Tag: transportation

An Unconstitutional Tax Bill in Virginia?

My long-ago colleague Norman Leahy, once a young research assistant at the Cato Institute, has an op-ed in the Washington Post today. I wonder where he got the idea that an act of the legislature is invalid just because it violates the state constitution.

Those praising the Virginia General Assembly’s transportation compromise may not realize that the bill runs afoul of the plain language in the state’s constitution.

Virginia’s constitution is clear that the General Assembly can impose only uniform taxes across the state for similar activities. But the bill that emerged from the House-Senate conference committee last weekend upsets the historic balance between localities and state government; it contains new provisions about taxation, some of which would effectively set up a two-tier system for residents in certain parts of the state. It’s difficult to see how some of these provisions could survive legal challenge….

As a constitutional matter, these local tax provisions could probably be struck down without affecting the rest of the legislation.

But few should know better than Gov. Bob McDonnell (R) that state legislators don’t have the power to impose a discriminatory local tax. He was the state’s attorney general when his office defended before the state Supreme Court the General Assembly’s previous attempt at a transportation tax package. The court rejected the argument.


Getting Highway Numbers Right

“Gasoline taxes and tolls pay for only a third of state and local road spending,” claims a report released yesterday by the Tax Foundation, an independent, nonpartisan group. “The rest was financed out of general revenues.” According to the group’s calculations, users paid just $49 billion of the $155 billion cost of roads in 2010, the last year for which data are available.

I am the first to admit that highways are subsidized. But do subsidies cover more than two-thirds of the costs of roads? No way. The Tax Foundation, which strives to be “guided by the principles of sound tax policy: simplicity, neutrality, transparency, and stability,” is simply wrong.

First, the group counts federal aid to states as “general funds.” In fact, 100 percent of that federal aid comes from gas taxes and other user fees such as taxes on large trucks and tires.

According to the Federal Highway Adminitration’s Highway Statistics table HF-10, the feds collected $35 billion in gas taxes in 2010, of which $29 billion was given to the states for roads. For some reason, the Tax Foundation counts state gas taxes as user fees, it doesn’t count federal gas taxes as user fees.

This One’s a True Porker

The Senate passed a transportation bill this week to replace a House bill that was killed by fiscal conservatives for being filled with “pork and special interest projects.” Not surprisingly, the Senate bill is far worse.

Where the House bill authorized deficit spending to the tune of about $10 billion a year, the Senate bill would deficit-spend about $15 billion a year. Where the House bill had no earmarks and few big-government expansions, the Senate bill has several earmarks, discourages the states from leasing roads to private partners, and expands federal regulation of public and private transit and intercity bus systems.

Fiscal conservatives pinned their hopes on an amendment that would allow states to opt out of federal funding by raising their gas taxes by the 18.4 cents that the federal government collects, thus cutting out the feds as middle man. The Senate predictably and decisively rejected this amendment by 68 to 30. Sen. Barbara Boxer (D, Calif.) argued that the amendment would “devolve” the highway fund, which of course was the whole point.

I’ve long argued that the only way to devolve federal transportation spending to the states is to first take the pork out of the gas tax. The House bill did this by rededicating gas taxes to roads (making them once again a true user fee), distributing gas taxes using formulas (preventing Congress from earmarking), and paying for transit out of other funds. Once the pork was gone, Congress would lose interest and let the states take over. The Senate bill, of course, does none of these things, and in particular continues to dedicate a share of gas taxes to transit, which will make it a lot harder to devolve gas taxes to the states.

The only good news is that the Senate bill is just a two-year bill, which means the whole debate can begin again in 2014 if not 2013. But the House has just two weeks to accept or reject the bill, as the current law expires on March 31. If they can’t reach an agreement by March 31, they are likely to simply extend the current law, which is not a whole lot different from approving the Senate bill.

If the House had been able to pass its bill, it would have been in a much stronger position to negotiate some improvements to the Senate bill. As it is, it now has a choice between the bad law now on the books or the slightly worse bill passed by the Senate. Fiscal conservatives should encourage the House to reject the Senate bill and start the debate over.

Fixing the House Transportation Bill

After catching flack from both fiscal conservatives and the transit lobby, House Speaker John Boehner has postponed consideration of a surface transportation bill. Fiscal conservatives (including my fellow Cato scholar Michael Tanner) objected to the bill’s deficit spending; transit interests (including Republicans from New York and Chicago), objected to the bill’s lack of dedicated funds to public transit.

Here are a few things you need to know about the transportation bill before it comes up again in a couple of weeks. First, the legislation now in effect, which passed in 2005, mandated spending at fixed levels even if gasoline taxes (the source of most federal surface transportation funds) failed to cover that spending. Gas taxes first fell short in 2007 and the program has been running a deficit ever since. Although the 2005 bill expired in 2009, Congress routinely extends such legislation until it passes a replacement bill.

Unlike the 2005 law, the controversial House bill only authorized, but did not mandate, deficit spending. Actual deficit spending would be considered on a year-by-year basis by the House and Senate appropriations committees. Should they decide not to deficit spend, passage of the House bill could potentially save taxpayers more than $60 billion over the next five years. Failure to pass a bill will only lead Congress to continue to deficit spend.

Second, transportation is big-time pork. The House Transportation and Infrastructure Committee is the largest committee in Congressional history because everyone wants a share of that pork. Fiscal conservatives’ dreams of devolving federal transportation spending to the states run into the roadblock made up of members of Congress from both parties who don’t want to give up the thrill of passing out dollars to their constituents.

The highway bill wasn’t always pork. When Congress created the Interstate Highway System in 1956, it directed that gas taxes be distributed to states using formulas based on such factors as each state’s population, land area, and road miles. While Congress tinkered with the formulas from time to time, once the formulas were written neither Congress nor the president had much say in how the states spent the money other than it was spent on highways.

That changed in 1982, when Congress began diverting gas taxes to transit–initially about 11 percent, now about 20 percent. The 1982 bill also saw the first earmarks; the 10 earmarks that year exponentially grew to more than 6,000 earmarks in the 2005 reauthorization.

Ron Paul recently defended earmarks, saying “Congress has an obligation to earmark every penny, not to deliver that power to the executive branch. What happens when you don’t vote for the earmark it goes into the slush fund, the executive branch spends the money.” But the Highway Trust Fund was not a slush fund; because it was distributed to the states by formulas, the executive branch had no say in how it would be spent.

In 1991, however, Congress decided to put billions of dollars of transit’s share of gas taxes into “competitive grant” programs. While competitive grants supposedly supported the best projects, in fact they were mainly slush funds distributed on political grounds either through earmarks or by the president.

The biggest competitive grant program is “New Starts,” which supports construction of new transit lines. Since the main way cities could get more money from this fund was to build the most expensive rail transit lines they could, New Starts gave cities incentives to replace low-cost buses with high-cost trains.

All over the country today, cities are waiting for Congress to pass a pork-laden transportation bill so they can continue to build ridiculously expensive rail transit lines, at least half of whose costs would be covered by the feds. Portland, Oregon, which spent about $200 million building a 17-mile light-rail line in 1986, now wants to build a 7-mile light-rail line at a cost of $1.5 billion. Honolulu wants to build a 20-mile elevated rail line for $5.1 billion.

Baltimore, whose transit ridership has declined by more than 20 percent since it started building rail transit in 1982, wants to spend $2.2 billion on a 15-mile light-rail line, nearly 80 percent of whose riders are expected to be people who were previously riding much more economical buses. San Jose wants to spend more than $5 billion building a 16-mile extension to the San Francisco BART system even though the project’s environmental impact statement says that it will not take enough cars off the road to increase speeds on any highway by even 1 mile per hour.

In 2005, then-Secretary of Transportation Mary Peters attempted to limit such wildly expensive projects by issuing a rule that rail lines could cost no more than $24 per hour that they saved travelers. Congress immediately exempted the San Jose BART line and several other projects from the rule. Planners tinkered with the numbers for other projects so that an amazing number appeared to cost around $23.95 per hour. Of course, after they received funds from the Federal Transit Administration, costs rose and ridership declined.

For example, in 2000 Minneapolis sought federal funds for what was to be an 80-mile commuter-rail line costing $223 million and projected to carry more than 10,500 riders per day in its first year. By 2004, the cost was up to $265 million but the line would only be 40 miles and was projected to carry just 4,000 riders per day. The line actually ended up costing $317 million, half of which was paid for by the feds, and in fact ended up carrying only about 2,200 riders per day in its first full year of operation, and even fewer in its second year.

To keep transit agencies from having to deal with Mary Peters’s pesky cost limit, the Obama administration proposed last month to rewrite the rules for New Starts. The new rules replace Peters’s $24 per hour limit with such subjective criteria as “livability,” “environmental justice,” and “multimodal connectivity.” In other words, cities can justify and the Secretary of Transportation can award grants for fantastically expensive projects based on just about any reason at all.

The House transportation bill addressed all of these issues. In addition to ending the 2005 bill’s mandatory spending, it completely eliminates earmarks and rededicates gas taxes to highways and put them all in formula funds. The deficit spending is almost all for transit, and while the bill still includes a New Starts program, it insists that projects be judged using firm quantitative criteria, not meaningless terms like livability.

Most importantly, the bill provides a path for the devolution that fiscal conservatives want. By taking all of the pork out of the gasoline tax, the bill makes it far more likely that Congress will be willing to devolve the tax to the states in the next go-around in about 2017.

Not surprisingly, the bill raised the ire of not only fiscal conservatives but the powerful transit lobby (which, because contractors can make far more profits building $100-million-per-mile rail lines than $10-million-per-mile highways, is far better funded than the supposedly powerful highway lobby). Transit advocates would prefer to retain transit’s 20-percent share of gas taxes than rely on Congress to fund transit out of deficit spending or some hoped-for oil and gas royalties.

As I see it, the bill’s authorization (but not mandate) for deficit spending was an attempt to get Democrats to support the elimination of earmarks and other pork. Since that has apparently failed, I would suggest another form of compromise.

First, end deficit spending, which means a bill that authorizes about $190 billion instead of $260 billion over the next five years. Second, distribute the money to the states exclusively through formulas with no earmarks and no competitive grants. Third, assuage transit interests by allowing the states to spend the money on either highways or transit, with no set formula for how much can go for either one.

Finally, encourage the states to spend the money as cost-effectively as possible by building user fees (defined as state or local taxes or fees paid by users that go to the facilities those users use) into the formula for allocating federal funds to the states. I have proposed a formula based 50 percent on user fees, 45 percent on population, and 5 percent on land area. This initially results in states getting about the same federal dollars as they receive today but gives states incentives to cater to users rather than politicians by investing their funds in projects the produce the most user fees. Most important, by taking the pork out of the gas tax, this keeps open the path to devolution in the next reauthorization cycle.

Transportation Agreement Seems Remote

House Republicans and Senate Democrats remain at loggerheads over the future of federal highway and transit funding. Although House Transportation & Infrastructure Committee Chair John Mica introduced a compromise transportation bill this week, few are pleased with his proposal. Secretary of Transportation Ray LaHood, for example, calls it “the worst transportation bill” he has ever seen.

Congress passes legislation defining how federal gasoline taxes and other highway user fees will be spent every six years, and the most recent bill lapsed in 2009. Although the revenues all come from highway users, public transit agencies and other interests have captured increasing shares of the funds in successive bills passed since 1982. To please the wide range of interest groups who benefitted from this spending, the 2005 bill (which itself was two years late) made spending mandatory, meaning annual appropriations bills could not refuse to spend the money even if gas taxes failed to cover the costs—which they did after 2008, forcing Congress to transfer general funds to the Highway Trust Fund. In addition, Congress added more and more earmarks to the bills, increasing from 10 earmarks in 1982 to more than 6,000 in the 2005 bill.

The struggle today is between the Democrats (and others) who want to keep spending like there is no tomorrow and the Tea Party Republicans who want to reduce spending to be no more than actual revenues and eliminate earmarks and other pork.

One major source of pork is so-called competitive grants, which are mainly for transit. Although most highway funds have been distributed to the states using formulas based on such things as population, land area, and road miles, competitive transit grants are handed out on a project-by-project basis. Though the money was supposed to be used for the best projects, in fact most of it was distributed based on political power.

Mica’s compromise would keep spending at current levels—which are as much as $10 billion a year more than revenues—but include no earmarks and replace all competitive grants with formula funds. Instead of pleasing everyone, the compromise has simply ticked everyone off.

LaHood and various transit advocates are upset because they lose their funds dedicated to light-rail, streetcar, and other rail transit construction. Conservative groups hate the bill because it almost certainly will require deficit spending.

Mica could have compromised in the other direction: reducing spending to be no more than revenues, but maintaining competitive grants, earmarks, and other pork-barrel programs. This might have been more successful, as fiscal conservatives couldn’t complain about deficit spending while pork-barrelers could point with pride to the earmarks they were funding.

The negative response to Mica’s proposal makes it unlikely that Congress will pass a bill this year. Instead, it will have to once more extend the 2005 bill (which it has already done eight times), as the current extension expires on March 31, 2012. But the extensions maintain spending at current levels, which means the Highway Trust Fund is quickly running out of money.

Advocates of increased spending claim funds are needed to repair crumbling infrastructure. But America’s highways and bridges are actually in pretty good shape, partly because they are largely paid for out of user fees. The infrastructure that is crumbling is mainly those things paid for out of taxes, such as urban transit systems, which have at least a $78 billion maintenance backlog. Even President Obama’s head of the Federal Transit Administration complains that transit agencies are too eager to get federal funds to build new rail lines when they can’t afford to maintain the ones they have.

The real question is why the federal government should be involved at all in highways, urban transit, bike paths, and other surface transportation projects. State and local governments, not to mention private transportation companies, are more likely to make wise transportation investments and less likely to be swayed by pork barrel. Congress should simply eliminate the federal gas tax or, as some have proposed, allow states to opt out of federal programs by raising their gas taxes by the amount of the federal 18.3-cent-per-gallon tax.

Such alternatives will be taken more seriously if Tea Party candidates win more Senate and House seats in the 2012 election. If they lose seats, however, Congress is more likely to raise gas taxes so the transit industry and other interests can continue to get their largely undeserved shares of highway user fees.

Driverless Nevada

In Gridlock, I argued that the next great improvement in human mobility will come not from rail transit or high-speed rail but driverless cars. Companies such as GM and Volkswagen have invested heavily in research and development of cars that can drive themselves, and I expected that they would soon begin lobbying state legislatures to change laws to allow such driverless cars on the road.

As it turned out, the lobbying was done not by an auto company but by Google, which has tested driverless cars (developed by the same Stanford University engineers who designed Volkswagen’s driverless cars) throughout the state of California. Google decided Nevada would be a good state to start legalizing driverless cars, and last week the Nevada legislature agreed.

By coincidence, Volkswagen has announced that it will soon offer semi-driverless cars for sale. The cars will include a “temporary auto pilot” that can stay within speed limits, steer within lane indicators, pass slow-moving vehicles, and avoid collisions on the highway. The cars will not be able to navigate city streets, but that will come soon.

The introduction of true driverless cars will significantly expand personal mobility because anyone—not just people over 16 who can pass a driver’s test—will be able to use them. Driverless cars will reduce congestion and improve safety. The new mobility will significantly change the way we live. And the cars will render obsolete any and all rail transit and moderate-speed rail lines now being planned or under construction long before taxpayers finish paying the heavy debts incurred to build such lines.

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