Effectiveness and Equity of Future Transportation Financing Options at the Federal and State Levels

It has become evident both at the federal and state levels, that without a significant tax rate increase the gasoline tax - the Highway Trust Fund's primary revenue source - will no longer be a viable method of generating sufficient revenue. According to a report prepared by Cambridge Systematics Inc. (2005), maintaining the nation's current highways and transit systems required approximately $222 billion in 2005, and that amount will increase to $295 billion for 2015. In order to improve the current highways and transit systems, those numbers increase to $271 billion for 2005 and $356 billion for 2015. However, 2005 annual resources only amounted to approximately $180 billion from all levels of government, well short of covering even the maintenance costs. The federal gasoline tax has not increased since 1993. Increased inflation and greater vehicle fuel efficiency have eroded the purchasing power of the gasoline tax revenues. Alternative fuels and fuel efficiency improvement have not completely disrupted tax collection, but it has become clear that an alternative to the gasoline tax is necessary. Recent sharp increases in gasoline prices have resulted in a reduction in total vehicle travel, further hurting the gasoline tax revenue at all levels. A series of revenue studies have been conducted in recent years with leadership from the National Revenue Commission created under SAFETEA-LU, AASHTO, TRB, and state agencies (McMullen and Zhang 2008, National Revenue Commission 2007, Cambridge Systematics Inc. et. al. 2006, TRB 2006). These studies have all confirmed the revenue gap, and proposed future financing options to close the gap. The following list summarizes the proposed revenue-generating alternatives: (1) Increase gas tax steadily in the next several years and then index it to inflation; (2) Implement a federal transit ticket surcharge on a per-trip basis; (3) Increase vehicle registration and other vehicle-related fees; (4) Replace or supplement fuel tax with a mileage-based user fee system; (5) Tolling freeways for revenue generation and congestion management; (6) Encourage public-private partnerships and leverage private-sector resources; (7) Expand specific revenue sources for freight-related transportation needs. While the nation as a whole and many states engage in the debate of sustainable transportation financing options, answers to the following questions will provide critically important input to this debate and help decision-makers forge effective and equitable financing policies: (a) What is the true revenue-generating potential of alternative policy portfolios? (b) How can revenue goals for maintaining and improving systems be achieved (e.g. how much higher the gas tax needs to be; what should be the rate of vehicle mileage fee)? (c) What are the impact of alternative policies on different population segments (e.g. low and high income, urban and rural, different regions, transit users)? (d) How will the general public react to the policy scenarios and how to gain their support? This project will integrate existing datasets (national and regional travel surveys, Highway Performance Monitoring System, etc.) and develop statistical models to answer these important questions. The statistical models estimate how individual households or user groups by geographic location make vehicle ownership (quantity and type) and use (miles driven on each vehicle) adjustments in response to proposed policy scenarios respectively. The overall effectiveness and equity of each financing option will then be evaluated based on model outputs. Similar models have been developed by the P.I. for Oregon, and successfully applied to evaluate the revenue and equity impact of vehicle mileage fees. This proposed project will extend the previous research by considering gas taxes, transit ticket surcharge, vehicle registration fee, distance-based user fee, and tolling at both federal and state levels. Maryland (due to availability of recent surveys and detailed network information) and California (early adoption of fuel-efficient and low-emission vehicles) will be used for state-level case studies. Since there are no clear quantifiable policy proposals regarding public-private partnerships (Zhang 2009) or freight-specific transportation revenue sources, the evaluation of these two financing options are left for future research after the national agenda on these policies is established. Compared to previous analyses of future transportation financing options, this project is unique and more advanced in several ways. First, demand responses to proposed financing options will be considered in impact analysis. This will be a significant methodological contribution, because a previous study has shown that revenue changes under new funding policies can be overestimated by 11~28% if short-run demand responses are ignored, and by an additional 3~5% if long-run responses are also ignored (Zhang and McMullen 2009). Second, in addition to revenue total estimates, this project will also examine the distributional effects of future financing options on different population groups. A thorough understanding of the equity issue is necessary for political debates, and for gaining public support. Finally, this project will explore environmentally-friendly (or green) versions of proposed financing options. For instance, a fixed vehicle mileage fee rate for all vehicles has a greener counterpart that incorporates a variable fee structure favoring more fuel-efficient vehicles. A green financing option will not only help reduce energy consumption and pollution emissions, but also improve public support as shown by a recent survey in California (Agrawal 2009).