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Federal Document Clearing House
Congressional Testimony
March 21, 2000, Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4627 words
HEADLINE:
TESTIMONY March 21, 2000 STEPHEN E. SANDHERR IMPACT ON TRANSPORTATION PROGRAMS
HOUSE TRANSPORTATION AND INFRASTRUCTURE GROUND TRANSPORTATION
FUEL TAX REDUCTION IMPACT
BODY:
Testimony of
Stephen E. Sandherr The Associated General Contractors of America Committee on
Transportation and Infrastructure Subcommittee on Ground Transportation on the
topic of "Impact on Transportation Programs of Reducing Federal Fuel Tax" March
21, 2000 Good afternoon, Mr. Chairman and Members of the Committee. I am Stephen
Sandherr, Executive Vice President and CEO of the Associated General Contractors
of America. AGC is the nation's largest construction association with 33,000
members in 100 chapters in every state and Puerto Rico. AGC represents the
leading transportation construction firms in the nation. While we are generally
pleased to have the opportunity to testify on issues affecting the construction
industry, I regret that this hearing is even necessary. Two years ago, the
members of this committee, working together in a bipartisan fashion, crafted the
most significant public works bill since the creation of the interstate highway
system: TEA-2 1. The centerpiece of that legislation was the return of trust to
the Highway Trust Fund. Against formidable odds and numerous shortsighted
editorial commentaries, the Members of this Committee held firm in their desire
to return the user fee concept to transportation finding. Through your efforts,
the gas tax is and will be spent on its intended purpose: to pay for road,
bridge, and transit improvements. This is responsible public policy: those who
use the transportation networks, pay for it through a user fee. And, it is clear
that when the public is informed of this policy, they support it. A poll
conducted last year by Luntz research for the Rebuild America Coalition found
that 69% of the public supports the concept of gas taxes paying for
transportation improvements. The reason that I regret the need for this hearing
is that there is a hue and cry that we need to suspend or repeal all or part of
the federal user fee because the price of gasoline and diesel has increased
dramatically. In no way do I wish to minimize the financial impact that the
dramatic increase in fuel prices has had on businesses and consumers. In fact,
it is having a profound effect on construction firms across the country who are
heavy users of gasoline and diesel fuel. The price of asphalt has increased 160
% in the past 12 months, increasing the costs of highway construction. The
reality is that the gas tax is not the cause of the problem and the elimination
of it will not provide the solution. For those who say that the suspension or
elimination of the gas tax is good politics, my advice is look before you leap.
Gasoline prices have, on the average, increased by 55 cents in the past year.
Eliminating 4.3 cents would still result in increased prices of more than 50
cents per gallon. And that is assuming that the wholesaler will pass on the tax
savings to the consumer. How would members of congress respond to the fact that
consumers are still paying more? The American public will see through that
transparent political gimmick very quickly and will hold spin doctors who apply
a symbolic band-aid to a gaping policy wound accountable for political
malpractice. Politics aside, there are serious policy reasons for not tinkering
with the user fee. The 4.3 cents gas tax accounts for approximately $7.2 billion
a year, while the 24.4 cent diesel fuel tax contributes $8.8 billion to the
highway trust fund. The loss of that combined $16 billion will have a
devastating impact on all 50 states. Transportation planning will be hampered
and needed projects delayed. Meanwhile the traveling public, who the tax measure
is intended to help, would be the ultimate losers. The money that is lost to
highway and transit construction will result in fewer improvements to our
nation's roads, bridges and transit systems. Consequently, the driving public
will encounter declining road conditions that will result in additional wear and
tear on cars and trucks. The repair costs will far exceed the potential pennies
per gallon saved because of a reduced tax. Finally, let's not forget that the
money spent on road and bridge improvements reduces injuries and saves lives.
Thirty percent of all traffic fatalities nationwide-more than 12,000 a year-are
the result of road conditions. This figure would undoubtedly increase if needed
road and bridge improvements are not made. The bottom line is that you have
developed an equitable method to pay for transportation programs through the
user fee. Elimination of the user fee will not result in any real savings for
consumers but will ultimately increase their travel costs, delay safety
improvements and increase traffic congestion. The members of AGC will work with
you to preserve the integrity of the Highway Trust Fund. Extended Remarks The
construction industry is sympathetic to the truckers and motorists in this
country that are feeling the pain of the increased fuel prices. The construction
industry is a vast consumer of diesel fuel. Our industry depends on large fleets
of trucks, such as dump trucks, ready mix concrete trucks, and all types of
trucks that deliver materials and supplies over the road for construction
projects. In addition, our material costs have also increased. For instance, the
cost of asphalt has increased 160% over the last 12 months. These sharply rising
costs are not considered in many of the projects that we have already bid, which
is particularly problematic for long-term projects. In some cases, we are losing
money on these projects. Nevertheless, the construction industry strongly
opposes repealing or reducing the gas or diesel fuel tax. We oppose this
initiative for many reasons. First, because it will not have a significant
impact on fuel prices. Second, because it was not the cause of the recent
escalation in fuel prices. And, third, because it will have a detrimental impact
on the highway safety and congestion relief projects that are underway and
planned in every state in the country. We also oppose this initiative because it
eviscerates a bipartisan program transparent political gimmick. The legislative
prowess and accomplishments this committee have always been rooted in
bipartisanship that permeates this committee. It was the tremendous
bipartisanship that created the historic TEA-21 legislation, which finally
established and honored the integrity of the Highway Trust Fund. The movement to
repeal the gas is a political ploy that will no points with voters, but will
cost the states billions. These federal motor fuel taxes are the sole lifeblood
of the federal-aid highway program, and are used to make our nation's highways
safer for the traveling public. Repealing the 4.3-cent gas tax, or suspending
the 24.4-cent diesel tax would have a devastating impact on state highway and
transit improvement programs in every state. Each state would lose millions of
federal-aid highway funds if either of these motor fuels were repealed or
reduced. AGC is the nation's largest and oldest construction trade association,
founded in 1918. AGC represents more than 33,000 firms, including 7,500 of
America's leading general contracting firms. Our members build and improve our
nation's roads, bridges and transit systems. The funding for these vital
transportation improvements comes from the Highway Trust Fund. Reducing the
money in the Highway Trust Fund would result in more dangerous roads. Today,
42,000 people lose their lives on America's highways each year; 12,000 of these
deaths are attributable to poor road conditions. Cutting the federal gas tax
would only risk more lives on our nation's roads. Repealing the 4.3-cent Gas Tax
Will Not Benefit Consumers If Congress reduced the federal gas tax by 4.3 cents,
the American consumer would find little or no benefit at the pump. Simply
reducing the federal tax is not a mandate that oil companies must reduce their
price at the pump. Oil companies and independent gas station operators are free
to set their prices regardless of federal and state gas taxes. Further-more,
most fuel is purchased by wholesalers who pay their tax at the terminal rack.
The wholesaler then sells the fuel to the retailer, who sells to the consumer at
the pump. Until the supply of tax-paid fuel is consumed, retailers will be
unable to pass along a 4.3 cent price decrease because they already paid the tax
on their shipment. In other words, if the 4.3-cent gas tax was repealed and
implemented by the wholesalers and retailers, it would take a period of time to
affect the consumer if it ever reached the consumer. Moreover, by then market
forces may have already led to falling prices. Or, fuel prices could continue to
rise, leading consumers to believe that retailers are simply gouging the public
by not passing along the tax reduction. In either case, the effect of a lower
gas tax will simply be symbolic, with no real effect on the price of gasoline
but billions of dollars worth of impact on state highway programs. Problem The
rising cost of gasoline is not the result of the federal 4.3- cent gas tax. The
increasing cost of gasoline is the result of supply and demand. The worldwide
crude oil supplies have declined as major, foreign crude oil exporters have
reduced production. These declines, in conjunction with increased worldwide
demand for crude oil from growing economies, have driven world oil prices to
higher levels. Since crude oil is the largest cost component of gasoline and
diesel fuel, prices of these fuels have increased. During times of rising fuel
prices, people clamor for the government to act. It is important that the full
range of consequences is considered before our government takes any action.
Rising gas prices is not a new phenomenon. History has
illustrated that gas prices will sometimes rise quickly, and soon return to a
normal price when the supply and demand balance out. The current price of crude
oil is $34 per barrel. Just last year, the price was approximately $13 a barrel.
While gas prices are abnormally high today; last year they were unusually low.
The increase in crude oil is largely attributable to OPEC and several non-OPEC
producers such as Mexico and Norway removing significant amounts of crude oil
from production. This reduction in production is resulting in higher gasoline
prices. It should be noted that the federal motor fuels taxes have not increased
since 1993. Big Losers Are the Highway Trust Fund, States, and traveling Public
While the potential benefit to motorists is minimal, the cost to the Highway
Trust Fund is devastating. The 4.3-cent gas tax accounts for approximately $7.2
billion a year, while the 24.4- cent diesel fuel tax contributes $8.8 billion to
the Highway Trust Fund. In turn, states would be short-changed hundreds of
millions of dollars, which would decimate states' vital transportation
improvements. The result would be more deaths on the highways, increased
congestion, and the loss of thousands of jobs. The repeal of the 4.3- cent gas
tax would cost California $1,739,100,000 in 2002 and 2003; Pennsylvania $922.7
million; Wisconsin $368.4 million. Meanwhile, the traveling public, who the tax
measure is intended to help, would be the ultimate losers. The money that is
lost to highway and transit construction will result in fewer improvements to
our nation's roads, bridges and transit systems. Consequently, the driving
public will encounter declining road conditions that will result in additional
wear and tear on cars and trucks. The repair costs will far exceed the potential
pennies per gallon saved because of the reduced federal tax. Similarly, transit
riders will face increased delays and a stoppage of expansion projects. Say the
average motorist drives 15,000 miles per year and gets 25 miles to the gallon-
that driver would save $25 dollars per year if the gas retailers were forced to
pass through every penny of the 4.3 cents to the motorist. Even under that
scenario, the average motorist still loses. According to the Road Information
Project (TRIP): -- Driving on bad roads costs our nation's motorists an
additional $23 billion a year -- or $126 per motorist -- in extra vehicle
operating costs. If highway funding is cut, it will cost motorists even more
because needed repairs and improvements will not be made. This figure is much
higher than any amount purportedly saved at the pump. Traffic congestion now
costs our nation's motorists $72 billion a year in wasted time and ADDITIONAL
FUEL costs. This figure would increase if highway funding is cut and needed
traffic congestion improvements are not made. 30 percent of all traffic
fatalities nationwide -- more than 12,000 a year -- are the result of road
conditions. This figure would increase if needed road and bridge improvements
are not made. - A cut in the federal highway funding would result in job loss at
the state and local levels. Moreover economic development would be adversely
affected. Every dollar of highway investment results in more than $2.60 in
economic benefits to the nation. In June 1998, Congress recognized the need for
additional highway investment and overwhelmingly approved the Transportation
Equity Act for the 2 1 s' Century (TEA-2 1). TEA-21 directly linked Highway
Trust Fund revenues to state funding allocations. One of the primary objectives
and achievements of TEA-21 is the assurance to states of predictable flinging
levels for state highway and transit programs. States have responded to TEA-21
by making long-term transportation plans that will be eviscerated if the 4.3-
cent gas tax is suspended. TEA-21 also ended the decades- old practice of using
the Highway Trust Fund to fund other government programs. Now, less than two
years since the passage of TEA-2 1, Congress is again looking to rob the Highway
Trust Fund in order to solve other government problems. Moreover, during the
TEA-21 negotiations, the conferees explicitly decided to dedicate the 4.3 -cents
to highway improvements. The agreement was that the 4.3 cents would be spent on
highway improvements, but that $8 billion of the surplus from the Highway Trust
Fund and interest would be returned to the general fund. Now, in search of a
solution to the increased gas prices, Congress is seeking to renege on the
TEA-21 agreement, and repeal the 4.3-cent gas tax from its intended purpose -
making highway improvements. Solutions The Congress should not have to rob from
the surplus, the Social Security Trust Fund or medicare to replenish the Highway
Trust Fund. The Highway Trust Fund should operate as TEA-21 directed - receive
motor fuels taxes into the fund and distribute the money to the states for
vitally important transportation projects. Other viable and more appropriate
solutions exist to help reduce the gasoline prices. AGC encourages the Congress
to quickly reauthorize the Energy Policy and Conservation Act that provides
authorization for the Strategic Petroleum Reserve to be released. The federal
government should also reduce our dependence on foreign supplies and increase
domestic production of crude oil by opening our best oil prospects to
responsible exploration and development. Many of these oil fields have been
untouchable by the federal government. Since 1983, access to federal lands in
the western United States, where approximately 67 percent of our onshore oil
reserves are located, has declined by 60 percent. AGC also supports H.R. 3822
(the Oil Price Reduction Act), which will be voted on tomorrow in the House.
This legislation seeks to make oil-producing countries that engage in oil price
fixing subject to the loss of United States assistance. Foreign countries that
are jeopardizing America's economy should not be rewarded with American
assistance. These countries should be held accountable. This action will likely
lead to less oil price fixing, and less spiking of gas prices in the U.S. and
around the world. The rising gas prices have highlighted the
need to examine our domestic and foreign energy and oil policy. A knee-jerk
reaction to reduce the federal gas tax is short-sighted and ill-conceived. It is
a transparent political gimmick. The ramifications are serious and long-lasting
as America's highway and transit programs will be stymied - critical
infrastructure projects will be delayed or canceled. Conclusion While many AGC
members are detrimentally impacted by the rising prices for oil, gas and diesel
fuel, we strongly oppose efforts to repeal or reduce any gas or diesel fuel
taxes. The tax gimmick will not be passed onto the consumer, so it will not
result in lower gas prices; however, it will definitely cut federal aid for
highway and transit construction. In TEA-2 1, Congress heavily invested in
America's transportation infrastructure. To back away from the promise of TEA-21
would be tantamount to bankrupting America's infrastructure and jeopardizing our
nation's economic future for a transparent political gimmick. AGC urges Congress
to look at real reform and examine our country's domestic and foreign energy
policy, which will yield long-term stability in gas and diesel fuel prices.
Again, thank you for the opportunity to testify before you. I would be happy to
answer any questions you may have.
LOAD-DATE: March 27,
2000, Monday 
