Financial District: Doing the fuel tax two step

| May 1, 2010

Doing the Fuel Tax Two Step

Controversial climate and energy tax may threaten reauthorization

By John Latta

What I think has been feared for some time came to pass in Washington in April. There was a move, a bipartisan one at that, to raise money from new fuel taxes without a guarantee, in fact just the opposite, that the money would be used exclusively for transport projects

In a new climate and energy bill they are working on Senators John Kerry (D-MA), Lindsey Graham (R-SC) and Joe Lieberman (I-CN) suggest a new fuel fee would be levied and repaid to consumers via rebates that reward efficient fuel use.

A group of Democratic senators* and the transportation and labor lobbies** quickly opened fire, arguing essentially that the trio of Senators were possibly sabotaging the chances of a long-term federal surface transportation bill, a SAFETEA-LU replacement, by proposing a new gas tax that did not flow entirely into infrastructure.

“While we support your work to develop comprehensive legislation, we are concerned that your approach may not result in sufficient emission or oil consumption reductions from the transportation sector and may inadvertently hinder our efforts to pass a surface transportation authorization bill this year,” wrote the Senators. 

“If your legislation raises revenue from the transportation sector but does not reinvest funds into infrastructure, our efforts to enact a surface transportation authorization bill in the near future will be constrained. For that reason, transportation revenue should be reinvested into infrastructure strategies that will reduce transportation emissions and oil consumption,” they wrote. 

A letter from a coalition of 27 transportation, labor and other organizations told the Senators that the move was “not sound policy.” The letter, also sent to chairmen and ranking members of Senate committees involved in drafting a reauthorization bill, said in part,

“The solution to the transportation crisis is the quick passage of a new multi-year authorization bill that accelerates job creation with significant new investment and institutes a more performance-oriented federal transportation program.

Enacting a new transportation bill quickly will be very difficult, if not impossible, should Congress approve legislation that diverts revenue from carbon-based fees from motor fuels away from the transportation investment.

Failure to enact a transportation bill will not only harm our economic competitiveness, it will impair the ability of states, counties, cities and transit systems to reduce our dependence on foreign oil and reduce transportation-related emissions. Without a new authorization bill, expanding access to transportation choices like public transportation that reduce emissions and modernizing our highways and infrastructure simply cannot occur. The transportation sector accounts for 70 percent of domestic oil consumption and one-third of carbon pollution.”

The tax that could be triggered by the new climate and energy legislation is technically a carbon tax, but gasoline accounts for about 21 percent of carbon dioxide emissions and users would have to pay through the hose. Opponents of the Kerry-Graham-Lieberman approach are not categorically claiming that no new fuel tax should be part of its funding mechanism, but that if it is, that tax should not be created in such a way as to fatally flaw any new highway reauthorization of a highway bill.

Fuel taxes have been exclusively dedicated to highways and transportation systems. Since 1997 all fuel taxes revenue has gone into the Highway Trust Fund. This was also the case prior to that date except for two occasions when some of the income was used to help temporary, short-term deficit reductions.

As it is now, the gas tax isn’t doing the job. Even with a raise of 10 or 15 cents a gallon from its current 18.4 cents – the very most politics would allow and a very, very long shot at that – totally dedicated to highways and transportation it is unlikely to do so. The U.S. DOT estimated in a 2008 study, the Conditions and Performance Report, that we need $30 billion a year in new investments just to maintain our highways, bridges and transport system as they are now, and $75 billion of new investment a year to improve the transportation system.

The so-called “jobs bill” (HIRE – Hiring Incentives to Restore Employment Act), passed in March, topped up the Highway Trust Fund and extended the current authorization, SAFETEA-LU, through the end of the year, ending a series of short-term scrambling extensions and a sometimes chaotic and fiery push for a six year bill. But with HIRE may have come a problem.

A new Standard and Poor ‘s report , “U.S. Surface Transportation Funding Gets a Temporary Lifeline,” says that “with the breathing room HIRE provides, we think comes a reduced sense of urgency and postpones difficult decisions regarding how to finance infrastructure investment.” All of the forces pressing so hard for reauthorization now appears to have taken a break, and into this void comes the climate bill.

As multi-year bill proponents, inevitably headed by House Transportation and Infrastructure chairman Jim Oberstar, try to drive the reauthorization debate back up to speed, they may find the climate and energy bill tax proposals blocking their way because any reauthorization will need every cent of whatever the fuel tax is to do basic road and bridge work.

Relying on the history of federal backing for highway funding, Standard and Poor’s analysis expects Congress to continue to extend legislation and support, but highlights a key unknown: “What remains uncertain in our view is the form the support will take and whether it will be adequate to meet U.S. surface transportation needs.”

Any support is almost certain to be less than adequate if it has to ‘share’ gas tax revenue.

The S&P report concedes that HIRE improved the near-term funding outlook for federal highway grant programs. But the elusive, and now delayed, search for a six-year replacement for SAFETEA-LU is, says Standard and Poor’s, “confounding” state DOTS and local transportation agencies.

“In our view,” says the report, “potential delays in authorizations, changes in law, declining HTF balances, or Congressional or administrative modifications to grant programs will not end the longstanding practice of federal aid for transportation on which we base our grant anticipation ratings. However, we anticipate that program rule changes, constrained funding sources, and federal budget pressures may lead to lower authorization and appropriation levels.”

The Standard and Poor’s report also shines a light on a possible problem buried in the administration’s budget. It points out that the fiscal 201l budget “does not advance any major changes in federal transportation programs and requests $78.7 billion for the Department of Transportation (a 2.3 percent increase over fiscal 2010)”, modest increases for highways, public transportation and a modest decrease for high speed rail funding.

“However,” says the Standard and Poor’s report, “ because the budget does not advance recommendations for funding those programs over the long term, and because of growing budget deficits and the President’s proposed fiscal 2012 freeze on discretionary spending, we believe the ability of the General Fund to significantly supplement HTF spending is likely to be constrained.” v

*Senators Tom Carper (D-Del.), Arlen Specter (D-Pa.), Frank R. Lautenberg (D-N.J.), Bill Nelson (D-Fla.), Benjamin L. Cardin (D-Md.), Jeff Merkley (D-Ore.), Kirsten E. Gillibrand (D-N.Y.) and Michael F. Bennet (D-Colo.). All co-sponsored Sen. Carper’s Clean, Low-Emission, Affordable, New Transportation Equity Act, known as “CLEAN-TEA”.

**American Association of State Highway and Transportation Officials (AASHTO)

American Road & Transportation Builders Association (ARTBA)

American Public Transportation Association (APTA)

Amalgamated Transit Union (ATU)

America Bikes

American Concrete Pavement Association (ACPA)

American Council of Engineering Companies (ACEC)

American Highway Users Alliance

American Society of Civil Engineers (ASCE)

American Traffic Safety Services Association (ATSSA)

American Trucking Associations (ATA)

Associated Equipment Distributors (AED)

Associated General Contractors of America (AGC)

Association for Commuter Transportation (ACT)

Association of Equipment Manufacturers (AEM)

Association of Metropolitan Planning Organizations (AMPO)

International Union of Operating Engineers

Laborers’ International Union of North America (LiUNA!)

League of American Bicyclists

National Asphalt Pavement Association (NAPA)

National Association of Counties (NACo)

National Association of Development Organizations (NADO)

National Ready Mixed Concrete Association (NRMCA)

New Starts Working Group

Safe Routes to School National Partnership

Transportation Trades Department, AFL-CIO

United Brotherhood of Carpenters and Joiners of America

 

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