[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
STRUCTURE OF THE FEDERAL FUEL TAX AND THE LONG-TERM VIABILITY OF THE
HIGHWAY TRUST FUND
=======================================================================
(110-22)
HEARING
BEFORE THE
SUBCOMMITTEE ON
HIGHWAYS AND TRANSIT
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MARCH 27, 2007
__________
Printed for the use of the
Committee on Transportation and Infrastructure
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COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of HOWARD COBLE, North Carolina
Columbia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida VERNON J. EHLERS, Michigan
BOB FILNER, California STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi FRANK A. LoBIONDO, New Jersey
JUANITA MILLENDER-McDONALD, JERRY MORAN, Kansas
California GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California HENRY E. BROWN, Jr., South
LEONARD L. BOSWELL, Iowa Carolina
TIM HOLDEN, Pennsylvania TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts BILL SHUSTER, Pennsylvania
JULIA CARSON, Indiana JOHN BOOZMAN, Arkansas
TIMOTHY H. BISHOP, New York SHELLEY MOORE CAPITO, West
MICHAEL H. MICHAUD, Maine Virginia
BRIAN HIGGINS, New York JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
JOHN T. SALAZAR, Colorado CHARLES W. DENT, Pennsylvania
GRACE F. NAPOLITANO, California TED POE, Texas
DANIEL LIPINSKI, Illinois DAVID G. REICHERT, Washington
DORIS O. MATSUI, California CONNIE MACK, Florida
NICK LAMPSON, Texas JOHN R. `RANDY' KUHL, Jr., New
ZACHARY T. SPACE, Ohio York
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa CHARLES W. BOUSTANY, Jr.,
JASON ALTMIRE, Pennsylvania Louisiana
TIMOTHY J. WALZ, Minnesota JEAN SCHMIDT, Ohio
HEATH SHULER, North Carolina CANDICE S. MILLER, Michigan
MICHAEL A. ACURI, New York THELMA D. DRAKE, Virginia
HARRY E. MITCHELL, Arizona MARY FALLIN, Oklahoma
CHRISTOPHER P. CARNEY, Pennsylvania VERN BUCHANAN, Florida
JOHN J. HALL, New York
STEVE KAGEN, Wisconsin
STEVE COHEN, Tennessee
JERRY McNERNEY, California
(ii)
?
SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES
PETER A. DeFAZIO, Oregon
NICK J. RAHALL II, West Virginia JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York DON YOUNG, Alaska
JUANITA MILLENDER-McDONALD, THOMAS E. PETRI, Wisconsin
California HOWARD COBLE, North Carolina
ELLEN O. TAUSCHER, California RICHARD H. BAKER, Louisiana
TIM HOLDEN, Pennsylvania GARY G. MILLER, California
MICHAEL E. CAPUANO, Massachusetts ROBIN HAYES, North Carolina
JULIA CARSON, Indiana HENRY E. BROWN, Jr., South
TIMOTHY H. BISHOP, New York Carolina
MICHAEL H. MICHAUD, Maine TIMOTHY V. JOHNSON, Illinois
BRIAN HIGGINS, New York TODD RUSSELL PLATTS, Pennsylvania
GRACE F. NAPOLITANO, California JOHN BOOZMAN, Arkansas
MAZIE K. HIRONO, Hawaii SHELLEY MOORE CAPITO, West
JASON ALTMIRE, Pennsylvania Virginia
TIMOTHY J. WALZ, Minnesota JIM GERLACH, Pennsylvania
HEATH SHULER, North Carolina MARIO DIAZ-BALART, Florida
MICHAEL A ARCURI, New York CHARLES W. DENT, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania TED POE, Texas
JERRY MCNERNEY, California DAVID G. REICHERT, Washington
BOB FILNER, California CHARLES W. BOUSTANY, Jr.,
ELIJAH E. CUMMINGS, Maryland Louisiana
BRIAN BAIRD, Washington JEAN SCHMIDT, Ohio
DANIEL LIPINSKI, Illinois CANDICE S. MILLER, Michigan
DORIS O. MATSUI, California THELMA D. DRAKE, Virginia
STEVE COHEN, Tennessee MARY FALLIN, Oklahoma
ZACHARY T. SPACE, Ohio VERN BUCHANAN, Florida
BRUCE L. BRALEY, Iowa JOHN L. MICA, Florida
HARRY E. MITCHELL, Arizona (Ex Officio)
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Buechner, William, Vice President for Economics and Research,
American Road and Transportation Builders Association.......... 3
Marron, Donald B., Deputy Director, Congressional Budget Office.. 3
Pisarski, Alan, Private Consultant............................... 3
Sperling, Daniel, Professor and Director, University of
California-Davis, Institute of Transportation Studies.......... 3
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Altmire, Hon. Jason, of Pennsylvania............................. 21
Mitchell, Harry E., of Arizona................................... 22
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Buechner, William R.............................................. 25
Marron, Donald B................................................. 37
Pisarski, Alan E................................................. 53
Sperling, Daniel................................................. 64
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HEARING ON STRUCTURE OF THE FEDERAL FUEL TAX AND THE LONG-TERM
VIABILITY OF THE HIGHWAY TRUST FUND
----------
Tuesday, March 27, 2007,
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Highways and Transit,
Washington, DC.
The subcommittee met, pursuant to call, at 2:00 p.m., in
Room 2167, Rayburn House Office Building, the Honorable Peter
DeFazio [chairman of the subcommittee] presiding.
Mr. DeFazio. Okay, let's get started. I want to thank my
Ranking Member, Jimmy Duncan, for being here today and the
witnesses for being here. Perhaps the state of the Highway
Trust Fund and the income into the Trust Fund is not to a lot
of people an earthshaking topic. But it is one of two key
components, as we move forward and look at the reauthorization
of the next highway and transit legislation in 2009.
Obviously we are also investigating the other component,
that is, what is it we have to maintain and what is it we have
to build to enhance the system. But the other side is, how are
we going to pay for it. If we look back to SAFETEA-LU and just
before SAFETEA-LU, the estimates of the Bush Administration's
Department of Transportation were, we basically needed $375
billion investment over the term of the bill to tread water.
Obviously our resources were short of that. We did as good as
we could, coming up just under $300 billion.
So we need to understand how the gas tax is going to fare
in the future, the Trust Fund, the other associated taxes that
contribute to the Trust Fund, and hopefully look toward a way
to make more robust investments in the future. Obviously other
things have happened since the last time the gas tax was
updated, the extraordinary run-up of construction costs. And
obviously, increased traffic. So we need to take a very hard
look at all these issues, and I appreciate your all being here
today.
I now recognize my Ranking Member, Mr. Duncan from
Tennessee.
Mr. Duncan. Thank you, Mr. Chairman. I am pleased that we
are holding this hearing today on the structure of the Federal
fuel tax and the long-term viability of the Highway Trust Fund.
When the SAFETEA-LU bill was signed into law two and a half
years ago, I think many people realized that we would at some
point have to reevaluate how we fund the surface transportation
projects, and probably need to do that before the next
reauthorization bill is considered. This hearing begins that
very important process.
Ever since the HIgwhay Trust Fund was created in 1956, the
Federal fuel tax has been the primary source of revenue for the
Trust Fund. The Highway Trust Fund, as most people know, most
of the people who are here today, also receives revenue from
taxes on tires and truck and trailer sales and annual sales on
heavy trucks. However, the vast majority of the revenue
deposited in the Highway Trust Fund is derived from Federal
taxes on gasoline, diesel fuel and other special fuels.
We are now reaching a point in history where we need to
evaluate whether or not the current revenue structure of the
Highway Trust Fund can stand the test of time. For 50 years it
has served us well. However the vehicles we drive are rapidly
changing. Fuel efficiency is increasing. Electric hybrid
vehicles are gaining in popularity and major auto manufacturers
are talking about mass-producing plug-in electric vehicles.
I have seen some of the research being done in this area
first-hand at the National Transportation Research Center in my
district in Knoxville. Researchers at the NTRC are some of the
leading experts in developing advanced power electronic
devices. As transportation shifts from combustion-driven
vehicles to hybrid electric, plug-in, hybrid and fuel cell
vehicles, the research being done at this facility I think will
be very critical, very important.
This shift in how we fuel our vehicles will reduce our
dependence on foreign oil and may have positive environmental
impacts. However, it may also force us to change how we fund
the Highway Trust Fund. A tax on fuel is our primary source of
revenue, as I have mentioned, for the fund. As we incorporate
technologies that reduce the amount of fuel we use, we will see
a reduction in revenue into the trust fund that is attributed
to the fuel tax. While this is not an immediate concern, it is
something we need to think about as we begin to write the next
reauthorization bill.
I look forward to hearing from the experts that we have
assembled here today and hope that they will provide us some
real insight on the current status of the Highway Trust Fund
and how long into the future the current financing structure of
the Trust Fund can sustain our Nation's surface transportation
needs.
Thank you, Mr. Chairman. I yield back.
Mr. DeFazio. I thank the Ranking Member for that statement,
helping put this hearing in context.
If there are no other opening statements, we will move to
the witnesses. In terms of the order prescribed, whatever it
says there, I guess it's the order up there. Mr. Marron, Deputy
Director of CBO, go right ahead.
TESTIMONY OF DONALD B. MARRON, DEPUTY DIRECTOR, CONGRESSIONAL
BUDGET OFFICE; WILLIAM BUECHNER, VICE PRESIDENT FOR ECONOMICS
AND RESEARCH, AMERICAN ROAD AND TRANSPORTATION BUILDERS
ASSOCIATION; DANIEL SPERLING, PROFESSOR AND DIRECTOR,
UNIVERSITY OF CALIFORNIA-DAVIS, INSTITUTE OF TRANSPORTATION
STUDIES; ALAN PISARSKI, PRIVATE CONSULTANT
Mr. Marron. Thank you, Mr. Chairman, Mr. Ranking Member,
and members of the Committee, it is a pleasure to be here today
to discuss the status of the Highway Trust Fund.
In my opening remarks, I would like to make four points.
First, CBO projects that under current law, revenues to the
highway account of the Highway Trust Fund will fall short of
outlays over the next few years. As a result, the account will
become exhausted by the end of 2009.
If obligation limitations and RABA adjustments are set at
the levels authorized in SAFETEA-LU, CBO estimates that outlays
during 2007 through 2009 will total about $117 billion.
Revenues over that period are projected to be about $108
billion, $9 billion lower than outlays. Transfers from the
highway account to the transit account would total about $2
billion over that period. Putting those figures together, CBO
projects that the highway account balance would decline by
almost $11 billion by the end of 2009. More specifically, the
balance would fall from about $8.9 billion at the start of 2007
to negative $1.7 billion at the end of 2009. CBO similarly
projects that the mass transit account will become exhausted in
2012.
Second, about 90 percent of the revenues for the Highway
Trust Fund come from fuel taxes that are fixed in nominal
terms: the 18.3 cents per gallon tax on gasoline and gasohol
and the 24.3 cents per gallon tax on diesel. Because the tax
rates are fixed in nominal terms, tax revenues are ultimately
determined by fuel use. Fuel use in turn is driven by real
economic growth, fuel prices, fuel economy and the types of
fuel that are used. Economic growth increases fuel purchases
and tax revenues. Higher fuel prices and higher fuel efficiency
both reduce fuel purchases and revenues, and changes in the
types of fuel can either raise or lower revenues, depending on
the particular tax rates and the energy content of the fuel.
Third, because revenues are driven by fuel use, they tend
to grow more slowly than the nominal size of the economy. For
example, CBO projects that fuel tax revenues will grow about
1.5 percent per year over the next 10 years, compared to
nominal economic growth of 4.6 percent per year.
I should note, however, that the fuel tax revenues did grow
faster than fuel use over the last 10 years. That happened
because of several law changes that shifted resources into the
Trust Fund from the general fund. In 1998, for example,
revenues from the 4.3 cents per gallon tax that was originally
enacted in 1993 were shifted into the Trust Fund from general
revenue. In 2005, tax credits for ethanol were restructured so
that they reduced general revenues rather than Trust Fund
revenues.
Fourth and finally, I should emphasize that these
projections, and really any projections of revenues and outlays
for the Highway Trust Fund, are subject to significant
uncertainty. There is uncertainty about spending, for example,
because it will depend on decisions made by the Congress and
the Administration regarding basic annual funding levels for
the program and the adoption of RABA adjustments. Spending
rates will also be influenced by the decisions of State and
local governments.
There is uncertainty about revenues because of uncertainty
about future economic conditions. The economy could grow faster
or slower than expected, oil prices could rise or fall above
projected levels, and alternative fuels could develop faster or
slower than expected. Such economic changes would result in
different revenue levels.
There are also uncertainties about the key technical
assumptions that relate economic activity to revenues.
Consumers might adjust to changes in fuel prices more or less
than we expect. Fuel and truck purchases might be more or less
responsive to increases in economic activity. Any of those
changes could affect revenues. Given these uncertainties, the
highway account could become exhausted either earlier or later
than our current estimates indicate.
Thank you, and I would be happy to answer any questions.
Mr. DeFazio. Thank you, Mr. Marron.
Mr. Buechner.
Mr. Buechner. Mr. Chairman and members of the Subcommittee,
thank you very much for inviting the American Road and
Transportation Builders Association to testify on the viability
of the motor fuels excise tax.
Let me start with the most immediate concern, the balance
in the Highway Trust Fund. The Highway Trust Fund balance will
be exhausted by the end of fiscal year 2009. The Federal
Highway Administration estimates a $200 million deficit, the
Congressional Budget Office $1.7 billion. The figures are
somewhat variable, depending on what assumptions you make.
The fear is that the way we are going to deal with that is
to cut highway funding, either by foregoing the RABA adjustment
in fiscal year 2008 or cutting the program in 2009. But there
is a better alternative, which is to repeal or restructure most
of the remaining Federal motor fuel excise tax exemptions.
As you know, the Federal Highway program is user-fee
financed through revenues, primarily from taxes on gasoline and
diesel fuels. But there are some highway users that are exempt
from the tax for reasons that have nothing to do with
transportation policy. Repealing or funding these exemptions
from the general fund, as was done with the ethanol incentive
in 2004, would add about $1 billion per year to highway account
revenues. This approach was endorsed by the Administration in
its fiscal year 2006 budget submission and was included in the
version of SAFETEA-LU passed by the Senate. It would pretty
much rectify any of the deficit projections that are on the
table.
Beyond 2009, there are two concerns affecting the viability
of the Federal Motor Fuel Tax_the impact of higher CAFE
standards and rising construction costs. Very briefly, CAFE
standards for cars and light trucks have very laudable goals.
They reduce our dependence on foreign fuel and they improve air
quality. But they also reduce tax revenues for the Highway
Trust Fund.
NHTSA has recently announced a 10 percent increase in CAFE
standards for light trucks that would be effective with the
2011 model year. This will have an impact on Highway Trust Fund
revenues, as Don pointed out, in the long term. But it won't be
significant until well after the years covered by the next
reauthorization legislation.
We currently replace about 7 percent of the 230 million
cars and light trucks registered in the U.S. each year. So it
takes more than 14 years to completely replace the entire
fleet. If you go through the math on the trucks that will be
affected by this, you find that the new CAFE standards for
light trucks would reduce Highway Trust Fund revenues by about
$100 million in fiscal year 2012 and maybe as much as $300
million or $400 million by 2015, which is about 1 percent of
projected revenues for that year.
If you look at hybrid vehicles, which are the only other
kind of cars on the road right now that are of serious concern
here, they only comprise like 2 or 3 percent of automobile
sales each year. The average revenue foregone would be in the
range of $30 million a year. So that is an issue for the long
term.
Far more important for the short term is the erosion of the
purchasing power of the fuel tax. Since 1993, when Congress
enacted the current tax rate, the purchasing power of the
Federal Motor Fuels Tax has fallen by more than 35 percent. The
big issue in 2004 was rising steel prices, which I have shown
in the first chart. You see the big increase in 2004. In 2005
and 2006, these rapid increases started spreading to core
highway construction materials. These charts show what happened
to the price of aggregates, crushed stone, which is the major
material for highways, ready-mix concrete went way up, asphalt
paving mixtures and diesel fuel all rose rapidly. Diesel fuel
more than doubled in three years.
So in these three years, the cost of highway construction
materials has risen more than 35 percent. When you factor in
wages and overhead, which have risen much less, the cost
increase is still at least 20 percent in three years and in
some parts of the country it is much higher.
This next figure shows the erosion of the purchasing power
of the Federal gas tax due to these higher construction costs.
In 2007, for example, the 18.3 cent per gallon gas tax
purchases about what 11.6 cents would have bought in 1993. Here
is a chart showing what the gas tax would have to be to
maintain that 18.3 cent purchasing power.
In summary, the Federal Motor Fuels Excise Tax is not a
broken model. It can continue to serve as the foundation for
financing the highway and mass transit programs for SAFETEA-LU
reauthorization and probably for some years beyond that. None
of the potential threats to the tax base will have a
significant impact for some years to come. The purchasing power
of the tax, though, is the problem and has been significantly
eroded by higher construction costs. It certainly can't support
the level of Federal highway investment needed today to
maintain mobility and support economic growth.
That is where I would like to stop and I thank you very
much for the opportunity to testify.
Mr. DeFazio. Thank you. That was, particularly the
graphics, very compelling.
We will now move to our next panelist, Mr. Sperling.
Mr. Sperling. Thank you, Mr. Chairman and members of the
Subcommittee. Thank you for the opportunity to speak to you
regarding the fuel excise tax.
My statement addresses the effect of alternative fuels and
vehicle fuel economy on fuel tax revenues. I note that I have
devoted most of my professional career to studying energy use
and transportation. This includes working closely with all of
the major car and oil companies in the world. And I note that I
also served on the 2005 National Academies TRB committee that
drafted the report, the Fuel Tax and Alternatives for
Transportation Funding.
My remarks are based in part on the findings of that study,
but the conclusions and recommendations I will offer are my
own. So my testimony addresses two concerns. One is addressing,
ensuring adequate funding for transportation and secondly,
reducing greenhouse gas emissions from transportation. So I
have three points. The first point responds to a fear that we
have just been hearing about in the transportation community
that the use of alternative fuels, hybrid cars, other fuel
efficient vehicles will reduce gas tax revenues. My assessment
and the assessment of the 2005 National Academies report is
that the gas tax is structurally sound for the near future. And
this agrees with the previous speaker.
Improved fuel economy and the introduction of alternative
fuels are unlikely to be great enough to threaten the viability
of the gas tax for at least the next 10 years and probably
longer. The 2005 National Academies report concluded ``The
existing revenue sources will retain the capacity to fund
transportation programs at historical levels.'' Now, the simple
explanation for this conclusion is as follows. First,
population continues to increase, vehicle use continues to
increase. Second, plans to tighten CAFE standards that we are
hearing about a lot in the news that the President is proposing
and others, will have a large effect eventually. But probably
not for quite a few years, for a number of reasons, including a
slow turnover of vehicles.
Thirdly, the rapid increase in alternative fuel use will be
mostly with ethanol, which is fully taxed and thus its use does
not affect gas tax revenues. The alternative fuels that are not
currently taxed, natural gas, hydrogen, electricity for plug-in
hybrids, are unlikely to be used in large volumes for at least
15 years and probably longer.
A reasonable projection is that gasoline and ethanol, the
taxed fuels, will continue increasing, peaking in about eight
to ten years and then start to slowly dip. For energy security
and climate change reasons, I personally hope that this down-
turn in gasoline use happens faster. But it is unlikely. I have
a different point of view than some of the others on the panel
on that.
My second point is that if we agree that more funding is
needed for highways and transit, and I do believe that very
strongly, then this funding need can be generated by simply
raising the gas tax a few cents per gallon. Adding five cents
per gallon costs a vehicle owner an extra $30 a year per
vehicle. This would solve any transportation funding problems
for many years.
The third point is a longer term solution, looking ahead in
terms of restructuring the financing. It is to restructure the
gasoline and diesel taxes to reward low carbon fuels in such a
way as to assure continued increases in the transportation
funding stream. Since alternative fuels will slowly become an
increasing share of the fuel supply pool, why not tax them in
accordance to their effect on climate change.
Keep in mind that some fuels already generate much higher
greenhouse gas emissions than others. For instance, gasoline
produced from tar sands in Canada generates about 20 to 50
percent more greenhouse gases per gallon than gasoline produced
from conventional oil. At the other extreme, the production of
biofuels made from crop residues, switchgrass. other cellulosic
material, dramatically reduces greenhouse gases, in some cases
to zero. Why not charge a higher tax for high carbon fuels and
a lower tax for low carbon fuels? The rates can be adjusted
periodically to sustain revenue flows into the Transportation
Trust Fund. This new carbon-based tax solves the long-term
structural problems of the gas tax and provides incentives for
low carbon fuels.
Thank you.
Mr. DeFazio. Thank you.
And then to our final panelist, Mr. Pisarski.
Mr. Pisarski. Thank you very much, Mr. Chairman, Mr.
Ranking Member and distinguished members. It is always a
pleasure to come back to talk to the Committee.
Last year, we celebrated the anniversary of the financing
plan that created the Highway Trust Fund in 1956 and the pay-
as-you-go system that made the interstate possible. The pay-as-
you-go system was a Congressional decision, after a toll-based
system was found too limiting and a bonding system too
expensive. The fundamental understanding is that of a user
compact between Government and road users in which users pay
according to the costs they exert on the road system and
Government expends those funds in ways that are responsive to
user needs. The responsibilities are mutual and reciprocal.
To be effective, a charging system for road use must to be
fair to users as well as adequate in generating resources. To
be fair, it is best for the fee system to be a surrogate for
the miles traveled by vehicles and proportionate to the effects
on the road system. The fuel use charge system does it about as
well as one could imagine.
The system's effectiveness can go wrong in two ways, either
in the fundamentals or in the effects of time. In the
fundamentals, it can simply be the original user charges are
inappropriate or the expenditures may not be focused properly
on user needs. Over time, the relationship of the elements
changes with fuel economy, inflation costs, construction costs,
new technology and the new demands that the society makes on
the system. All of these problems are directly addressable,
analytically, legislative, by policy, by indexing systems or
other means. We expect more of our systems today. Trying to
accomplish more has placed great strains on the investment
system.
Some analysts would foresee a system that could charge not
just for miles driven, but for miles driven at certain times
and at certain places with certain congestion levels. I think
few taxing systems are really capable of that kind of
precision.
The early years of the system I think is really very
important to recognize. The relatively coarse mechanism
employed to generate revenues were compensated for by massive
growth both in the fuel rates that were charged and growth in
auto use, the ownership of the automobile and the dramatic
growth in vehicle miles of travel. You see that in the slide
presented here.
One of the key factors for the future is in many respects
the saturation of many of these trends. The white, non-Hispanic
population has reached effective saturation in automobiles and
driver's licenses. Increases in per capita VMT have stabilized.
Current estimates of 20 year VMT growth out into the future
range below 2 percent, contrasted to the 3 and 4 percent annual
rates that we saw in past decades.
While all of these factors are significant, to me the
greatest impact on the user charge system and its adequacy have
not been demographic or technological. They have been the
result of fiscal and policy decisions that have distorted the
pay-as-you-go system with expanded targets for funding, transit
and others, fiscal constraints on the process, impounding, CAFE
and obligation limits, and the erosion over time of the value
of the funds as we fail to make timely adjustments. The fear of
future erosion of the system's revenues from new alternative
fuels and new vehicle technologies are relatively distant in
terms of serious impact and can be addressed as long as we keep
in mind the relationship between road use and the user fee. It
is the other challenges that will be a more serious threat to
the viability of the system.
Much has been made of the public's resistance to fuel tax
increases. It is more to the point that the public may have
lost faith in the validity of our vision and our ability to
execute our plans that leads to a real distaste for increases.
When a sound menu was put before the public by agencies that
are trusted, the success has been substantial around the
Country.
Overall, the pay-as-you-go system, tied to the trust fund
mechanism, has been immensely effective. Other nations have
used the gas tax as a cash cow, seeking consciously to separate
road program costs from road taxes in order to tap into the
immense benefits the public receives from road use. Other
funding approaches are not immune from that same problem. In
effect, then, one of the great benefits of the present system
is that it establishes an upper limit on what can be charged to
road users. In my mind, the integrity of dedication to highways
of the user charge is the most fundamental aspect of the user
compact. If that connection to transportation is lost, the
injury to America's high mobility society will be massive.
Than you so much, and I would be happy to answer any
questions.
Mr. DeFazio. Thank you, and thanks to the other panelists
for your testimony.
There does seem to be a little bit of variance in opinion
on the panel, which I would like to invoke some discussion
over. As I read through your testimony and listened to you
today, at the moment, construction increases and costs of
construction are obviously a very major factor in our
capability of using the current funds and gas tax to meet our
needs.
But then in the out years, the question of course, it is
kind of a crystal ball what might happen there, but it is also
a crystal ball how quickly the new technologies are going to
evolve and what impact that will have. We have a bit of
testimony on both sides. I would like you to discuss that. Is
the gas tax viable for a 10 year window, 20 year window, your
best guess? Perhaps with some adjustment for either inflation
or construction costs inflation, and if each one of you could
address that.
Mr. Marron?
Mr. Marron. Sure, I am happy to go first. Playing the
standard CBO card, I am not sure I am in a position to use the
word viable. What I can say is in our baseline, in the
projections that we prepared here and in our baseline, we do
have revenues from the gas tax rising over the ten year
projection window. So they are viable in the sense that
revenues are on an upward trajectory as fuel use rises.
In constructing those estimates, we look at these issues
about alternative fuels and whether they will cause revenues to
go down. We have a little bit of that in the baseline, but as
several of the other panelists say, we don't expect a lot of
that over the next 10 years. And thus far, we always look 10
years in the future, we haven't actually looked out beyond
that.
Mr. DeFazio. Okay.
Mr. Buechner. I think even with new technologies being
developed, it just takes a long time to implement them and get
them into the fleet. So I think 10 years, 15 years, and
certainly for the next reauthorization, I don't see any threat
other than minor erosion from hybrid cars and a little bit from
the increase in the CAFE standard.
But it is more a question of, when you are looking to the
next reauthorization, what do you want to accomplish with the
Federal highway program? What is the vision for the program?
What is the structure? And what revenues are needed to meet
those goals?
At that point, Congress would have to make a decision about
what the gas tax rate should be. But I think the base will be
there.
Mr. DeFazio. Well, given the run-up in construction costs,
given what you just said, if we didn't make any adjustment in
the gas tax in the next transportation bill, and given the fact
we are looking at potential exhaustion of the trust fund,
although there will be ongoing revenue in 2009 to 2010, I mean,
it would seem to me that you would be looking at a larger
deficit between need and capability.
Mr. Buechner. Oh, much larger, yes.
Mr. DeFazio. Does anybody disagree with that?
Mr. Buechner. To emphasize what you are saying, the current
level of the gas tax is insufficient to meet our highway and
transit investment needs.
Mr. DeFazio. All right. And we will be. As you pointed out,
you do need to know what you are looking to do. We are going to
be holding other hearings on the needs of the system. We are
sort of on two tracks here. One is examining our current
funding and its prospects and alternatives for funding, and the
other track is, what is our vision, what are our base needs,
what are the enhancements that we want to look to add to the
system.
Does anybody else want to comment? Yes, Mr. Pisarski.
Mr. Pisarski. Again, I agree that probably out 20 years the
system will still be very effective. And we need to support it
even beyond that to make sure it is dedicated to
transportation. But the concern is that we are, as you
mentioned earlier, facing the $375 billion backlog number, and
that number is now higher with the new Condition and
Performance report. We are not close to being able to respond
to that. So we must recognize that we need to expand the
funding that can be made available.
One of the focus points in my view, because we have
declining VMT into the future, is we have an immense backlog of
investment that is identified in the FHWA report documents.
Once we get past that backlog, I would like to argue that there
is a more steady state and that we will have a more reasonable
problem to address into the future. But that backlog is about
one reauthorization's worth of funding. That is the level of
the backlog.
Mr. DeFazio. So what do you quantify the backlog at?
Mr. Pisarski. One reauthorization----
Mr. DeFazio. The last one, $300 billion?
Mr. Pisarski. 1.0 reauthorization; yes, something on that
scale. I don't know that they have developed a new number. I
would have to ask them. But I would guess it has to be $375
billion to $400 billion.
[After the hearing, Mr. Pisarski stated the following for
the record: the 2006 Condition and Performance report cites a
value of $430 billion as the highway backlog, excluding rural
and urban local streets; and $65.2 billion in the bridge
backlog.]
Mr. DeFazio. All right. I think we have exhausted that
topic.
Does anybody have any thoughts on the last question? Then
we will turn to other members of the panel. But if we add an
index, if we wanted to index it, what would you use, to avoid
some of the deficit in the future? What would be the most
reasonable sort of--yes, Mr. Sperling?
Mr. Sperling. Well, as I suggested, there are basically two
ways. You can just index it up at some rate. Of course, many
people are suggesting refashioning the whole tax system into a
VMT type system, even a more pure user-based system. Having
participated in that gas tax committee for two years and
listened to all the proposals, in principle I thought it was a
great concept. But the more you dig into it, the more
complicated and difficult it becomes to actually implement. I
still think we need to be experimenting and exploring and
developing that, and maybe at the State level it would be more
fruitful as kind of an experiment, as Oregon is doing, for
instance.
But the other is to rethink the gas tax, as I suggested and
make it more tied to the environmental goals as well. I know
the transportation community hates that idea, because they like
a pure revenue stream, unadulterated by these other
considerations. But in fact, the transportation community has
been lagging behind other sectors of our society in addressing
some of these environmental and especially energy and climate
considerations. This seems to me a very effective way, a
mechanism, this idea of a higher tax on high carbon fuels,
lower tax on low carbon fuels, in a way that will generate
perhaps even more public support than just saying, oh, well,
we're just raising the gas tax another nickel or dime and
hopefully you see the benefits from it.
Mr. DeFazio. Should we be looking at producer level or
consumer level taxes? Right now we have consumer level taxes.
Should we be looking at, given your position with a focus on
carbon production, should that be at the producer level or
would you continue it at the consumer level?
Mr. Sperling. In California what we are doing is
introducing something called a low carbon fuel standard. And
that is imposed at the producer level, but in such a way that
producers can trade credits, buy and sell credits. One
possibility is that they can buy and sell those credits with
the auto makers as well, based upon their CAFE performance.
So it would be easier to manage at the producer level, from
the vehicle producer and fuel producer. I would be very
reluctant to bring it more downstream toward the consumer,
because it would get very complicated.
But on the other hand, what is really important, I think
that Congress and political leaders need, that I would suggest
need to do is, get people to engage in a way that they feel
some responsibility. I think that is the only way that we are
going to deal with our energy and climate problems.
Mr. DeFazio. Okay. Mr. Pisarski will be the last one, then
I have to move on to other members.
Mr. Pisarski. Thank you, sir. I would suggest that it
should be a series of indexes that would make the most sense.
One would be an inflation index, one would be a cost of
construction index, and one would be an index that related to
changes in vehicle fuel economy. Even if you didn't employ
every one of them, if you knew what those numbers were and how
each was working, and you understood the relationship to the
total program, I think that would be a very effective goal.
I will add one small point. In Texas, we just finished a
study for the Governor's Business Council. They are talking
about an inflation index of the Federal tax, that they are
going to compensate for the losses in their revenue from their
State gasoline tax and also from the Federal gas tax. It is an
interesting concept.
Mr. DeFazio. Thank you.
Mr. Duncan.
Mr. Duncan. Mr. Chairman, since I am going to be here until
the end, I want to go first to our members in the order in
which staff tells me they came in. So Ms. Drake would be, I
would like you to recognize Ms. Drake first.
Ms. Drake. Thank you, Mr. Chairman.
Dr. Buechner, I thought it was very interesting that you
were talking about exceptions. We talked about exceptions when
I was in the State legislature in Virginia, in the tax code,
got a lot of pushback. But could you expand on that? Could you
tell us what exceptions you think are valid or are not valid or
how we could do that?
Mr. Buechner. Of the current exemptions that result in a
loss of revenue to the Highway Trust Fund, there are five major
ones: first, vehicles used on the road by State and local
governments; vehicles used by non-profit educational
institutions; school buses; intra-city municipal bus systems;
and over-the-road intra-city buses are exempt from paying the
motor fuel tax. The tax is collected when they purchase fuel
and then refunded to them, which they must apply for.
When we had this problem with the ethanol incentive in
2004, the way it was addressed was to credit the Highway Trust
Fund with the full 18.3 cents per gallon and then provide the
refund from the general fund. And in this case, when you think
about reasons for these exemptions, these are all vehicles that
use the roads. And they all should be paying their share. But
if there is a reason to relieve these users of that tax, it
shouldn't come out of the Highway Trust Fund. There is a better
way of doing it, which would be to reimburse them from the
general fund.
Ms. Drake. Next question, Mr. Chairman, is, do you have any
other suggestions other than gas tax or these exemptions of
getting additional money in this fund. You are probably aware
in Virginia that the Governor and the general assembly have
just agreed on a pretty comprehensive plan State-wide and in
various regions and have a lot of different mechanisms. So I
just wondered if your industry has looked at, are there other
things that should be proposed?
Mr. Buechner. Our industry has, and this will be the
subject of another hearing, a proposal that we have for
addressing our highway investment needs with a separate sub-
fund in the Highway Trust Fund that would involve user fees
levied on shippers. It is something that we have fleshed out
and we can provide it to you. And we will do that.
Ms. Drake. Thank you. I also wonder if your industry, how
involved they are in alternative fuels, and just wanted to
point out to you that Old Dominion University in Norfolk,
Virginia is working on a bio-diesel that is created from algae.
Higher carbon content than corn or soy, but very interesting
work that maybe they would like to take a look at.
I wanted to ask Mr. Pisarski, you mentioned in your
testimony about transit and other modes receiving money from
the Highway Trust Fund. I am wondering if you think that maybe
that should be changed and the money in the Highway Trust Fund
should be for highways and if we should look at other
alternatives for transit and other modes?
Mr. Pisarski. I think we certainly should be looking for
other alternatives. The pressure that has been put on the
Highway Trust Fund, trying to meet these new goals, has, I
think, exhausted it. And to open it up to general revenue and
other alternative sources, just as Dr. Buechner was saying, it
is not that you don't think those things are valuable,
attractive or useful, it is just that as they use the road they
should be paying for it. You want to look for other
alternatives to support them, general revenue or other
mechanisms.
Ms. Drake. Thank you. Thank you, Mr. Chairman. I will yield
back.
Mr. DeFazio. Thank you.
Mr. Mitchell? No? Okay. We are back now to Mr. Bishop.
Mr. Bishop. Thank you, Mr. Chairman. Thank you for having
this hearing.
What I would like to explore, if I could hear from all of
you is what your thoughts are on resolving the dilemma. Clearly
one policy imperative that we have on the national level is to
drive down fuel consumption and increase fuel efficiency. If we
do that, we depress revenue going into the Highway Trust Fund.
Mr. Sperling, you talked about perhaps finding some way of
taxing vehicles, or is it feasible to tax vehicles that receive
poor emissions ratings or poor environmental ratings.
I would just be interested in hearing from all of you on
what is the most constructive way to resolve that dilemma.
Because obviously, both ends are desirable. We want to make
sure the Highway Trust Fund is adequately funded. We want to
drive down consumption. How do we reconcile two mutually
attractive goals that are at odds with one another?
Mr. Marron. I guess I will go first, so we will be in
order. Again, not making any recommendations but just looking
at the playing field, clearly increasing the gasoline tax would
have both of those effects, would have the effect of
discouraging driving, encouraging more fuel-efficient cars. But
we are in a range where the consumer reactions are such that
you would nonetheless raise significantly more revenue. So that
would accomplish the twin goals that you laid out.
In addition, various proposals for having tolling and then
having the revenues from tolls go into the Trust Fund would
again have the effect of discouraging some driving and being a
revenue source.
Mr. Buechner. I frankly can't add much to that. The notion
of raising the gas tax is certainly going to be helpful to the
Highway Trust Fund. To the extent that it does resolve some of
these other issues, that would be very helpful as well.
Mr. Bishop. Thank you. Mr. Sperling?
Mr. Sperling. Yes, I think it will not be difficult to
adjust the taxes based upon the quality of the fuels. I say
that because in the next few years, it s going to be done,
there is going to be a system put in place, in California we
are doing it, as I mentioned, the low carbon fuel standards,
where we are developing, this is getting kind of sophisticated,
where we are taking from the academic world this concept of
life cycle analysis, life cycle emissions, and we are codifying
it. We are putting it into law in California. The U.S., at the
Federal level, is probably going to be doing the same thing
because of the renewable fuels program, renewable fuels
standard that is floating around in Congress and the Executive
Branch right now. The EU is doing that, the U.K. is doing that.
So this idea of being able to label the fuels and track
them is something that is going to be done anyway. So to attach
taxes to it, fuel taxes, will not require any major new
institutional apparatus.
Mr. Bishop. Okay, thank you. I yield back, Mr. Chairman.
Mr. DeFazio. I thank the gentleman. Mr. Boozman?
Mr. Boozman. Thank you, Mr. Chairman.
Have any studies been done on exactly what the effect of
increasing the fuel cost is in the sense that, you know, you go
to Europe and it looks to me like they have the same problem
that we do. If Americans can get there in a reasonable length
of time and there is parking, it looks to me like they are
going to drive their cars, unless we get dramatically higher,
and if we get dramatically higher, none of use are going to
vote for that, because the American people won't tolerate it
and I think rightfully so. So it really is just a complex
thing.
But is there a study like that that indicates at what point
you really do affect, because it does seem that especially in
America, that people again, to me the thing that really
mitigates whether or not they are going to do it is the parking
problem. Yes, sir?
Mr. Sperling. Yes, there has been some good research,
including with some of my colleagues, over the last few years.
We have found just what you are saying, that the idea, we use
this concept of elasticity of demand. And it used to be, back
in the 1970s, that for every 10 percent increase in fuel price,
you would get about a 3 percent reduction in fuel consumption,
gasoline consumption. Now for every 10 percent, we are getting
about a half percent reduction. In other words, consumers are
very inelastic, compared to almost any other product. We have
seen that, all you have to do is look at the statistics the
lats few years. Prices doubled and there was very little effect
on gasoline consumption.
So certainly some people were hurt by those high fuel
prices. But the overall effect is that people are not
responsive to high prices. So when we talked about gas taxes,
we should be thinking about why do we want high gas taxes. It
probably won't change behavior very much. It will have two
effects, of course, it generates more revenue and it does raise
the threshold for investors in alternative fuels. That is a
very important concept to keep in mind.
Mr. Boozman. I think you can impact the size of cars, the
fuel efficiency and people will buy smaller cars and gravitate
that way, that have a higher fuel economy. But it is just an
interesting phenomenon. Mr. Marron?
Mr. Marron. Yes, sir, I just wanted to say that in our
estimates, I think it is important to distinguish between the
short run effect and the longer run effect. What we have seen
from recent price increases is that over the short run, people
are quite inelastic in their demand for gasoline. There is some
effect, but it is quite small, as the other witness mentioned.
Over long time periods, as you were just hinting, there are
more margins along which people can respond in terms of
choosing their car, choosing their transportation patterns. So
there is some noticeable effect. In the elasticity terms, as
you mentioned, over the longer run, we have an estimate of
about 30 percent in those terms. So if you increase gas prices
10 percent, you would see about a 3 percent reduction in use,
which is not enormous, but is something.
Mr. Boozman. So do you think we will wind up with some
hybrid? Certainly the problem of taxing a battery-powered car,
and we do have battery-powered cars now that will run 150 miles
an hour, go 200 miles and things. They are working hard to
shrink the size of the battery. That problem, compared to a
gasoline engine that gets 50 miles to the gallon is a different
animal.
So do you think we will ultimately wind up with some
hybrid, taxing those two differently?
Mr. Buechner. I would think, the one fuel that does cause a
problem is electric cars. Because that is a fuel that can be
delivered without requiring a separate delivery system. But
fuels like gasoline, hydrogen, natural gas, can't be delivered
directly to the consumer except going through a system where
you could find a place to tax them. So electric cars will pose
a problem.
But I think any of the other alternative fuels, so long as
there is a separate delivery system and you can impose a tax at
some point that can be collected, you just have to set your
base and set what the rate will be. In fact, even natural gas
used in automobiles is taxed at the same rate today as
gasoline. So there is just that one problem with electric cars
that I see as a long-term problem.
Mr. Boozman. But you have to fix that one, or you will
drive people into, they will gravitate to the other to escape
the tax if it is not done.
My time is up. Thank you, Mr. Chairman, and thank you all
very much.
Mr. DeFazio. Thank you. Mrs. Capito?
Mrs. Capito. Thank you, Mr. Chairman, and I thank the
gentlemen, too.
We have talked along and around the question that I am
getting ready to ask. So if you have already answered it
specifically, I apologize. In West Virginia, we tag part of
our, a portion of our State gasoline tax is pegged to the price
of gasoline, it is recalibrated every year. The past year, the
Governor suspended that growth in the tax as a measure to try
to keep the price of gasoline down. It ended up costing $53
million to the State, and now he is scrambling to try to make
that up to match.
Have you all ever looked at tagging a portion of the
Federal gas tax so that every year, I guess either it would be
indexed or indexed to a portion of the price of gas? Is this a
concept that you have taken from, say, our State and tried to
extrapolate in the Federal system?
Mr. Buechner. There are two alternative ways of doing that.
The one that you use in West Virginia, which is a sales tax
levied as a percent of the sales price, will fluctuate up and
down as the price of gasoline changes. But an alternative is to
link the tax rate to an index that is somewhat related to the
cost of highway construction. One possible index is the
consumer price index. There are other indexes that partially,
at least, track the cost of highway construction. Either way,
year after year, the tax rate is adjusted so that you can
actually maintain the same amount of highway investment.
There are other States that use the sales tax approach.
They find that it is a little bit disruptive to their planning,
because it does go up and down with the price of gasoline.
Mrs. Capito. I had another question on public-private
partnerships. In a State like West Virginia, even though we are
a small State, the cost of building our highways is extremely
high, because of our terrain. The cost of building per mile is
so much more than what you would normally think in a State the
size of ours.
So we are trying to look at public-private partnerships for
financing road construction. What do you see the future of
that? I just had some folks in my office earlier this morning
who are not in favor of that because they want to know, does
the public money become private or does the private money
become public, and how does that work? And then it also raises
the issue, I think, of toll roads, which is a little bit
separate. Do you all have an opinion on that public-private
financing aspect of road construction?
Mr. Pisarski. I guess I will start the trouble by
responding. I think there are many opportunities that we are
all looking at because of the lack of funds both at the State
and at the Federal level, and we should be open to them. In
many instances, in the State of Virginia, for instance, and
other States, it has been an effective tool. But I have a
feeling that we are moving very fast into some of these things
and not very carefully in some cases. I think we are going to
find out that there are problems that begin to arise that we
weren't prepared for.
So I guess my concern would be, I am very open to it, I am
very positive about it, but I would really want to be very
careful as we proceed.
Mrs. Capito. One of the questions that came up today in our
discussion was if the construction becomes more of a private
emphasis than a public emphasis, are there safety issues
involved, what standards are these construction dollars going
toward? I think that is a legitimate question and one, I would
agree with you that we would need to go into if we are going to
go that direction or look at it seriously, we ought to look at
some pilot studies or something to see that we don't all of a
sudden think this is a panacea, this is the greatest thing and
it ends up unsafe conditions and less checks and balances.
I yield back. Thank you.
Mr. DeFazio. Mr. Boustany?
Mr. Boustany. Thank you, Mr. Chairman.
Mr. Pisarski, the backlog figure you gave as an estimate,
$375 billion to $400 billion, is that just a Federal backlog or
does that include State?
Mr. Pisarski. That is the national backlog that comes out
of the Condition and Performance report and analysis of the
conditional performance report.
Mr. Boustany. Okay. Because many States have backlogs, too.
I know for instance my State of Louisiana has about a $13
billion backlog, and we are struggling with how to deal with
that back home. Most of you or all of you talked to some extent
about increasing the gasoline tax. What about the States?
States are looking to increase gasoline tax, so it seems to me
that we are heading for a brick wall on this. So that becomes a
problem.
I know you partially answered my question, when Mr. Bishop
asked about whether or not assuring adequate funding and
reducing greenhouse gases, are they mutually exclusive goals
and how do we go about it. You brought up the issue of
adjusting tax based on fuel quality. How complicated is that?
And how would we pay for that? And would paying for it come out
of the Highway Trust Fund?
Mr. Sperling. As I said earlier, I think institutionally it
can be done, and it will be actually in five or six years, I
think it will be easier to do, because we are putting all the
systems in place to do it for other reasons for these carbon
standards, using life cycle models and metrics and so on. So I
think that is all going to be codified and fairly routine. Then
in terms of the revenue stream, you can make it revenue neutral
in the sense that you can make sure that trajectory goes up at
whatever slope you want by the mix. Because we can forecast,
five years out we can forecast very well. Fifteen years, the
crystal ball gets a little hazy. But five years, eight years,
we can do pretty reliably. So we can project ahead, I think,
without too much trouble.
Mr. Boustany. Do you have a sense of what the cost will be
to make that transition?
Mr. Sperling. The cost to, in a sense, society?
Mr. Boustany. Just the actual cost to be able to set up a
system whereby you can create these adjustments on the fuel tax
based on fuel qualities? There is obviously some cost involved
in making a transition to that type of model. Do you have a
sense of what the cost would be?
Mr. Sperling. I think because we are doing it anyway, the
additional cost in a sense to the this gas tax system would be
minor, very, very minor, almost negligible, because we would be
doing it, we will be doing it anyway.
Mr. Pisarski. Going back to your first question about State
taxes, historically what has happened is when you see a Federal
gas increase, then a lot of the States recognize that in order
to match the Federal funds they are going to need an increase
in funds. You will frequently see State taxes follow along. It
is always a very effective tool at the State level to, in
effect, justify a tax increase as it is needed to be able to
match the Federal response.
Another item I wanted to add, going back in history, this
is during the last energy crisis. The big bump-up in 1979 where
I was in the Department of Transportation and the price was
very high by those standards. One of the arguments that we used
on the gas tax increase was that for every ten cents a gallon
that the price of gasoline dropped we added one cent in Federal
tax. So that as the gas prices dropped 30 or 40 or 50 cents,
you would pick up one penny, you would pick up a penny Federal
gas tax for every 10 cents the price dropped. Obviously it
would effectively disappear.
I think that kind of notion was very clear. We also offered
the States an arrangement where you would take a penny off the
Federal tax for every penny that the State tax rose. And we had
no takers.
Mr. Boustany. Have we become conditioned with regard to the
elasticity now? Because earlier, when there were oil shocks,
clearly there was a major decrease in utilization. It seems to
me that as a society, we have become much more conditioned. So
that has created this inelasticity.
Mr. Pisarski. Yes. I follow the consumer expenditure survey
very closely. What people tend to do is they take it out of
other transportation expenditures. They are less likely to buy
a new car because they are going to wait and hold it longer,
because their transportation costs are high this year. Unless
they are trying to find something that is really fuel
efficient. They tend to hold their share of total income
roughly constant going for transportation.
Mr. Boustany. Thank you . My time is up and I yield back.
Mr. DeFazio. I thank the gentleman.
Mr. Duncan? Ms. Fallin?
Ms. Fallin. Thank you, Mr. Chairman. I actually do not have
a question, but as I was listening to the debate something came
across my mind. In my State of Oklahoma, I remember we put a
proposal to the vote of the people about whether to raise their
gasoline taxes. So I was sitting here trying to remember what
all was the percentage of the vote. I think it went down by
like 75, 80 percent, people that voted against a gasoline tax
increase. So that was kind of the mood of our State back, I
think it was about three or four years ago.
One of the biggest concerns we have in our State is just
getting back a good share of the money we send into the Federal
Government. Of course, Oklahoma has always been a donor State.
So I guess if anything ever came about that the taxes were
changed, my State would certainly want to get back its fair
share. That is probably not a question, but just a statement
about our State.
Thank you, Mr. Chairman.
Mr. DeFazio. It is good representation. We thank you for
being a donor. My State was until very recently a donor State.
So I know how it goes, that is always a big debate.
For perspective, my State repeatedly turned down a gas tax
increase until it was linked to, it was instead of just raising
the tax, it was a specific problem, which was failing bridges,
was identified. And the tax increase was dedicated to a very
large bond issuance to retire the bonds. So people saw
immediately quite a substantial investment. At that point they
were willing to vote for it, because they said, okay, we see
what we are going to get now, and it is quite substantial. And
they were willing to vote for it. But if it was just sort of,
well, we are going to raise the gas tax, they were--so.
Mr. Duncan?
Mr. Pisarski. May I comment on that, sir?
Mr. DeFazio. Sure.
Mr. Pisarski. I think that is absolutely right. At the
State level, it is very frequently tied to a menu. ``This is
what we will do if you give us this money.'' And at the Federal
level, I think it is the same thing, rather than simply talking
about more money. You need to have a vision, as I made the
point in my testimony. If we were talking about the
preservation, protection, expansion and effective utilization
of the interstate system, I think the public would understand
that kind of a concept.
Mr. DeFazio. Or if we were talking about Mr. Sperling's
infrastructure deficit and we were issuing infrastructure
deficit bonds, which were retired by a small increment on the
gas tax.
Mr. Pisarski. Yes.
Mr. DeFazio. Just an idea. I didn't make a formal proposal,
in case there is any press here.
Mr. Duncan?
Mr. Duncan. Thank you, Mr. Chairman.
Mr. Marron, you mentioned in your testimony that Trust Fund
spending has exceeded Trust Fund revenues by about $16 billion
since 2001. Was there any time where Trust Fund spending
exceeded revenues prior to that?
Mr. Marron. Which way do you want it, a period during which
outlays were previously higher than revenues?
Mr. Duncan. Right.
Mr. Marron. My crack folks are looking at their tables
here. Actually, I think I have a graph in the testimony that
addresses that. So Figure 1, you can see outlays exceeding
revenues kind of in the 1994 time period, and then a few years
occasionally prior to that.
Mr. Duncan. Mr. Sperling, you say in your testimony, large
drop-offs in fuel tax revenue are unlikely for the next 10
years. Funding gaps can easily be solved over the next 20 years
or so with very small increases in the fuel taxes. Yet we are
already off from the projections that we got last year. I am
wondering, I guess what I am wondering about, some people are
already saying that troubles in Iran are going to lead to
really big increases in the cost of oil. What would happen if
that, if the price of oil doubled here in the next year or two?
You said that with each 10 percent increase in the cost of gas
that there was a 3 percent decrease? What was it you said about
that?
Mr. Sperling. I said that is what it used to be. Now it is
like half of a percent to 1 percent. Mr. Marron said that in
the long term, it would be back to 30 percent. I would disagree
with that, or I would suggest that is likely not true, because
while theoretically correct, I am the professor, but I am going
to argue against the theory, in practice what we have seen is
oil prices fluctuating up and down. What has happened is people
have been conditioned to believe that oil prices are not going
to stay high.
So in fact this so-called long term response or long term
elasticity never happens, or hasn't happened the last 25 years.
From what I understand about oil markets, it is probably not
going to happen in the future either, because the fundamental
cost of production of oil is maybe $25, $30 a barrel. There are
a lot of countries making an awful lot of profit. It is
actually much less than $25 in almost all cases.
So the price of oil, if you talk to any expert, the price
of oil can be anywhere, including the CEO of Exxon, the price
of oil can be anywhere from $30 to $70 to $80 and they really
can't predict that. So your scenario is very possible. But the
question is, what is the consumer response. It is not at all
clear that there ever will be this, it is not clear that the
price is going to stay very high for a long time. And it is not
clear that consumers are going to have any kind of fundamental,
durable, lasting response to high prices whenever they do
happen.
Mr. Duncan. Well, you know, none of these things are easy.
You said it can easily be solved with a very small increase in
the fuel taxes, yet Dr. Buechner mentioned removing the
exemptions. Yet the main exemptions are for the State and local
governments and transit agencies and I can tell you that every
one of us is being bombarded every day by people from State and
local governments who are up here trying to get more money. If
we start removing those exemptions, boy, they will scream to
high heaven. Then you talk about tolls, I can tell you, in my
State there are no tolls. If we start putting those in, if
people thought I was responsible for a toll, I would be voted
out in the next election with no question about it.
[Laughter.]
Mr. Duncan. The fuel tax, the Chairman noted in almost
every State they vote those down every single time. Maybe it
would be possible to do a tiny little increase if you tie it
into some project that is very popular. But it just looks like
you have a very difficult situation there. What do you say, Mr.
Pisarski?
Mr. Pisarski. Yes, it is difficult. If you look at where
there have been successes and where there have been failures,
success is always tied to a program where the people trust the
State government, the State DOT, to do a good job and where
they have laid out a menu or laid out a program. In most of the
cases that I have seen, I am thinking of Ohio as one of the
best examples, where they were very sorry that they had not
asked for more after they succeeded. There are a number of
States that have succeeded in creating indexes.
So there is, I think, more concern than there needs to be.
I think the public recognizes these needs and we just need to
make that case to them better. I look at the European system,
going to your question about the price of oil. If you count the
taxation, the value of a barrel of oil in Europe coming out of
the ground is like $300 a barrel. And it doesn't come out of
the ground with tax on it. So I guess my point is that there is
an immense benefit to the society, to every society, from the
automobile and from the use of petroleum fuels. People are
willing to pay immense sums for that benefit and the Europeans
have discovered that. That is why their tax system is so high.
Mr. Duncan. Well, you talk about trusting the State DOTs, I
am not sure, actually through, pretty much through no fault of
their own, most of the State DOTs are not that popular. I
remember in Knoxville, we used to have a mayor and I didn't get
in any public dispute with him, but he used to attack the State
DOT all the time because they were doing all this highway
construction there in Knoxville. And it was very unpopular
while it was going on.
But what I told people, I said, well, if the interstate in
West Knoxville, just think if it was still two lanes instead of
five like it is now. My gosh, we would have been in a horrible
situation. So you have to put up with it. Now I think it is
popular, but it sure wasn't for those several years while we
were going through it.
All right, well, thank you very much for your testimony.
You have been a very helpful and informative panel. Thank you,
Mr. Chairman.
Mr. DeFazio. Thank you. Any other questions?
Okay. With that, I thank you for your testimony and this
committee is now adjourned.
[Whereupon, at 3:37 p.m., the committee was adjourned.]
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