Taxing Transportation

Not long ago, Pennsylvania Governor Ed Rendell toured the state to highlight its crisis in transportation funding. He called on the General Assembly to resolve the crisis this year. In May, the State Transportation Advisory Committee estimated that the state faced a funding gap of $3 billion to meet needs for maintaining, repairing, and expanding state and local roads, highways, and bridges.

In spite of the crisis, it is doubtful whether the legislature will agree to raise fuel taxes or find another way to raise additional money for highways and bridges this year. Although this may be partly a reflection of the state of the economy combined with election-year politics, opposition to raising fuel taxes remains strong at both the national and local levels.

Americans were not always so hostile to fuel taxes. One of the few taxes that was generally accepted and even welcomed when it was first enacted was the tax on gasoline. Unlike most other taxes, many Americans recognized that paying fuel taxes would result in benefits for themselves. They valued the improved roads and highways, which fuel taxes made possible.

Recent strong opposition to increases in fuel taxes does not mean that Americans are less willing than before to pay taxes in order to have better roads. What it does reflect is voters’ opposition to money paid in fuel taxes being used for purposes other than highway spending. In recent years, almost 20 percent of money paid into the Federal Highway Trust Fund (FHTF) has been spent on mass transit. In addition, FHTF money is being spent on recreational trails, historic preservation, and scenic easements. Besides the FHTF money allocated for non-highway purposes, a growing share is used for earmarks that reflect the political priorities of members of Congress rather than the priorities of highway users who pay gasoline taxes.

Why should federal fuel taxes, which are paid by rural and urban drivers alike, be used to pay for public transportation, which primarily benefits residents of large metropolitan areas? In Pennsylvania, 90 percent of transit-operating grants is paid to the Southeast Pennsylvania Transportation Authority and the Port Authority of Allegheny County (PAAC). But only 50 percent of the state’s population lives in the Philadelphia and Pittsburgh areas served by these transit agencies. In these two metropolitan areas, less than five percent of local trips are on public transportation while almost all the rest are by automobile.

Not only is it unfair to use fuel taxes to subsidize transit and other projects of dubious benefit to the drivers who pay them, but it is evident that transit subsidies are often spent on projects that are excessively costly relative to the benefits they provide. A good example of this is the North Shore Connector, a 1.2-mile extension of the light-rail line in Pittsburgh, which is currently under construction. Senators John McCain and Tom Coburn recently criticized this project as one of the three most offensive uses of federal stimulus funds. If it had not been for $62.5 million of economic stimulus funds, construction of the Connector would likely have been halted due to cost overruns. Not only has the cost increased from an original estimate of $363 million to $528.8 million, but, as noted by the Allegheny Institute, the project was scaled back in size after the federal government agreed to provide most of the funds.

Consumers will not be willing to pay even close to the cost (more than six dollars per ride) that would be required to cover just the annual interest on the money invested in the North Shore Connector. The money spent on this project could be used to buy a brand new $40,000 SUV for each of the 11,500 riders per day that are expected to use this 1.2-mile section of light rail.

The federal government would get much more for its transportation dollars if it used all of them for maintaining and expanding highways and bridges and left transit funding to local governments. If the federal fuel tax were eliminated and each state raised its fuel tax by the same amount, more money would be available for roads and highways. The Pennsylvania Constitution prohibits using state fuel-tax revenue for purposes other than funding roads and highways. Using the money paid in fuel taxes exclusively for roads, highways, and bridges would eliminate some of the funding gap faced by Pennsylvania and other states. In addition, a variety of innovative approaches to highway construction and maintenance, including public-private partnerships, could help reduce costs. To make up the remaining shortfall, citizens might be more willing to pay higher fuel taxes if they could be confident that the money was being spent for highways and bridges with spending priorities better reflecting drivers’ priorities.