (7.7 cents/mi) and paid by trucks (30 cents/mi) on existing toll roads on the Interstate System,53 but would apply to the entire system. If vehicles were charged a fee per mile, a key question is what LDVs should pay relative to trucks since loaded truck weights determine the de- sign (and cost) of bridges and truck axle loadings cause most of the damage to pavements. For this analysis, trucks are assumed to pay rates that are four times higher than cars, which is the average that trucks pay more than cars for existing toll roads on Interstates with lengths of 50 miles or more.54 In order to raise $27.55 billion by 2026, the rates for LDVs would need to rise from 0.84 to 2.72 cents per mile. Rates for combination trucks would need to rise from 3.28 to 10.9 cents per mile. As shown in Table J-4, rates would need to increase by more than fourfold for Interstate users to pay the cost of raising $27.55 billion (in current dollars) by 2026. 53 Average per-mile equivalents of toll rates for cars and trucks are taken from per-mile equivalents reported for tolls charged on existing toll roads on Interstate highways in the continental United States (FHWA n.d.-a). 54 The proper way to determine LDV and truck per-mile fees would be through a cost al- location study. This calculation considers tolls on routes of 50 miles or more to avoid the distortions of high truck toll rates on short segments of urban Interstates. TABLE J-3 Illustrative Fuel Tax Rate Increase Required to Raise an Additional $20 Billion (current $) in 2026 Light-Duty Vehicles Combination Trucks Current Rate (cents/gal) 18.4 24.4 Required Rate in 2026 (cents/gal) 30.0 40.0 Percentage Change 63 63
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APPENDIX J 595 Mackie, P., and N. Smith. 2005. Financing Roads in Great Britain, In Research in Transpor- tation Economics, Vol. 15: Procurement and Financing of Motorways in Europe (G. Ragazzi, and W. Rothengatter, eds.), Elsevier, Oxford, UK, pp. 215â230. Mallett, W. J. 2014. Highway and Public Transit Infrastructure Provision Through Publicâ Private Partnerships (P3s). R43410. Congressional Research Service, Washington, D.C. https://fas.org/sgp/crs/misc/R43410.pdf. Mallett, W. J., and G. A. Driessen. 2016. Infrastructure Finance and Debt to Support Surface Transportation Investment. R43308. Congressional Research Service, Washington, D.C. https://fas.org/sgp/crs/misc/R43308.pdf. McIlroy, T. 2018. Turnbull Government Urged to Launch New Asset Recycling Plan. Financial Review, Jan. 2. http://www.afr.com/news/turnbull-government-urged-to-launch-new- asset- recycling-plan-20180102-h0cfvy. National Surface Transportation Infrastructure Financing Commission. 2009. Paying Our Way: A New Framework for Transportation Finance. http://www.itif.org/files/NSTIF_ Commission_Final_Report.pdf. NZTA. n.d. Roads and Rail. https://nzta.govt.nz/roads-and-rail. Oregon DOT. 2017. Oregonâs Road Usage Charge: The OReGO Program. Final Report. http://www.oregon.gov/ODOT/Programs/RUF/IP-Road%20Usage%20Evaluation%20 Book%20WEB_4-26.pdf. Pantelias, S., K SigurbjÃ¶rnsdÃ³ttir, and V Lingaitis. 2010. EU Funds for Roads. Table 1. Confer- ence of European Directors of Roads. http://www.cedr.eu/download/Publications/2008/e_ EU_funds_for_roads.pdf. Ptolemus Consulting Group. 2015. Electronic Toll Collection Global Study 2015: Trans- forming Road Charging into a Connected Vehicle Service. https://www.ptolemus.com/ etc-study/overview-of-the-etc-global-study. Quiggen, J. 2017. Asset Recycling May Look New and Exciting. But Itâs the Last Gasp of a Failed Model. The Guardian, June 6. https://www.theguardian.com/commentisfree/2017/ jun/07/asset-recycling-may-look-new-and-exciting-but-its-the-last-gasp-of-a-failed-model. Rephlo, J. A. 2013. Connected Vehicles for Safety, Mobility, and User Fees: Evaluation of the Minnesota Road Fee Test. Minnesota Department of Transportation, Roseville, Minn. http://www.dot.state.mn.us/mileagebaseduserfee/pdf/EvaluationFinalReport.pdf. Rothengatter, W. 2005. Motorways and Motorway Finance in Germany and Austria. In Re- search in Transportation Economics, Vol. 15: Procurement and Financing of Motorways in Europe (G. Ragazzi, and W. Rothengatter, eds.). Elsevier, Oxford, UK, pp. 75â92. Rudel, R., O. Tarola, and R. Maggi. 2005. Pricing and Financing Transportation Infrastruc- tures in Switzerland. A Success Story? In Research in Transportation Economics, Vol. 15: Procurement and Financing of Motorways in Europe (G. Ragazzi, and W. Rothengatter, eds.), Elsevier, Oxford, UK, pp. 205â214. Schmitt, W. 2018. Tolls and Fees Suggested as Future Missouri Highway Funding. OzarksFirst.com, Jan. 7. https://www.ozarksfirst.com/news/tolls-and-fees-suggested- as-future-missouri-highway-funding/905412658. Skatteverket. n.d. Road User Charges (Tolls) for Heavy Goods Vehicles. https://www. skatteverket.se/servicelankar/otherlanguages/inenglish/businessesandemployers/ declaringtaxesbusinesses/roadusercharges.4.61589f801118cb2b7b2800010396.html. Sorenson, P. 2013. From Fuel Taxes to Mileage Fees. http://www.accessmagazine.org/wp- content/uploads/sites/7/2015/10/fuel-and-mileage.pdf. The Law Library of Congress. 2014. National Funding of Road Infrastructure: Australia, Bra- zil, Canada, China, England and Wales, France, Germany, Israel, Italy, Japan, Mexico, Netherlands, South Africa, Sweden. https://www.loc.gov/law/help/infrastructure-funding/ infrastructure-funding.pdf.
596 NATIONAL COMMITMENT TO THE INTERSTATE HIGHWAY SYSTEM Todd, S. 2017. Spanish Hauliers to Strike in Protest at New Truck Toll. Lloydâs Loading List, Dec. 29. https://www.lloydsloadinglist.com/freight-directory/news/Spanish-hauliers-to- strike-in-protest-at-new-truck-toll/71025.htm#.WrV1vy7wZhY. Transport Canada. 2017. Transportation in Canada 2016. https://www.tc.gc.ca/media/ documents/policy/comprehensive_report_2016.pdf. TRB. 2006. Special Report 285: The Fuel Tax and Alternatives for Transportation Funding. Transportation Research Board, Washington, D.C. http://onlinepubs.trb.org/onlinepubs/ sr/sr285.pdf. TRB. 2009. Special Report 297: Funding Options for Freight Transportation Projects. Trans- portation Research Board, Washington, D.C. http://www.trb.org/Main/Blurbs/162174. aspx. TRB. 2011. Special Report 303: Equity of Evolving Transportation Finance Mechanisms. Transportation Research Board, Washington, D.C. http://onlinepubs.trb.org/onlinepubs/ sr/sr303.pdf. UDOT. 2018. Research and Innovation: Responsive, Accessible, Relevant. Spring. https:// www.udot.utah.gov/main/uconowner.gf?n=42842217601449276. U.S. DOT. 2016. Transportation Infrastructure Finance and Innovation Act: 2016 Report to Congress. https://cms.dot.gov/policy-initiatives/tifia/2016-tifia-report-congress. Varne, J., and S. Kline. 2017. How Could âAsset Recyclingâ Work in the United States? https://bipartisanpolicy.org/blog/how-could-asset-recycling-work-in-the-united-states. Vasallo, J. M. 2008. Executive Report: Analysis of the Japanese Toll Expressway System in the Framework of the Current Trend of the Toll Business in the World. Transport Research Center, Polytechnic University of Madrid. http://www.jehdra.go.jp/english/pdf/ others/107.pdf. Washington State Transportation Commission and Washington State DOT. 2017. Washing- ton State Road Usage Charge Assessment. https://waroadusagecharge.org/wp-content/ uploads/2017/07/WA-RUC-SC-07-27-17-Presentation.pdf. Whitty, J. W., and J. R. Svadlenak. 2009. Special Report 299: Discerning the Pathway to Implementation of a National Mileage-Based Charging System. http://onlinepubs.trb. org/onlinepubs/sr/SR299Mileage.pdf. Wikipedia. n.d. Roads in the Netherlands. https://en.wikipedia.org/wiki/Roads_in_the_ Netherlands. World Road Association. n.d. Austria. https://www.piarc.org/ressources/documents/89,autriche. pdf.