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Financing Transportation into the Future

March 12, 2009 By Conrad deFiebre, Transportation Fellow
Since substantial completion of the U.S. interstate highway system around 1980, driving on the nation's roads has doubled, with truck traffic growing even faster than travel by car. But highway lane-miles have increased less than 5 percent.

Congestion in urban areas is one inevitable result; accelerated wear-and-tear on roads and bridges is another. Most government answers have come strictly on the cheap: freeway ramp meters and radically deferred upkeep.

There hasn't been money to do more because road user charges such as fuel taxes and registration fees have fallen from covering up to 75 percent of the costs of highway maintenance and operations 20 years ago to barely 60 percent today.

Drivers could think they're getting a bargain, as long as they ignore the steep economic price of traffic jams and the shameful deterioration (and sometimes deadly failure) of infrastructure built by our less tax-averse forebears.

It turns out that apparent bargain is a big part of the problem, according to the unanimous conclusion of the bipartisan National Surface Transportation Financing Commission, a congressionally-chartered task force.

"Basic economic theory tells us that when something valuable - in this case roadway space - is provided for less than its true cost, demand increases and shortages result," the commission reported last month. "Shortages in our road system are manifested as congestion."

Congestion is backing off from the one-two of $4 gas and wide job losses, although the Twin Cities recently hit the top 10 in a national congestion rating. Meanwhile, however, the ongoing 14-month downturn in national vehicle miles traveled has slashed billions from fuel tax collections.

At the federal level, it prompted Congress last fall to appropriate $8 billion in non-user tax money to keep the Highway Trust Fund solvent. Unless the federal fuel tax goes up (it hasn't since 1993; the national commission recommended raising it 10 cents a gallon), more subsidy will probably be needed soon.

In Minnesota, driving has declined by more than 300 million miles per month since December 2007. That translates into a $4 million monthly drop in road and bridge revenue from 2007 levels.

There's little disagreement that the system needs more money to stave off further deterioration. The Minnesota Department of Transportation's draft 20-year plan foresees a $47 billion shortfall in revenue to meet its performance goals. Current revenue streams are projected to raise $15 billion, less than one-quarter of the need.

Under the draft plan, more than three-quarters of the available money goes to road and bridge preservation, but still MnDOT expects state highway segments with poor pavement to triple, from 600 miles today to 1,800 by 2018.

Quite a bargain. So what to do?

The federal recovery package, bringing about $600 million to Minnesota over two years for transportation (mostly roads, but about one-fifth for transit and passenger rail) is a start, but still a drop in a big bucket of needs.

After that, it's going to be up to Minnesota leaders to find other ways for the public to pay fairly for the mobility we need to prosper.

Gov. Tim Pawlenty, a relentless opponent of the periodic increases in state fuel taxes that were a bipartisan tradition in Minnesota from the 1920s to the 1990s, has put his support behind a $5 million study aimed at replacing taxes at the gas pump with mileage fees.

It's an approach also favored by U.S. House Transportation Chairman James Oberstar, of Minnesota and Transportation Secretary Ray LaHood that would meet head-on the prospect of all-electric vehicles riding the roads for free. In the shorter term, new federal gas-economy standards will further erode fuel tax collections.

Mileage tolling addresses that too, but it faces a slew of hurdles: privacy concerns, opportunities for fraud, rate-setting, interstate cooperation, technical challenges and criticism from the Obama White House.

Some of these problems have been so vexing that the Pawlenty administration has spent nearly two years just trying to design a pilot program to test the mileage fee. MnDOT expects to bid out technology proposals for the study this summer and start testing in 2010. Oregon, which completed the nation's first such study two years ago for $2.7 million, is now considering spending $10 million on another one.

There are other transportation finance ideas out there as well: a national infrastructure bank, more toll roads, private investment; even variable parking meter rates.

In the nation's capital, Washington Nationals fans who park curbside near the ballpark on game days pay $8 an hour. It eases street congestion by dissuading drivers from cruising for open meters. But that's not really a revenue raiser, although it and similar congestion pricing strategies (e.g. HOT lanes on I-394) can tamp down some of the need for spending on pavement.

The other ideas aren't realistic revenue sources in Minnesota, either, at least not for the foreseeable future. Fortunately, we already have a perfectly good, time-tested method of paying for our roads and bridges.

It's called the gas tax. We just need to face hard facts about financing highways and let it do the job it did for decades of state prosperity.

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