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, a supposedly independent, non-partisan 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.

The Antiplanner is 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 claims 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, though the Tax Foundation counts state gas taxes as user fees, it doesn’t count federal gas taxes as user fees.

Second, the Tax Foundation fails to count state motor vehicle registration fees, which amount to $33 billion a year and which are mostly dedicated to highways. Almost every state first created these fees as a way for users to help pay for roads.

Third, the Tax Foundation relies on secondary sources for at least some of its information rather than going to the original source, and as a result gets its numbers wrong. Citing a Census Bureau report, it says that state and local governments collected $37 billion in gas taxes in 2010. However, Highway Statistics tables SDF and LDF say that state and local governments received $40.3 billion (net of collection costs) in gas taxes in 2010.

Some of those gas taxes were diverted away from roads by politicians catering to various special interest groups, especially mass transit. But that doesn’t mean that users didn’t pay those fees. Some people think those diversions shouldn’t be counted as user fees. Is a fee paid by users still a user fee if politicians intercept it for pork before it gets to the use the user paid for? I would say yes; the Tax Foundation’s position isn’t clear.

In any case, total federal, state, and local gas taxes, tolls, registration fees, and other fees collected from highway users actually amounted to about $120.4 billion, of which less than $2.5 billion went to collection costs. That would have left nearly $118 billion for roads if politicians hadn’t diverted about $25 billion or so to mass transit and other activities. Even after deducting that $25 billion, the remainder is far more than the $49 billion the Tax Foundation says came from user fees.

Since total costs were $155 billion, there still must be a subsidy, right? Not necessarily. State and local governments sold $33 billion worth of bonds in 2010, most of which will eventually be repaid out of gas taxes and other user fees. Yet the Tax Foundation erroneously counts these as “general revenues.”

Finally, state and local governments received $13 billion in interest on the gas taxes and other user fees they had collected but not yet spent in 2010. The Tax Foundation also erroneously counts such investment income as “general revenues.”

Altogether, then, users paid $118 billion; interest on their fees brought this to $131 billion; and bonds that will mostly be repaid out of user fees bring the total somewhere close to $164 billion. That’s $9 billion more than state and local governments spent on highways, roads, and streets in 2010.

This doesn’t mean there were no subsidies to roads. The states did spend about $13.9 billion of general funds on roads; but this is offset by $16.6 billion diverted by the states out of highway user fees to transit and general purposes. Congress in 2010 had to appropriate $30 billion to top off the Highway Trust Fund, mainly because it had mandated that roughly that amount be spent on transit out of the fund over the previous several years even if gas tax revenues weren’t sufficient to cover the spending (which, after 2007, they weren’t).

The real subsidies are at the local level. In 2010, cities and counties spent about $36.2 billion in general funds on roads and streets, while they diverted a mere $1.2 billion in user fees to other purposes. The result is a net local subsidy of about $35 billion, which isn’t offset by federal and state user fees that weren’t spent on highways.

The way to end these subsidies is to give cities and counties an opportunity to collect user fees for roads. As I describe in my 2012 Cato Policy Analysis, “Ending Congestion by Refinancing Highways,” the best way to do this is through vehicle-mile pricing.

Whatever reforms you support, it is important to get the numbers right. When it counts federal gas taxes, vehicle registration fees, revenues from bonds that will be repaid out of user fees, and interest on saved user fees as “general revenues,” the Tax Foundation is being deceptive.

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16 thoughts on “Getting Highway Numbers Right

  1. JimKarlock

    ” give cities and counties an opportunity to collect user fees for roads.”
    That will open the floodgates for local transit to steal road dollars. There must be a strict (not loose) rule that such monies go ONLY to road improvements since it is road user money. No bikes, no transit, probably NOT even pedestrians – that part can be paid from non-road user fees as pedestrian are not paying road fees while waling along a road.

    Also see the Tom Rubin analysis at http://americandreamcoalition.org/highways/ADCHardCosts.doc where he finds that road users pay 9.6% above costs.

    Thanks
    JK

  2. C. P. Zilliacus

    The Antiplanner wrote:

    The way to end these subsidies is to give cities and counties an opportunity to collect user fees for roads. As I describe in my 2012 Cato Policy Analysis, “Ending Congestion by Refinancing Highways,” the best way to do this is through vehicle-mile pricing.

    I understand and appreciate the idea behind this approach, and even agree with it.

    But there are issues associated with this approach that have not been thoroughly vetted before the people that use the highway system – taxpayers and especially the voters that drive the system and pay to use it (currently in the form of motor fuel taxes and tolls). I am relatively convinced that a large proportion of the driving public is not ready for this type of system (and as best as I can tell, the only large-scale road use tax collection system of this kind is Germany’s Toll-Collect.de system for collecting tolls from commercial vehicle traffic (heavy-duty trucks and buses) that use the German highway network (including the Autobahn system)). It is very revealing to me that Toll-Collect.de does not apply to automobile and motorcycle traffic – perhaps because Germany is today a democratic society, and German voters are not ready for such a system?

    Additionally, the technical implementation of charging for road use under this type of system may not be as easy as we might think. Consider that the rollout and startup of Toll-Collect.de was delayed repeatedly (though as best as I can tell, it is working correctly now).

    And there’s the issue of cost of collecting VMT fees. Perhaps the most-appealing feature of federal and state motor fuel taxes is the cost of collecting the money. It is cheap to collect revenues this way.

    Finally, if we were to transition to such a system, what is to prevent some of the problems that The Antiplanner has written about in this venue and elsewhere, starting with diversion of collected revenues. It seems to me that it would be every bit as easy (maybe even easier) for elected officials to listen to promoters of rail projects (and the unions that represent transit employees) and divert VMT revenues to pay to construct and operate “extraordinarily expensive rail transit projects” (the Antiplanner’s words, not mine) and other transit projects.

  3. LazyReader

    The goal honestly is getting th efedearl government out of the business of developing roads and highways alltogether. Their entire model of federal development is taking money from states and counties and investing in enormous boondoggles designed to appear beneficial. It’s exactly what they said about Boston’s Big Dig (and I’m aware of the irony of using the Big Dig over and over again, but it’s the only one I can think about specifically). Plagued by bureaucratic incompetence, fraud, waste, and poor quality controls.

  4. C. P. Zilliacus

    LazyReader wrote:

    The goal honestly is getting the federal government out of the business of developing roads and highways all together. Their entire model of federal development is taking money from states and counties and investing in enormous boondoggles designed to appear beneficial. It’s exactly what they said about Boston’s Big Dig (and I’m aware of the irony of using the Big Dig over and over again, but it’s the only one I can think about specifically). Plagued by bureaucratic incompetence, fraud, waste, and poor quality controls.

    I disagree (in part).

    Thanks to the federal government partnering with the states, the Interstate system was built.

    Regarding the Big Dig, the biggest mistake of all was the failure to collect tolls from the drivers using it (but in its defense, all-electronic toll collection was not ready for prime time when it was being designed, though it is now). Putting needed freeways below ground in densely-developed and historic urban areas like Boston is a good thing, and we have the technology (but maybe not the political will) to build such roads (and yes, in my opinion, such roads must be tolled). Tolling also adds the benefit of bondholders keeping a watch on construction (and construction defects).

    When I hear discussion about “getting the federal government out of the roads business,” I will respond this – the United States has a national highway network, not a series of state networks that happen to make up a national system. The notion of a national network should not change – even if we were to transition to a system of VMT-based toll collection. Having each state in charge of its own little fiefdom of highways invites more efforts to collect revenues from out-of-state drivers, like Delaware has done for many years on the Delaware Turnpike – and that is wrong, and we need to federal government to prevent such mischief in the future. New Jersey has rigged the electronic toll discounts on the New Jersey Turnpike to not apply to E-ZPass patrons that don’t have a transponder issued by the Garden State.

  5. Delbert

    So if we omit local roads, the balance sheet looks OK, or at least not so bad? It appears that federal and state governments are essentially redistributing user fees to highways in the same manner that the money is also redistributed to transit, although plenty of motorists never or rarely use either highways or transit.

    If we are genuinely meaning to charge “user fees,” at the very least one would expect to see the fees allocated in a manner that reflects the road usage of the average driver. If only 25% of vehicle miles are driven on the interstates, approximately 25% of user taxes/fees should be spent there, under this line of reasoning. Based on these figures, it appears (can’t be sure) that well more than 25% is spent on them, suggesting that if funding were equitable given current revenue sources, the interstate system could not be adequately funded, and would need far greater subsidy.

    Rather than adding a new tax to cover local roads, why not eliminate the federal gas tax and (most) state registration fees, increase the state gas tax to cover all local and state road maintenance, and toll the interstates at the level necessary to insure adequate funding. At least, that’s the closest thing to a pure user fee funding system I can think of without going full-bore mileage tracking, which still doesn’t really distinguish between local roads and highways.

  6. The Antiplanner Post author

    Delbert,

    The numbers aren’t precise, but I estimate that less than 10 percent of gas tax revenues are spent on interstate highways. So they have been a big “profit center” for state highway departments.

    Eliminating federal gas taxes and increasing state gas taxes to compensate is the heart of a bill introduced in the last several sessions of Congress by Rep. Scott Garrett of NJ. But it never goes anywhere.

  7. Delbert

    Thanks for the response and correction, Antiplanner. Wouldn’t have guessed such a small figure. And I realize the tax plan is a bit of a pipe dream — I believe interstate tolling, also, is still largely prohibited by statute, despite attempts to repeal that provision. Might as well brainstorm, though, as something’s going to need to change.

  8. Frank

    Better yet, privatize local roads and let neighborhoods set priorities and decide if user fees should go for sidewalks or not. Let the people who live along, walk along, drive along neighborhood roads take ownership of them. Another way for them to generate user fees, in addition to charging for driving, is to have automated ticketing for speeding. Seattle is currently doing this in some school zones, and it’s very lucrative. I’d rather see the money go to local associations than a corrupt city council. Additionally, it increases safety. Also by allowing local neighborhoods to take ownership, another revenue stream is possibly derived from parking. After all, when cars are parked, they’re not paying for the road they’re parked on.

    Which leads me to another point; Mr. Karlock’s suggestion that pedestrians aren’t paying for roads when they use sidewalks is absurd. Everyone who owns or rents pays property tax, and that money goes to the general fund, which in turn is (supposed) to be used to build/maintain roads and sidewalks, no? Also consider that ~90% of households own a car. At any rate, leave sidewalks up to local communities. Let them decide if they want to set up pedestrian toll booths. /sarc

  9. Dan

    let neighborhoods set priorities and decide if user fees should go for sidewalks or not.

    This would actually be an excellent natural experiment on neighborhood quality of life, amenities, etc. Would see quickly enough on the property sale whether that neighborhood was bid up for the next owner to consume amenities.

    DS

  10. Frank

    +1 Dan.

    This is about quality of life. Listen, I love being able to drive my car to the mountains, to the coast. I pretty much need a car to be able to do so. I also enjoy living less than a mile from work and not having to commute on I-5 any more. I enjoy walking to a upscale grocery store and restaurants. Absolutely HATE that the City of Seattle, which promotes itself as walkable, refuses to add sidewalks to my high-density 140-year-old neighborhood. Hate that the city refuses to add curbs, causing water to run on roadway, which then freezes resulting in potholes and frozen lanes where a$$holes driving too fast on 7% grade spin out and cause accidents. I hate having to walk in the road in heavy rush hour traffic driving 45 or 50 in a 30.

    I prefer walking over driving when practical.

    I embrace Edward Abbey’s ideology: “A man on foot, on horseback or on a bicycle will see more, feel more, enjoy more in one mile than the motorized tourists can in a hundred miles.”

    STOP telling me I belong in a gated community.

    I should be able to have some real input about what happens with “the road in front of my house”. I should get more back from the Seattle Dept. of Trans. than “there’s not enough pedestrians in your neighborhood to put in crosswalks.” That’s total BS. I’ve paid thousands–tens of thousands?–in property and sales tax. WE should own the streets. WE should own the sidewalks. Not bureaucrats and council members who don’t give a shit about my neighborhood.

  11. the highwayman

    Frank, in some ways I agree with you, though context is important.

    Government’s main focus is on cars. Consideration of pedestrians, cyclists and rail is very little.

  12. C. P. Zilliacus

    Frank wrote:

    STOP telling me I belong in a gated community.

    I will not, absent some very specific circumstances, tell someone where they ought to live.

    I should be able to have some real input about what happens with “the road in front of my house”. I should get more back from the Seattle Dept. of Trans. than “there’s not enough pedestrians in your neighborhood to put in crosswalks.” That’s total BS. I’ve paid thousands–tens of thousands?–in property and sales tax. WE should own the streets. WE should own the sidewalks. Not bureaucrats and council members who don’t give a shit about my neighborhood.

    I would presume (but do not know) that Seattle has a city council, and that the council is made up (at least in part) by members elected by district. Have you ever discussed any of the above with your city council member?

  13. Frank

    “Have you ever discussed any of the above with your city council member?”

    OMG I am still laughing! Give me a moment for the hysterics to subside…

    Whew.

    You mean this city council:

    o City council approves new arena

    Voted 6-2 for $200 million for public money to new arena, “a huge public subsidy for a private business”.

    Top comment on the article: “Wasn’t it nice of Hansen to agree to let us spend our own tax dollars on transportation issues? And to consider us a ‘partner’ without sharing any of the profits: what a guy! We’re building him an arena with public funds, much of which is merely substitution of taxes that would have been collected elsewhere in the city, even though all unbiased and academic studies show there is no net benefit to a city in having an NBA team. And the reputable, scientific polls have shown the public was strongly against it.”

    o City bailout loan OK’d for South Lake Union streetcar

    A $1.45 million bailout loan for the South Lake Union streetcar was approved Monday by the Seattle City Council. The vote brings the total streetcar loans since 2007 to $3.65 million, to be paid off by 2023.

    o Seattle to spend up to $10 million to study new streetcar lines
    Seattle’s elected officials are committing up to $10 million to studies for streetcars in four corridors, without a clear directive about how the trains should improve on existing bus lines.

    o Seattle City Council OKs registration, inspection of rentals
    The City Council Monday approved a program to require registration and inspection of all rental property, beginning in 2014. The vote was 5-0 in favor. Council members Mike O’Brien and Bruce Harrell did not vote because they own rental property. Council members Tom Rasmussen and Richard Conlin were absent.

    One of the top comments: “As a landlord, let me tell you how this will go for me. I have a 5 unit apartment house built in 1913. It is clean and has very nice features…No infestations, or mold, ever. Electrical has been upgraded…as has the plumbing…My tenants love their apartments…and my rents do not leave me much of a profit margin … This house is in no way reflects the frightening standards…but have no illusions that it will pass any modern inspection. Should I fail…I will probably push out the tenants…built 3 cheap condos and sell…I will also be charging a fee…to cover future inspection charges, or…roll it into the rent.”

    I don’t need my rent going up. I also don’t need inspections of my rented condo unit; I’m fully capable of inspecting it myself.

    o Ignored previous public votes and overrode major’s veto on Viaduct tunnel replacement, which will cost at least $2 billion, $700 million of which was unfunded.

    Billions for a tunnel that will go over budget, is partially unfunded, and that voters previously rejected. Hundreds of millions to subsidize a private stadium. Millions to bailout street cars and millions to study adding more street cars. But no money to maintain/improve existing infra. THIS is Seattle’s city council. And this ain’t Mr. Smith Goes to Washington. You think the council gives a shit about my neighborhood arterial? You think these slime balls are going to listen to me?

    My side is hurting from all the laughing.

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