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“Financing Transportation: Rethinking How the Public Sector Does Business”
Summary of Remarks by
William Ankner
Transportation Solutions
June 14, 2007
Dr. Ankner said that financing the nation’s transportation system is an increasingly urgent issue, given the importance of transportation to the national economy and the status of the Highway Trust Fund, which he said verges on bankruptcy. Factors affecting the system:
- Current financial methods are unduly complex.
- Gas tax revenues are falling as fuel economy rises.
- The contribution of United States transportation to climate change is a major concern.
- The system is increasingly unable to carry the quantity of freight the economy demands.
- The public sector has acted more like an absentee landlord than a manager of the system.
- Present methods pit state against state, as states demand federal grants proportional to their contributions to the trust fund rather than their needs.
The current system charges fees to the users of each mode (road, rail, air, etc). The state Department of Transportation (DOT) directors would all privately agree that their tasks would be much easier if all their residents purchased Hummers and drove them incessantly, however greatly that might conflict with energy or environmental policy. Consumers have failed to cooperate, and the basis of the trust fund is shrinking.
The modal fees approach creates the concept of “my money” in each node, e.g., aviation taxes can only be spent on airports themselves, not even on rail, bus, or road access to airports. This is also true for the rails, and mostly true for the Highway Trust Fund. A state cannot use its highway fund to enhance Amtrak service, but can add additional lanes. High-speed rail cannot be paid for out of the aviation fund. Divided jurisdiction in Congress abets this fragmentation – three different committees oversee transportation policy, each with one or more of its own nodes.
As system needs rise, modal fees proliferate. Surface transport, aviation, and rail currently rely on 57 different revenue sources. In aviation, taxes and fees have risen from seven percent of the cost to 27 percent of the cost in the past 35 years.
Because the states lack the will to raise taxes or tolls, some turn to “innovative financing instruments,” all of which increase indebtedness. New Jersey’s DOT is essentially bankrupt, having refinanced the system three times, and Connecticut’s case is similar. Opaque debt structures are seductive to governors. If they issue the debt now, they can fund many projects; when the bills come due, somebody else will be in office.
Other states sell or rent their infrastructure to private firms: Indiana has leased its interstate for 75 years, and Chicago its tollway for 99 years. Not coincidentally, these agreements largely shift the cost burden to non-residents (interstate truckers in Indiana’s case, Indiana residents in Chicago’s), but even so this radical change resulted from Indiana’s political inability to raise tolls for 16 years.
Dr. Ankner contends that everyone benefits from the transportation system, not just the immediate user, and therefore user fees do not properly capture user benefits. Benefits flow to everyone, largely in proportion to income, and the system should therefore be funded from a broad-based income tax. Transportation is about eleven percent of Gross Domestic Product (GDP), and our national competitiveness depends upon the system. Though for all its faults, we have perhaps the lowest-cost, most efficient transport system on earth.
He proposes a surcharge to raise eleven percent of the current federal income tax revenues, set aside in a federal transportation trust fund that would be at least as well protected against diversion as the federal Highway Trust Fund. He proposes to eliminate all other federal taxes and user fees for transportation, and all current trust funds. Reliance on the income tax would produce significant administrative savings; would eliminate present rationales for interstate and inter-modal conflict; and would end reliance on the gas tax, which he regards as regressive and inequitable. The land-use policies of inner cities and suburbs oblige lower-wage workers to commute longer distances; thus, higher-wage workers now get a better system and pay less for it.
Dr. Ankner then presented a consideration that somewhat conflicts with this strategy: global warming. Transportation accounts for forty percent of the U.S. carbon footprint. There are two major concepts for reducing emissions, “cap and trade” and carbon taxes. Cap and trade would be impractical in transportation. For example, the airlines could not profit from the differential in emissions between high-speed rail and air transport between San Francisco and Los Angeles by capping and trading into high-speed rail because it does not exist. Electrifying commuter rail would have a huge carbon benefit, but cap and trade would not finance it. Thus, carbon taxes will have to be part of transportation pricing. He acknowledged that some carbon taxes would resemble fuel taxes, but noted that carbon taxes can also be incorporated in vehicle registration fees (e.g., Hummer vs. Prius). He is still wrestling with this, because he feels it is important to move away from user fees in the transport system.
In question period, he noted that failure to see transport as a system leads to numerous failures. The Jones Act prohibits port-to-port interstate sea transport by any ship with a hull that was not laid in a U.S. shipyard. Repeal of the Jones Act could significantly cut truck traffic on I-95. The Washington Metro is in fiscal crisis, because the system has not captured any of the enormous value it has provided to DC and the inner suburbs. In addition, economic development at highway exits and interchanges provides no revenue to the highway system.
Dr. Ankner is currently affiliated with Transportation Solutions, a consulting company he founded in 2003. He was previously Chief Executive Officer of the Rhode Island Department of Transportation (DOT) and, before that, a senior manager in the DOTs of three other states and of the Port Authority of New York and New Jersey. Dr. Anker holds a PhD in philosophy from the University of Ottawa.
Rapporteur: Mark Shroder
