Transportation Policy Academy 2013 – DC – Part 6: Joung Lee, American Association of State Highway & Transportation Officials

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 Joung Lee, Associate Director for Finance and Business Development at the American Association of State Highway and Transportation Officials (AASHTO). He spoke about the impact of the political division in Washington on transportation funding, the popularity of sales taxes to fund transportation at the state and regional levels, Oregon’s mileage-based fee program and the success of state funding initiatives around the country in 2013.

“When you’re looking at the overall policy landscape out there, funding really is the number one issue no matter how you slice it,” Lee told state legislators attending the policy academy. “Certainly looking at the federal picture, I think we’ve kind of hit the rock bottom earlier this year in terms of Congressional affairs and in terms of two very basic things that Congress is supposed to do—raise taxes and pass spending bills. And this notion of the regular order I think is becoming more and more of a distant memory in this town especially in that there are 12 appropriations packages that Congress passes every year. Transportation with Housing and Urban Development is one of the 12. But the last time that particular package passed was actually 2006. It’s been seven years since we actually had a national plan at least for one year, this is how we’ll actually direct federal resources to transportation and housing and urban development. … The last time we actually had a budget by October 1 (the start of the federal fiscal year) was 1996. That was when half of the packages still got rolled up into a minibus. So if you go back beyond that and say ‘when was the last time we actually had each of those 12 appropriations packages actually enacted at the federal level before October 1 or on October 1?’ It was 1994. So we talk a lot about the 20th anniversary of the last gas tax increase. We’re actually at about the 20th anniversary of the last time appropriations was done in regular order.”

Lee also told lawmakers that unless transportation investment gets included in some kind of grand bargain in Washington, the chances of a multi-year MAP-21 reauthorization that includes a fix for the bankrupt Highway Trust Fund are slim in the near term.

“We’ve generally aligned ourselves I think in the industry at least with the surface transportation bill that we’ve always had this predictable five- or six-year cycle. We love the multi-year capital authority that comes with it. This is how we’ve operated. The gas tax generally for the last 60 years has worked out well enough that we could expect it to gradually increase and therefore support slightly increased … funding levels in each cycle. We’re now at a point where I think there’s pretty good agreement that getting some kind of a standalone Highway Trust Fund revenue fix as part of the reauthorization bill is going to be a very, very tough slog. We’ve certainly heard that from the House Transportation (and Infrastructure) Committee Chairman Bill Schuster, (who) has indicated that maybe it really is the bigger picture discussion that we have to be able to insert ourselves into not unlike what happened with the Simpson-Bowles Commission with their recommendation of the 15 cent gas tax increase there was a lot of behind the scenes discussion with some of the key members of that commission that heard from transportation stakeholders, that heard about if we tied this message perhaps to deficit reduction … back in the early ‘90s, it could be one way to achieve (that).”

Later, Lee discussed how sales taxes—both general and gas tax-specific—have become popular at the state and regional levels and how despite the fact that a wholesale sales tax on gas isn’t all that different from the existing per gallon excise tax, it could become a preferred option at the federal level too.

“(The sales tax has) been very popular at the regional level … on all goods and services. And that has been a very useful tool to just do a 0.5 percent increase and there’s a huge revenue yield that results from it but then it gets away from this user pays framework that we’ve generally operated under especially at the federal level. This idea of going more granular, of levying a sales tax on motor fuel purposes both on gasoline and diesel is really not new. I know a number of your states have actually done them for a number of years whether you also index the gas tax or have other forms of variable tax, it’s not necessarily new. What I’ve personally found to be somewhat fascinating is that the flat per gallon excise tax that we’ve all had, every state has it, the federal government has relied on it, is actually collected at the rack, at the distributor level. There are only about 7000 or 8000 payers of the federal gas tax, which also makes it such an incredibly efficient revenue mechanism in that you spend less than 1 percent of what you collect to administer and enforce that mechanism. As a side note, that is one of the challenges of a (mileage-based) fee is that if you increase your tax base from 8,000 payers to 200 million, yes it is going to drive up the cost of collection that eats away the dollars that would otherwise go for transportation investment. Getting back to the sales tax on fuel though, what is interesting is that is also most likely to be collected at the rack as it is with the current gas tax so it’s really just a difference of semantics. Whether it’s a gas tax or a wholesale tax, it doesn’t make much of a mechanical difference. But I’ve found it fascinating. I think Virginia leaders have mentioned this and certainly (Environment & Public Works Committee Chair) Senator (Barbara) Boxer from down the street has mentioned it as well, kind of framing it in a way that says ‘kill the gas tax, kill that dreaded gas tax, everybody hates the gas tax, right? Oh, well, how about this wholesale tax, y’know? It’s collected up the scale. It doesn’t affect the end users as much.’ There is that kind of implicit messaging there that again at the end of the day isn’t all that different from what we have now in terms of the gas tax except it does track better with inflation.”

Lee also weighed in on Oregon’s mileage-based road usage fee program and why the mechanism could face the same issues un-indexed gas taxes have around the country.

“There are a lot of good things about the Oregon program certainly in terms of privacy protection, a lot of different ways to pay to make people feel as comfortable as possible, which is a huge hurdle. But the Oregon act also has a 1.5 cents per mile fee rate baked into the legislation. So ultimately that is also going to face the same challenge as we’ve seen with the federal gas tax or the state per gallon gas tax in that at some point, yeah, inflation is going to erode away at that 1.5 cent per mile level … and the political challenges that come with it, I think we all have to recognize are going to be there.”

Finally, Lee talked about the success some states have seen this year in approving transportation revenue packages, which AASHTO has been tracking on its Center for Excellence in Project Finance website.

“We’ve denoted … a lot of good success stories that have come out … this year. But the fact of the matter is that the conversations are not new. We realize that you all have been talking about it for a long time and that it’s that persistence and finally getting that message through that really results in some of the successes that we’ve seen around the country.”

Additional Resources

  1. Highway Trust Fund Receipts and Outlays
  2. Decline in Federal Highway Obligations in FY 2015
  3. In FY 2015, Virtually All HTF Receipts Will Be Used to Pay for Prior-Year Commitments
  4. List of Technically Feasible Revenue Options