Idaho and our nation are confronting the most severe economic crisis in decades. The Governor and the Legislature confront difficult decisions this session about how to appropriate declining revenues to meet increasing needs. No need is getting more attention than the need for investment in our transportation infrastructure.
Prior to the economic downturn, Idaho’s transportation infrastructure confronted rapidly rising transportation costs, increased use, and flat transportation revenues. These realities led the Governor and others to conclude that an increase in transportation funding is necessary. While not everyone agrees with the Governor’s conclusion, he gets nearly universal credit for providing proactive leadership on this issue. No one can accuse Governor Otter, with a long reputation for opposing taxes and government that goes beyond its most basic and effective roles, of making this a priority for any reason other than a genuine conviction that significantly increased funding for transportation is in Idahoans’ best interests.
In the following brief, we review the debate the Governor’s conclusion has generated. The first section focuses on the circumstances, prior to the economic downturn, that led the Governor and many others to conclude increased funding is necessary. Second, we explore the extent of our transportation funding need. In the third section we consider arguments for and against addressing funding challenges in the midst of the current economic downturn. Fourth, we review the main sources to which we could turn for additional transportation infrastructure funding while exploring the issue of who should pay how much of the transportation funding burden.
We’ve developed this information in order to enable you to reach your own informed conclusions regarding three core questions
- How much additional transportation funding, if any, is needed now and in the future? 2. Which of the possible sources of increased funding are the most appropriate? 3. What proportion of any increases in fees and taxes should be borne by owners of cars, pickups, light trucks, and heavy trucks? As of the posting of this brief, no major transportation funding bill has yet passed the House Transportation Committee. Legislators, the Governor’s office, and others continue to explore new compromise bills. Consequently, we pose an unusually large number of questions in the survey that should appear on the right side of the screen once you’ve logged in in order to anticipate the various proposals that may yet come forward. The number of questions is also unusually high because of the need to find out what you would support this year and what you would support when the economy has recovered.
It may be useful, before you begin answering the questionnaire, to consider your answer to these three core questions posed above. In particular, you might consider your answers to the two parts of the first core question: (1) What is the right amount of new transportation funding overall for this year, if any, (2) What is the right amount of new transportation funding, overall , if any, once the economy has recovered? Having these numbers in mind will be a useful guide as you consider each particular funding proposal. Given the new revenue totals that you think are appropriate, how would you like to achieve them? For example, how many of these total dollars would you raise through fuel taxes? How many through various vehicle registration fees?
For many of the possible specific new funding proposals the questionnaire asks first whether you would support a given amount of increase this year and then whether you would support a given total amount of increase when the economy has recovered. When we ask about the total amount you would support when the economy has recovered, we mean including the amount that you would support in the current year.
- Circumstances Creating the Need for Increased Transportation Funding
The combination of rising costs for our transportation infrastructure, increased use of that infrastructure, and flat transportation revenues led the Governor, the Idaho Transportation Department (ITD), almost all local elected officials, and many business leaders to conclude that a significant increase in transportation funding is needed.
Rising Transportation Infrastructure Costs
The costs of maintaining our transportation infrastructure have been rising for two main reasons. First, our transportation infrastructure is aging. Our extensive interstate system was built during the Eisenhower administration. Other parts of our roads network are just as old. Idaho bridges, in particular, are showing the effects of age. Bridges are built with a 50 year design life. The hugely disproportionate share of our bridges built in the 1960s creates a “balloon payment” effect that is now coming due. About 381 (21%) of the 1,777 bridges in the state system are already over 50 years old. Within seven years, this will grow to 50% of our state bridges and almost 40% of our local bridges. Already, 89 of our state bridges and 254 of our local bridges are structurally deficient while only 62 of these are currently programmed for rehabilitation or replacement.
Second, prior to the current economic downturn the costs of maintaining and improving our transportation infrastructure were increasing far more rapidly than inflation generally. The robust economic growth in recent years, not only in the United States but also in other parts of the world including China, led to increased demand for construction materials. The petroleum-based materials so important in road construction rose particularly quickly. From 1993 to 2008 the Consumer Price Index, the broadest measure of inflation, rose 49%. In that same period, the Producer Price Index for Highway and Street Construction (PPI-HSC) rose 99%, more than twice the CPI rate.
Our transportation infrastructure has experienced unprecedented use. This is the result of two factors. The first is population growth. Over recent years, Idaho has been the fourth fastest growing state in the nation. The second is that over the last few decades each member of our growing population has tended to drive more miles. The combined effect is that between 1978 and 2007 vehicle miles traveled in Idaho have increased 104%. Together, these factors mean more wear and tear on our existing roads and bridges as well as a need for new roads and bridges to serve our expanding communities.
Flat Transportation Revenues
While costs and use have increased, our transportation revenues haven’t. Idaho’s transportation funds come from federal, state, and local sources. All three have been constrained.
Federal funds pay for 56% of Idaho’s transportation infrastructure and the future of federal funding is uncertain. Federal funds are derived primarily from the Highway Trust Fund—the fund that collects the federal gas and diesel taxes that we pay at the pump and then distributes these revenues to the states. The Highway Trust Fund is currently in crisis. In fact, Congress kept the fund solvent over the last several months only by transferring $8 billion from the general treasury fund. This crisis stems largely from the fact that neither the federal gas tax nor the federal diesel tax has risen since 1993. In 2008, the 18.4 cents per gallon federal gas tax would have had to be 36.6 cents to have the same purchasing power it did in 1993, as measured by the Producer Price Index for Highway and Street Construction (PPI-HSC). The 24.4 cents per gallon federal diesel tax would have had to be 48.6 cents.
In addition to this decrease in real value, federal taxes have decreased as consumers have invested in fuel efficient vehicles. While this is good news in many important respects, the increased use of fuel efficient vehicles means that drivers pay less fuel tax even though their impact on the highways and roads has not diminished. As a result, some have argued that the future of federal transportation funding, based on fuels taxes as it currently is, looks dim. Many have argued that states will see only modest increases or, more likely, flat or even decreasing federal funding from fuels taxes.
In addition to these general concerns about constrained federal fuels tax funding, there is a specific concern that Idaho will be harder hit than other states. The federal Highway Trust Fund doesn’t distribute its gas and diesel tax revenues to the states in strict accordance with contributions. Instead, it relies on a statutory distribution formula which gives some states—donor states—less money back than their citizens pay in taxes while it gives other states—donee states—more than their citizens pay. Idaho is a donee state. We currently receive $1.64 for every dollar paid. While the existing distribution formula has been a boon to us and to other donee states, donor states are arguing that they should receive their fair share of Highway Trust Fund revenues. There is concern that when the current federal transportation act expires in 2009, the distribution formula may be rewritten in terms less advantageous for Idaho.
Our state transportation revenues suffer from the same problems. They have not increased with use and inflation. State dollars pay for 43% of our total transportation costs. Idaho secures this funding primarily through state gas and diesel taxes and vehicle registration fees. Neither our state gas tax nor diesel tax has been raised since 1996. Our vehicle registration fees have been fixed at $24 to $48, per vehicle, depending on the age of the vehicle, since 1997. As a result, Idaho, just like the federal government, has experienced decreasing real revenues over the last twenty years. In 2008, the 25 cents per gallon state tax on both gas and diesel would have had to be 45.5 cents to have the same purchasing power it did when established in 1996, as measured by the PPI-HSC.
Local governments in Idaho face different funding challenges. Counties, cities, and highway districts rely heavily on state and federal funds. About 44% of local transportation revenues come from the state while 7% come from the federal government. The remaining 49% of their transportation revenues are generated primarily through their own taxes and fees. Much of this revenue is derived from property taxes. The total property tax revenues spent by cities, counties, and highway districts on local roads has increased from $46.9 million in 1996 to $86 million in 2007, an increase of 83% (general inflation—CPI—increased 32% over the same period). Given the distribution formula for the local government portion of the Highway Distribution Account, cities that aren’t growing as fast as the rest of the state are especially hard hit.
- Estimating our Need for Increased Transportation Funding
Given the challenges of rising costs, increased use, and flat revenues, many have argued that Idaho needs to increase transportation funding. Do we need to invest more? If so, how much?
In the following section, we’ll review four methods used to estimate our transportation infrastructure funding need. First, we’ll consider an estimate of revenue shortfall. Second, we’ll evaluate the conditions of Idaho’s roads over time. Third, we’ll compare the condition of Idaho’s roads to the roads in other states. Fourth, we’ll compare Idaho’s transportation infrastructure—as measured along various other dimensions—to other states.
Estimate of Revenue Shortfall
The most commonly cited estimate of need—an additional $240 million per year—is an estimate of revenue shortfall. The source of this estimate is the Forum on Transportation Investment (the Forum)—a group of over fifty individuals including elected officials, representatives from public agencies, transportation service providers, and interested citizens that was convened by the board of the Idaho Transportation Department (ITD). The Forum’s actual estimate, offered in 2005, was for an additional $204 million per year. In 2008, Governor Otter suggested that, in light of inflation and three years of inaction, that estimate should be increased to $240 million.
This $240 million estimate has been criticized in several ways. First, the process by which the estimate was generated focused exclusively on capital improvement, not maintenance. Critics point out that it is now being inappropriately used as an estimate of our total—capital improvement and maintenance—needs. Second, the process by which the estimate was generated asked those identifying the needed capital improvements to ignore “fiscal constraints, prioritization, or other filters.” Critics argue that, as a result, the estimate is a “wish list” figure.
To her credit, ITD director Pam Lowe acknowledged these problems in a July 30 Lewiston Morning Tribune article. Director Lowe said that given its problems, they considered not using it, but, concluded that “it’s still the best number we’ve got.”
This estimate was recently examined as part of a performance audit completed by a team of consultants operating under the direction of the Legislature’s Office of Performance Evaluation (OPE). Specifically, the audit investigated the $137 million of the $240 million that would go to the state highway system. If the $240 million were submitted to the current distribution formula for state transportation revenue, 38% of it, or $91 million, would go to counties, cities, and highway districts for their road system. Once a few other smaller distributions were taken out, $137 million of the $240 million would go to the state highway system.
Consistent with the estimate’s critics, the audit noted that the way in which the Forum arrived at their $240 million estimate, including the amount of $137 million for state uses, had little to do with the maintenance and preservation needs for which many were saying the money was needed. On page 54, the audit also noted that an independent “justification for this level of annual spending” by ITD was lacking.
In fact, the audit found that ITD’s current information and planning systems are not well equipped to provide a sound estimate of the funding need. In effect, the audit authors concluded, like Director Lowe, that the $137 million figure was the best number we have, but they suggested that we need better numbers to make wise decisions. Specifically, the audit recommended appropriating $6 million for ITD to adopt new or improved maintenance, pavement, and financial management systems so that ITD can analyze, plan, and allocate its resources more cost effectively. ITD and the Governor’s office agree with this conclusion. In fact, ITD is already pursuing this direction. There is also wide agreement in the Legislature that this $6 million investment would be well spent, though, given constrained revenue, it will not be easy to fund without a new source of revenue.
In any event, on page 6, the audit concludes that “the $137 million proposed to be allocated to the highway program is merited and may even be understated.” One key aspect to their conclusion was a determination that ITD’s allocation formulas failed to adequately take into account the ambitious capital improvements that are currently taking place largely through the GARVEE program, which got underway about the time that the Forum did its work. The expanded infrastructure, the auditors argued, substantially increases the state’s maintenance needs going forward.
Changing Road Conditions Over Time
A second method of estimating need is to evaluate the condition of Idaho’s roads over time. The logic of this approach is that the worse the condition of Idaho’s roads, the greater the need for more funding to restore them to satisfactory conditions.
The Idaho Transportation Department’s “2007 Pavement Performance Report” and its January 22 presentation to the House and Senate Transportation Committees indicate that from 1993 through 2002, the condition of Idaho’s roads improved substantially. In 1993, 40% of our state highway miles had “deficient” pavement. By 2002, this had come down to 15%. From 2002 to 2004 the percentage of deficient miles climbed back up from 15% to 19% and has stayed at about 19% since. ITD projects that, at existing funding levels, the percentage of deficient miles will increase from 19% to 23% next year and to 36% by 2013.
The examination of road conditions over time generates debate regarding the need for increased transportation funding. Some argue that such a review proves the adequacy of existing funding. They point out that our roads are in far better shape now than in the early 1990s and that, despite increased costs, increased use, and flat revenue, Idaho roads haven’t deteriorated during the last several years. For an explanation of how ITD has managed to prevent further deterioration during this period, click here. They argue, further, that, at existing funding levels, our roads will still be in better shape five years from now than they were in 1993. Others argue that the threat of a steep decline in road conditions over the next few years makes a funding increase an imperative.
The Common Interest asked ITD to estimate the additional funding they would require to maintain the existing state highway deficiency rating. In response to our request, ITD estimated that an additional $75 million to $96 million in maintenance and preservation funding per year would allow them to maintain our current deficiency rating of 19%. The Common Interest hired David Hartgen, one of the country’s foremost transportation experts, to review ITD’s estimate. Hartgen concluded that ITD’s methodology was sound and that the $75 – $96 million conclusion was reasonable. If current allocations are used, and one assumes $85 million (the rough midpoint of the estimate range) as the state maintenance and preservation need, then the combined state and local road maintenance and preservation need would be about $140 million.
When responding to our request, ITD pointed out that their estimate of needed maintenance and preservation funding would not allow them to pursue capital improvements such as replacing bridges and increasing road capacity to better manage increased use. In fact, ITD pointed out that when projecting its own use of the Forum’s estimated revenue shortfall of $137 million, they had slated $85 million (the rough midpoint of ITD’s $75 million to $96 million maintenance and preservation need estimate) for maintenance and preservation and another $42 million for a modest investment in capital projects including urgent bridge replacements or the construction of turn bays and passing lanes that would help us manage increased use more safely. Accordingly, ITD argues, their own $85 million estimate of maintenance and preservation need suggests that the Forum’s total need estimate of a $137 million revenue shortfall for the state is, if anything, conservative.
Idaho Road Conditions Compared to Other States
A third method of estimating our need for additional funding is to compare the conditions of Idaho’s roads to roads in other states. The logic of this method is that the worse our roads are in comparison to other states, the greater our need for increased funding. As straightforward as this logic seems, the comparisons themselves are actually difficult to make because of many differences between states, including the methods by which states measure road conditions. In fact, three different, reasonable approaches recently taken to compare Idaho’s roads each generated widely different results.
The first finds that Idaho’s roads are in far worse conditions than any of nine peer states (mostly western states). The second finds that Idaho’s roads are in better condition than any of those peer states and generally better than the national average. The third finds that Idaho’s roads are in about the same condition as the nine peer state average and in better condition than the national average.
Which of these approaches is correct and what is the true picture of how Idaho’s roads compare? Unfortunately, each approach has its methodological strengths and weaknesses and none of the three is clearly superior to the others. Our conclusion is that the best one can say is that the empirical evidence suggests that, overall, road conditions in Idaho are not a lot different than average road conditions in the nine identified peer states and somewhat better than average road conditions nationally. If you’re interested in investigating the results of the various analyses in greater detail or the strengths and weaknesses of each approach, click here.
It’s useful to consider ITD’s estimate that about $85 million in additional funding per year that would be needed to keep Idaho’s state highways in the same condition they are in now in the context of these comparisons of Idaho to other states. Maintaining the current level of 19% of Idaho highway miles in deficient condition would keep us at conditions somewhat better than the national average and probably roughly equal to average conditions in peer states.
Idaho’s Transportation System Relative to Other States
While the Hartgen report suggests that “perhaps no measure is more fundamental to road performance than a measure of road conditions,” a fourth approach to gaining perspective on Idaho’s transportation funding needs is to compare Idaho to other states on a number of other useful performance dimensions. The Hartgen report compares state transportation system performance on five additional dimensions. First, the Hartgen report finds on page 27 that Idaho’s minor rural roads are in far better condition than the national average. Second, the Hartgen report finds on page 22 that our urban interstates are less congested than the national average. Third, he finds that 19% of Idaho’s bridges are deficient compared to the national average of 24%. Fourth, on page 25 he finds that Idaho experiences 1.76 fatalities per 100 million miles traveled, notably higher than the national average of 1.42 fatalities.
The final measure of the performance of state transportation systems in the Hartgen report is cost-effectiveness. How cost effectively does Idaho deliver the outcomes that on most dimensions are superior to the national average? The Hartgen report found that Idaho ranked 14th nationally in cost effectiveness. In sum, according to the Hartgen report, Idaho has a transportation system that generates better outcomes than most states and does so with fewer dollars per mile of road than most states.
- Addressing Funding Challenges during the Current Economic Downturn
The methods we’ve just reviewed—an estimate of revenue shortfall, an analysis of Idaho’s road conditions over time, a comparison of Idaho’s roads to other states’ roads, and a comparison of Idaho’s transportation system to other states’ systems—offer different means to determine whether—and how much—additional transportation funding is needed. We now turn to considerations regarding when to raise additional transportation funding.
Most new state and local transportation funding would be paid for by Idahoans already burdened with the worst economic conditions in decades. Should the economic decline shape our decision about how much to invest in our transportation infrastructure, at least in the short term? In this section, we review the arguments being made about addressing funding challenges during the current economic downturn.
Prior to the downturn, many questioned the need for increased fees or taxes to fund transportation infrastructure. Now that we’re in a downturn, many more argue that we should either reduce how much we would have raised or not raise additional funds at all, at least in the short term. Others argue that the need for increased funding remains and is even stronger given the current recession. Here, we review two major arguments supporting, and four major arguments opposing, transportation fee and tax increases during the economic downturn.
The first argument made for increasing taxes and fees even though we’re in an economic downturn is that it will cost much more to let roads deteriorate and then have to perform more fundamental and expensive maintenance and restoration later. Jason Kreizenback, the Governor’s chief of staff has testified in committee that for every dollar of road repair that is not done now we will have to spend $6 – $10 to do that repair later. Governor Otter has expressed this argument by saying that not putting more into maintenance now is like eating our seed corn.
The second argument is that increasing investment in our transportation infrastructure will in fact help our economy grow in two ways. First, increased road maintenance and construction work, many argue, creates jobs and pumps money into the stagnant Idaho economy. Second, many argue that a safe and efficient transportation infrastructure is fundamental to a productive economy because it provides an efficient means of transporting goods and services. Congested roads and roads in poor condition only reduce productivity, they argue, and we must be ready to take advantage of efficient roadways when the economy turns the corner.
Proponents of little or no increase in taxes and fees respond to the argument about the long-term expense of inadequate road maintenance by pointing to evidence that road conditions in Idaho are as good or better as in other states and are in better condition now than they’ve been in for most of the last 15 years. There is no crisis in maintenance funding, they argue, that requires substantial new revenue in the next year or two.
Proponents of little or no increase in taxes and fees respond to the argument that greater investment in our infrastructure will stimulate the economy by distinguishing between federal and state spending on infrastructure. Since the federal government can engage in deficit spending, they note, a federal stimulus package that invests in infrastructure injects dollars into the economy that wouldn’t otherwise be there. The Governor’s plan for Idaho’s share of the federal stimulus money earmarks about $200 million for transportation, most of that in capital improvement projects. There may be debate among economists about whether the near term beneficial stimulus effects of these new dollars offset longer term detrimental effects of higher government debt, but they mostly agree that it injects new dollars into the economy in the near term. The state, by contrast, is constitutionally prohibited from deficit spending. New revenues for increased state transportation investment comes out of the pocket of a taxpayer, and usually an Idaho taxpayer (some fuel taxes and many commercial truck registration fees are paid by out-of-staters). Dollars raised by taxes on Idahoans are moved around, but no new dollars are brought into the economy. With respect to the argument that a good transportation system is key to a productive economy, some again point to the data suggesting that Idaho’s roads are actually in comparatively good condition and that congestion is comparatively low to argue that our road system is not a significant constraint on our economy.
Beyond these responses to arguments for increased taxes and fees, four additional arguments have been advanced for why there should be little or no transportation tax or fee increases in these difficult economic times. The first argument is the simplest and most emphasized. With so many Idaho families and businesses struggling mightily to make it, many Republicans and Democrats argue that this is no time to be raising taxes. Doing so, they argue, will make it even harder on Idaho families and businesses and make it more difficult for the economy to get going again.
A second argument against near term tax and fee increases is that the slowing economy has substantially reduced one important factor creating the need for increased transportation funding in the first place. The rapid inflation in construction materials that made road construction and maintenance so expensive in recent years was driven by a rapidly growing global economy. Similarly, the economic downturn is now leading to a rapid decline in prices for those materials. The Producer Price Index for Highway and Street Construction (PPI-HSC) rose at a whopping annualized rate of 37% in the first six months of 2008. Stalling in July, it stayed flat through September. From September to December, 2008, it plummeted at a stunning 50% annualized rate. Given declining costs, some question ITD’s projections that the percentages of deficient roads will rapidly increase in the coming years without increased funding. Those dollars should stretch further, they argue, than they did in recent years when costs escalated so quickly.
ITD cautions that the rapid decline in the PPI-HSC has not translated to this point in similarly steep declines in actual bid prices. Some arguing for near term tax and fee increases also respond that with the large amount of federal stimulus dollars for transportation projects about to be distributed to the states, demand in this sector, and thus prices, are likely to stabilize or even increase again. They also point out that with the economic decline, gas and diesel prices that Idahoans pay at the pump have come down much more than anyone is proposing to raise the fuel tax. Given the volatility of fuel prices recently, they argue, paying several cents more per gallon tax would hardly be noticeable.
A third argument is that the worry that federal transportation funding would soon decline—a worry cited six months or a year ago as contributing to the need for increased state taxes and fees in Idaho—has now turned the other way. Given the projected $200 million in recently passed federal stimulus transportation funding for Idaho, many argue that the need for increases in state taxes and fees is now diminished.
A fourth argument against increasing taxes and fees now is that roads are the wrong priority in an era of such tight budgets. Democrats have said that raising fees and taxes for transportation at the same time that budgets for education, health care, and other social programs are being cut is “putting potholes before people.” Proponents of transportation tax and fee increases respond that it’s misleading to compare funding for roads to funding for education and other programs. Fuels taxes and vehicle registration fees, they argue, are user fees that can’t be used for other programs. Opponents of transportation tax and fee increases counter that whatever the tax or fee, Idahoans pay it out of the same pocket. Particularly given evidence that Idaho’s roads are in comparatively good shape, they suggest that if there is any kind of tax increase, it should be one that would go toward higher priorities than roads or that we should just not raise transportation taxes at all during these economically difficult times.
This concern about priorities has been heightened by Governor Otter’s recommendation for spending $45 million in federal stimulus money that is at the state’s discretion. The Governor has recommend that $35 million of it go to transportation and the remaining $10 million on water infrastructure at the same time that he is endorsing a significant decreases in K-12 education funding, the first decrease in K-12 education funding in Idaho history. Republican Senator Dean Cameron, the Co-Chair of the Joint Finance and Appropriation Committee, has expressed the concern by saying, “We only get a chance once to educate a child in the first grade or to teach them to read. If we fail [there] it’ll be much more painful … than [to fail] in roads.”
- Funding Options
Although there was serious discussion of raising an additional $240 million ($138 million for the state) for transportation infrastructure only a few months ago, now, given the severity of the economic downturn, virtually all proposals are more modest. In his state-of-the-state address, Governor Otter proposed a five-year phase in of a combination of increases that would raise a total of $175 million (about $119 million for the state) per year in new revenue at the end of five years. There is little push to do anything more aggressive than this, at least for now. The debate tends to range from enacting the Governor’s proposal, to doing something less ambitious that wouldn’t lock us into five years of increases, to doing nothing at all, at least for the next year or two.
Supporters of the Governor’s five-year phase-in plan argue that this approach balances the interest in not bearing the full brunt of the needed increases in these difficult times with the efficiency that comes when state and local governments are able to plan effectively because they know what revenues they will have to work with.
Opponents of the Governor’s five-year phase-in argue that locking in plans over five years is problematic given the uncertainty of the future even in typical times. It is particularly unwise, they argue, given how volatile the current economic picture is. In these circumstances, they contend, it’s wiser to pass more modest one-time increases this year and then respond as needed in future years. Some also argue that it would be wise to fund the $6 million for enhanced planning and information systems for ITD now and then calculate the actual funding shortfall when we’ve better equipped ITD to make that calculation.
Some question why we would plan for anything over the approximately $140 million in new funds for state and local needs suggested by ITD’s recent estimate of what would be needed to maintain roads in their current condition, particularly since that current condition compares fairly well to the condition of Idaho’s roads historically and to other states’ current conditions.
Almost all proposals, including the Governor’s, respond to the performance audit’s finding that our allocation should focus more on the need for maintenance and preservation, particularly given the significant capital improvements being undertaken through the GARVEE program and additional federal stimulus money that will go mostly toward capital improvements. Most proposals to raise new state revenues would dedicate those revenues specifically to maintenance and preservation.
Whatever the amount of revenue needed, a user fee approach is widely embraced as an appropriate way to fund our road system. This “cost responsibility” principle is at the heart of the discussion now occurring about which kinds of taxes and fees should be raised and by how much. According to this principle, the burden someone bears for paying for our road system should be proportional to how much they impact that system.
There is a wide range of funding options under discussion. We focus first on various proposals for increasing the fuels taxes and vehicle registration fees. We then turn to proposals for additional GARVEE programs and for providing local option taxing authority.
State Fuels Taxes
Idaho gas and diesel taxes are both 25 cents per gallon and have not been raised since 1996. These fuels taxes make up 70% of the Highway Distribution Account (of which 38% goes to local government for their roads). The Governor’s office projects that the fuels tax will bring in $204 million this year. For every penny per gallon increase, the state would realize about $8.8 million for the Highway Distribution Account.
Many suggest that raising the state fuels tax is an appropriate option for more funding for several reasons. First, while it is not a perfectly calibrated user fee (particularly given differences in fuel efficiency and the growing use of hybrid and electric cars), the fuels tax is seen as adhering reasonably closely to the cost responsibility principle because the more someone uses our transportation infrastructure the more they pay. Second, it’s easy to implement. Third, the state has regularly implemented fuels tax increases. Historically, the state has adjusted the fuels tax about every five years since 1945. Many argue that since the fuels tax would need to be 45.5 cents to have the same purchasing power (relative to PPI-HSC) it had when last raised in 1996, an increase is long overdue. Fourth, given that gas and diesel prices have come down about $2 per gallon from their high last year, a few cents per gallon more in fuel tax hardly registers.
A leading argument made against raising the fuels tax is that Idaho’s is already fairly high compared to other states. According to Federation of Tax Administrators’ data, at 25 cents per gallon, Idaho’s gas tax is already five cents above the national average of 20 cents. Similarly, our diesel tax of 25 cents per gallon is four cents above the national average of 21 cents. Idaho’s gas tax is equal to the average in the six surrounding states of 25 cents. Our diesel tax is just below the average in the six surrounding states of 25.6 cents. These averages may also be increasing, however, since many states are in similar circumstances and are considering raising their fuels taxes.
Governor Otter’s House Bill 94 proposes that we raise the fuels taxes 2 cents per year for five years. The full 10 cent increase at full phase in would bring the fuels tax to 35 cents per gallon. The first year, it would raise $17.6 million in new revenue and after full phase in would generate $88 million per year in new revenue. This would constitute just over 50% of the total $175 million in proposed new revenue the Governor now seeks.
Representative Smith’s House Bill 136 would raise the fuels taxes half as much. It would raise the 25 cent per gallon tax by 5 cents to 30 cents per gallon and would do it all this year. This would raise $44 million in new revenue.
Chairman Wood’s House Bill 135 would raise the fuels taxes by 2 cents to 27 cents per gallon and would do it all this year. It would raise $17.6 million per year in new revenue.
Some, including the Forum, have suggested that the fuels taxes should be indexed so that we don’t remain in this circumstance of regularly losing real tax revenue, then relying on the legislature to restore that revenue. Fuel taxes could be indexed to CPI (the broad measure of inflation) or the PPI-HSC (the specific measure of costs of road construction).
Some argue that one way to more perfectly calibrate the fuels taxes as a user fee would be to set the diesel tax higher than the gas tax. Since some evidence (and we’ll explore this evidence in depth in our consideration of vehicle registration fees) indicates that heavy trucks underpay their cost responsibility, we could raise the diesel tax more than we raise the gas tax. About 29% of combined fuel tax comes from diesel and about 71% from gas. Accordingly, a 1 cent increase in the tax on diesel would raise about $2.6 million per year and a 1 cent increase in tax on gas would raise about $6.2 million.
The Idaho Trucking Association argues that over-emphasis on fuel taxes is unfair to truckers. Federal mandates are making cars more fuel efficient, while federal mandates to reduce truck emissions are making them less fuel efficient. Consequently, they observe, as time goes on, cars under pay their cost responsibility through fuel tax while trucks over pay it.
Vehicle Registration Fees
The Governor’s office estimates that together the three major categories of vehicle registration fees will bring in $95 million in revenue this year, about 31% of the Highway Distribution Account. The three broad categories of state vehicle registration fees are:
- Cars and Pickups (under 8,000 pounds), estimated to generate $38 million or 40% of the $95 million total
- Light Trucks (8,000 – 60,000 pounds), estimated to generate $7.7 million or 8% of the $95 million total
- Heavy Trucks (over 60,000 pounds), estimated to generate $49 million or 51% of the $95 million total
Vehicle registration fees are usefully considered in relation to the cost responsibility principle. Vehicle registration fees adhere to the cost responsibility principle in that the fee is obviously paid by those who own cars and trucks and therefore use our roads. However, there are notable departures from the cost responsibility principle within each vehicle registration category and especially across categories. We’ll review these departures as we consider various proposals that currently are or may come before the legislature.
Car and Pickup Registration Fees. Car and pickup registration fees at the state level have not risen since 1997. State fees currently range from $24 for a vehicle more than eight years old to $48 dollars for cars one to two years old.
Proponents of raising the state’s car and pickup registration fees argue that Idaho pays far lower registration fees than surrounding states. An ITD study concludes that Idaho has the 34th highest car registration fees in the nation if the combined state and local fees in Ada County, Idaho’s most populous county, are compared with combined fees in other states’ most populous county. When ITD generated these statistics Ada County had the highest local registration fee in the state at an average of $13 (voters approved an increase to an average fee of $24 this past November). The average combined state and local registration fee in Ada County then was $73. The average nationally is $185. The average total vehicle registration costs in the most populous counties in the six states surrounding Idaho is $217.
Whether or not these registration fees are raised, many point out that existing car and pickup registration fees depart from the cost responsibility principle because the fee is higher for newer vehicles even though newer vehicles don’t necessary put more wear and tear on roads than older vehicles. For this reason, some argue that the existing fee should be replaced by a flat fee. Others argue that the existing fee should be replaced with a fee assessed on vehicle weight.
Light Truck Registration Fees. Trucks weighing between 8,000 and 60,000 pounds can register at the county level. In adherence to the cost responsibility principle, light truck registration fees are tied to vehicle weight. Currently, the lightest trucks in this category (6,000 – 16,000 pounds) pay the same fee—$48—as the newest car or pickup. The registration fees go up significantly as the trucks get heavier and they go up more rapidly for commercial light trucks than for farm and non-commercial light trucks. The heaviest farm and non-commercial light trucks in the light truck category (50,001 – 60,000 pounds) pay $311.88 while commercial trucks of the same weight pay $515.40. Some argue that to adhere more exactly to the cost responsibility principle, commercial light trucks and farm and non-commercial light trucks of the same weight should pay the same registration fee.
Heavy Truck Registration Fees. Heavy trucks pay registration fees in accordance with weight and miles traveled. However, some suggest that adherence to the cost responsibility principle could improve by using a direct weight/distance tax. Instead of falling into broad categories of weight and distance traveled, weight and distance traveled would be directly measured and taxed accordingly, as is the case in four other states. Opponents argue that it is extremely cumbersome to administer both for the state and for truckers. Proponents point out that under the International Registration Plan (IRP), to which Idaho and all other states belong, commercial truckers already have to report miles and weight to the state.
Another possibility would be to add additional mileage tiers. In the current heavy truck registration system for intrastate truckers, they pay a higher registration fee the heavier they are and the more miles in Idaho that they travel. The last mileage tier, however, is for 50,000 miles and above although many trucks may travel well beyond 50,000 miles.
A Comparison of Registration Fee Categories. While we’ve noted departures from the cost responsibility principle within the various registration fee categories, many argue that it is the comparison across fee categories that demonstrates the most striking departures from the cost responsibility principle.
Although registration fees for trucks are higher than they are for cars and pickups, and the heavier the truck (meaning, the more wear and tear on our roads), the higher the registration fee, many argue that they are not high enough to ensure that heavy trucks pay their cost responsibility. The Idaho Chapter of the American Automobile Association (AAA) has been a leading voice making this argument. AAA points to two studies for supporting evidence. First, AAA points to Idaho’s 2007 Highway Cost Allocation Study to support their claim. Highway cost allocation studies were developed as an objective, evidence-based way to assess such equity questions. The preliminary results of Idaho’s most recent study, reported at ITD’s board meeting in October, 2007, found that cars are paying 21% more, pickups are paying 2% more, and single unit trucks (those weighing between 25,000 and 50,000 pounds) are paying 31% more “than their current cost responsibility.” Combination trucks (those weighing more than 50,000 pounds) by contrast, are paying 19% “under their current cost responsibility.” These findings are common. A 2008 review of 22 state cost allocation studies by the Transportation Research Board found that in “19 of the 22 studies…payments from the heavy-truck class fell short of cost responsibility.”
Second, AAA points to a study published in 2004 by the National Institute for Advanced Transportation Technology located at the University of Idaho that provides further evidence that heavy trucks underpay and cars overpay in Idaho. The “Idaho Commercial Truck Registration Study” was commissioned by ITD to investigate the implications of the major change in Idaho’s heavy truck registration system that was implemented in 2000 as part of the settlement of a court case. The American Trucking Association brought the suit and successfully argued that Idaho’s old weight/distance tax system was unfairly applied to truckers based outside of Idaho so that they paid more than their fair share relative to Idaho-based truckers, violating not only the cost responsibility principle but the Constitution’s interstate commerce clause. The settlement aimed to address this inequity among Idaho and non-Idaho based commercial truckers while not changing the amount that heavy trucks, overall, paid relative to cars, pickups, and light trucks.
The University of Idaho study confirmed that the new system did shift some of the burden within the heavy truck category from non-Idaho to Idaho based commercial truckers as intended. There is some question about whether it over adjusted. However, the study also found that the change resulted in $4.1 million less revenue in 2003 from heavy truck registration overall than was the stated goal of the settlement and that the goal itself was $2.3 million less than it should have been to maintain heavy trucks’ previous share of the transportation infrastructure burden. The combined impact, then, of the change in heavy truck registration system was for heavy trucks to pay $6.4 million less than they should have in 2003. Furthermore, the University of Idaho study found that this change introduced new problems and inequities within the commercial truck registration system including that lighter trucks overpay and heavier trucks underpay relative to their impacts.
The trucking industry has criticized Idaho’s 2007 Cost Allocation Study and points out that ITD has not yet finalized the results. The Idaho Trucking Association has also observed that Idaho’s truck registration fees are the third highest in the country, while the ITD study described above finds that Idaho’s car registration fees are the 34th highest in the country, well below the national average. AAA Idaho responds by pointing out that having the third highest truck registration fees is misleading because in most states, unlike in Idaho, trucks pay for their responsibility for transportation costs through additional mechanisms beyond registration fees such as the ton/mile tax that Idaho used to have and through property taxes.
In 2007, ITD commissioned a study to address the question of how Idaho compares when all fuel taxes and registration fees for trucks are included. On page 1 of the “Study of Commercial Vehicle Registration Fees and Procedures” they report that “Under most scenarios examined for this study, taxes and fees in Idaho are comparable to or below the average of the surrounding states.” Taking the numbers from p. 9 of the study, The Common Interest calculated that on average across the four main scenarios the study examined, commercial truck registration fees and taxes in Idaho were $736 (14%) lower than the average of the six surrounding states and that we ranked as the 5th highest among the 7 states.
Although a more definitive conclusion about any inequities in Idaho’s current funding system must await the final results from the 2007 Cost Allocation study, the combined picture from the preliminary results and from the 2004 University of Idaho study and the 2007 ITD study on commercial truck registration fees suggest that the general tendency in Idaho’s funding system, like in most states, is that the heavier the vehicle, the less of its proportional share it pays.
Some argue that existing registration fees are nevertheless fair. Some, including the Idaho Trucking Association, argue that cost responsibility considerations should include not only wear and tear on the roads that are imposed by vehicles but also the costs vehicles impose in terms of contributing to congestion that necessitates capital expansions. Cars, they note, are responsible for a far higher proportion of the problem of increased congestion than are trucks. Some also observe that because trucks bring the goods that each of us need and want, trucks’ impacts should be viewed as part of the costs that go with this broad societal benefit. Some also note that the trucking industry is particularly sensitive to economic downturns. If we want a viable trucking system in place when the economy turns around, we should be careful not to over-burden that industry with taxes now.
We now review particular proposals for increasing vehicle registration fees.
Governor Otter’s House Bill 98 would raise all three major categories of vehicle registration fees. The Common Interest has done an analysis of the Governor’s proposal in terms of the relative increases overall for each of the categories. The results are captured in the table below.
|Year 1 Increase||Full Increase after
|Cars & Pickups (under 8,000 lbs)||40%||133%|
|Light Trucks (8,000 – 60,000 lbs)||32%||120%|
|Heavy Trucks (over 60,000 lbs)||5%||To be determined|
The Governor’s proposal would raise $20 million in new revenue in the first year. After the full five-year phase in, it would raise a total of $62.7 million in new revenue per year.
The Common Interest met with Clete Edmunson, the Governor’s lead staff person for transportation, to share the results of our analysis and ask why they proposed raising each category by different percentages. He explained that heavy trucks were only being raised by 5% in the first year because there is wide disagreement within the commercial trucking industry about whether the current system treats all heavy trucks, including Idaho-based and non-Idaho based trucks fairly. The Governor has proposed forming a task force on truck registration during the first year in which heavy truck registration fees are raised 5%. If the task force finds that there are inequities it will then be charged with making recommendations for a fairer system. The Governor’s office suggested that it would be difficult to get the members of the commercial trucking industry to the table to examine the system in good faith if heavy truck registration fees were raised more than 5% before the complaints of those who argue that it’s unfair are given serious consideration. The Governor’s office further explained, and the Idaho Trucking Association (ITA) argues, that many Idaho-based commercial truckers would register their base of operations outside of Idaho if the registration fees were raised more than 5% before the perceived inequities are considered. This, they argue, would not be in Idaho’s interests.
The Common Interest met with the ITA, in part to understand this argument. ITA provided us with a document explaining the International Registration Plan (IRP) to which Idaho and all other states belong. On page 2 of ITA’s document it explains that, “Because the fees are apportioned according to fleet travel, a fleet’s registration fees will be essentially the same wherever it is IRP-based.” In other words, if 20% of a commercial truck fleet’s miles are in Idaho, they will pay the Idaho rate on that 20% whether they are based in Idaho or elsewhere. Furthermore, the 2007 study comparing states’ truck registration fees commissioned by ITD finds that when it comes to the relatively small fees that are not apportioned and that are assessed by states only on fleets based in that state, Idaho’s are lower than those in all six surrounding states.
Two additional bills propose to increase transportation funding by raising vehicle registration fees. First, Representative Smith’s House Bill 148 would raise car and pickup registration fees overall by 73% in January 2010 and generate $28 million per year in new revenue. Second, Chairman Wood’s House Bill 149 would raise car and pickup registration fees the same amount as House Bill 148 except that it would raise the fees for cars and pickups over eight years old by $6 rather than $16. The overall increase for House Bill 149 would be 56% and it would generate $21.4 million in new revenue. Neither House Bill 148 nor 149 would raise registration fees on light trucks between 8,000 and 60,000 pounds or on heavy trucks over 60,000 pounds. The sponsors of both judged the task of raising light and heavy truck registration fees as too complex and problematic to be able to accomplish this year.
Some, including the AAA Idaho, have argued that all three of the vehicle registration fee bills are at odds with the cost responsibility principle that is supposed to be the basis of Idaho’s approach to transportation funding because they raise car and pickup registration fees significantly without an equal increase in heavy truck registration fees. The Governor’s proposal raises car and registration fees eight times as much and light trucks more than six times as much as heavy trucks in the first year. The inequities, AAA argues, are even greater in House Bills 148 and 149 because they do not raise light or heavy truck registration fees at all. AAA argues this would be inappropriate even if the best available evidence indicated that cars, light trucks, and heavy trucks were all paying their fair share since it would introduce new inequities. They argue that it is even more inappropriate to raise cars and light trucks so much more than heavy trucks given that the best available evidence indicates that cars, pickups, and light trucks already overpay and that heavy trucks underpay their cost responsibility.
They further argue that there should be no vehicle registration fee increases until these fees can be increased in a manner that eliminates rather than exacerbates the inequities. Alternatively, some argue that all classes of registration fees should be increased by the same modest percentages until further increases can address existing inequities.
AAA and others have expressed particular concerns about the manner in which these bills would handle the inequities that may exist within the heavy truck category. They argue that waiting for the Governor’s task force on commercial trucking to address the problem may be counterproductive. They argue that it shouldn’t be surprising if heavy trucks underpay and everyone else overpays relative to their cost responsibility in Idaho and in the 19 of 22 states recently reviewed by the Transportation Research Board. After all, registration fees loom larger for commercial truckers than for everyone else, since trucking is their livelihood. Consequently, the argument goes, commercial truckers hire professional lobbyists and engage the political process to a much greater degree than car owners do. Those arguing in this vein worry that the Governor’s task force on commercial trucking will simply replicate this problem rather than adequately addressing it. The appropriate process for addressing this problem, they argue, is to finalize the Highway Cost Allocation Study using accepted, objective methodologies independent of political influence before any increases in vehicle registration fees are implemented. Alternatively, they argue, all categories of vehicle registration fees should be raised at the same rate until the Highway Cost Allocation Study is complete.
Some argue that this logic could be taken a step further by enacting a requirement to adhere to the cost responsibility principle. Recognizing how politically difficult it is to follow the cost responsibility principle, Oregon voters made the cost responsibility principle a constitutional requirement in a special election in 1999. The Oregon constitution now requires that:
Revenues . . . that are generated by taxes or excises imposed by the state shall be generated in a manner that ensures that the share of revenues paid for the use of light vehicles, including cars, and the share of revenues paid for the use of heavy vehicles, including trucks, is fair and proportionate to the costs incurred for the highway system because of each class of vehicle. The Legislative Assembly shall provide for a biennial review and, if necessary, adjustment, of revenue sources to ensure fairness and proportionality.
Whether by statute or constitutional amendment, Idaho could also establish a policy that requires periodic (perhaps every 5 or 7 years) Highway Cost Allocation Studies and adjustment of taxes and fees in line with the cost responsibility principle.
Beyond state fuels tax and vehicle registration fee increases and Idaho’s share of the federal stimulus plan, the state has access to a significant additional financing mechanism. We noted above that our state and local governments generally can’t stimulate the economy through infrastructure spending because they can’t spend borrowed money like the federal government can. One exception to this rule is the GARVEE bond program. In 2005, then Governor Dirk Kempthorne recommended that Idaho use GARVEE bonds to fund transportation infrastructure investments totaling $1.6 billion. GARVEE, or Grant Anticipation Revenue Vehicle bonds, allow Idaho to finance transportation projects by issuing bonds that it intends to repay with anticipated federal funding. As of 2007, twenty states had used the GARVEE bonds program. Since 2006, the Idaho Legislature has authorized $597 million worth of bonds. The question this year is whether to authorize additional GARVEE bonds and if so how much. The Governor’s request is for an additional $125 million in GARVEE bonding authority.
GARVEE has been controversial and the request for additional bond authority is no different. Proponents point primarily to two advantages that they say outweigh any downsides to the departure from the state’s usual pay-as-you-go policy. First, they argue, it allows ITD to complete transportation projects faster than it could if it relied only on funds at hand. In a matter of years, ITD will complete decades’ worth of improvements and thus reduce congestion, promote safety, and enhance economic productivity throughout the state. By funding specific sections of Idaho’s urban interstates, the GARVEE program is addressing a dimension of performance—urban interstate condition—on which the Hartgen study found Idaho well below the national average.
Second, proponents argue that GARVEE mitigates the effect of increasing construction costs. The state, they argue, will benefit by having paid in today’s lower prices while having locked in bonds at a very low interest rate.
Many oppose GARVEE on philosophical grounds. They argue that spending future federal revenue now incurs unwise risk and places a burden on our children that we should assume ourselves. Second, opponents argue that predicting what transportation construction costs will do is always risky business and particularly over the last several years. In just the last several months we’ve gone from the most rapid inflation in construction-related materials in decades to the most rapidly declining prices for those materials. If construction costs stay flat or fall further, then we will be paying interest for the privilege of paying higher construction costs. This experience with construction costs has converted some previous supporters to GARVEE opponents.
But some GARVEE proponents respond that even if the economic downturn reduces or eliminates the advantage of beating inflation, the economic downturn also enhances a unique GARVEE benefit. It offers one of the few ways, they argue, that the state can engage in stimulus spending that actually brings in more money in the near term than would otherwise be there. Because GARVEE bonds allow the state to invest now with future federal dollars, these dollars do not come out of Idaho taxpayer’s pockets. In fact, this advantage has converted some opponents to GARVEE proponents.
Local Option Taxing
The discussion thus far has focused mainly on the state transportation system and state sources for funding that system. However, local governments have faced the same challenges of rising costs, increased use, and flat revenues in maintaining the roads for which they’re responsible. Because 38% of the Highway Distribution Account goes to local government, the state funding ideas discussed above would help the local roads and bridges as well. Still, the degree to which a given local transportation system faces funding challenges varies with local conditions. As a result, many argue that local governments should have more local option taxing authority. Such authority allows local governments, subject to citizen approval, to levy a tax or assess a fee to meet their unique local transportation funding needs. At this point, there is fairly broad support for granting additional local option taxing authority. The debate centers mostly around the shape this authority should take.
Two proposals would expand the existing authority of local government to levy local option vehicle registration fees. In the current provision and under both the original proposed expansions, the local option registration fees must be approved by a simple majority (50% plus 1) of the voters in that jurisdiction in a general election. The first proposal, Representative Roberts’ House Bill 134, would eliminate the existing limit that dictates that county option registration fees may not exceed twice the amount of state vehicle registration fees. Second, Representative Labrador’s House Bill 155 would allow cities and highway districts within a county to assess their own local registration fees for specific road and highway projects.
Additional proposals focus on the expansion of local option authority for sales tax. Although local option taxing authority on sales tax in Idaho is currently limited to resort towns with a population under 10,000, it is used broadly in other states. When presented to the voters for approval, the proposal would have to specify how much additional sales tax would be levied (up to one cent additional sale tax) and what the revenue would be used for.
We now turn to a review the four biggest debates, moving roughly from the least to most contested issues, in the local option sales tax discussion. We’ll then conclude with a brief discussion of public transit.
Election Dates. Debate exists regarding the dates on which local governments should present proposals to levy local sales taxes. Most agree that local governments should be required to present proposals to levy local taxes only on election dates for which there is high voter turnout so that it is a more accurate measure of the will of the people. The debate tends to revolve around just how restrictive this requirement should be. The debate surrounding election dates ranges between, on the most permissive end, only on primary or general election days to, on the most restrictive end, only on a general election day in even years (odd years are for non-partisan city elections which have lower turnout).
Units of Local Government Authorized to Levy the Tax. Debate also exists regarding which entities of local government should be allowed to exercise local option sales tax authority. Some argue that only counties should exercise this authority. Others argue that local option taxing authority should be extended to cities and regional authorities such as Metropolitan Planning Organizations (MPOs). For more on the competing arguments made in this debate, click here.
Thresholds Required for Approval. Debate also exists regarding what level of voter approval should be required to pass a local tax proposal. The debate ranges from a simple majority approval (50% plus 1) to a two-thirds majority approval. One possibility would be to allow a regional local option sales tax but to require that it pass by a higher threshold over all but that it must also pass by a lower threshold in each county (e.g. two-thirds and 60% or 60% and 50% plus 1). For more on the competing arguments made in this debate, click here.
Constitutional Requirement. Perhaps the most hotly debated dimension of the local option sales tax issue in Idaho has been the question of whether such an authority should be granted through a constitutional amendment or simply through statute. For more on the competing arguments made in this debate, click here.
Public Transit. To this point, our examination of funding for transportation infrastructure has focused on roads—the infrastructure needed for cars and trucks. Many argue that it’s important to think beyond the road system and consider public transit as an important alternative means of transportation. Many further argue that local option sales tax is the most appropriate funding mechanism for transit. For more on the competing arguments made in this debate, click here.