Oregon pioneered a funding system for a different era, and it has become a terrible albatross around our necks
This is a lengthy interview, but it’s one of the most important hidden features in the Oregon political landscape. If you want to understand why Oregon is so full of unmet needs, you have to understand this stealth drain on our resources. As always, this interview has been edited to remove verbal tics and repititions; words added in editing are noted in [brackets].
Chuck Marohn, StrongTowns.org (CM): “America is in a transportation policy crisis. The federal highway trust fund regularly flirts with insolvency. Our transportation infrastructure is aging. Demand for other options is on the rise with limited available funding to serve their growing needs.” That’s from a new report by The Frontier Group and The U.S. Public Interest Research Group Education Fund. The report’s called Who Pays for Roads, and I have Tony Dutzik, one of the authors of this report. He’s a senior policy analyst with The Frontier Group. Tony, you’ve been on the podcast before. Welcome back.
Tony Dutzik (TD): Thanks Chuck, glad to be here.
CM: I was thrown off completely by the title “Who Pays for Roads” because I pay gas taxes, obviously I pay for the roads. But you seem to insinuate that that’s not exactly the case.
TD: Well, you help pay for the roads as a driver. And certainly the gas taxes and other fees that we pay by virtue of being motorists, helps to defray the cost of road construction. But we have this persistent myth in the country that folks who drive pay the full cost of the roads, through the gas taxes and tolls and other fees that they pay as a result of vehicle ownership. And that’s never really been the case and it gets to be the case less and less with every passing year.
You know, [and] I’m sure your listeners know, as much as other folks who’ve been paying attention to this, that we haven’t raised the federal gas tax since 1993. And if you think about what things cost in 1993 and what they cost now, you get a lot less for the money than we did back then. So the share of the cost of road maintenance and construction that had been paid for by drivers has been declining over time.
And we’ve been filling more and more of the budget with money from general taxpayers, from folks who may drive a lot, they may drive a little or they may drive not at all. And so we now find ourselves in a situation where less than half of the money is spent on road construction maintenance nationwide, from federal, state and local sources, comes from folks who drive. And nearly half of the money that pays for all of those expenses comes from general taxpayers. It comes from property taxes, it comes from local option sales taxes, it comes from federal income taxes and other forms of revenue that don’t come from drivers.
CM: This myth that drivers pay their own way, essentially the gas tax and other fees that drivers pay, cover the roads, is a myth that runs really deep in American culture. It also goes way back and has some roots from almost a century ago. In the report you guys talk a little bit about the 1920s and the way streets were used back then and how the tax system kind of correlated with that and how the tax system really hasn’t changed, even though the use of our streets has. Can you take us back 100 years ago and talk a little bit about our local streets and how they functioned maybe differently back then?
TD: If you go back to 100 years, or before there was a federal highway program and before most states spent a lot of money on highways, we did have roads. We had streets in our towns. And those roads and streets were paid for either out of general taxation — so out of property taxes that people in those cities or towns paid — or they were paid for by assessments on the neighboring property owners. So sometimes that meant a monetary contribution, sometimes that meant if you were in a rural area that you went out and you did a few hours of road work to contribute to the cost of maintaining the road.
CM: You actually went out and fixed the road.
TD: Right, exactly. You go out with a shovel and help do your part for the community. So, historically we have this very deep history of roads that are paid for as a communal enterprise.
So they’re paid for by property taxes or other general taxation. And if you go back to the way that we used roads and streets in the early part of the 20th Century, it was pretty much correlated with the fact that everybody had access to the streets, whether you had a motor vehicle or not.
And the rights that we had to those roadways were more or less equal. So if you were, if you were a pedestrian, if you were a bicyclist, if you had a cart that you sold your wares from as you walked down the street, if you rode a horse, had a horse and buggy, or if you had a automobile in the early days, your access to and your rights to be in those roads and streets were considered roughly equal.
And what happened in the 1920s was, in part as a result of an effort to improve public safety, which meant getting pedestrians and bicyclists and others out of car drivers’ way. We increasingly changed the way that we used our streets in such a way that, that automobile traffic was prioritized over all of these other uses. When we changed that, the thing that we didn’t necessarily change was the funding system for how we paid for those local roads and streets.
So there are cities and towns in many places that do benefit from gas taxes that are paid at the state level. They do get some amount of return back from that investment from state aid or perhaps for federal projects. But, by and large, the bulk of the responsibility for maintaining our local roads and streets still is in the hands of local taxpayers paying property taxes, not gas taxes. And when you think about it, the money that drivers pay for driving around our cities and towns, that money doesn’t necessarily always come back to the local jurisdiction. So in essence, people who are using those roads and streets are in essence paying twice for that.
CM: You had that one graph that just blew my mind, the one of San Francisco. And it was a pie chart essentially, that showed the percentage of different parts of the system that were paved. It blew my mind. You think of the state and federal highways as being the big player. But it was all local streets and parking lots, with a very tiny percentage being the actual state and federal systems. We kind of discount the local share of this, don’t we?
TD: Yeah, I think we do. That research, it was a pie chart that we developed from research that was done by the Transportation Choices for Sustainable Communities Research and Policy Institute in San Francisco.
San Francisco is not representative of the United States in many different ways. But what is interesting is, you think of San Francisco as being a city that is generally walkable, where there are transit options, and yet the vast majority of the pavement space, even within the City of San Francisco, is dedicated either to moving or to storing cars.
And so you think about where are our resources going. Where are we putting our money in terms of the infrastructure that we’re building and supporting. And, we, many of us, just take for granted that that’s what urban streets are for. They’re for moving cars. They’re for storing cars when we’re not using them. And yet we tend not to think about them in this [way], when we’re talking about roads and highways more broadly as infrastructure. We tend not to think about them as [for cars only] being top of mind.
CM: I looked at that and thought, in my own little town here, we have nowhere near the wealth and nowhere near the productivity of a place like San Francisco. Yet we have many miles and miles of local streets, that are never going to be paid for by federal state gas tax [or] paid for by user fee. [They are] simply paid for out of our local budget. And that was one of the, the insights in this report that just struck me, how much we debate the gas tax but completely overlook the fact that we fund the vast majority of our system locally.
TD: Right, and you think about the typical trajectory of sprawl development, where you have developers who are adding subdivisions out in, out in green fields and building the roads to link folks from housing to the transportation network and then, as a wonderful gift to the local community, they deed them over to the cities and towns, who then become responsible for their upkeep and maintenance.
And we continue to add vast amounts of new transportation, new asphalt, around the country, through those kinds of arrangements. And the up-front money is only part of the picture [of] the costs. And the burdens on local governments, in terms of the ongoing maintenance and upkeep of those roads, is a huge burden.
CM: Right. The state governments step in, really in the ‘20s and ‘30s with state gas taxes. And then by the ‘50s you have the federal gas tax. The report talks about how, through the mid 1970s, 70 percent of the costs for our federal system were paid for by user fees; basically taxes and direct fees and, and 10 percent were by bonds. But in the 1980s things change.
Can you walk us through that, what I would call the, the first generation of highway building, and then the second, and subsequent generations and how things have changed in terms of how we pay for them?
TD: Well, the 70 percent figure is actually the percentage of all road and highway investments that is paid for by user fees. That’s federal, state and, and local level. But, but at the federal level, I think the situation is in some ways similar to where we are today and in some ways quite different in that the federal government made a commitment to the interstate highway system in the mid 1950s. And, [it was] the largest public works project to that time in human history, 40,000 miles of highways, linking the entire country, hundreds of millions of dollars worth of investment and that took a long time to build.
And, as it did, costs increased and gradually over time, we faced a similar situation, where gas taxes weren’t necessarily increasing sufficiently to cover the cost of all of these roads that we were continuing to build, both at the federal level and, and also the state level. And so, in the early ’80s, you see President Regan and the Congress at that time agreeing to increase the federal gas tax, you see states doing the same. And again, a further increase in the, in the early 1990s, in an effort to kinda narrow that gap.
And if you look at the overall figures for the share of costs of highways that can’t come from highway users, from drivers, they did succeed actually in narrowing the gap to some degree in the 1980s. So instead of it being 70 percent coming from, coming from drivers, it was in the [60% – 70% range].
But then the value of the gas tax has been declining over time. A lot of the way that those highways were paid for in part was, even if the gas tax itself wasn’t increasing, people were driving more and more miles every single year. That hasn’t been happening in the last decade, and cars are becoming more fuel efficient. So all of those things happening at the same time over the course of the last decade has really blown a hole in the revenue model for the nation’s program of both maintaining and then also expanding its highway network.
CM: And we’ve been making that up how?
TD: Increasingly with money from general taxpayers.
So, up until the late 2000s, the federal highway trust fund was exclusively funded by gas taxes and other highway user fees, taxes on tires and the like. But then, it was in the late 2000s, Congress first began putting general fund revenue – revenue that comes from taxes on all of us, into the highway trust fund as a way to keep it propped up. And they’ve done that repeatedly over the last seven or eight years to the point where now general fund transfers have just become, become a normal thing.
The highway trust fund continues to flirt with insolvency on almost a monthly or bimonthly basis. We’re now in the middle of a few-month extension and Congress has no idea where the money is going to come from for transportation after that time is up.
So the way that we’ve done it at the federal level has been through general taxes. And then, at the state and local level, you’ve seen an increasing tendency toward local option tax initiatives. These [are] transportation packages that tend to come before voters either in a particular county or a series of counties or at the state level where, basically, the state is asking the voters to approve an increase in general taxes to then support transportation investments, some of which are public transit and some of which are highways.
CM: In many ways now, transportation competes from a budget standpoint with things like public schools and public safety and healthcare spending. That’s kind of how it’s evolved now, is that correct?
TD: I think that’s right. And our psychology is still based in the old model of assuming that drivers pay for roads, that roads and highways are somehow this kind of “other.” They’re this “other” expense that’s off to the side of our public budgets; [we imagine] that we have a thing called transportation revenue that comes from transportation, and then we have this thing called transportation spending that doesn’t have to compete with anything else.
So there’s a psychology, [which] that is built into how we think about and plan transportation infrastructure, that none of this budgetary stuff really matters. That we have a thing called transportation needs that don’t compete with anything else, and that when we have not enough revenue to meet those needs, determined by the federal government or the engineering world or whomever, that we create a hole that we have to fill with revenue from some source.
And I think the point that you’re raising is that, really, we’re now in a situation where increasingly transportation is competing with other public needs. And we need to, to change our conversation, need to change our psychology in order to understand that’s the case.
CM: Part of that psychology maybe affects the way we look at taking on debt. You guys had a very interesting sidebar in the report about bond revenue and whether it really should count as user revenue. Can you just maybe explain a little bit what bond revenue is and how our appetite for it and use of it has kind of changed over time?
TD: In general, transportation bonds have come in one of two forms. They can either come in the form of general-obligation bonds, where the entire faith and credit of the state or local government is [pledged] to pay those bonds over time through revenues that they have obtained from tolls or gas taxes or other sources. And if those fail, then the general taxpayers are on the hook.
Or they can be based on revenues that are anticipated to come in the future, either from state gas tax revenues or from federal financing. And, historically, if you look back at the projects and the transportation infrastructure that was funded through bonds, historically there’s a pretty good track record of user revenues actually being sufficient to pay back those bonds.
I’m reading the book The Power Broker [by Robert A. Caro] about Robert Moses in New York, which I should have read years ago. The transportation infrastructure that they built there was intended to be paid off with bonds, but they were swimming in money that came in from user revenues when they first build those, those bridges and tunnels.
We’re now in a situation where there is greater and greater uncertainty about all of those future funding sources that might come in for a bond that you take out today. Do you think about gas tax revenues, which continually, in real terms, have been going down? Is there a great deal of confidence that that is going to be sufficient to pay off a bond? Do you look at federal funding?
So states that have taken out bonds that are based on anticipated future federal revenues from the highway trust fund, is the highway trust fund even going to be there in 15 or 20 years in the same way that it is today?
You look at even toll revenue. Some of the public-private partnerships that have been done in the last decade or two, some of which have not seen the level of traffic that’s necessary to pay back the bonds, and so those projects have gotten into financial trouble.
I think the bond rating agencies are increasingly seeing that that’s problematic, that the lack of a good funding source to pay back those investments raises all sorts of questions about whether bonding is appropriate in those situations and then ultimately about what the rates are. If the risk of a bond is higher, if the bond issuers are less confident that the revenue’s going to come in to pay for it, they’re going to charge more in interest and it’s going to be more costly for the public to pursue those kinds of projects going down the line.
CM: It seems a lot like the bond agencies look back. I had a meeting with a bunch of people from ratings agencies earlier this year and one of the things they said to me was “Well these things have never defaulted. We can look back for decades and see that there’s no history of default. Why are you here telling us that these things are risky and we should be rating them differently? And I kind of pointed to the notion that I think your report illuminates very clearly, that things are changing. We don’t necessarily have the same system we had. Like you said, we were swimming in money back when we first started building this stuff.
TD: There have been a couple of examples of, of private toll roads that have been built in places like Texas and California that have — and even in Virginia — very clearly failed to meet their projections. And some of those roads have only escaped technical default because they’ve been bought out by the public sector or they have otherwise had some of their initial investment written off.
In the case of some toll roads that we’ve looked at in California, the length of the term during which the public-private partnership can charge tolls is extended further out into the future. So, okay, we’re not going be able to make enough tolls in 30 years to pay off the cost of the road, we’ll let you charge tolls for 40 years or 50 years going out into the future.
So there are definitely some documented instances in the public-private toll road world where some of these projects have gotten into really significant financial trouble. And then you look at the transportation balance sheets of some of these states. I don’t have the precise figures from the State of Washington, but you’re in a situation now where, in some states, a large and growing share of the money that is coming in from gas taxes and other user fees is being dedicated to paying off past bonds.
So in some places you’re getting to the point where, and we can debate whether it’s a good thing or not that states are feeling constrained in their ability to build new infrastructure, but you are getting to the point in some states where the ability to build new infrastructure or even to maintain what we have is being constrained by debt that we’ve incurred already, based on the assumption that the money was always going to be there.
CM: Let me ask you about that debt. At the local level I know exactly what happens. It’s a little fuzzier to me at the state level. I read earlier this year that by July, but this coming fiscal year, New Jersey’s DOT, every penny of gas tax coming in will go to pay debt. In Texas, they crossed over the 50 percent threshold a couple years ago and are on their way to, I want to say it’s like 60 percent or around that threshold this year. At the local level, what I see going on a lot is where a city will say all right, we, we’ve got this project or we’ve got these series of streets that we have to go out and fix or maintain or whatever, and we only have a limited amount of cash. We don’t have enough money to do it.
But what we can do is we can turn that cash flow we have into, essentially, a payment stream. So instead of spending, $1 million fixing streets, we’ll spend half a million fixing streets and half a million a year paying off debt so that we can go do one big project. These cities in a sense mistake their insolvency problem for a cash flow problem. They’re like, “Okay, we have this big project, we’re short of cash, let’s go out and do it.” I see cities getting huge problems doing that because they wind up not really dealing with the fact that they’re insolvent and they go out and they don’t raise taxes but they borrow the money, do all the flashy projects, and then don’t have the money to maintain any of it. Is this what happens at the state level as well? Is it that simple, where we’re just essentially trying to extend how far our dollar can go today by using it as debt? Or is this just a leftover of the days when we were so flush with cash that taking on a bond as a way to finance a project was a logical thing and we just have not re-addressed that?
TD: Well I think the place where you see that sort of dynamic happening increasingly at the state level is with the public-private partnerships. So you have this idea that, instead of either building a project and either raising taxes to pay for the project or taking out a public bond, somehow we can do a better job of that by bringing in private investment. Which ultimately is going to be paid for by somebody. I mean, it’s going to be paid, either by the users of the infrastructure — although, increasingly, the private entities are not interested in taking on the risk that they’re going to build a road and nobody’s going to show up.
Increasingly what you find is states making long-term cash-flow commitments essentially to paying off these roads and, and highways and bridges annually over time, in a way that actually reduces public accountability and it increases the costs. Because the cost of borrowing and financing and generating a return on investment for some of the private entities is higher than if the public were to do it itself.
The propensity toward wanting to find a way, wanting to find the easy way out of the mess, is similar at the state level as it is at the local level. And the mechanisms, I think the traditional mechanisms of doing that, [is] through borrowing based on revenue that you anticipate be there or through general obligation responsibilities. I think there’s this whole other new avenue of having access to money that is perceived to be free, that state governments are increasingly pursuing that, has a lot of challenges for the public interests.
CM: I have a hard time with the public-private partnership concept. I do for a, a couple of reasons. I mean, I’m a market guy; I love markets and I would love privatized roadways in many ways. I don’t necessarily have a problem with that.
It seems to me, though, when I’ve seen the public-private partnership model in action, it is essentially places where either one of two things is going on: either the state governments don’t want to go through the process of allocating the money so they can get the money from private individuals and essentially skip that ask that they have to do or that sales job that they have to do. The other side of it is to me where the project maybe makes some sense, there could be a toll or some type of revenue stream, but the government wants the revenue now. This is what I think the Indiana model was where, “okay, we’ll get this big lump sum payment of cash today” and essentially you’re cashing in an annuity. Now, one the roads failed, so it actually worked out for the state’s advantage.
But am I missing something here? I mean, is there a way that these public-private partnerships, when the government enters into them, actually work out to the benefit of the taxpayer? I don’t understand it.
TD: There’s a theory by which they would work and a very limited set of circumstances in which they make sense. And the circumstances in which they make sense are when the private entity can bring something to the project that the public sector just can’t.
The place where this might actually make the most sense is with regard to rail. We don’t have a heck of a lot of experience in the United States of either building or running a decent rail network, unfortunately, and so it may make sense to bring in organizations or corporations or consortia from other parts of the world [and] say, “Okay, we don’t really know how to do this. If we were going to build up the in-house expertise and experience to do it, it would actually be more costly than if we bring you in to do it.”
So I think [it makes sense] if you have a circumstance like that, where the private partner is actually bringing value added. If you have a circumstance in which the state government or whichever government is negotiating the contract [and] really knows what it’s doing and is really savvy and able to avoid many of the trip wires that come up in these public-private partnership contracts.
Because one thing that you often find is that, in addition to just the money moving around, you also have a loss of public control over the process so you have some contracts where private roads have been built and there has been a stipulation of the contract that the state can’t build or improve a free public road in the same vicinity because it would be a competitor – so you have all of these circumstances in which you can, in the course of how the money moves around and in the stipulations of the contract, you can actually do some things that are, that are very constraining and negative in terms of the public’s ability to plan and respond to challenges that, that come up down the line.
I agree with you in general, Chuck, that for the most part, public-private partnerships, as they’ve been played out in the United States haven’t [made sense]. It doesn’t necessarily suggest that that should be the wave of the future, but there may be limited circumstances in which they actually make sense if the public is really involved and if there are strong protections to ensure that the public interest is protected.
CM: It seems like in a lot of these situations what the public brings to the table more than anything else is the ability to bear the, the downside risk. And in a free market, in a market-based system, generally the person who bears the most risk also has the potential for the highest reward. That doesn’t seem to be the case.
I, I was at a conference put on by the Washington Post last October, and you had Ed Rendell there and one of the things he was advocating for was more money for the TIFIA program, that’s the Transportation Infrastructure Finance and Innovation Act. It’s a program that essentially allows states to borrow money with some type of public backing system. Is that a good program? Are those programs that we should be looking to expand, or are those programs where you do have that dynamic where the public takes on a lot of risk but has very limited upside in terms of the reward that they can ultimately capture?
TD: I’m not an expert on the workings of TIFIA specifically so I can’t really comment on the pros and cons of TIFIA itself. But, I would say, to your comment about market forces and how they play out in these things, you’re right that we’ve seen, particularly over time, that more and more of the risk from these arrangements has been shifted onto the public sector.
What’s really happening there is that the public is, in essence, providing a subsidy for these private projects and it’s hidden in a way. That subsidy might be a public investment in the infrastructure. So many of these supposedly private projects have the public as a very real investment partner where the public sector is spending a couple hundred million — a hundred million here, a hundred million there — to actually help build the infrastructure.
But even in a place where there’s not an explicit subsidy, when the public is taking on risk, the public is in essence [providing a subsidy]. That avoidance of risk is worth something, and when the public takes on risk, in essence it is a subsidy supporting the private operator’s ability to continue to build and profit off of that infrastructure. And so it is really problematic, unfortunately. I think what happens with PPP projects is that they’re billed as being a source of new private investment in our infrastructure and “where else are we doing to get the money?” but then the technicalities of things are such that the public is being set up for a lot of downside risk and a lot of problematic things happening down the road.
CM: You’ve convinced me that road users are not paying for the roads and your report does a really good job of outlining that. Surely, though, you look at other parts of the system and they’re not paying their way as well.
I want to talk about biking and walking first – [In] Wisconsin, there’s a proposal now on the table at the legislature to charge a fee for bikes, like a registration fee because we know those bikers are not paying their fair share. How about bikers and walkers? Where do those fall in terms of the amount of money they’re paying and what they’re getting back?
TD: Right, well, it’s hard to drill down into specific numbers because we don’t have a lot of good numbers about investments in bike infrastructure and investments in pedestrian infrastructure. But if you walk through the logic of how this all works, it’s pretty hard to come to the conclusion that bikers and walkers are doing anything other than paying their full way and maybe even then some.
Think about “How do we charge somebody for the use of infrastructure?” Well, one way that you might do that is [ask] do they do a lot of damage? Do, if they use the infrastructure, do they create a lot of damage that then somebody has to come along and fix down the line?
Bicyclists and walkers, certainly compared to car drivers, and definitely compared to truck drivers, the amount of damage that they do to infrastructure is minimal. You’re biking and you’re walking, it’s fairly rare that you put a crack in the pavement or you crack a bridge support by taking a bike or walking over a piece of infrastructure.
Another way to look at it is, “Well, how much space do they take up?” And I think, as you, recalling back, the San Francisco example supports bicycling and walking take up very little space on public roads, even in places where there’s dedicated bike infrastructure, it’s nowhere near the amount of space that’s dedicated to roadways.
And then, when you think about where the money is coming from and where people are doing most of their bicycling and walking, most of it is in local areas that people are paying for that infrastructure.
In the case of bicycles, they’re paying for that infrastructure through their property taxes. And in the case of sidewalks, either they’re paying for it through their property taxes or it’s the responsibility of abutting homeowners or business owners so, when you put it altogether, the amount of money that people who primarily bicycle or walk are chipping in, property taxes and other forms of general taxation that go to benefit motorists far outweighs any benefits that they’re getting from the state or federal programs that support bicycling and walking in places other than local cities and towns. So, when you take the full set of circumstances into account, it’s pretty hard to conclude anything other than that bicyclists and walkers more than pay their own way.
CM: I know you don’t say this in the report specifically, but one of the arguments that we’ve been making here at Strong Towns for a long time is that the highest returning investment a city can make in terms of dollars they spend versus dollars they get back is in biking and walking infrastructure. It’s low cost, it’s high return. Like you say, the sun and the weather will rot the infrastructure before the impact of the walker or the cyclist does. In terms of dollars in, dollars back or investments, are these fairly high returning types of endeavors?
TD: Well I think you can probably speak to the return on investment a little better than I can, Chuck. I think that what you find in terms of the net benefits or net impacts of that kind of infrastructure is that bicycling and walking infrastructure is relatively low impact, it’s relatively low cost.
And then the benefits, to the extent that investing in that infrastructure gets people out of their cars and gets them moving, the benefits [are] in terms of reduced pollution, in terms of reduced congestion, in terms of their health and well-being, in terms of the health and well-being of a local economy because, when people are, are primarily walking and biking to places where they need to go, they’re generally not walking and biking to Wal-Mart, they’re walking and biking to the corner store, they’re walking and biking to places that are owned or at least employ people who are within the community, so you understand the return on investment concept and you all have, have done at Strong Towns, I think have done more to elevate that concept than anybody but, certainly I think if you look at the full picture those kinds of investments usually pay themselves off in benefits, to a great degree.
CM: One of the things that accompanies that myth that road users pay for the roads is the idea that transit users are massively subsidized. Can you talk a little bit about transit and kind of maybe contrast those two myths a little bit?
TD: Yeah, so in the report we looked at the net public investment other than users in highways and in public transit. What you find is that, when you wrap together all of the general fund money that goes to support highways and all of the general fund money that goes to support public transit, that we actually spend more money on highways than we do on transit nationally. And that’s money beyond, over and above what drivers are paying in, in gas taxes.
It is definitely the case that transit is subsidized. There are certain folks who argue, well, we need to look at it on a per-mile basis or a per-user basis and, lo and behold, we spend more to subsidize transit users than we do to subsidize drivers. When you break it down that way [yes,] but, ultimately I think the question is, from a public interest and a broader societal perspective, what should we be spending money to do? What are our goals?
What are the goals that we’re trying to achieve with the infrastructure investments that we make and the incentives that we provide to people to use particular modes of travel? When you look at the negative external costs of driving, when you look at the other tax subsidies that flow to drivers and we’ve done a little bit of work bringing to light some of the hidden tax subsidies that, that go to drivers, including the tax subsidy for commuter parking which is nearly a $7 billion a year federal tax subsidy that encourages people to drive during rush hour.
When you wrap all of those things together, investments in transit tend to make good sense whereas investments in subsidizing ordinary driving generally don’t. So, it is definitely true that both are subsidized but, I think we would argue that one should be subsidized because it’s providing general societal benefits and the other one maybe not so much.
CM: I don’t want to gloss over aviation because it’s not a bit player in the whole transportation funding scheme. Yet a lot of us, if we were asked to talk about transportation would not even list aviation as part of it. You guys talk a little bit about how we pay for airlines because it goes far beyond me paying for a ticket to fly to Florida during the winter.
TD: We didn’t do a lot on aviation in the report and I think, I’m as much of a victim of the focusing on ground transportation as anybody so I haven’t spent a lot of time looking at it. But we did look at it to some degree and there are a great number of subsidies that flow to aviation and among the biggest ones of them are, we provide general fund subsidies for FAA operations that are more than $4 billion a year.
Security you think of the amount of spending that has been done for airport security since 9/11, we’re talking tens of billions of dollars that have been spent to make air travel more secure. And yes, people who are riding on airplanes do pay that September 11 security fee or specific fees to help defray those costs but they haven’t done anywhere near the amount needed to actually cover the costs.
And then you have programs like the Essential Air Service program which links rural cities that otherwise aren’t served by airlines and actually subsidizes travel to and from those cities and that’s another couple hundred million dollars a year so you roll all of those things together and aviation is also a significant recipient of public subsidies.
CM: So we have this huge amount of money that we spend on transportation every year that comes from all these different sources, some of them that are clear to us, some of them that aren’t clear to us. I want to get into some of the recommendations that you guys made in the report. What we should do in the future to try to make good investment decisions? And maybe we can start with the notion of divorcing revenue from investment. Can you talk a little bit about that, and why you think that’s an important part of what we should be doing?
TD: One of the problems with the user pays myth, this myth that drivers and motorists pay for roads, is that the system has been based on the assumption that “drivers should pay for what they get and get what they pay for.” So if I’m paying money in gas taxes, it is my right as a motorist to have that money come directly back into things that benefit me and only me.
And when you understand that those fees that are paid by motorists really barely cover even half of the cost of building and maintaining roads, and when you consider some of the external impacts even less than that, that notion that all of that money needs to flow back to the people who provided it begins to look a little bit dodgier.
And what’s unfortunate is that pay for what you get, get what you pay for assumption, which is now no longer true, is baked into public policy in all sorts of different ways.
So you look at, there are more than roughly 3 dozen states that have state constitutional prohibitions that prevent the use of state gas tax money on anything other than roads and highways. Well, drivers are receiving all sorts of benefits from general taxpayers in all sorts of other ways, why should it be the case that that money should only be used for the benefit of motorists?
Look at federal policies, where our federal highway funding allocation policies still incorporate the vestiges of what was called the equity bonus program, which ensured that states would get back in gas tax and investments and transportation a certain share of the money that they paid in gas taxes. Well, when general taxpayers are funding everybody, all of the states are now getting more money back from the highway trust fund than they’ve paid in in taxes.
So those, those stipulations, those assumptions from days gone by no longer really apply, but yet they’re baked into public policy, and they’re baked into the ways that we choose what kind of infrastructure we are choosing to build.
So our recommendation in the report is that we begin to make infrastructure decisions based on criteria that aren’t grounded in outdated assumptions of where the money comes from but are actually focused on where society can get the biggest return on investment, the biggest bang for the buck, both in terms of improving the effectiveness of the transportation system, but also in other environmental and societal benefits.
So you see a little bit of this happening at the federal level with the Tiger program which is a competitive grant program. You see some of it happening certainly on the transit side with the New Starts program. You can have all sorts of arguments about whether the criteria that are being used in those programs are the right ones but you’re starting to see this movement at the federal level toward thinking about evaluating transportation investments compared to one another and increasingly compared to one another across modes. So we’re not just going to compare road projects against road projects or transit projects against transit projects, but we’re going to think about what the most cost effective and efficient ways are to solve our transportation problems regardless of the mode.
And, that is the kind of thinking that is starting to happen at the federal level, it’s starting to happen in some of the more progressive states, but there is still — the vast bulk of our transportation money is not allocated based on who needs it or based on what the most effective use of that money is. It’s based on these outdated funding formulas that don’t really represent an effective use of public resources.
CM: It seems a little bit to me like you’re asking us to think rationally and intelligently, and I hear you, I understand, and I agree with you. And I think, actually if you and I sat down and said “Let’s look at this list of 1,000 projects and prioritize the top 100,” we’d probably agree. I think we probably would. Can we do that in a political system, or the system that we have today? Is it capable of doing what you’re proposing be done?
TD: Well, I think we have to find a way to do it, and one of the tragedies of the debate that we’re having now about transportation policy is that the question of what infrastructure we are investing in is not even rising to the top of the level of discussion.
You think about the discussion about the federal transportation debate, you think about a lot of the state transportation debates that have happened, and it’s all about “Oh my God, our highways are falling apart and we need money.”
And in some cases our highways are falling apart and in some cases we do need money, but the discussion about where the money comes from and about how we’re going to plug this hole in our transportation budget has overshadowed the discussion about where the hole comes from, about what it represents, about whether we need to be making the same kind of investments that we made in the last 60 years.
We had a public debate about the interstate highway program, and we came to, [as] a result of that discussion, making a big societal investment in a particular way of building out our country and our communities and our economy, but we haven’t had the analog to that debate, which is “now that we’ve finished building the interstate highway system, now that our communities have already sprawled out, now that we face economic challenges, now that we face fiscal challenges of how we’re going to maintain all of this infrastructure, now that we’re facing increasing demands for facilities to allow for safe biking and walking and people wanting more access to transit, now that all of these things have changed, what is it that we want to build, what kind of a country do we want to be,” and so that’s the political debate that I think gets lost in the sauce.
When we focus explicitly on the question of how we fill the pot, we’re missing out on a real opportunity to have a debate about where the money needs to go.
And, and I agree with you, Chuck, that no observer of our political system, including debates about infrastructure and, and transportation can feel all that optimistic about our ability to make those decisions and in ways that are rational and that reflect a full and robust public debate. But I think that’s the challenge before us, because we’re not ultimately going to get to a good result any other way.
CM: Right. Let’s take the 10 percent at the bottom of income earners and set them aside and say we’d have to find a way to subsidize them or assist them in some way and take the 10 percent of the top earners who maybe in a system of fairness would, would be paying more. And just look at the 80 percent in the middle. It has always seemed to me like price is a good way to keep score. I look at the debate over the gas tax, and there’s a part of me that says “Why don’t we just raise the gas tax to what people are asking for?” In that 80 percent group, what would be wrong with an approach like that? Is it just not politically viable?
TD: I don’t necessarily think there is anything necessarily wrong with that. I think it is perfectly fair and rational to ask people who are using a valuable piece of public infrastructure to pay the appropriate cost of that, including not only the costs that they incur by driving over the roads but the costs that they incur by creating more congestion and by releasing air pollution and by contributing to global warming, all of those things. I think the hurdles are, one, as you mentioned, political, which is, we increasingly live in a world, in my humble opinion, where people are loath to pay, to understand that they need to pay for things in order to have them be there. And in part, you have talked about, some of the ways that governments have juggled the books as a way to avoid that reckoning with the public.
I think [those are] some of the political hurdles. But the argument that we make in the report is that you can’t divorce the question of how we pay for transportation from the question of how we spend money on transportation.
And so, if by raising the gas tax what we’re really doing is we’re pumping large amounts more money into a system that allocates money irrationally and that winds up in the construction of long-term infrastructure that in some cases can actually cause society harm over the long term, that might not necessarily be the full answer to the question.
So I, I agree with you that increasing the gas tax or finding other ways to ensure that people are paying for the cost of their activity is a very important thing, but there are two sides to the equation that we need to wrestle with and we need to do both of them at once.
CM: Well, you guys argue in the report for charging transportation costs based on a full accounting of the cost. Maybe you should go into that a little bit to explain what you guys mean by a more thorough accounting.
TD: Sure. If you think about the costs that you’re, that as a road user, if I decide to go for a drive on Interstate 93 here in Boston, my choice of doing that is incurring a few different kinds of costs on other people.
So one thing that is happening is that I’m driving on the road, and if I’m driving on the road, I am imposing wear and tear on the road and I’m benefiting from the fact of its existence. And so, I should be asked to some degree to pay for maintaining that road because I’m using it and because I’m causing damage to it.
Another impact that I might have is that I’m causing congestion. I’m one more car on the road that’s going to delay somebody in the back of the line from getting to where they need or want to go. And so to the extent that I’m contributing to that problem, I might be asked to pay.
I’m also, when I park the car, I’m using a public space that otherwise has a value, and so perhaps I’m asked to pay for that. And then, through the very process of driving, I’m emitting pollution that is hurting people who live near the road and also contributing to regional air pollution and to global warming. And so ultimately perhaps I’m asked for a contribution to deal with that.
So there are a variety of different mechanisms, and congestion pricing is one of them and carbon pricing is another, paying for parking, and certainly road user fees, whether it’s a [vehicle miles traveled, VMT] fee or a gas tax or you name it, that you could ultimately cobble together to have the money, to have the costs that drivers impose on others be better reflected in the actual price of driving.
The thing I think that’s important to recognize though is that those of us who talk about road pricing and other forms of pricing, I think, often fail to recognize that we’ve made a lot of decisions over the last 60 years that have resulted in us building a transportation system where all sorts of people are dependent on driving, and so the transition from a system where people are essentially using those resources for free to one in which they are paying the full cost of them is one that’s going to take a while.
And I think it’s just important that folks recognize that there are a lot of folks for whom an increase in the gas tax would actually be a hardship, where some of these other charges would be a challenge, and so there’s going to be a need for time to invest in other kinds of infrastructure and other kinds of approaches that actually reduce their dependence on driving and then also a period where we’re beginning to introduce some of these charges over time. But, right now, we’re in a political moment where we can’t even raise the gas tax, so it’s going to take a while, I think, even to bring folks to the point where there’s an understanding that not only are these things ultimately good and ultimately necessary but in many ways they do benefit us all.
CM: I remember a few years ago there was an article I read, and it had a bunch of, I don’t want to call them think tank people, I’m not sure exactly who they were, but they were kind of laughing at or ridiculing Venezuela because they had official policy of subsidizing gas prices, and they said “this has led to a dependence on people having low energy prices and if they would adjust it back to market prices it would work better.”
We seem to be, as a country, and I’m talking maybe a group of intellectual people or thoughtful people or policy people, we seem to be as a country very able to look at other parts in the world and the market failures and kind of discern them pretty clearly, yet not be able to do the same thing in our own [country].
I guess maybe this is the last question. Is this a human failing, is this an American failing, is this something that we have to keep talking about it to overcome it? How can we be so smart and yet have this blindness? Because your report is very good, and I encourage people to go read it, but in many ways it’s stating, I don’t want to say stating the obvious, but it’s shattering a myth which oftentimes is stating the obvious, right?
TD: Thanks for saving the really big philosophical question for last, Chuck. There’s an anecdote the report, [about] a really humorous and interesting web site that I came across in the process of doing the research for this report. In Britain where in the 1920s, there was a road tax that was charged to drivers that then filled a pot that was used to help defray road repair costs, and that was phased out in the 1930s and now drivers in Britain pay, basically a vehicle excise tax that goes into the general pot of money. And that’s been the case now for seven or eight decades, and yet still, you have drivers who yell at bicyclists “hey, I pay the road tax.” Well, there hasn’t been a thing called the road tax in 70 years in Britain, but people are still convinced that it exists. So I don’t think that Americans are uniquely blind. I think Americans are generally pretty perceptive folks.
CM: Totally agree. I, I totally agree with you.
TD: But I do think it takes time for some of these mental constructs that have been built up over time, and a lot of persistence and a lot of communication.
And I think that is the thing that ultimately is going to get us to the point where we can begin to look at some of these questions rationally is, “can we look at it from a different point of view.”
There was a report that was done by the Eno Center for Transportation about six months to a year ago where they compared the road financing system in the U.S. with that of five or six other industrialized countries, most of them in Europe, and none of them pay for roads the way that we do. They all pay for roads out of general budget and they raise money from drivers through gas taxes that are usually way higher than ours.
And those countries, they’re not perfect by any stretch, but they don’t have any problems finding money to fix the roads and bridges. The thing that we’re really trying to do in this report is to basically let folks know that the way that you think the transportation infrastructure financing works, the way that you might have been taught for many years that it works, actually isn’t the case, and that if we begin to look at afresh, if we look at it with clear eyes as to what is actually happening now, it doesn’t just get us to the point where we can look at what’s the solution to plug the transportation funding gap, but it actually gets us to the point where we can rethink our investments and infrastructure.
CM: Where could people get a copy?
TD: They can get a copy on our web site. We are at www.frontiergroup.org. You can also obtain a copy on the web site of our partner organization, which is U.S. PIRG Education Fund, and their web site is www.uspirg.org.