Alternatives to MBUFs, VMT fees, national tolls - devolution, privatization

August 31, 2011
By Peter Samuel

We've given too much publicity here to schemes for mileage-based user fees (MBUFs) or vehicle-miles traveled (VMT) charges. Those acronyms MBUFs or VMT fees are just proposals for comprehensive tolls - tolls on virtually all roads. We say we've given too much publicity to them, not because they aren't important, or don't make sense as substitutes for the old fuel taxes, but because they aren't going anywhere.

Just as they won't touch the notion of upping fuel taxes, neither Democrats nor Republicans will go near VMT/MBUFs/comprehensive tolls.

Infrafanniemae, Transfreddiemac

Secretary Ray LaHood and the Obama administration and some Democrats in the Congress yearn for the stopgap of a government 'National Infrastructure Bank' a kind of Infrafanniemae or Transportfreddiemac, a US government sponsored but pseudo-independent borrowing and lending entity that would operate largely outside the budgetary process while having the implicit backing of the US Government. It needs that to be able to borrow cheaper than commercial firms. Its office holders appointed by the administration would be likely to direct funds to politically correct and favored projects, pretty much regardless of their financial viability.

But the Democrats are whistling in the wind. The Congress is not going to authorize an Infrafanniemae. People realize it would enlarge already bloated federal debt, be a new avenue to onerous taxpayer liability for subsidies and bailouts, support non-viable and wasteful investments, and be a new vehicle for pork barrel handouts. An infrabank would exacerbate all our existing problems, not solve them.

Viable projects can attract support of private investors and of real banks in the commercial money markets since they can earn fees from users sufficient to pay real investors and real banks. Only non-viable projects need an Infrafanniemae.

The Wall Street Journal in an editorial (2011-08-31) wrote: "The infrastructure bank is merely a new gimmick to maintain the old system (of corrupt earmarks and deficit spending)."

Ron Utt of Heritage notes the proposal for an Infrabank "has consistently been rejected by bipartisan majorities in the House and Senate transportation and appropriations committees, and for good reason."  

VMT fees, MBUFs

There have now been repeated recommendations from expert panels that VMT fees, MBUFs or simply comprehensive tolls - all the same in essence - be adopted. Late in the Bush administration there was a National Surface Transportation Policy and Revenue Study Commission which reported to the US Congress in January 2008.

The commission chaired by then secretary of transportation Mary Peters: "The Commission envisions that a VMT tax would be levied instead of current fuel taxes at both the Federal and State levels, and potentially by local jurisdictions as well....The Commission recommends that the next surface transportation authorization act require a major national study to develop the specific mechanisms and strategies for transitioning to an alternative to the fuel tax to fund surface transportation programs" (p52-53)

Early in the Obama administration a National Surface Transportation Infrastructure Financing Commission of 15 transport experts appointed by the Democrats and chaired by Rob Atkinson recommended (Feb 2009):

"The current federal surface transportation funding structure that relies primarily on taxes imposed on petroleum-derived vehicle fuels is not sustainable in the long term and is likely to erode more quickly than previously thought... The current indirect user fee system based on taxes paid for fuel consumed provides users with only weak price signals to use the transportation system in the most efficient ways...  A federal funding system based on more direct forms of "user pay" charges, in the form of a charge for each mile driven (commonly referred to as a vehicle miles traveled or VMT fee system), has emerged as the consensus choice for the future. The Commission cast a wide net, reviewed many funding alternatives, and concluded that indeed the most viable approach to efficiently fund federal investment in surface transportation in the medium to long run will be a user charge system based more directly on miles driven (and potentially on factors such as time of day, type of road, and vehicle weight and fuel economy) rather than indirectly on fuel consumed." (p7)

This was the unanimous recommendation of the Obama administration's own panel. Yet no one in the Administration has said a word in support of it, or even words about it. The recommendation is taboo.

The recent study by a panel at the University of Minnesota came to precisely the same conclusion as the Atkinson commission, except they called their recommended new charge an MBUF rather than a VMT fee.  So have other panels of experts. It is indeed the "consensus choice" of policy analysts and experts.

There have been trials, notably in Oregon, that have demonstrated its feasibility, and persuasively written reports from those trials on how to implement VMT, MBUFs or whatever we want to call them.

Trouble is the legislators, whether of left, right or center, won't touch it.  It ain't going anywhere.

Perhaps the legislators sense the public will forcefully oppose a new federal charge that channels more money through the same old system of politically driven grants and project selection, of hand-downs from one level of government to the next.

Elected officials seem to see the VMT fee/MBUFs/comprehensive federal tolls as a political "third rail" threatening them with sudden electoral execution. They stay well clear.

Devolution or state opt-out

Utt (in another paper) argues that a practical way forward is for states to opt out of federal highway and transit program money. Legislation is already being promoted to allow state opt-outs, or the state taking over from the US government its power to tax gasoline and diesel within that state. A full third of this federal road fuels tax money presently goes for non-road uses - to transit which takes 20% of the money and caters to just 2% of trips, USDOT overhead costs,  to MPOs for metro planning, to bike paths, historic bridge restorations, landscaping, and secretary LaHood's new enthusiasm 'livability' programs.

"Freed from federally imposed one-size-fits-all policies, states could use the funds to finance their own transportation priorities, not those of the many influential lobbyists and trade associations that seek to gain at taxpayers' expense or those of the anti-road, anti-car activists who want to return America to a nostalgic vision of how they thought we lived in 1905.... Because the plan is voluntary, states that preferred to operate under presidential and congressional micromanagement and regulation and the whimsy of fashionable opinion could 'opt in' and continue to serve their transportation needs in the warm embrace of Washington's bureaucracy."

Under an opt-out program, a state would forgo its annual authorization from the  federal highway trust fund and avoid the many mandates like union-only labor, regulations, and scores of specific spending allocations. It would instead choose to receive the federal fuel taxes collected within its borders as a block grant, or itself directly collect and spend, according to its own priorities, the 18.3c/gallon previously collected in the state by the Feds.

It might decide to tax fuel less and toll more, or to toll less and tax more. That would be up to the state's elected officials to decide.

Privatization

Another approach to improved road funding and performance is privatization, or as it is called in more polite company 'public private partnerships' (PPPs or P3s). That of course enables us to tap investors and for-profit business management incentives to build, own, operate, and toll (BOOT) roads under longterm lease and concession agreements. A certain amount of this is already being done in various states - Texas is the leader.  

The most vigorous and detailed exposition of the case for P3s is put by Richard Geddes, a Cornell University economist in a recent book "The Road to Renewal: Private Investment in U.S. Transportation Infrastructure" published by the American Enterprise Institute:

"Large-scale private investment in transportation infrastructure has the potential to thoroughly revitalize America's highway, bridge, tunnel, port, and intermodal systems, which are in desperate need of expansion, renovation, and repair. The dire fiscal condition of many states and localities means that fewer public dollars are available for infrastructure, making private investment especially timely. Private investment not only injects vast amounts of capital into transportation system maintenance and expansion, but also introduces the sharp, focused incentives that are necessary to operate, upgrade, and expand key facilities efficiently."

Also: "While PPPs are often--and justifiably--promoted for their ability to tap new pools of capital that can be used to renovate existing facilities and construct new ones, and for their ability to assume risk, the effect of private  participation on the incentives of facility operators...create social benefits such as the rationalization of transportation investments and the provision of information about the true value of transportation facilities. It is thus not only new capital investment and risk assumption, but also the associated high-powered incentives that have .. the potential to rejuvenate America's beleaguered transportation sector...(T)hey inject fresh competition into a range of transportation activities. Competition is a powerful force for promoting social welfare, since it encourages firms to operate efficiently, to focus on customers, and to adopt new technologies rapidly. PPPs already benefit motorists, taxpayers, and investors by allowing competition in several dimensions of transportation provision, such as facility design and construction."

On loss of public control: "PPPs are, for example, sometimes charged with creating a loss of public control over critical transportation assets. But control under a PPP approach must be assessed relative to the public's control under a traditional procurement approach. By incorporating detailed, transparent, and enforceable contracts, well-executed PPPs in fact improve public control over transportation facilities."

On political direction of funding as compared to market direction:

"As the numerous earmarks in the (last) highway reauthorization bill suggest, much of America's federal transportation spending today is directed by political calculations rather than by benefits to motorists and taxpayers in their capacity as investors. The PPP approach allows capital to flow to those investments that transportation customers--motorists--value most highly. Returns on investment are highest on the facilities that motorist-customers use the most, and private participants will seek those returns. Competitively provided capital, taking prudent risks, will result in project choices that are based more on economic value and less on politics."

Private risk capital has played a central role in infrastructure:

"Risk-taking private capital played a critical role in constructing America's railroads, electric grid, waterworks, and Internet network. It was central to building our road, bridge, and canal systems in the nineteenth century. A vast global supply of capital is ready today to invest in U.S. infrastructure, and the need for that investment is overwhelming. It is time to develop the policy framework to allow private capital to expand and renovate America's surface transportation system in the twenty-first century."

REFERENCES

Jan 2008 National Surface Transportation Policy and Revenue Study Commission:

http://transportationfortomorrow.com/

Feb 2009 National Surface Transportation Infrastructure Financing Commission report:

http://FinanceCommission.dot.gov/Documents/NSTIF_Commission_Final_Report_Mar09FNL.pdf

University of Minnesota Humphrey School, "From Fuel Taxes to Mileage-based User Fees, Aug 2011:

http://www.tollroadsnews.com/node/5457

Ron Utt's state opt-out paper:

http://www.heritage.org/Research/Reports/2011/07/Federal-Highway-Transportation-Program-Why-States-Should-Opt-Out

Richard Geddes book "The Road to Renewal" AEI, see

http://www.aei.org/book/100068

download Geddes:

http://www.tollroadsnews.com/sites/default/files/Geddes-RoadToRenewal.pdf

TOLLROADSnews 2011-08-31


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