Testimony of the
American Road and Transportation Builders
Association
before the
Subcommittee on Transportation, Infrastructure and
Nuclear Safety
Committee on Environment and Public Works
September 30, 2002
Federal Highway & Transit Investment
Leadership
“One of our great material blessings is the
outstanding network of roads and highways that spreads across this vast
continent. Freedom of travel and the romance of the road are vital parts of our
heritage, and they helped to make America great. Four million miles of streets
and roads make it possible for the average citizen to drive to virtually every
corner of our country—to enjoy America in all its beauty and variety. They also
form a vital commercial artery unequaled anywhere else in the world.
“Our interstate system has reduced by nearly a day and
a half the time it takes to drive coast to coast. And more efficient roads mean
lower transportation costs for the many products and goods that make our abundant
way of life possible. But let's face it: Lately, driving isn't as much fun as
it used to be. Time and wear have taken their toll on America's roads and
highways. In some places the bad condition of the pavement does more to control
speed than the speed limits.
“We simply cannot allow this magnificent system to
deteriorate beyond repair. The time has come to preserve what past Americans
spent so much time and effort to create, and that means a nationwide
conservation effort in the best sense of the word. America can't afford
throwaway roads or disposable transit systems. The bridges and highways we fail
to repair today will have to be rebuilt tomorrow at many times the cost.
“So I'm asking the Congress when it reconvenes next
week to approve a new highway program that will enable us to complete
construction of the interstate system and at the same time get on with the job
of renovating existing highways. The
program will not increase the Federal deficit or add to the taxes that you and
I pay on April 15th. It'll be paid for by those of us who use the system, and
it will cost the average car owner only about $30 a year. That's less than
the cost of a couple of shock absorbers. Most important of all, it'll cost far
less to act now than it would to delay until further damage is done…
“Common sense tells us that it'll cost a lot less to
keep the system we have in good repair than to let it crumble and then have to
start all over again. Good tax policy decrees that wherever possible a fee for
a service should be assessed against those who directly benefit from that
service. Our highways were built largely with such a user fee -- the gasoline
tax. I think it makes sense to follow that principle in restoring them to the
condition we all want them to be in.
“So, what we're
proposing is to add the equivalent of 5 cents per gallon to the existing
Federal highway user fee, the gas tax. That hasn't been increased for the
last 23 years. The cost to the average
motorist will be small, but the benefit to our transportation system will be
immense. The program will also stimulate 170,000 jobs, not in make-work
projects but in real, worthwhile work in the hard-hit construction industries,
and an additional 150,000 jobs in related industries. It will improve safety on our highways and will make truck
transportation more efficient and productive for years to come.
“Perhaps most important, we will be
preserving for future generations of Americans a highway system that has long
been the envy of the world and that
has truly made the average American driver king of the road…”
President Ronald Reagan
Radio Address to the Nation on Proposed Legislation for a
Highway and Bridge Repair Program
November 27, 1982
American Road and Transportation
Builders Association
before the
Subcommittee on
Transportation, Infrastructure and Nuclear Safety
Committee on Environment
and Public Works
September 30, 2002
Mr. Chairman,
Senator Inhofe, members of the Subcommittee, thank you very much for providing
the American Road and Transportation Builders Association (ARTBA) an
opportunity to testify on highway investment needs and to present its
recommendations for the reauthorization of the federal highway and mass transit
programs.
I am Dr. William Buechner, ARTBA’s Vice
President for Economics and Research and chief economist. Prior to joining
ARTBA in 1996, I served 22 years as a senior economist for the Congressional
Joint Economic Committee, and I have a doctorate in economics from Harvard
University.
ARTBA marks its 100th anniversary this
year. Over the past century, its core
mission has remained focused on aggressively advocating federal capital
investments to meet the public and business community’s demand for safe and
efficient transportation. The
transportation construction industry ARTBA represents generates more than $200
billion annually to the nation’s Gross Domestic Product and sustains more than
2.5 million American jobs. ARTBA’s more
than 5,000 members come from all sectors of the transportation construction
industry. Thus, its policy recommendations provide a consensus view.
Mr. Chairman, at the outset I
want to express our deep appreciation to you personally and the bipartisan
leadership of the committee for its work thus far to maintain the FY 2003
highway program at the current year’s $31.8 billion level.
Earlier
this morning, the Federal Highway Administrator, Mary Peters, told this
committee that an average annual investment of $75.9 billion by all levels of
government during the next 20 years would maintain current conditions on the
nation’s highways and bridges. During the past 20 years, the federal share of
highway investment has averaged about 45-47 percent of the total, which implies
that a federal investment of about $35 billion annually for the next 20 years
would meet our highway investment requirements.
You
don’t have to be an economist to recognize that, if we are currently investing
$32 billion at the federal level, there is something odd about that assessment.
There
are three reasons why the $75.9 billion investment figure is understated.
- The figure is stated in
year 2000 constant dollars. Obviously, anyone planning a future investment
would consider inflation, which will add significantly to the investment
required. We recommend that the Senate mandate that future reports provide
estimates that are in both constant and inflation-adjusted dollars.
- The $75.9 billion
figure, as the administrator has stated, will not even maintain the status
quo in terms of traffic congestion. Traffic congestion at that investment
level would, not maybe, would get worse over the next 10 years. We
can’t let that happen because of its impact on productivity and the future
economic growth of the nation.
- The findings of the
report are based on the assumption that traffic growth will decline from 3
percent annually during the past 20 years to 2 percent annually over the
next 20 years. This assumption reduces investment needs because less
traffic means fewer highway and bridge repairs and less need for new
capacity. Every Conditions and Performance report has underestimated
travel growth. But over the next 20 years, the nation’s work force must
continue to grow. It will be fueled largely by immigration and upward
mobility of lower-income Americans. Research shows that as incomes rise,
so does auto ownership and vehicle miles traveled. The chart on the bottom
of page A-9 of the Administrator’s attachment shows that traditional
travel growth would increase annual investment needs almost 50 percent to
$120 billion per year.
You
will note that the American Association of State Highway and Transportation
Officials upcoming 2002 “Bottom Line Report,” which is based on the same
econometric model and data used by the U.S. DOT, concludes that an annual
investment of $92 billion in 2000 dollars by all government levels will be
needed from FY 2004 – FY 2009 just to maintain current conditions and
performance. This is about $16 billion more per year than in the figure
Administrator Peters mentioned this morning.
When
ARTBA analyzed the data in the 1999 Conditions and Performance report,
and adjusted the data with conservative estimates of future inflation and VMT
growth, we concluded that a federal highway program averaging $50 billion per
year would be needed for FY 2004 through FY 2009 just to maintain existing
structural, safety and travel performance conditions on the nation’s highways
and bridges.
When
the new Conditions and Performance report is issued later this year, the data
will inescapably show that it will take a federal highway investment of at
least $50 billion per year just to stabilize congestion at its current level,
and more likely a program of $60 billion or even more.
Of
course, we must also look at mass transit capital needs which are in addition
to the highway investment needs reported by Administrator Peters.
ARTBA
has developed a TEA-21 reauthorization funding proposal, which we call “Two Cents
Makes Sense,” that shows how the federal share of highway investment
requirements during the next six years can be substantially met. We are
recommending a federal highway program funded at $35 billion in FY 2004 and
then increased by $5 billion per year to $60 billion by FY 2009. This program
would bring us to an investment level that would maintain current physical and
safety conditions and assure that traffic congestion will not get materially
worse over the next ten years. It would also double mass transit investment to
about $14 billion by FY 2009.
Our
approach would result in a manageable program for both the state DOTs and the
transportation construction industry. The funding levels we recommend should be
guaranteed and firewall-protected just as under TEA-21. But we would recommend
that there not be a RABA adjustment of the kind that caused the funding
uncertainty and political problems we saw in FY 2003.
We
are suggesting a fundamental change in Highway Trust Fund cash management to
assure that highway users pay no more into the trust fund each year than is
needed to cover actual outlays from the trust fund. Under our recommended
changes, we calculate that a small annual increase in the federal highway user
fee of about 2 cents per gallon would be needed at most to meet projected cash
outlays from the Highway Trust Fund to fund the program we visualize.
About
half a cent of this increase would come from permanently indexing the motor
fuels tax to the Consumer Price Index, which would preserve the purchasing
power of highway user fees even beyond the reauthorization period. The other
1.5 cents would have to be included in the reauthorization legislation.
To
put a 2-cent annual increase in perspective, we have included a chart on page 9
below showing that the average weekly change in the retail price of
gasoline during the past year and a half was almost 2.5 cents per gallon.
If
Congress were to enact any other source of new revenues for the Highway Trust
Fund, like transferring the 2.5 cents per gallon of the gasohol excise from the
general fund to the Highway Trust Fund, the necessary increase in the motor
fuels user fee would be even smaller.
Finally,
our proposal would include a revenue RABA provision to assure that the federal
highway program does not contribute to the federal deficit. Under a revenue
RABA, if the Highway Trust Fund were to run a deficit during any fiscal year,
the user fee would be automatically increased the following year by just enough
to make the trust fund whole. Conversely, if the trust fund ran a surplus, then
the user fees would be automatically reduced the following year. This would
assure that the federal highway program would be completely budget-neutral and
would have no impact on the federal surplus or deficit.
ARTBA
Recommendations for Meeting Highway and Transit Investment Needs in TEA-21
Reauthorization
In March 2001, the American
Road and Transportation Builders Association published its detailed proposals
for improving the federal highway and mass transit programs in a 72-page report
entitled “A Blueprint for Year 2003 Reauthorization of the Federal Surface
Transportation Programs.” This report
was the culmination of the work of a task force of over 100 ARTBA members. Our refined funding proposal for reauthorization,
“Two Cents Makes Sense,” was released on July 16.
Mr. Chairman, ARTBA’s vision
for TEA-21 reauthorization is centered on three goals:
First, cutting the number of
deaths and injuries on America’s highways between 2004 and 2009 through targeted
capital investments.
Second, ensuring that traffic
congestion for the American public and business community does not get
materially worse between now and 2009; and
Third, ensuring that the
structural conditions of federally-aided highways, bridges and transit systems
do not get materially worse over that same period.
These goals can only be
accomplished by providing the capital investments the data from the U.S.
Department of Transportation and the American Association of State Highway and
Transportation Officials (AASHTO) reports suggest are necessary to, at minimum,
maintain existing system safety, physical conditions and performance.
New
Assessments of National Transportation Capital Investment Needs: AASHTO, USDOT, APTA
The upcoming AASHTO “Bottom Line” report uses Year 2000
data provided by the state transportation departments and the U.S. Department
of Transportation’s HERS model to project highway and mass transit capital
investment needs over the period 2000 to 2019. The report states that an annual capital investment of $92.0
billion in 2000 dollars will be required during the next 20 years by all levels
of government to maintain current conditions and performance on the nation’s
highways and $125.6 billion will be needed annually to make all of the
economically beneficial improvements identified by the model.
The AASHTO report does not assign a federal share to these
needs estimates, nor does it factor in future price inflation. If one assumes the federal share of total
highway capital investment, FY 2004-09, will continue to be about 47 percent[1]—the
average share over the past 20 years—and that annual inflation will be 2.4
percent[2]—the
estimate used in the President’s FY 2003 budget—the “Bottom Line” report suggests:
·
The federal
share of the investment needed “just to maintain” Year 2000 highway safety,
structural and traffic congestion conditions would be $47.7 billion in FY 2004,
rising to $53.6 billion in FY 2009.
·
The federal share of the investment needed to make all
economically justifiable improvements to the highway system would be $65.1
billion in Year 2004, rising to $73.2 billion in Year 2009.
Figure 1graphically depicts how the ARTBA “Two Cents Makes
Sense” proposal addresses these investment needs estimates suggested by the
AASHTO “Bottom Line” report.
The U.S. Department of Transportation
is expected to soon release the biennial surface transportation conditions,
performance and investment requirement report it is mandated to submit to
Congress. The most recent report,
issued in 2000 and utilizing 1997 data, suggested a minimum $50 billion per
year federal investment requirement, when adjusted for inflation and historic
traffic use. Annual inflation alone would
be expected to drive that reported annual investment need beyond $60 billion by
FY 2009.
The American Public Transportation
Association (APTA) has stated that a $14 billion per year annual federal
investment is necessary to meet minimum national transit needs.
Existing
Revenue Options
Financing this level of investment will
require more revenues than highway users are currently projected to pay into
the Highway Trust Fund during the next six years.
Based on information such as current highway user fees, expected population
growth, number of drivers, vehicle miles traveled and other factors, the
Congressional Budget Office and the U.S. Department of the Treasury currently
project that revenues into the Highway Account will grow from $30 billion in FY
2004 to just under $35 billion in FY 2009. Projected revenue growth between now
and FY 2009 will thus be far less than needed to meet federal highway
investment requirements during the next six years.
Nearly two years ago, ARTBA proposed a number of
options for enhancing Highway Account revenues. These include:
- spending down the current cash balance;
- indexing the motor fuels excise taxes for inflation;
- crediting the Highway Account with gasohol tax revenues that
currently go into the General Fund;
- ending the gasohol subsidy or reimbursing the Highway Trust Fund
from the General Fund for the cost of the subsidy;
- crediting interest on the Highway Trust Fund balances;
- eliminating fuel tax evasion; and
- expanding innovative financing programs.
Table
1 provides the latest revenue estimates for each of these options. These
figures were computed by ARTBA's economics and research team based on the most
recent available data from the U.S. Department of the Treasury, the
Congressional Budget Office and other government agencies.
If all of these revenue enhancements were enacted by
Congress, they would add $5 billion to projected Highway Account revenues in FY
2004. This would gradually rise to $9 billion in FY 2009. This would allow the
program to grow to $44 billion by FY 2009, far short of the $60 billion
needed just to maintain current structural, safety and traffic conditions.
What is abundantly clear is
that a minimally-adequate federal highway program after TEA-21 will require
significant new revenues, beyond these seven options.
The
main sources of funds for federal highway investment are the fees paid by
highway users in the form of excise taxes on motor fuels—gasoline, diesel fuel
and gasohol. Each penny of the motor fuels excise taxes currently generates
about $1.7 billion per year, with about $1.4 billion being deposited into
the Highway Account of the Highway Trust Fund and $260 million deposited into
the Mass Transit Account.
ARTBA
has endorsed an increase in highway user fees as needed to maintain current
structural, safety and traffic mobility conditions on the nation’s highways and
bridges. But highway users should not be asked to pay any more than absolutely
necessary. The proposal I want to outline this morning is designed to provide
the necessary level of federal highway investment during the next six years at
the minimum cost to highway users
“Two Cents Makes Sense” – A Funding Proposal to Meet the Investment Requirements Outlined by the U.S. Department of Transportation and AASHTO
On July 16, 2002, ARTBA
announced a needs based financing proposal for TEA-21 reauthorization—“Two
Cents Makes Sense.” The financing plan
is a refinement of the funding recommendations ARTBA published in March
2001.
The “Two Cents Makes Sense”
plan would provide the revenue stream necessary to double the annual federal
investments in highways—to $60 billion—and mass transit—to almost $14
billion—by FY 2009. This proposal is
the only one currently being discussed that would grow federal highway
investment during the next authorization period to the level the U.S.
Department of Transportation (USDOT), the American Association of State Highway
and Transportation Officials (AASHTO) and the American Public Transportation
Association (APTA) report is the minimum needed just to maintain current
safety, traffic congestion and structural conditions.
The “Two Cents Makes Sense” plan
would provide steady, predictable and manageable federal highway program
increases—in $5 billion increments—from $35 billion in fiscal 2004 to $60
billion in fiscal 2009. Federal transit
investment would increase under our proposal in $1 billion annual
increments. This would be achieved
through:
·
more efficient cash
management of Highway Trust Fund
(HTF) revenues; and
·
a small, annual
adjustment in the federal motor fuels excise user fee rate to assure the
revenue stream necessary to cover the government’s cash outlay in that year for
the highway and transit programs.
Our proposal is a logical
evolution of the concept embraced by Congress in TEA-21 of directly linking
annual highway investment to the user fee revenue stream.
Under our proposal, the
TEA-21 budget firewalls and protections would be maintained. This would include annual funding guarantees
in the authorization legislation and the budgetary protections for the highway
and mass transit programs, including the separate budget categories and the
point of order in the House Rules that can be raised against legislation that
would reduce the guaranteed funding.
More
Efficient Cash Management of Highway Trust Fund Revenues
Under TEA-21, as has been the
case for several decades, the federal government has been collecting more
highway user revenue each year than it actually needs to pay the annual bills—or
outlays—for the highway and transit programs.
As a result, this money is being “warehoused” for up to seven years
before it is actually spent. That’s why
the trust fund balance continues to balloon.
Here’s how it happens:
Based on years of analysis,
the White House Office of Management & Budget and the Congressional Budget
Office have determined federal highway funds spend out over a period extending
seven years. This spend out rate is
unique among federal programs. Unlike
the case with virtually every other federal program, of every dollar obligated
during a fiscal year for the federal highway program, only 27 cents will
actually have to be paid out of the HTF Highway Account during the first
year. The next year, 42 cents will be
paid, followed by 17 cents the third year and smaller amounts in following
years (See Figure 2).
This “lag” between collection
of user fee revenue from motorists and truckers to actual complete spend
out of those revenues causes the significant annual growth in the Highway Trust
Fund balance. Absent changes, the
Highway Trust Fund’s Highway Account balance would grow steadily through FY
2010.
ARTBA proposes to correct
this inefficient money management by returning the federal highway program to a
true “pay-as-you-go” approach.
Returning
to a True “Pay-as-You-Go” Approach
In the reauthorization,
Congress would set annual investment targets to work toward accomplishing needs
based performance results. This
could be accomplished by starting with $35 billion in FY 2004 and ramping in $5
billion increments annually thereafter to $60 billion in FY 2009. This would similarly be done for transit
investment. Once these authorization
levels are established, the Congressional Budget Office would determine the
annual cash outlay needed to fund the new authorization, plus remaining past
authorizations.
The reauthorization legislation
would also include authority for an annual adjustment of the federal motor
fuels user fee excise rate to produce the amount of revenue to the HTF needed
to meet the highway and transit program cash outlays for the year. This adjustment would have two parts: (1) a base adjustment to protect that
purchasing power of the highway and transit programs that would be linked to
the annual Consumer Price Index (indexing); and (2) depending on U.S. Treasury
revenue projections for the Highway Trust Fund from all sources during
the upcoming year (i.e., could include possible recapture of ethanol revenues,
interest on the trust fund, prudent use of the existing HTF balance, revenues
from innovative financing) an adjustment in the motor fuels rate above indexing
that is necessary to provide the revenue needed to meet the outlay target.
By implementing these recommended changes, it is
possible to increase federal highway and transit investment significantly
without a large, one time increase in the motor fuels excise user fee rate
(which would also exacerbate the HTF balance build up just discussed).
Funding the annual
authorizations we have proposed, would, with implementation of the changes we
have recommended, require at most an annual adjustment of the federal motor
fuels excise user fee rate of 2.2 cents per gallon. Approximately one-half cent of that increase would be the result
of indexing to the CPI. If the HTF
revenue stream were enhanced by redirection and equitable taxation of ethanol,
use of the existing HTF balance, more revenues due to a robust economy—any or
all—the annual adjustment in the motor fuels excise user fee rate would be
lower than 2.2 cents per gallon (including indexing)! (See Figure 3)
Revenue RABA
Provision: An Approach that Eliminates
Current RABA Political and Program Planning Problems.
The “Two Cents Makes Sense”
proposal would also replace the TEA-21’s RABA (Revenue Aligned Budget
Authority) adjustment with a “Revenue RABA Provision.” The necessary user fee increases in Figure 3 were calculated using the most recent Highway Trust Fund
projections by the U.S. Department of Treasury and the Congressional Budget
Office. When TEA-21 is reauthorized,
new calculations, based on the then current data, may indicate user fee increases
slightly higher or lower than those in Figure
3.
Under a “Revenue RABA
Provision,” if revenues into the HTF during any given fiscal year were to fall
short of outlays, then the following year the statutory motor fuels excise user
fee rate would be automatically allowed (or certified) to increase by the
amount required to offset the deficit and make the trust fund whole. This would eliminate the political
problems and program disruptions that have occurred with the FY 2003
transportation appropriation caused by the current RABA construct.
Conversely, if revenues to
the HTF were to exceed required outlays during a fiscal year, then the
following year the motor fuels excise user fee rate would be automatically
decreased by the amount needed to offset the resulting surplus.
This “Revenue RABA
Provision” would ensure that the highway and mass transit program does not
contribute to the federal deficit during the next six years.
Looking
Rationally at the Impact of an Annual Two Cent User Fee Adjustment: The Real World Gas Price Experience
During the past year and a
half, the retail price of gasoline has fluctuated by an average 2.5 cents per
gallon per week! (See Figure 4). In 14 of the weeks, the average national retail price of gasoline
either increased or decreased by 5 cents per gallon or more. In 39 of the 75
weeks shown in Figure 4—or more than half the time—the average retail price
nationally fluctuated at least 2 cents per gallon from one week to the next.
What this means, of course, is motorists are used to
paying each week the level of annual adjustment in the federal motor
fuels excise user fee rate proposed by ARTBA to support a $60 billion federal
highway and $14 billion federal transit program by FY 2009!
ARTBA commissioned Zogby International
to conduct a national survey of likely voters July 9-12, 2002, which found
almost 70 percent would support an annual 2 cent per gallon increase in the
federal motor fuels tax rate if the money it generated was used exclusively for
transportation improvements. A 2 cent
gas tax increase would cost the average driver $12 per year, or 6 cents per
day. That compares to the estimated
$259 each motorist pays per year in extra vehicle repair and operating costs
driving on poor roads.
Tables 2 and 3, found at the
end of this testimony, provide an analysis of how our “Two Cents Makes Sense”
proposal would benefit individual state highway programs, based on both the
existing apportionment formulas and in response to proposals to increase
minimum state returns to 95 percent.
Maintenance of Effort Provision
to Ensure Program Growth in Every State
A key component of financing
highway, bridge and mass transit improvements is the partnership between federal,
state and local governments to develop and maintain the nation’s surface
transportation network. It is critical for all partners to make an appropriate
commitment to transportation investment. Unfortunately, a number of states
let their own funds for highway and bridge investment lag upon realizing the
increased federal funds they would receive under TEA-21.
To ensure increased federal
surface transportation investment actually results in more funds for
transportation improvement projects, ARTBA believes the reauthorization of
TEA-21 should include a “maintenance of effort” provision that makes increased
apportioned federal funds contingent on individual state highway and
transit program investment levels consistent with, at least, their prior year
investment.
Mr.
Chairman, thank you again for the opportunity to testify before the
subcommittee on this important subject.
I
would be happy to respond to questions.
