TRANSPORTATION REFORM, FUNDING, AND FINANCING Excerpts from the AARP Policy Book

Transcription

1 TRANSPORTATION REFORM, FUNDING, AND FINANCING Excerpts from the AARP Policy Book Congress extended the provisions of the Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users (SAFETEA LU). Authorization of a new surface transportation law would provide Congress the chance to remake federal transportation policy and direct funding toward projects that foster livable communities, protect the global environment, and stimulate economic recovery. Congress can strengthen its surface transportation program by: establishing a clear federal vision that guides transportation investments, increasing public transportation and other mobility options, improving the safety of the transportation system, strengthening metropolitan planning organizations, maintaining existing infrastructure; increasing transparency and accountability, and identifying dedicated short- and long-term funding for the system. Central to each of these goals is the need to ensure that the transportation system s costs and benefits are distributed equitably. A clear federal vision The national vision for transportation must include a strong policy statement that ties transportation investment to the creation of livable communities. In doing so it must recognize changing demographic and environmental issues. Thus the federal role in transportation must reach beyond interstate highways and intercity transit to include infrastructure and services that meet the needs of an aging population, support for local and regional economies in their quest to connect to the world economy, aid in reducing our dependence on foreign energy supplies, and ways to address global climate change. Stronger metropolitan planning organizations More than 80 percent of the US population resides in a metropolitan area. Nonetheless federal transportation funding is still largely controlled by states rather than by metropolitan planning organizations (MPOs). As a result metropolitan areas together contribute significantly more in tax receipts than they receive in allocations from state highway funds or through direct local transfers. The Intermodal Surface Transportation Efficiency Act of 1991 known as ISTEA allowed suballocation of federal funding directly to metropolitan areas, but this makes up only a small share of overall funding. Thus, metropolitan areas have few funding options other than local sales tax (which is a regressive tax) to fund regional projects such as light rail. Suballocation of federal dollars directly to MPOs would provide MPOs with more money and flexibility to invest in the transportation options they deem best suited to their cities. Transparency and accountability The federal transportation program is dominated by politics and special interests. The number of projects receiving earmarked funds, for example, grew from just ten in 1982, when Congress passed the Surface Transportation Assistance Act, to more than 5,500 with the passage of SAFETEA LU. According to the National Surface Transportation Policy and Revenue Commission, earmarking can undermine the efficient use of transportation resources by weakening state and local planning. In addition current federal investment is not based on measurable outcomes, making it difficult to hold fund recipients accountable for improving key aspects of transportation system performance. To change this the federal government needs to modernize its datatracking system. Currently, the Federal Highway Administration (FHWA) information system tracks only costs for contracts, not projects. And the information that is readily available, such as the FHWA s highway statistics series, does not provide robust local level data. As such it is impossible to ascertain the extent to which sales tax is used to fund highway or transit projects on a national level. Moreover the National Transit Database requires only transit systems receiving federal funding to report ridership data, operation characteristics and revenue, and expenditure information. This archaic data collection system makes it virtually impossible for stakeholders and the public to understand how transportation revenue is raised and where money is spent, and to make comparisons across investments in different modes of transportation. Equitable funding The manner in which we fund our transportation system and the investment choices our nation makes have reverberating effects on the availability of mobility options, the environment, and economic opportunity. Given the current economic climate, funding will be central to reauthorization discussions but it must be done fairly, taking into account highways and public transit for metropolitan and rural areas, funding methods that rely disproportionately on contributions from lowerincome households, and incentives for sustainable travel behavior. Current federal funding for core highway programs outstrips public transportation funding by four to AARP POLICY BOOK CHAPTER 9 LIVABLE COMMUNITIES 1

2 one. In addition the practice of funneling federal funds through state departments of transportation rather than MPOs has disempowered local decisionmakers from supporting projects that best address local mobility, economic, and environment challenges. States have been reluctant to use federal dollars to fund public transit, and 33 states forbid the use of state gas-tax revenue for transit investment. As a result, more than half of the largest metropolitan areas have inadequate transit service. Highway funding continues to enjoy a federal matching ratio of 90 percent for improvements and maintenance on the interstate highway system, and an 80 percent rate for most other highway investments. States do not seek permission to build highways. Once they receive their appropriations, states can distribute the money among projects as they see fit, provided the projects clear environmental review. In contrast, cities, metropolitan areas, and states must compete for New Starts/Small Starts funding for new fixed-guideway transit projects. This program is totally discretionary, and the process is lengthy and highly regulated. Transit projects must demonstrate cost-effectiveness and financial capability in addition to passing an environmental review. Federal law allows an 80 percent federal match for New Starts; however, the average match is closer to 50 percent. The procedural hurdles, coupled with higher local and state match requirements, may encourage decisionmakers to pursue road investments rather than transit, despite the many benefits of public transportation. While older adults certainly benefit from highway infrastructure investment, it is clear that our nation cannot rely solely on travel in personal vehicles to meet the needs of this growing subgroup. Increased funding targeted to mobility options is required. Where highway investments are made, the US needs to ensure that the specific safety needs of older adults are incorporated into project design through a complete-streets approach and specific investments in safety for older drivers and pedestrians. Highspeed commuter highways with multiple lanes of traffic and complex intersections are not the best investments for meeting the safety and mobility needs of older drivers and pedestrians. Decisionmakers have already begun to study funding options prior to formal action on SAFETEA LU reauthorization. Funding options receiving prominent attention are discussed below, as are proposals for federal capital budgeting and a national infrastructure bank. Each of these funding options should be evaluated not only against how much revenue they can generate and the ease with which they do so, but also against equity and environmental considerations. Gas tax indexing and increase The fuel tax, popularly referred to as the gas tax, is the primary source of federal funding for transportation. Approximately 90 percent of Highway Trust Fund (HTF) revenue comes from an 18.4 cents per gallon fuel tax, with the remaining balance from truckrelated taxes. The HTF is somewhat of a misnomer, as it now funds transportation for older adults and sidewalk and bicycle infrastructure in addition to highways. Since 1982, 2.86 cents per gallon is set aside in a Mass Transit Account for public transportation investments. Every state also levies a gas tax and depends on it as an essential transportation funding source. While the gas tax has provided a reliable stream of revenue for transportation since 1956, many now question its long-term viability. On the political side policymakers have been unwilling to increase the gas tax since 1993, and unlike a sales tax, a tax on each gallon of gas does not increase with the price of gas. Higher fuel efficiencies, coupled with less driving, led to a negative HTF balance sheet by September Congress responded by adding $34.5 billion to the HTF from the General Fund. But this is only a stopgap measure until Congress takes action on a new transportation bill. There are several options for increasing revenue from the gas tax, including raising the tax rate, indexing it to inflation, and imposing a sales tax on gasoline. Collection of the tax is in place and is relatively uncomplicated and inexpensive. To the extent that lower-income households spend a greater share of their income on fuel, the gas tax is regressive. This is especially true for rural residents, who typically spend more than 10 percent of their budgets on gasoline, and for suburban and urban residents who lack adequate public transportation options. However, households with no or low gasoline outlays city residents who use public transportation are actually better off with a gasoline tax than a sales tax. The gas tax may encourage people to reduce driving. As a result communities can benefit from decreased congestion on area roadways, improved air quality, and a reduction in global greenhouse gas emissions. On the flip side, many economists argue that the gas tax leads to inefficiencies in the transportation system. For instance, while hybrid-vehicle owners pay less tax than those who drive less fuel-efficient vehicles, they take up more or less the same amount of space on the road and cause roughly the same wear and tear. 2 LIVABLE COMMUNITIES CHAPTER 9 AARP POLICY BOOK

3 Sales tax In the past decade general sales taxes have become an increasingly popular way of funding transportation investments. Yet sales tax is not a preferred funding method because it is likely to impose greater costs on lower-income households and is thus regressive (see Chapter 3, Taxation). This is especially true if the sales tax funds highway investments, as many low-income households do not have access to an automobile and cannot take advantage of this type of investment. This is less the case where sales tax revenue is dedicated to public transportation. Nonetheless, not all transit investments offer equal benefits to low-income and older individuals and families. In many cases the sales tax is directed toward rail projects. However, older adults and low-income individuals make greater use of lower-cost bus services, whereas more affluent commuters reap the benefits of rail investments. Another consideration, especially when a sales tax funds the transit component of new residential developments, is whether housing near the transit station will be affordable by people at all income levels. Without affordable housing, the sales tax paid by all could result in gentrification, and those who have paid the largest portion of their incomes in sales tax are priced out of the community and unable to take advantage of the new transit investment. Funding transit services through sales taxes is not a long-term option. Not only is this revenue source highly volatile retail sales decline more rapidly in a recession than does gasoline consumption but it is an inefficient revenue source, since nondrivers subsidize drivers. Furthermore, this use of sales taxes erodes the longstanding commitment in the US to have user fees finance the transportation system. The tax base of many states exempts services frequently used by higher-income households, such as dry-cleaning, housecleaning, landscaping, attorneys, architects, accountants, etc. To make sales taxes less regressive, policymakers could expand the tax to cover these services while exempting necessities such as groceries, medicine, and utilities. Policymakers can also treat highway and transit funding more evenly. Mileage fees Levying a tax on each mile people drive creates a more direct user fee than the gas tax, captures the actual amount of transportation-facility use, provides an incentive to drive less, and like the gas tax, does not require nondrivers to subsidize drivers. As such, mileage fees could help manage system demand and improve the environment. Oregon tested the feasibility of this idea in a pilot study that taxes drivers based on how far they go, which roads they use, and whether they travel during rush hour. The technology also exists to design collection systems that tie the fees paid to vehicle fuel efficiency. Most experts agree that implementing a mileage fee is not feasible on a national scale for another 15 years. Privacy protection is one major hurdle, since the system requires that a computer chip be installed on each vehicle. At each refueling stop, the fuel pump collects the data from the device, and the tax is calculated on the mileage, and other factors, since the last gas stop. Road pricing Under this plan, drivers are charged through any of several methods, including traditional toll collection, congestion pricing, value pricing, highoccupancy toll (HOT) lanes, express toll lanes, and cordon pricing. Each of these involves a direct user charge in the form of a tolled road or other facility. Congestion pricing, value pricing, HOT lanes, and express toll lanes are largely synonymous methods in which the toll varies by level of road congestion, typically along a freeway corridor. In exchange for paying the toll at a premium price during peak demand periods users are guaranteed free-flow conditions on the roadway. For example, a HOT lane pricing system has been in place along an eight-mile stretch of Interstate 15 in San Diego County, CA, since Cordon pricing is a similar concept. A cordon line is drawn around an area (typically a business district), and any vehicle that crosses the line must pay a toll, also usually variably priced. London has such a fee structure in place, and US cities such as New York and Washington, DC, also have explored this option. Variable priced lanes offer a great advantage over traditional toll roads. Along with generating income, they let administrators manage the demand on the facility, thus it functions more efficiently. The costs are more equitably distributed toward those who benefit most. In the case of unpriced lanes, both users and nonusers incur the costs associated with congestion. Users, including corridor transit riders, are delayed by traffic jams, and all consumers, whether they travel in the corridor or not, pay higher prices for goods resulting from the higher cost of goods movement. Economists have argued that pricing allows facility managers to offset some of the negative environmental and social effects of automobile travel, most notably air and water pollution. Road pricing also has economic benefits. For example people of all income levels use the congestion pricing corridor on California State Route 91 at least on occasion. Faster-speed corridors also allow parents of young children to get to day care on time, thus avoiding late fees, and help lower- and middle- AARP POLICY BOOK CHAPTER 9 LIVABLE COMMUNITIES 3

4 income workers, who may not have flexible schedules, arrive at work when they should. Variably priced lanes are regressive when poorer households cannot avoid paying the toll, either by using parallel traffic lanes or competitive transit service. Variably priced lanes also pose difficulties for many lower-income drivers when payment systems require a substantial cash outlay or a checking or credit card account for automatic debits. The regressive nature of a variably priced facility can be reduced by channeling a portion of the revenue toward improved transit service in the corridor and by offering payment systems that do not penalize lower-income users. Additionally, low-income users also can be offered tax credits. Road pricing is a supplemental source of revenue rather than one that could replace the gas tax. The tradition in the US has been to invest in the corridor where the revenue was generated. This means that numerous urban and suburban transportation needs local roads, sidewalk and bus stop improvements, paratransit service, local bus service, etc. will need other revenue sources. Furthermore, tolls and variable pricing have limited appeal and utility in rural areas, where drivers already pay relatively large out-ofpocket costs for their longer-distance travel. Public-private partnerships Although state transportation departments could own and operate a priced transportation facility, such as a highway, they often lack the upfront funds to build it, especially during difficult economic times. One answer may be to fund major transportation projects through a public-private partnership. For example, under a concession model, state and/or local governments grant a private firm the right to operate a toll road for profit for a particular period of time or to lease the facility for a specific period of time (99 years in the case of the Chicago Skyway). The toll road can be either an existing government asset (the Chicago Skyway, Indiana Tollway, or New Jersey Turnpike) or a new road that the private firm will build as well as operate, such as the Trans-Texas Corridor. The danger of the concession model as used in Chicago and Indiana is that the public sector gives up its rights over a transportation investment for a significant period of time, without fully understanding what value this asset may have to the public in the future. Negotiating this kind of asset transfer is complex. Key to such discussions is the need for government owners to carefully establish contract provisions, such as: facility maintenance; 4 LIVABLE COMMUNITIES CHAPTER 9 AARP POLICY BOOK the portion of revenue that will be channeled to improve public transportation services in the corridor About half of the total toll revenue from the Interstate 15 HOT lanes funds transit service in the corridor; 50 percent of excess revenues generated from the Interstate 394 HOT lanes in Minnesota must be spent on transit; revenue-sharing provisions to ensure that the public sector reaps some rewards if toll revenues are higher than projected; ample public involvement in project design and the fulfillment of all applicable planning and environmental requirements; transparency, including any tax incentives given to private-sector partners Confidentiality should be limited to only those instances where it is legally required. To underscore the importance of this point, in one case, a private-sector partner refused to share projected traffic counts with local planners, claiming that the data were propriety. Without the data, local planners were unable to evaluate how connecting roadways would perform once the tolled facility was implemented; noncompete clauses Local governments should not be prohibited from building or improving adjacent facilities; and proof of value Objective analysis must show that private-sector financing provides better value than if the concession were financed using public funds. This assessment must take into account the loss of federal tax revenue from taxexempt municipal bonds, as well as the tax consequences of depreciation. Carbon pricing As the nation grapples with how it will address global climate change, various carbon tax proposals have been circulated before Congress. A carbon tax would set a fixed price on every ton of emissions. A cap-and-trade program would limit or cap total emissions and establish a market for trading (buying and selling) permits to emit a specific amount of greenhouse gases, allowing the market to determine the price of emissions. The transportation sector contributes one-third of the nation s carbon output. Revenue raised through carbon taxation or trading could be channeled back to transportation projects that reduce the nation s carbon footprint, such as public transportation, pedestrian and bicycle infrastructure, and clean vehicle research and technology (see also Chapter 10, Utilities: Telecommunications, Energy, and Other Services Sustainable Energy and Climate Change). National infrastructure bank Several policy organizations (e.g., the Center for Strategic and International Studies, American Planning

5 Association, and the American Society of Civil Engineers), as well as the Obama administration, have endorsed the concept of establishing a national infrastructure bank to leverage private and public resources to fund transportation projects. A national infrastructure bank could be structured similar to the World Bank, Federal Deposit Insurance Corporation, a private investment bank, or any other entity that evaluates project proposals and assembles a portfolio of investments to pay for them. The bank would be an independent entity responsible for evaluating and financing capacity-building infrastructure projects of substantial regional and national significance, perhaps through some form of a competitive discretionary program. Potential projects could include construction and rehabilitation of publicly owned transit systems, high-speed rail, roads, bridges, drinking water supplies, wastewater systems, broadband, the electricity grid, schools, and housing developments. Whatever the ultimate form, if a national infrastructure bank is created, project selection should be de-politicized and merit-based. Transportation projects should be rated according to national significance, promotion of economic growth, reduction in traffic congestion, environmental benefits, smart-growth land-use policies, and mobility improvements. Preference should also be given to projects that leverage private financing. It is unclear how an independent entity would address public input as part of its project decisionmaking process. Furthermore, the cautions discussed above concerning public-private partnerships would apply here as well, as much of the funding would be channeled through such arrangements. Consumer expenditures Transportation currently consumes more than 20 percent of the average annual household budget. It is a major consumer expense that many households seek to lower. Infrastructure investments that enable travelers to choose lower-cost travel increase the efficiency of the overall transportation system. Moreover changes to the tax code and private-sector pricing on transportation-related goods and services can also directly affect consumers out-of-pocket costs and travel choices. When fuel prices rise, many people choose to drive less, link trips by purpose, or take public transit. Employers may offer a transportation reimbursement benefit to employees for certain costs incurred while commuting and in exchange, may receive a federal tax-exempt reimbursement. The Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010, extended ARRA s parking and transit parity benefits through Employers may exclude from taxable wages up to $230 for transit and qualified parking expenses. Prior to 2010, those who commuted by car could receive nearly double the tax-free benefit as transit commuters ($230 versus $120). Unless Congress acts again, the US tax code will revert to providing greater benefit for parking than for public transportation in In October 2008, Congress approved a measure that allows employers to exclude up to $20 per month from an employee s taxable wages for expenses associated with maintaining or buying a bicycle. Employers will establish how they administer the cycling tax credit and will be able to deduct the credit from their corporate taxes. Those who walk to work or arrive via another nonmotorized means are not covered. Another way to extend the commuter benefit to those who bike or walk to work is for employers to offer a parking cash-out program. Those currently receiving free parking would continue to do so, but those who do not would receive cash equivalent to apply to their transportation mode of choice. The private sector can also support alternative travel by appropriately pricing other transportation goods and services. One example of this is voluntary pay-asyou-drive (PAYD) auto insurance (see Chapter 10, Utilities: Telecommunications, Energy, and Other Services). Insurance is billed on a per-mile basis rather than as a lump sum per vehicle, encouraging people to drive less. According to the Brookings Institution an 8 percent reduction in vehicle-miles traveled would yield $52 billion in social benefits from reduced traffic accidents, congestion, air pollution, greenhouse gas emissions, and dependence on oil. PAYD is more equitable for low-income people and for women, who tend to drive fewer miles on average and currently subsidize high-mileage drivers. (For more on these issues, see Chapter 3: Taxation Excise Taxes on Motor Fuels, Tobacco, and Alcohol, and User Fees and Asset Sales.) TRANSPORTATION REFORM, FUNDING, AND FINANCING: Policy Congress should enact and fund a comprehensive surface Authorization transportation law in 2011 that meets the nation s 21st-century transportation needs. AARP POLICY BOOK CHAPTER 9 LIVABLE COMMUNITIES 5

6 General funding reform Accountability Sales tax and gas tax Mileage fees Employerprovided benefits Pricing LOCAL LOCAL LOCAL New or increased revenue sources for transportation should be equitable, sustainable, and consistent with livable-community, national energy, environment, economic, and safety goals. Funding methods should not rely disproportionately on the contributions of lower-income households. Funding priority should go to maintaining existing infrastructure before increasing capacity. Congress should increase the amount of funding that is directly suballocated to the metropolitan level. Funding for transportation should be based on a clear national vision with funding tied to performance. The reliance on earmarks should be vastly reduced, or eliminated, in the next surface transportation bill, and subsequent appropriations acts. The federal government should modernize its data collection and reporting system and ensure that all levels of government regularly report in a consistent manner. The use of general sales tax for transportation should require that the benefits received by low-income households outweigh the regressive nature of the tax. Sales tax should be used to fund transportation projects only after a thorough exploration of alternative funding options, including an expansion of the sales tax base and release of state gas-tax dollars for public transportation. States should make gas-tax revenue, as well as general funds, available to support transportation alternatives, including but not limited to public transportation, ride-share programs, and pedestrian and bicycle infrastructure. Congress and states should continue to explore mileage fees as a possible future funding mechanism for transportation investment. The ultimate design of a mileage-fee-based system should ensure that any data collected from consumers should be used only for the purpose of collecting such fees. The fee-based system should be set to appropriately charge heavier vehicles for the wear and tear they impose on the roads and for their higher carbon emissions. The tax code should provide equal commuter benefits to publictransportation users as it does to drivers. Those who walk or bike to work should also receive a tax benefit. All levels of government should encourage the private sector to properly price transportation goods and services, through measures such as parking cash-out programs for employees and voluntary payas-you-drive car insurance that protects the privacy interests of motorists. 6 LIVABLE COMMUNITIES CHAPTER 9 AARP POLICY BOOK

7 Carbon pricing Freight-related fees Public-private partnerships National infrastructure bank Congress and the states should set goals for reducing greenhouse gas emissions through planning processes and link transportation funding to the achievement of those goals. Congress should stipulate that a portion of the revenue generated from climate change legislation be channeled to transportation strategies shown to reduce greenhouse gas emissions, such as investments in public transportation, pedestrian and bicycle infrastructure, and clean vehicle research and technology. Congress should increase the fees that the trucking industry currently pays into the federal Highway Trust Fund proportionate to the level of wear and tear trucks impose on the highway system. Congress should direct the Federal Highway Administration to update and critically evaluate its cost-allocation studies to inform freight-oriented taxation and user-charge decisions The federal and state governments should involve the private sector in financing transportation investments only when long-term public benefits can be realized and public assets protected. If states choose to fund transportation investments through facility pricing, they should negotiate that a portion of the revenue be channeled to improvements in public transportation and that other mechanisms are used to reduce the cost burden on lower-income users. Project design should be informed by ample public involvement and finalized only after all planning and environmental regulations have been fulfilled. Contract provisions, including any tax incentives and transfer of public assets to private-sector partners, should be transparent and not bound by confidentiality agreements. Contract provisions should be void of noncompete clauses by which the public sector would be prohibited from building or improving adjacent facilities. Congress should create a National Infrastructure Bank to evaluate and finance the nation s largest projects. The bank should be structured in a way that ensures merit-based project selection using criteria such as national significance, promotion of economic growth, reduction in traffic congestion, environmental benefits, smart-growth land-use policies, and mobility improvements. The above public-private partnership policies should also apply. AARP POLICY BOOK CHAPTER 9 LIVABLE COMMUNITIES 7