ARE THE FULL COSTS OF ROADS PAID FOR BY ROAD USERS?

A Paper for

THE AMERICAN DREAM COALITIONFunded by

DONORS CAPITAL PROGRAMBy

THOMAS A. RUBIN, CPA, CMA,CMC, CIA, CGFM, CFM

Yes.

Questions?

Do Road Users Paid the Full Cost?• In recent years, much discussion• Several papers/organizations say “no:”– Sierra Club America’s Auto’s on Welfare – Seven

studies estimating annual road subsidies from $378-2,157 billion (1992-1996)

– Subsidyscope, Analysis Finds Shifting Trends in Highway Funding: User Fees Make Up Decreasing Share (Nov ‘09) – for 2007, user revenues only 51% of total highway revenues

Do Road Users Paid the Full Cost? II• Cambridge Systems, Inc. for TxDOT, The

Highway Construction Equity Gap (2/08) – For seven TxDOT roadway improvement projects, the life-cycle ratio of road user revenue to costs ranged from 13% to 91%, with a weighted average of 34%.

What’s Different With This Paper?• Sierra Club:– Papers cited by Sierra Club include “soft costs,”

such as global warning, pollution, U.S. Department of Defense, etc.

– This paper is “hard costs” only – the construction, maintenance, and operation of roads, plus associated activities such as law enforcement and emergency response, motor vehicle registration, compared to road user payments to governmental bodies.

– Later papers in this series will address “soft costs.”

What’s Different With This Paper?• Subsidyscope:– Only looked at revenues, did not consider costs.– Only considered road user charges utilized for roads.– We have included as road use-generated revenues many

factors that Subsidyscope did not.• Subsidyscope paper does fine job of showing how

road user charges, as they calculate them, have dropped from 60-70+% in 1950’s through 1970’s (high of 72.69% in 1963) to 50.81% in 2007.

• Regardless of how you calculate, road user fees have not kept up with inflation and mpg increases.

What’s Different With This Paper?• TxDOT:– Very misunderstood and improperly cited paper.– There are cross-subsidies identified in this paper,

but they are from the entire Texas road system to specific road projects, not from “general” taxes to the specific road projects.

– This paper is making the case that more dedicated funding is needed for Texas roads – and that the diversion of road user fees for other purposes is substantial.

What’s Different With This Paper?• TxDOT (concluded):– Texas has 20¢/gallon motor fuel excise charge.– 5¢/gallon (25%) is dedicated to K-12 education.– .6¢ (3%) of what’s left goes for collection costs.– Of the 20¢/gallon that each motorist pays to the State,

only 14.4¢ (72%) winds up going for road purposes.– The Texas cents-per-gallon rate was last increased in

1991 – but, since then, all road construction costs have increased almost every year and vehicle mpg has increased substantially – and cost increases will continue.

What Else Is DifferentWith This Paper?

This Paper Was Done By An Accountant.

Process• First, we’ll work through the road expenditures.• Second, we’ll collect road user revenues.• Data sources:– Chief source is: Federal Highway Administration,

Highway Statistics 2007.– Population and Taxable Sales: Census Bureau– General Sales Tax Rates: Federation of Tax

Administrators– Motor Fuel Sales Tax Rates: American Petroleum

Institute

Costs• There are two ways to disaggregate the cost:– Government level: federal state, local– Function

• Both are in web version, we’ll use “function” here:– Capital outlays (new construction and capital renewal

and replacement, not split out)– Maintenance and service– Administration, planning, and research– Law enforcement and safety– Debt service

Road User Revenues• Two-factor test; it is road user revenue if:

1. If the driver wants to drive his/her vehicle on the roads, (s)he must pay the charge, and

2. The payment of the charge is only made by those who are using the roads or clearly intending to use the roads.

• If it meets both criteria, it is counted; if it doesn’t it isn’t.

Included Road User Revenues• Federal Highway Trust Fund• State User Fees – cents/gallon fuel charges,

vehicle registration fees, tolls• Local Government User Fees – motor vehicle

and fuel charges, tolls• Original Issue Toll-Backed Bonds• Vehicle/Parts Sales Tax Receipts• Motor Vehicle Fuel Sales Tax Receipts• Highway Trust Fund Interest• All “net” of collection costs

Why Include All of These?• Many obviously direct road user charges are, by

statute, diverted to non-road purposes.• Many taxes are obviously directly related to road

use – see two-factor test.• Many allegations that roads are subsidized by

“general fund revenues:”– No doubt that many general fund taxes go for roads.– In order to test validity of “subsidy hypothesis,” we must

know not only the amount of general fund revenues that go for road purposes, but also the amount of funding for general fund that comes from direct road use charges.

Federal Highway Trust Fund• $.184/gallon for gasoline• $.284/gallon for diesel• Other rates for other types of fuel• Excise charge on heavy truck tires• 12% “sales tax” on heavy trucks• Annual fee for heavy trucks based on weight• Values shown include $.0286/gallon dedicated

to transit, other “flexible funds” (CMAQ, STP) used for non-road purposes, exclude $.001/gallon for LUST

State User Fees• Includes:– Cents/gallon charges– Motor vehicle registration & drivers licenses– State agency toll receipts– In some states, overweight violation fines

• Excludes:– Speeding and other types of traffic violation

penalties– Sales taxes

Local Government User Fees• Includes:– Cents/gallon charges– Motor vehicle registration fees– Local agency toll receipts

• Excludes:– Speeding and other types of traffic violation

penalties– Sales taxes– Curb parking ticket revenue/fines

Original Issue Toll Backed Bonds• This is something that virtually every other

paper counts as “taxpayer subsidy.”• However, toll road/bridge/HOT lane bonds

that are backed by toll revenues are paid out of user charges – tolls – for road use – and satisfy our two-factor test.

• Note that “general obligation” and revenue bonds backed by non-toll revenues are not included here.

• Refunding bonds not included, only first issue.

Vehicle/Parts Sales Tax Receipts• This is another source that other papers do

not count.• Again, this satisfies the two-factor test –

people who buy cars do so to use them on roads and, if you buy a car, you must pay sales tax.

• In 2007, only five states (Alaska, Delaware, Montana, New Hampshire, Oregon) did not have general sales tax.

Motor Vehicle Fuel Sales Tax Receipts• Again, not counted in other papers.• Again, passes two-factor test with flying

colors.• In 2007, only six states (California, Florida,

Georgia, Illinois, Indiana, Michigan, and New York) had motor fuel sales taxes, but many of these states were among the largest for motor fuel sales.

General Notes on Sales Taxes• With the exception of New York Sales motor

fuel sales taxes, only state-wide taxes are included.

• Many states allow local sales taxes, which can be extensive – in Los Angeles County, the nation’s largest local county, there were two half-cent sales taxes primarily for transit that, in 2007, generated over $1 billion – and approximately one-third of sales are vehicles, parts, and motor vehicle fuel.

Highway Trust Fund Interest• The funds sitting in the Highway Trust Fund waiting

to be allocated and called down do not accrue interest for the Highway Trust Fund.

• Having these funds sitting idle means that the Treasury don’t have to issue that amount of debt to finance the nation debt.

• In 2007, the average balance was >$15 billion and the average one-year Treasury rate for FY07 was 4.87% – so the taxpayers saved $746 million in interest expense.

• Another “no-one-but-us-counts-it” item.

Significant Variance by State• Road User Revenues Exceed Road

Expenditures:– 23 States “in the black”– Tennessee had revenues of 193.7% of

expenditures– California had $9.6 billion “surplus”

• Road Expenditures Exceed Road User Revenues:– 27 States and District of Columbia “in the red”– Alaska had revenues of 26.2% of expenditures– Missouri had $2.2 billion “deficit”

“Sierra Club” Subsidies• These will be subject of future papers in this series• Quick-and-dirty responses here• Eleven factors – wording in titles of following slides

are those of Sierra Club• Note that their seven reports are all fourteen to

eighteen years old• The highest estimate of road subsidies – $2,127

billion in 1994 – was >30% of GDP in that year

1. Police, Fire, Ambulance; road construction & maintenance; other

local government – paid for with taxes• See preceding – government collections from road

users exceeds government expenditures on roads.• This paper does include all factors listed above;

however, based on comparative review of emergency response costs, it is likely that these are not consistently reported from state-to-state.

• Traffic fine revenues and insurance recoveries not included as road user revenues in FHWA stat’s.

2. Property taxes lost from land cleared for freeways

• Property tax valuation added due to mobility created by the American system of mobility has created many times the accessed valuation lost to land used for roads; a large portion of high-value American land would be worth a small fraction of current value without road mobility.

• Many roads, primarily those in cities and smaller urban areas, existed before the advent of the automobile.

3. Parking – free or cheaper parking is paid for with other taxes, or more

expensive goods or services• Much truth in this – but there is such a huge overlap

between the beneficiaries of the subsidies and those that are paying for the subsidies, does it really matter all that much?

• Even those who do not park, or even drive, benefit substantially; for example, someone who walks or cycles to a supermarket gets the benefit of far larger section of goods, fresher produce, and lower prices than if they were limited to no-drive food markets.

4. Air, water, land pollution – adds to medical expenses, loss of species and

cleanup costs.• The American road system is definitely a major

source of pollution; however, there have been huge improvements over the past half century and there will continue to be huge improvements for many years to come, even without any new technologies or laws, as older vehicles are retired.

• Let’s look at how childhood asthma prevalence, and how the EPA data for its “Big Six” atmospheric pollutants has changed, 1980-2008.

Air Quality• There is no question that, in the U.S., childhood

asthma, a serious and incurable condition, is increasing at a dramatic rate – and there is widespread agreement that air pollution is a major cause.

• However, for the “Big Six” air quality measures from EPA, they have been constantly going down – which makes explaining how air pollution is the dominant factor in asthma causation somewhat difficult.

• Also, there were very significant air quality improvements prior to the EPA 1980 cutoff.

Other Environmental Factors• Prior to advent of the automobile, the predominant

“power plants” for good deliveries, and much passenger transportation, in urban areas were horse, mule, and oxen.

• The “pollution” from these “power plants” was a very serious direct threat to public health, not to mention a major municipal expense for carrying it away and for disposal – and much of this was for carcasses, left f.o.b. street – where they fell.

• The change to motorized travel was a huge public health improvement compared to what went before

5. Noise, vibration damage to structures – adds to medical expenses

and repair costs• A valid point – but not necessarily a huge one.• Consider the noise and vibration from other modes

of transportation – such as rail, and streetcars.• Electric rail also has another interesting effect, stray

electric current. Prior to the early 1920’s, improper grounding of electric trains led to major failures of underground metal – like water pipes and foundations. Even today, problems occur – check with Houston Metro and Sound Transit (Seattle)

6. Global warming – adds tomedical expenses, loss of species

and other costs• At the risk of being labeled a “global warning

denier” (as in, “Holocaust denier”), as the complexity of the topic, I’m just going to ask, how much credit do you give to global warming/climate change warnings – and then leave the details on this one for another day.

7. Petroleum supply line policing, security, petroleum production

subsidies – increases taxes for defense• The higher estimates for this line item allocate 50%

of the costs of the Department of Defense and national security as road subsidies.

• These were done by what are generally known in the forecasting profession as “Delphi forecasting” – or what is sometimes popularly known as a WAG or a SWAG.

• As far as Middle East oil, some recognition might be given to the long-term U.S. support of Israel.

8. Trade deficit, infrastructure deficit – increases costs of goods

• This refers to cost of imported oil.• Very true.• Now, try to image the U.S., or the world, economy –

without roads.• The best alternative energy available is nuclear –

we’re about built-out for hydro power (in fact, many “Greens” are pushing to remove dams), wind and solar are unreliable – which means fossil fuel back-up plants – and none of these or others is really able to make a major addition to U.S. power supply.

What About Passenger Rail?• There have been many proposals for greater use of

passenger rail for both intercity and local passenger transport, particularly electric-powered rail – and the European Union (EU) is often given as an example of what we could do.

• Unfortunately, it is extremely difficult to operate both passenger and freight rail on the same system – and the U.S. has gone for freight rail.

U.S. vs. EU Mode SharesRoad* Rail

Passenger-MilesUnited States 88.0% .6%European Union 86.0% 7.6%

* Includes auto and busTon-MilesUnited States 28% 38%European Union 75% 14%Does this look like a good-trade off to you?

9. Sprawl, loss of transportation options – increases personal and

corporate transportation costs• The underlying assumptions include:– Transit capital costs are lower than road capital costs– Transit is less expensive to operate than driving– More compact development is attractive to large

segments of the population and leads to lower travel– Transit can be an effective substitute for road travel for

large numbers of people• Many of these are questionable.• Needs more detail that we can get into today.

10. Uncompensated auto accidents – increases personal costs

• This is a real problem – which might be best addressed by “real” no-fault insurance, where each driver is responsible for his/her own losses, regardless of fault, through insurance or not.

• Significantly improving driver training, including making insurance companies responsible for issuing drivers licenses, would also be worth looking at.

11. Congestion – increasespersonal costs and losses

• Congestion slows down auto travel (and road transit modes), but average home-to-work travel time, 2005-2007, for all U.S. urbanized areas with populations over 500,000:– Auto (includes carpool): 25.2 minutes– Transit: 48.1 minutes

• Transit trips tend to be shorter distances.• The people use commute via transit are largely:– Those without other options (age, auto availability, etc.)– Those who have the best transit options

SUMMARY• Road user-generated revenues include revenues

generated by road users for use of roads besides that actually dedicated for road use – including some revenues that are dedicated for non-road uses.

• Road user-generated revenues exceeded “hard cost” expenditures on roads for 2007.

• Papers on “soft costs” coming next.

Transparencyin Transit Workshop

Questions• Do understand the phases

in transportation planning?• When do you believe the

major decisions are really made?

• Where do you get your information regarding transportation decisions?

• Who do you trust for information?

• Do you contact people about transportation issues that concern you?

• Do you comment on environmental clearance documents?

• Do you belong to a transportation/public decisions interest group?

• Do you attend meetings of decision-making bodies?

• Do you write/blog/e-mail about transportation issues?

• Do you vote?