Monday, August 4, 2008

Texas DOT Explains Why Roads Require Permanent Subsidies

The Texas DOT posts an explanation about why roads do not generate enough gas tax collections to pay for themselves.

It also references its methodology - - which could be applied to Wisconsin's $6.5 billion commitment to rebuilding and expanding the Southeastern Wisconsin Freeway System.

Maybe this is the beginning of better language to define the real costs of highways, and to have the concept of subsidy applied to roads and not just transit.

Legislators should mandate that WisDOT include these calculations in its fiscal estimates for road projects.

And the Southeastern Wisconsin Regional Planning Commission, when it creates or recommends highwaty plans (it wrote the $6.5 billion freeway plan in 2003, projecting gas prices at $2.30-per-gallon, with a 3% annual cost increase), should also be required to include this kind of lifecycle analysis.

That way, the public could better understand what it is they're on the hook for financing.

Thanks to John Norquist for making this point for 30 years, to the blog Overhead Wire for originally posting the Texas DOT explanation, and to Joe Klein for passing it on - - and since it's short, I've reprinted it entirely, below:

Hot Issues - News

Do Roads Pay for Themselves?

1. What is a traveler paying for when he or she pays state gas tax at the pump?

State motor fuel tax is collected from all over the state and goes into a single pool of revenue—about one quarter of which goes to fund education, and about three-quarters of which goes to the state’s highway fund, where it is spent on transportation uses and some non-transportation functions of government.

Then the state receives federal funds as the state’s share of the federal fuel tax; about 70 cents of every gas tax dollar Texans send to Washington comes back for road use.

The significant point here is that historically the fuel tax paid in any locality of the state is unrelated to the road projects in that locality.

Every fuel taxpayer in the state paid something for any given road—which leads to the next issue.

2. When is a given road actually “paid for?”

Just like your car, it never is. You may have paid the note, but maintenance and fuel costs go on as long as you own the vehicle.

Once a road is built, maintenance and rehabilitation costs last its entire life, generally about 40 years.

The decision to build a road is a permanent commitment to the traveling public. Not only will a road be built, but it must also be routinely maintained and reconstructed when necessary, meaning no road is ever truly “paid for.”

Until recently, when TxDOT built or expanded a road, no methodology existed to determine the extent to which this work would be paid off through revenues.

The Asset Value Index, was developed to compare the full 40-year life-cycle costs to the revenues attributable to a given road corridor or section.

The shorthand version calculates how much gasoline is consumed on a roadway and how much gas tax revenue that generates.The Asset Value Index is the ratio of the total expected revenues divided by the total expected costs.

If the ratio is 0.60, the road will produce revenues to meet 60 percent of its costs; it would be “paid for” only if the ratio were 1.00, when the revenues met 100 percent of costs.

Another way of describing this is to do a “tax gap” analysis, which shows how much the state fuel tax would have to be on that given corridor for the ratio for revenues to match costs.

Applying this methodology, revealed that no road pays for itself in gas taxes and fees.

For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes.

That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon.

This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less.

To conclude, in the SH 99 example, since the traffic volume for that road doesn't generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment.

The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state’s transportation needs.

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