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Thoughts at a Workshop On Replacing CA’s Gas Tax With a Mileage Fee

In 2017, California plans to pilot a new mileage-based Road User Charge designed to potentially replace the current state gas tax. Photo Wikimedia

Earlier this week, I attended a California Sustainable Transportation Funding Workshop, hosted by Caltrans, Southern California Association of Governments (SCAG), the California Transportation Commission (CTC), and the Mileage-Based User Fee Alliance (MBUFA). The half-day program focused on how the state of California could shift from our current gas tax funding stream to one based on a per-mile fee.

Let me first say that I usually mostly hang out with a bunch of left-of-center city people like me; we get around mostly by bicycling and walking. My friends and colleagues tend to support the idea of a per-mile fee, because we expect that it could help motivate people to drive less, and use other modes more.

This workshop wasn’t populated by a bunch of people like me. I don’t think anyone else arrived there by bicycle. As far as I could tell, it was primarily people who are more mainstream: people who drive and who, for the foreseeable future, expect our car-centric transportation system to look more or less like it does now. Among the program’s sponsors was the libertarian Reason Foundation.

What was interesting about the workshop was where the left and the right agreed: gas tax revenues aren’t enough to cover transportation infrastructure costs, and per-mile fees could work better. Similar right-left agreements occur with some Shoup-inspired parking reforms and Express Lane toll programs.

California's Gas Tax

In 1994, California’s Gas Tax was set at 18 cents per gallon. It remains unchanged today, but, due to inflation, that 18 cents is now worth about 11 cents. Graph via Caltrans

Speakers at the conference set the stage by describing the situation, which they described as “The Federal & California Financial Cliff.” The federal gas tax is 18.4 cents per gallon. The California gas tax is an additional 18 cents per gallon. These amounts were set in the early 1990s. Unlike percentage-based sales taxes, which fluctuate with price changes, the gas tax remains at a flat rate. Since the ’90s, inflation has effectively reduced California’s gas tax to its lowest inflation-adjusted level since California gas taxes began in 1923.

Gas taxes are dedicated to be spent on transportation only. As the gas taxes lose value over time, governmental transportation budgets are increasingly subsidized by other taxes paid by everyone, including sales taxes, property taxes, etc. Recent estimates show that only about half of overall transportation funding is paid for by dedicated gas tax revenues. To some extent, this is fair: even non-drivers derive some benefits from highways, because everyone buys goods shipped by truck. The unfair aspect of this system is that non-drivers’ taxes go, in part, to freeways that non-drivers do not use.

Transportation leaders are generally aware that general funds subsidize transportation expenditures, but many drivers assume that driving-based taxes are what pays for roads. Many drivers, though already subsidized by non-drivers, still think they’re paying too much.

There are at least three more factors that influence the gas-tax-income vs. transportation-expenditures mismatch.  Read more…

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Why You Should Be Angry About CA’s “Highest Gas Tax in the Country”

I know it’s tempting to gloat.

Today, newspaper headlines are blaring the news that with the newest increase in the state’s gas tax, that California now has the highest gas tax in the country.

As I said, I know it’s tempting.

But, it’s the result of bad policy. None of the money from that increased gas tax will go to fix California’s crumbling infrastructure, or restore and fund any local transit system, or paint an inch of new bike lanes. It’s all going to the general fund, thanks to Arnold Schwarzengger and a short-sighted legislature.

To balance the state budget in 2010, Governor Arnold Schwarzenegger proposed, pushed for, and eventually signed a law that changed the tax structure for gas taxes with a so-called “fuel swap.” The new tax structure eliminated the sales tax on fuel and raised the excise tax. The purpose of the change was to eliminate funds that were dedicated towards transportation from the gas tax so that the Governor could balance the state budget with fewer cuts elsewhere and no tax increases.

After years of Governors Schwarzenegger and Gray Davis “declaring a fiscal emergency” to basically rob transit operations funds that were dedicated by voters in 2002 and 2006, the State Supreme Court ruled that there had to be an actual emergency, not just a lack of political will, to declare and emergency. It was at this point, that Schwarzengger devised the “fuel swap” plan.

The program also allowed the state to raise gas taxes so that the amount collected remains static even as the amount of fuel consumed decreases. If this meant a consistent level of funding for transit and road repair projects, the program might be more popular and useful.

But it doesn’t. As George Runner, a member of the state Board of Equalization that approved today’s increase noted when he voted against it, “The goal of the fuel tax swap wasn’t good  tax policy. Instead, its sole purpose was to allow the Legislature to move more than a billion dollars in gas tax revenues into the state’s general fund.”

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Sure, Leave Gas Tax Collection to Liberal Tax-and-Spend States Like Georgia

One nay-sayer argument against greater federal spending for transportation goes like this: “Too many faceless bureaucrats in Washington have too much control over how states spend their money. Let states raise their own revenues and spend them as they wish.”

Georgia Gov. Nathan Deal wants to freeze the state gas tax. Photo: The Beacon

Besides, they say, the national government is broke. There’s no more money to spend on roads and trains.

There are a hundred reasons why leaving transportation revenue collection and spending to the states is a bad idea. First, states are in a worse fiscal crisis right now than the feds – in part because they have a balanced-budget requirement, meaning they can’t overspend their revenues in lean times. Second, just because I don’t live in Kansas or West Virginia doesn’t mean I don’t have an interest in those states’ infrastructure, when so much of what I buy rides the roads and rails of those states to reach me. And I start to care a lot about the infrastructure of New Jersey when I travel to New York from Washington.

But here’s another reason: it’s not that much easier to gain public support for raising taxes at the state or local level than at the national level.

Georgia Governor Nathan Deal is asking state legislators to approve his state gas tax freeze – saving drivers 1.6 cents a gallon, but costing the state $30 million. New York legislators have also drunk the tax-holiday Kool-Aid, despite the fact that it would cost the state $19 million over just three weekends. Massachusetts Governor Deval Patrick is trying to raise the gas tax, and Sen. Scott Brown is giving him a hard time about it. A Connecticut state senator is going around getting petition signatures against raising the state gas tax. Gas station owners in Carson Valley, Nevada are running their own campaign to keep the county from raising the gas tax five cents — which would just bring it on par with the neighboring county.

There is evidence that when voters know exactly what the revenues will go toward – and it will benefit them – they support higher taxes. But that doesn’t mean raising taxes is ever easy — even if it’s just to replace a federal tax that used to be in place. Once a tax is gone, you can bet people will fight against re-implementation. For proof, just look at the fight brewing over merely extending the federal gas tax that’s been in place for decades.

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It’s Official: Congress’s Next Spitting Contest Will Be Over the Gas Tax

Since the 112th Congress convened in January, the federal government almost shut down, the government almost defaulted on its debts, and the FAA was temporarily shuttered. It’s the Crisis Congress, thriving on the chaos of catastrophe. Next up: a bruising fight over funding the transportation system.

Grover Norquist wasn't content to just bring us to the brink of default. Photo by Gage Skidmore

A few weeks ago, Ben Smith at Politico mentioned in a short post that the gas tax was expiring September 30. If not extended, all but 4.3 cents of the 18.4-cent federal gas tax would disappear. Extending the gas tax has always been an easy, bipartisan move that happened more or less automatically. (Raising it to a reasonable level is another story entirely.)

When Smith first wrote about the gas tax expiration, it was the first some had heard of the issue. Others were monitoring it cautiously, just in case the Tea Party or other antitax crusaders decided to kick up a stir. But media reports confirm that those forces are preparing for battle.

House Transportation Committee Chair John Mica has proposed a bill based on the current gas tax, and his office has confirmed that he supports keeping it at 18.4 cents. But according to Platts news service, Republican members on key committees are “still deciding what to do about the federal gasoline tax.”

The demigod of the tax-haters, Grover Norquist, has decided to take up the banner, after enough news organizations asked if he was going to. “ATR will be urging people to look at ending the federal gas tax either cold turkey or phasing it out as soon as possible and allowing states to simply go raise their own taxes, rather than send the money to Washington and get it back with strings,” Norquist told Platts in an email.

Even other right-wing small-government types part company with Norquist there. Politico quotes Heritage Foundation and Reason Foundation experts as saying the gas tax “has to” be renewed and that a “cold turkey” end to the gas tax, as Norquist appears to be pondering, would be “chaotic.”

That seems to be fine by Rep. Joe Wilson (R-SC) of “You lie!” fame. (Chaos is sort of his thing.) His local TV network, WJBF, quotes Wilson as questioning the federal gas tax. “Sadly, it has been used in large cities to subside a transportation system, the subway systems of New York, Chicago, San Francisco. We need to look at this carefully. And, I believe the money should be spent where it is raised and that is by the drivers of Georgia and South Carolina.”

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Gas Tax Expires September 30

The current gas tax is already too low to keep the Highway Trust Fund solvent -- what would happen if Congress lets the tax fall even farther? Source: Congressional Budget Office

Ben Smith of Politico mentioned a little tidbit that has eluded some of us: The federal gas tax expires September 30, at the same time as the current reauthorization extension. Most of it, anyway — 4.3 cents of the current 18.4-cent-per-gallon tax will stay.

The gas tax isn’t part of the reauthorization; it’s just a coincidence that the dates are the same. Regardless, it’s another thing to worry about on that day.

Smith cites an accountant’s memo which details exactly what’s expiring:

— All but 4.3 cents-per-gallon of the taxes on highway gasoline, diesel fuel, kerosene, and alternative fuels (Secs. 4041(a) and 4081(d)(1))
— Reduced rate of tax on partially exempt methanol or ethanol fuel (Sec. 4041(m))
— Tax on retail sale of heavy highway vehicles (Sec. 4051(c))
— Tax on heavy truck tires (Sec. 4071(d))
— Annual use tax on heavy highway vehicles (Sec. 4481(f))

“What could possibly go wrong?” tweets kclightrail.

No one on Capitol Hill is seriously suggesting an increase in the tax, and transportation advocates are just hoping no one targets it for a cut. So, while the expiration of the reauthorization is the subject of much fanfare, the impending expiration of the gas tax has mostly flown under the radar, and that’s just the way many advocates want it.

But the date is circled on the staff calendar over at Transportation for America. “In this political climate, who knows if Congress will suddenly decide to cut the gas tax?” said T4America’s Steve Davis.

Indeed, as advocates have pushed (to no avail) for a higher gas tax to fund the nation’s transportation needs, they may now find themselves having to defend the too-low tax we now have.

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Bi-Partisan Political Veterans Team Up to Design a New Gas Tax System

Transportation reformers around the country have long been disappointed at politicians’ unwillingness to raise the gas tax to pay for infrastructure. It seems, to many, an obvious and necessary solution for the chronic underfunding of our transportation system. Meanwhile, to the politicians, it is just as obvious that raising consumer taxes during a recession is a bad idea.

The Carnegie Endowment for International Peace has teamed up with a multi-partisan group to reform the way our transportation system collects revenues.

The Leadership Initiative on Transportation Solvency, a project of the Carnegie Endowment for International Peace, has come up with a solution.

The three principals of the Initiative – former senator (and presidential candidate and basketball star) Bill Bradley (a Democrat), former governor and DHS secretary Tom Ridge (a Republican), and former comptroller general David Walker (an Independent) – aren’t transportation experts, which Carnegie Endowment President Jessica Matthews says is an asset, since they have “no constituencies to serve.” Indeed, their interest is in creating a paradigm for “the type of fundamental review and reexamination that must be undertaken with every major government program and policy,” according to Walker. All three spoke at an event yesterday to launch the 125-page report, “Road to Recovery: Transforming America’s Transportation.”

A New Way to Raise Transportation Revenues

In addition to other reforms, the three are advocating a formula for increasing transportation revenues in a way that might be more politically and economically palatable.

First, they say, tax gas when the price is on the way down. That’s the way to make it less controversial. They’d like to see a variable gas tax of anywhere between zero and 43 cents per gallon. It would go up or down counter-cyclically based on oil prices, rising when oil prices diminish.

The problem, of course, is that oil prices aren’t expected to diminish. Sure, they were on their way down over the last few months (and then spiked again last week), but over the long term, as scarcity increases, so will prices. The Bradley/Ridge/Walker strategy, then, would leave us with a lower gas tax – and less ability to pay for infrastructure. Right?

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GM CEO: “We Ought to Just Slap a Dollar Tax on a Gallon of Gas”

Well, it’s unanimous – everyone agrees the country needs a significant hike in the gas tax. Everyone outside of Congress, that is. Last week, General Motors CEO Dan Akerson told The Detroit News that a higher gas tax would help solidify the market for more fuel-efficient cars.

GW CEO Dan Akerson wants the gas tax raised. Photo: The Detroit Bureau

Akerson told The Detroit News that, rather than have the government incrementally increase fuel efficiency standards over the next several years, “You know what I’d rather have them do — this will make my Republican friends puke — as gas is going to go down here now, we ought to just slap a 50-cent or a dollar tax on a gallon of gas.”

“People will start buying more Cruzes and they will start buying less Suburbans,” he said.

Akerson isn’t the first representative of a major U.S. automaker to come out in favor of a higher gas tax. Two years ago, as the automakers were being rescued from collapse by the U.S. government, Bill Ford, CEO of Ford, complained that demand shifted with gas prices.
“As a manufacturer, we don’t like that,” Ford said at a business conference. “Our ability to forecast has been just horrible,” said Ford. “If gas prices are gyrating wildly, we have no idea whether we’re planning right. We’d much rather have a fairly predictable level to shoot for in gas prices. That’s why I think a gas tax would work for us.”

Chrysler’s response to high gas prices in 2008 was quite the opposite – the company offered a guarantee of $3/gallon gas for three years for car buyers. Lee Iacocca championed a hike in the late eighties, before the last gas tax increase, but the company isn’t on record currently as supporting a raise.

The construction industry is a vocal supporter of an increase, since low revenues have hamstrung new development. Indeed, it’s hard to find anyone outside of Washington these days that doesn’t see the obvious need to raise the gas tax, which hasn’t been increased since 1993, when gas was just over a dollar a gallon.

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Without Adequate Federal Funding, Will States Raise Their Own Gas Taxes?

Connecticut state senators just voted to increase the state gas tax by three cents. The New Hampshire House Speaker has proposed cutting theirs by five cents – but only for two months, to help drivers bear the pain of high gas prices. In Georgia, the gas tax jumps every time gas prices go up by 25 cents. And at least one U.S. Senator is suggesting that more states start taking transportation funding into their own hands.

Sen. Lamar Alexander (R-TN) listens to mayors' concerns about federal funding for transportation. Photo: Alan Spearman / Commercial Appeal

After a meeting with mayors in his home state of Tennessee, where he listened as area mayors expressed concerns about the federal budget, Republican Senator Lamar Alexander said, “State and local governments will have to decide whether to have an increase in the gasoline tax.” He delivered the bitter news to the mayors that they may be getting even less money from the federal government over the next few years.

For many Republicans, that’s just as it should be. They think the federal bureaucracy is too big and more government functions should be left to the states. Alexander said that when he was governor in the eighties, he was able to fund and complete several state road projects without federal dollars.

But the mayors he spoke to were concerned. According to the Commercial Appeal, they explained that most transportation projects get 80 percent of their funding from the feds with just a 20 percent local match. They count on those federal dollars.

Alexander didn’t specify how much the state should raise the gas tax, but he indicated that tourists and truckers would “pay for a big share of it,” perhaps as a way to help local politicians sell the idea of a higher state gas tax to constituents.

Tennessee has one of the lowest gas tax rates in the country, taking into consideration the fact that sales tax is exempted on gasoline. The state gas tax is 15 cents a gallon (on top of the federal levy of 18.4 cents) but drivers essentially get back two-thirds of that cost (10 cents) since gas is exempt from sales tax. Tennessee dedicates its entire gas tax to highway-building.

Mayor Stan Joyner of Collierville, a Memphis suburb, told the Commercial Appeal he didn’t see a state gas tax hike as a solution to the funding problem. “Jiminy Christmas,” he said. “Gas is high enough and is taxed enough… If there are cuts or if they [federal officials] keep more, it puts a greater burden on us. It means we have an aging infrastructure with no funds to do anything about it.”

Donna Cooper, former secretary for policy under Pennsylvania Governor Ed Rendell, says state gas tax increases may be warranted in states that have not been able to meet local road repair needs. “But they should not be substitutes for the continued federal role,” she said, “in collecting gas taxes sufficient to ensure that our interstate highway system and transit systems are in good repair and have sufficient capacity to meet America’s transportation needs.”

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The Economist: Rock-Bottom U.S. Gas Tax Makes Gas Cheaper Than Water

Gas prices are up to $3.23 a gallon this week, according to AAA. But before drivers complain about “pain at the pump,” they should compare U.S. gas prices to those in the rest of the developed world. A liter of gas costs about 80 cents. A liter of Fiji bottled water costs about $4.00.

According to Ryan Avent at the Economist, the low prices are “almost entirely due to the rock bottom level” of gas tax rates in the U.S. Avent goes on:

The low cost of petrol encourages greater dependence; the average American uses much more oil per day than other rich world citizens. This dependence also impacts infrastructure investment choices, leading to substantially more spending on highways than transit alternatives. And this, in turn, reduces the ability of American households to substitute away from driving when oil prices rise.

The gas tax brings in far less than it did back in 1993, the last time it was raised, because of greater fuel economy in cars. And it’s a set price and not indexed to gas prices (which are three times higher than they were in 1993.)

Avent concludes, “It’s hard to take any fiscal hawk seriously so long as this measure isn’t on the table. It’s as close to a win-win solution as one is likely to find.”

The idea may be finally gaining traction. Everyone from the deficit commission to some U.S. Senators are warming to the notion that a gas tax hike is the best way to pay for the ambitious transportation agenda that President Obama laid out and finally address some of the country’s backlogged infrastructure needs. We could pay for the administration’s entire $556 billion proposal by roughly doubling the federal gas tax (bringing it up to 39.3 cents a gallon). And it would still be puny compared to other developed nations.

Business Insider magazine has an editorial today called, “It’s Time For a Gas Tax.” Tom Friedman proposed a one-dollar gas tax hike in the New York Times this week. Indeed, you could add a dollar to our gas tax and gas would still be a bargain compared to some countries. But it could be just enough to encourage more sensible transportation options.

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California’s Pay as You Drive Insurance Program Could Reduce Driving

The California Department of Insurance has approved a pay-as-you-drive insurance program encouraged by environmental advocates and transportation planners because it provides an incentive to drive less by reducing premiums for low-mileage drivers. Widespread adoption of similar insurance policies could reduce driving in the U.S. by as much as eight percent, according to a Brookings Institution study.

“The voluntary pay-as-you-drive initiative is an innovative program that will allow insurers to offer plans based on more accurate mileage, so that people who choose to drive less will pay less for auto insurance,” California Insurance Commissioner Steve Poizner said recently when he announced the program with the participation of State Farm Insurance and the Automobile Club of Southern California.

Though other insurance companies, notably Progressive Insurance, have experimented with pay-as-you-drive policies, because of the large number of drivers in California and the scale of the program, it could have national significance.

State Farm — the state’s largest automobile insurance company with 3.3 million policy holders and premiums of $2.5 billion — had previously required mileage to be self-reported by customers, who then got a small discount if they drove less than 7,500 miles in a year. Starting in late February, State Farm will offer an initial 5 percent discount for the first policy term to drivers who opt-in to the Drive Safe and Save program and agree to self-report their odometer readings at the beginning and end of each policy period. Policy holders with an active On Star system, which comes with many vehicles made by General Motors, can agree to allow State Farm to access their mileage data automatically.

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