Transportation Policy Academy 2013 – DC – Part 4: Joshua Schank, Eno Center for Transportation

Day two of the CSG Transportation Policy Academy in Washington, DC included a transportation policy roundtable featuring a variety of transportation stakeholders and experts. Among them was Joshua Schank, President and CEO of the Eno Center for Transportation, a DC-based think tank and non-profit foundation with the mission of improving transportation policy and leadership. Among the topics he addressed: whether the transportation funding package passed in Virginia this year could influence Congress, what bipartisan cooperation on a water resources bill means for the chances for MAP-21 reauthorization, a recent proposal on interstate tolling, Oregon’s mileage-based user fee program and state and federal accountability initiatives.

I began by asking Schank about a recent piece in the Eno Brief Newsletter in which he wrote about recent comments by Senator Barbara Boxer, who chairs the Environment and Public Works Committee. Boxer said the federal transportation revenue solution she was leaning toward was eliminating the gas tax and replacing it with a wholesale sales tax on gasoline, as Virginia has done and other states have contemplated.

“The main thing that’s being considered here is how do we get the current user fee gas tax structure to account for increasing costs and inflation because certainly at the federal level, it’s not doing that and in most states it’s not doing that,” Schank said. “And the answer that Virginia and to some degree Maryland and other states have come up with is that either you can index the tax to inflation or you can move to a wholesale tax on gasoline as opposed to a more or less at-the-pump tax. The difference between an ad valorem tax—a percentage tax on gasoline—and a flat, set per-gallon tax, there are implications that has for policy. So I would just encourage you to think about those differences as well as what we can get done. Because I know there’s a very strong instinct to say ‘whatever we can get, let’s just do it’ because we need money—and I think that’s probably right. We do need the money and you do have to kind of take what you can get. But there are consequences to different strategies and different ways of raising money. So for example if you go with a percentage tax—an ad valorem tax on gasoline—whether it’s wholesale or whether it’s at the pump, no matter how you slice it, what you’re doing is you are counting on the price of gasoline rising in order to increase the amount of funding you have available for transportation. And as we all know, the price of oil is a global commodity. So it’s not within our control and it’s actually within the control of many countries with large supplies of oil that don’t really care how much we want the oil and have some hostile relationships with us. So as a result, the global market for oil tends to be volatile and it can go up and it can go down. We’ve seen gas prices reach the lowest in several years yesterday. If gas prices go down and you have an ad valorem tax on gasoline, guess what happens to your revenue. So it doesn’t necessarily solve your problem.”

“Now, there have been proposals and ideas and I think these are really important to look at … There’s a proposal from the Carnegie Endowment, which put out a piece a couple of years ago headed by (former U.S. Senator) Bill Bradley and (former Pennsylvania Gov.) Tom Ridge – they oversaw this study that said ‘okay, how do we put a percentage tax on gasoline?’ Well, it’s not enough to just put a percentage tax on gasoline. You have to do two things. You have to protect yourself from potential drops in price that would kill your revenue. But you also have to protect consumers from potential increases in price. Because if you have an increase in price on gasoline that’s way up and you’re charging a percentage tax, people are going to be paying a lot more. So there’s a balance there. And they said if we’re going to do an ad valorem tax, let’s put a ceiling and a floor and figure out a mechanism by which the tax can be useful and sustainable. So I think that’s important when you’re thinking about these other mechanisms to understand that how you collect the money actually has consequences in terms of how much money you’re going to have.”

“To that end, I think it’s worth considering that it’s not written in stone that you have to have a user fee-based system for transportation. I know that it feels like it is because almost every state does it and the United States federal government has done it since 1956. But if you look at the rest of the world, no one else does it, so we’re unique in that way. Most (developed) countries collect gas taxes that are far higher than ours—we’re talking about dollars on the gallon—and they take those taxes and they do not dedicate them to transportation but instead they use those taxes to fund the general treasury and transportation competes like everything else for money. And you might say ‘that’s the last thing we want—transportation competing with everything else’ because widows and orphans are always going to get the money and we’re always going to lose out. Well, the data does not bear that out. If you look at how other countries are spending on transportation, they’re spending a greater percentage of GDP on transportation than we are.”

“In fact, by tying our revenue to the gas tax, we’ve kind of hamstrung ourselves a little bit because … the problem with the gas tax isn’t that it’s not a sustainable source of revenue right now. A lot of people will tell you that it isn’t sustainable because of fuel efficiency because of electric vehicles. That’s not actually the problem with the gas tax. The gas tax could be sustainable for many years. It’s that we won’t raise it. And if we don’t raise it, then it’s not sustainable. So the political will to raise the gas tax based on the need for transportation investment hasn’t been found since the ‘80s at the federal level. The last two gas tax increases have been for deficit reduction, not for transportation. (Those revenues) eventually got given to transportation and that’s great but (the increases) were not done for that. The last one was in the ‘80s and it was sold as a user fee and that’s the only reason that President Reagan was able to approve it because it was sold as a user fee. But that was when we were still building the interstate system so there has been no gas tax increase at the federal level to pay for transportation since the interstate system was completed and I think that’s a really important fact to keep in mind because it means that it’s going to be very challenging to ever win that battle. It’s going to be very challenging to convince people at the federal level.”

“I know at states it’s a little different. You’ve had some success lately. But at the federal level, it’s going to be very difficult to convince people that they should pay more for transportation. And in fact, it might be worth considering if the models that these other countries are using might be more effective in that regard because they’re not dependent on going to their people and saying ‘let’s raise the gas tax’ every time they want more money for transportation. It’s quite the opposite. They go and spend as much money on transportation as they realize is necessary to make the investments in their economic future. That’s of course the rational way to make transportation investment decisions. I know that seems very hard and hard for us to give up this dedicated fund that has protected us from sequester. It has protected us from government shutdowns. It’s protected us from any number of calamities that have befallen the federal government over the years. But it is at least worth considering whether there might be a more sustainable source of revenue if we let go of the gas tax.”

I also asked Schank about a proposal that made a splash earlier this year in transportation policy circles. Bob Poole of the Reason Foundation issued a proposal called “Interstate 2.0,” which would rely on all-electronic tolling around the country to fund transportation.

“There’s certainly no reason to not be permissive about tolling,” Schank said. “The federal government should not stand in states’ way if they want to toll. And in fact the federal government should provide incentives for states to raise revenue. I think that’s a big part that’s left out of that proposal. … The biggest barrier to tolling right now is not the federal government. The biggest barrier to tolling is that people don’t want tolls and so they rise up when you try to toll their highways.”

“So the only way to overcome that and the only way we’ve been able to successfully overcome that—there have been a few cases of it—has been that we’ve held out federal money as a carrot to overcome that. So for example in Miami, there are now HOT lanes on I-95. There are HOT lanes on I-95 because the federal government said ‘if you put HOT lanes on I-95, we’re going to give you some extra money for buses and they were able to convince local folks there that it was worth doing this in order to get the money for the buses and those lanes have proved immensely popular since they’ve opened. Similar things happened in Seattle. Similar things happened in L.A.”

“And the federal government needs to shift its role in my view from being a formula grant-making organization to being an organization that is focused on incentivizing states to raise their own sources of revenue because at the moment, they’re not providing enough revenue. … The problem I have with the interstate tolling concept is not that it shouldn’t happen. Be permissive, provide incentives, all that’s great. But we have to remember that transportation is a multi-modal system and if we’re going to raise revenue, it is very dangerous to raise revenue from only one segment of users of that system. Because if you do that, you’re always going to have the people who are not paying fighting with people who are paying about who gets the money.”

“And the system is becoming more multi-modal not less multi-modal. The VMT in this country peaked in 2005—vehicle miles traveled peaked in 2005 and hasn’t really increased since then. No one really knows why but there is some evidence at least that people are changing the way that they think about transportation and land use decisions. That there is a greater focus on being able to have choices and options when it comes to transportation, not being completely dependent on your personal vehicle for transportation. And when it comes to freight, there are tremendous benefits to having an intermodal system that both trucking and rail have been taking advantage of for many years now. So if you think about the system as being only the interstate system and that only the people who drive the interstate system should pay into it, then guess what you’re going to get: a good interstate system and not much else. And that really won’t give you a good transportation network. Especially because when you start tolling the interstate system, what’s the first thing that’s going to happen to truckers who are driving on the interstates? They’re going to search for other roads, they’re going to clog up those roads and then you’re going to say ‘I guess we’re going to have to toll those roads too’ and pretty soon you’re out of control. So at some point you have to say this is a multi-modal system and it should be funded as a system, not by different segments paying in for the costs of those segments.”

Later I asked Schank about Oregon’s 12-year experimentation with mileage-based user fees and whether their success will translate into a federal transportation funding solution within a decade.

“I think there’s a big distinction here between what’s happening at the state and local level and what’s going to happen at the federal level,” Schank said. “At the federal level, mileage-based user fees are more than a decade away. They’re probably an infinite amount of time away but maybe somewhere between infinity and our lifetime, there will be mileage-based user fees at the federal level. But it’s very hard to imagine Americans accepting the federal government tracking their moves and charging them based on mileage fees. We’ve seen that in the reactions that have come. I mean there was an amendment to a Transportation Appropriations bill a couple of years ago that basically said there should be no money available for research on vehicle miles traveled fees even at the state level. That’s how hostile people are to it. So I don’t think at the federal level it’s going to happen.”

“But at the state and local level, there is real potential and this again goes back to the federal role and how it needs to change. The federal government’s role should be to incentivize states to implement innovative pricing schemes like this. And there’s no reason the federal government can’t say to a place like Oregon that’s cutting edge, that’s trying to do something innovative, that’s trying to raise revenue in a new way and in a way that could manage demand effectively to say to them ‘well, if you do that successfully, if you’re able to overcome these political barriers to getting this done, if you figure it out, we’re going to provide you with some extra funding for other things in your transportation network.’ So I think it could happen at the state and local level but it has to be nurtured by the federal government.”

“Secondly, it’s crucial to remember that the main advantage of vehicle miles traveled fees or of mileage-based user fees is the ability to manage demand. That’s why transportation geeks like me like them and that’s why transportation professionals like them. They are valuable in managing demand so they’re going to be most valuable in the places with the most congestion. If you try to do a mileage-based user fee in Wyoming, you’re going to run into a lot of trouble. But if you try to do it in a metropolitan region, and that’s why Oregon is able to do it because even though obviously Oregon has a lot of rural areas, the real focus and the real cost and the place where they really hope to have the impact is in the metropolitan Portland area and they have the ability to do that because of the way that the state is structured. If you tried to do that in a place like the New York metropolitan region, where you really have four states, that could be a little bit more of a challenge. But those are the types of places that are going to see real benefits from these things.”

“When you’ve seen similar schemes go into effect—and there’s one in Singapore, there’s one in London, there’s one in Stockholm—the impact has consistently been people resist it, they hate it, they don’t want it. It goes in and they don’t want you to take it away because the impact is that their lives are made better and they see it right away. They see that they’re now not having to sit in congestion. … It’s getting over that initial political hurdle to implementation that matters and that’s where I think I see a big federal role.”

Schank also weighed in on whether recent bipartisan cooperation in Congress on a water resources bill should bode well for action on MAP-21 reauthorization before it expires next fall.

“Last year, if you had asked me if there was going to be a reauthorization bill, I would have said no. … I think most people would have said no. The fact that somehow it was able to pass I think is a tribute to the incredible will and determination of Senator Barbara Boxer, who was just going to get that bill done and she found a way to get it done. It is interesting that WRDA (the Water Resources Development Act) also comes out of her committee. It tells you something. So it’s hard to bet against her, given her track record on these issues.”

“However, I do think that she has indicated so far … that last time the bill dealt with policy—there were big changes in policy in MAP-21, many of which we supported—this time they need to deal with revenue. And this time they want to make sure we have a sustainable revenue source. And I think that’s absolutely right that we need to figure out how to get a sustainable revenue source and that should be an important priority. But if you make that the priority, it almost certainly means we’re not getting a bill because of the challenges in raising revenue and dealing with the larger deficit issues. The way things have been going lately, it looks like the chances for a grand bargain are actually getting worse, which is hard to imagine because they were so bad to begin with but now people aren’t even talking about that as a real possibility and instead we’re looking at smaller bites of the apple. And smaller bites of the apple are going to make it harder for transportation because, as I said, people don’t think about transportation or vote based on transportation at the federal level so convincing them to pay more for that purpose is very hard. It has to be buried in a larger bill about revenue and taxes and debt reduction. That’s the most likely scenario. So if there is some agreement on that in any form, then a transportation bill has a chance to pass on time. On time is probably pushing it. I don’t think that’s ever happened on time but within the next Congress. But if that doesn’t happen, I think it’s going to be pretty hard.”

During the Q&A with legislators attending the policy academy, Schank was asked what it takes for a state to be successful with a revenue package.

“My perspective is it takes strong leadership from the governor and if you have strong leadership from the governor you’ve got a shot at whatever mechanism you’re talking about. (Gov. Bob) McDonnell I think was incredibly impressive in what he accomplished in Virginia.”

Schank said it also can help the cause to make constituents aware of the outcomes they could get from transportation investment.

“At the end of the day, people want to see what their money is going towards and they’re going to have a lot more confidence if they know that there’s real accountability for the outcomes that they’re looking for. … They did a survey of how people would like to be charged for transportation at the Mineta Institute in San Jose and they asked people: do you like tolls, do you like VMT, do you like gas tax, do you like sales tax? … People actually preferred sales taxes generally. … For all those different options, when they said ‘do you like this?’ they said ‘no, we hate it, we don’t want anything.’ And then (the survey asked) ‘well what if we charged you a gas tax and we dedicated it to this particular issue? We’re going to reduce emissions or we’re going to manage congestion in this corridor.’ Then all of a sudden the support for that (revenue mechanism) went up by 20 or 30 percent. So people need to know the specific outcomes that they’re going to get for the money. They need to have confidence they can actually get those outcomes and they’re going to be more willing to part with whatever the increase is.”

Schank was also asked about successful accountability initiatives. He offered two examples—one at the state level and one at the federal level.

“In Washington State, they put a ballot measure out to raise the gas tax for transportation and it failed. So they went back and created something called The Gray (Notebook), which is still there and you can look on the Washington State DOT website and download The Gray (Notebook). And The Gray (Notebook) has a list of all of the investments that are being made and all of the metrics they are using to track those investments such as congestion, age, capacity—all the things you might care about if you were a citizen. And they started putting that Gray (Notebook) out and they went back to the voters and they asked for a gas tax increase and they got it. Now, how many people are actually reading that Gray (Notebook)? Probably not very many but the fact that it was there, the fact that somebody was noticing and actually providing accountability in and of itself, probably contributed to their ability to get that gas tax (increase) passed.”

“The other example is what we’re trying to do at the federal level in MAP-21. MAP-21 introduced the concept of national goals and then directed DOT to develop performance measures to evaluate progress on those goals and targets that states are going to set for those goals. So that’s a huge step in the right direction. … (MAP-21) is a two-year bill but a five-year rulemaking. So it’s going to take some time before they actually get the performance measures, but once the measures are there and in place and we’re able to say ‘here’s what the federal government’s investing and here’s what the return is on investment,’ I think that will go a long way to helping people understand that there’s real value there or not. If the investment choices are poor, they may not. But the key is to develop metrics for evaluating the results of your investment and then disseminate those as much as possible.”

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