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I was scanning TerraPass’ stories early this morning (yeah…I get up really early in the morning to fit everything into a day 🙂 ) and I came across this one that caught my attention and left me shaking my head. Seems that the Secretary of Transportation, Mary Peters, reported yesterday that vehicle miles traveled on U.S. roads in May fell by 3.7 percent from May 2007. You would think that’s something to applaud. What it means is that Americans are driving less and possibly finding alternative transportation such as, let’s say, mass transit to get where they want to go. However, the administration reports that this drop in driving has reduced the proceeds derived from the federal tax on vehicle fuel: 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel (Wald, Matthew, “Drop in Miles Driven Is Depleting Highway Fund; Loan From Mass Transit Is Urged“,The New York Times, July 28 2008 ).

What does this mean in the longer term perspective? It means that the Highway Trust Fund is getting less money because people are driving less (and hence using less gas). Of course the upside to this is that oil is now $123 per barrel rather than $145 as it was a few weeks ago (looks like conservation is working since oil price is driven by supply and demand market forces…I guess Vice President Cheney was wrong). However, the nations bridges are in such a dilapidated shape that about 25% of them will need replacement in the next 10 years (NPR News, July 29, 2008 ). The Highway Trust Fund’s highway account started the current federal fiscal year with $8 billion dollars in it and it is predicted to drop to $4 billion the end of the fiscal year. However, given the decline the Transportation department expects that sometime in the next fiscal year the account would hit zero and at the end of the next fiscal year would have a $3.1 billion deficit and this account is what finances the construction and repair of roads in the U.S.

So what’s the solution? The Highway Trust Fund is actually comprised of two accounts: the highway account and the mass transit account. Well, it seems that the short term solution, according to the Department of Transportation, is to pull funds from mass transit account to cover the highway account. The House however has a different perspective. They want to allocate $8 billion from general tax revenue to cover the fund’s highway account. The White House is against this as they claim that the proper thing to do is to use the money in the mass transit account to cover the highway account since the mass transit account is in surplus and using general tax revenue would “not harm transit spending and would not increase the deficit.” (Wald, Matthew, “Drop in Miles Driven Is Depleting Highway Fund; Loan From Mass Transit Is Urged“,The New York Times, July 28 2008 ) (of course, the current GAO estimate of the budget deficit for the next fiscal year stands around $480 billion not including the estimated $80 billion that will be asked by the administration for the wars in Iraq and Afghanistan).

The Transportation Department’s plan is detrimental overall. As William Millar, the president of the American Public Transportation Association points out:

“Robbing Peter to pay Paul is not the way to go…The administration proposal is shortsighted and would mean that the mass transit account would be reduced to the point where there would not be enough money to fund the federal transit program in 2010, even at the current level.”

(Wald, Matthew, “Drop in Miles Driven Is Depleting Highway Fund; Loan From Mass Transit Is Urged“,The New York Times, July 28 2008 )

The one bright spot in this whole thing was Secretary Peters’ longer term proposal where she indicated that “she would propose a new arrangement for paying for highways, based in part on private capital financing and use of tolls that vary by time of day.” (Stein, Adam, “Short-term, yes. Solution, no.“, Terrapass, July 29, 2008 ). A good idea given that this would shoulder more of the burden on the users of the infrastructure and localizing the funding effort more effectively. The only thing I disagree with Secretary Peters in her plan is the concurrent reduction in the gas tax. The fact is that we have reached a time when oil is more expensive than ever before and burning gas is more detrimental to the environment than we ever realized in the past. The idea of shifting the funding from a general gas tax to a “usage” tax based on tolls and congestion seems counter-intuitive if we want to see a general push in the direction of developing clean, renewable energy for us in our homes and transportation. Reducing the gas tax would lower some of that incentive (even with the concomittant tolls being used to pay for road and highway maintenance).

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