Copyright 2002 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
September 30, 2002 Monday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 4887 words
COMMITTEE:
SENATE ENVIRONMENT AND PUBLIC WORKS
SUBCOMMITTEE: TRANSPORTATION, INFRASTRUCTURE AND
NUCLEAR SAFETY
HEADLINE: FEDERAL-AID HIGHWAY SYSTEM
OVERSIGHT
TESTIMONY-BY: DR. WILLIAM R. BUECHNER,, VICE
PRESIDENT, ECONOMICS AND RESEARCH,
AFFILIATION:
AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION
BODY: Statement of Dr. William R. Buechner, Vice
President, Economics and Research, American Road and
Transportation Builders Association,
before the
Subcommittee on
Transportation, Infrastructure and
Nuclear Safety Committee on Senate Environment and Public Works
September 30, 2002
"One of our great material blessings is the
outstanding network of roads and highways that spreads across this vast
continent. Freedom of travel and the romance of the road are vital parts of our
heritage, and they helped to make America great. Four million miles of streets
and roads make it possible for the average citizen to drive to virtually every
corner of our country--to enjoy America in all its beauty and variety. They also
form a vital commercial artery unequaled anywhere else in the world.
"Our interstate system has reduced by nearly a day and a half the time
it takes to drive coast to coast. And more efficient roads mean lower
transportation costs for the many products and goods that make
our abundant way of life possible. But let's face it: Lately, driving isn't as
much fun as it used to be. Time and wear have taken their toll on America's
roads and highways. In some places the bad condition of the pavement does more
to control speed than the speed limits. "We simply cannot allow this magnificent
system to deteriorate beyond repair. The time has come to preserve what past
Americans spent so much time and effort to create, and that means a nationwide
conservation effort in the best sense of the word. America can't afford
throwaway roads or disposable transit systems. The bridges and highways we fail
to repair today will have to be rebuilt tomorrow at many times the cost.
"So I'm asking the Congress when it reconvenes next week to approve a
new highway program that will enable us to complete construction of the
interstate system and at the same time get on with the job of renovating
existing highways. The program will not increase the Federal deficit or add to
the taxes that you and I pay on April 15th. It'll be paid for by those of us who
use the system, and it will cost the average car owner only about
$
30 a year. That's less than the cost of a couple of shock
absorbers. Most important of all, it'll cost far less to act now than it would
to delay until further damage is done. . .
"Common sense tells us that
it'll cost a lot less to keep the system we have in good repair than to let it
crumble and then have to start all over again. Good tax policy decrees that
wherever possible a fee for a service should be assessed against those who
directly benefit from that service. Our highways were built largely with such a
user fee -- the gasoline tax. I think it makes sense to follow that principle in
restoring them to the condition we all want them to be in.
"So, what
we're proposing is to add the equivalent of 5 cents per gallon to the existing
Federal highway user fee, the gas tax. That hasn't been increased for the last
23 years. The cost to the average motorist will be small, but the benefit to our
transportation system will be immense. The program will also
stimulate 170,000 jobs, not in make-work projects but in real, worthwhile work
in the hard-hit construction industries, and an additional 150,000 jobs in
related industries. It will improve safety on our highways and will make truck
transportation more efficient and productive for years to come.
"Perhaps most important, we will be preserving for future generations of
Americans a highway system that has long been the envy of the world and that has
truly made the average American driver king of the road. . ."
President
Ronald Reagan Radio Address to the Nation on Proposed Legislation for a Highway
and Bridge Repair Program
November 27, 1982
Testimony of the
American Road and
Transportation Builders Association
before the
Subcommittee on
Transportation,
Infrastructure and Nuclear Safety
Committee on Environment and Public
Works
September 30, 2002
Mr. Chairman, Senator Inhofe, members
of the Subcommittee, thank you very much for providing the American Road and
Transportation Builders Association (ARTBA) an opportunity to
testify on highway investment needs and to present its recommendations for the
reauthorization of the federal highway and mass transit
programs.
I am Dr. William Buechner, ARTBA's Vice President for
Economics and Research and chief economist. Prior to joining ARTBA in 1996, I
served 22 years as a senior economist for the Congressional Joint Economic
Committee, and I have a doctorate in economics from Harvard University.
ARTBA marks its 100th anniversary this year. Over the past century, its
core mission has remained focused on aggressively advocating federal capital
investments to meet the public and business community's demand for safe and
efficient
transportation. The transportation construction
industry ARTBA represents generates more than $
200 billion
annually to the nation's Gross Domestic Product and sustains more than 2.5
million American jobs. ARTBA's more than 5,000 members come from all sectors of
the
transportation construction industry. Thus, its policy
recommendations provide a consensus view.
Mr. Chairman, at the outset I
want to express our deep appreciation to you personally and the bipartisan
leadership of the committee for its work thus far to maintain the FY 2003
highway program at the current year's $
31.8 billion level.
Earlier this morning, the Federal Highway Administrator, Mary Peters,
told this committee that an average annual investment of $
75.9
billion by all levels of government during the next 20 years would maintain
current conditions on the nation's highways and bridges. During the past 20
years, the federal share of highway investment has averaged about 45-47 percent
of the total, which implies that a federal investment of about
$
35 billion annually for the next 20 years would meet our
highway investment requirements.
You don't have to be an economist to
recognize that, if we are currently investing $
32 billion at
the federal level, there is something odd about that assessment.
There
are three reasons why the $
75.9 billion investment figure is
understated.
1. The figure is stated in year 2000 constant dollars.
Obviously, anyone planning a future investment would consider inflation, which
will add significantly to the investment required. We recommend that the Senate
mandate that future reports provide estimates that are in both constant and
inflation-adjusted dollars.
2. The $
75.9 billion
figure, as the administrator has stated, will not even maintain the status quo
in terms of traffic congestion. Traffic congestion at that investment level
would, not maybe, would get worse over the next 10 years. We can't let that
happen because of its impact on productivity and the future economic growth of
the nation.
3. The findings of the report are based on the assumption
that traffic growth will decline from 3 percent annually during the past 20
years to 2 percent annually over the next 20 years. This assumption reduces
investment needs because less traffic means fewer highway and bridge repairs and
less need for new capacity. Every Conditions and Performance report has
underestimated travel growth. But over the next 20 years, the nation's work
force must continue to grow. It will be fueled largely by immigration and upward
mobility of lower-income Americans. Research shows that as incomes rise, so does
auto ownership and vehicle miles traveled. The chart on the bottom of page A-9
of the Administrator's attachment shows that traditional travel growth would
increase annual investment needs almost 50 percent to $
120
billion per year.
You will note that the American Association of State
Highway and
Transportation Officials upcoming 2002 "Bottom Line
Report," which is based on the same econometric model and data used by the U.S.
DOT, concludes that an annual investment of $
92 billion in 2000
dollars by all government levels will be needed from FY 2004 - FY 2009 just to
maintain current conditions and performance. This is about $
16
billion more per year than in the figure Administrator Peters mentioned this
morning.
When ARTBA analyzed the data in the 1999 Conditions and
Performance report, and adjusted the data with conservative estimates of future
inflation and VMT growth, we concluded that a federal highway program averaging
$
50 billion per year would be needed for FY 2004 through FY
2009 just to maintain existing structural, safety and travel performance
conditions on the nation's highways and bridges.
When the new Conditions
and Performance report is issued later this year, the data will inescapably show
that it will take a federal highway investment of at least $
50
billion per year just to stabilize congestion at its current level, and more
likely a program of $
60 billion or even more.
Of
course, we must also look at mass transit capital needs which are in addition to
the highway investment needs reported by Administrator Peters.
ARTBA has
developed a TEA-21
reauthorization funding proposal, which we
call "Two Cents Makes Sense," that shows how the federal share of highway
investment requirements during the next six years can be substantially met. We
are recommending a federal highway program funded at $
35
billion in FY 2004 and then increased by $
5 billion per year to
$
60 billion by FY 2009. This program would bring us to an
investment level that would maintain current physical and safety conditions and
assure that traffic congestion will not get materially worse over the next ten
years. It would also double mass transit investment to about
$
14 billion by FY 2009.
Our approach would result in a
manageable program for both the state DOTs and the
transportation construction industry. The funding levels we
recommend should be guaranteed and firewall- protected just as under TEA-21. But
we would recommend that there not be a RABA adjustment of the kind that caused
the funding uncertainty and political problems we saw in FY 2003.
We are
suggesting a fundamental change in Highway Trust Fund cash management to assure
that highway users pay no more into the trust fund each year than is needed to
cover actual outlays from the trust fund. Under our recommended changes, we
calculate that a small annual increase in the federal highway user fee of about
2 cents per gallon would be needed at most to meet projected cash outlays from
the Highway Trust Fund to fund the program we visualize.
About half a
cent of this increase would come from permanently indexing the motor fuels tax
to the Consumer Price Index, which would preserve the purchasing power of
highway user fees even beyond the
reauthorization period. The
other 1.5 cents would have to be included in the
reauthorization legislation.
To put a 2-cent annual
increase in perspective, we have included a chart on page 9 below showing that
the average weekly change in the retail price of gasoline during the past year
and a half was almost 2.5 cents per gallon.
If Congress were to enact
any other source of new revenues for the Highway Trust Fund, like transferring
the 2.5 cents per gallon of the gasohol excise from the general fund to the
Highway Trust Fund, the necessary increase in the motor fuels user fee would be
even smaller.
Finally, our proposal would include a revenue RABA
provision to assure that the federal highway program does not contribute to the
federal deficit. Under a revenue RABA, if the Highway Trust Fund were to run a
deficit during any fiscal year, the user fee would be automatically increased
the following year by just enough to make the trust fund whole. Conversely, if
the trust fund ran a surplus, then the user fees would be automatically reduced
the following year. This would assure that the federal highway program would be
completely budget-neutral and would have no impact on the federal surplus or
deficit.
ARTBA Recommendations for Meeting Highway and Transit
Investment Needs in TEA-21
Reauthorization In March
2001, the American Road and
Transportation Builders Association
published its detailed proposals for improving the federal highway and mass
transit programs in a 72-page report entitled "A Blueprint for Year 2003
Reauthorization of the Federal Surface
Transportation Programs." This report was the culmination of
the work of a task force of over 100 ARTBA members. Our refined funding proposal
for
reauthorization, "Two Cents Makes Sense," was released on
July 16.
Mr. Chairman, ARTBA's vision for TEA-21
reauthorization is centered on three goals:
First,
cutting the number of deaths and injuries on America's highways between 2004 and
2009 through targeted capital investments.
Second, ensuring that traffic
congestion for the American public and business community does not get
materially worse between now and 2009; and
Third, ensuring that the
structural conditions of federally-aided highways, bridges and transit systems
do not get materially worse over that same period.
These goals can only
be accomplished by providing the capital investments the data from the U.S.
Department of
Transportation and the American Association of
State Highway and
Transportation Officials (AASHTO) reports
suggest are necessary to, at minimum, maintain existing system safety, physical
conditions and performance.
New Assessments of National
Transportation Capital Investment Needs: AASHTO, USDOT, APTA
The upcoming AASHTO "Bottom Line" report uses Year 2000 data provided by
the state
transportation departments and the U.S. Department of
Transportation's HERS model to project highway and mass transit
capital investment needs over the period 2000 to 2019. The report states that an
annual capital investment of $
92.0 billion in 2000 dollars will
be required during the next 20 years by all levels of government to maintain
current conditions and performance on the nation's highways and
$
125.6 billion will be needed annually to make all of the
economically beneficial improvements identified by the model.
The AASHTO
report does not assign a federal share to these needs estimates, nor does it
factor in future price inflation. If one assumes the federal share of total
highway capital investment, FY 2004-09, will continue to be about 47
percent[1]--the average share over the past 20 years--and that annual inflation
will be 2.4 percent[2 ]--the estimate used in the President's FY 2003
budget--the "Bottom Line" report suggests:
- The federal share of the
investment needed "just to maintain" Year 2000 highway safety, structural and
traffic congestion conditions would be $
47.7 billion in FY
2004, rising to $
53.6 billion in FY 2009.
- The federal
share of the investment needed to make all economically justifiable improvements
to the highway system would be $
65.1 billion in Year 2004,
rising to $
73.2 billion in Year 2009.
Figure
1graphically depicts how the ARTBA "Two Cents Makes Sense" proposal addresses
these investment needs estimates suggested by the AASHTO "Bottom Line" report.
The U.S. Department of
Transportation is expected to
soon release the biennial surface
transportation conditions,
performance and investment requirement report it is mandated to submit to
Congress. The most recent report, issued in 2000 and utilizing 1997 data,
suggested a minimum $
50 billion per year federal investment
requirement, when adjusted for inflation and historic traffic use. Annual
inflation alone would be expected to drive that reported annual investment need
beyond $
60 billion by FY 2009.
The American Public
Transportation Association (APTA) has stated that a
$
14 billion per year annual federal investment is necessary to
meet minimum national transit needs.
Existing Revenue Options
Financing this level of investment will require more revenues than
highway users are currently projected to pay into the Highway Trust Fund during
the next six years. Based on information such as current highway user fees,
expected population growth, number of drivers, vehicle miles traveled and other
factors, the Congressional Budget Office and the U.S. Department of the Treasury
currently project that revenues into the Highway Account will grow from
$
30 billion in FY 2004 to just under $
35
billion in FY 2009. Projected revenue growth between now and FY 2009 will thus
be far less than needed to meet federal highway investment requirements during
the next six years.
Nearly two years ago, ARTBA proposed a number of
options for enhancing Highway Account revenues. These include:
*
spending down the current cash balance;
* indexing the motor fuels
excise taxes for inflation;
* crediting the Highway Account with gasohol
tax revenues that currently go into the General Fund;
* ending the
gasohol subsidy or reimbursing the Highway Trust Fund from the General Fund for
the cost of the subsidy;
* crediting interest on the Highway Trust Fund
balances;
* eliminating fuel tax evasion; and
* expanding
innovative financing programs.
Table 1 provides the latest revenue
estimates for each of these options. These figures were computed by ARTBA's
economics and research team based on the most recent available data from the
U.S. Department of the Treasury, the Congressional Budget Office and other
government agencies.
If all of these revenue enhancements were enacted
by Congress, they would add $
5 billion to projected Highway
Account revenues in FY 2004. This would gradually rise to $
9
billion in FY 2009. This would allow the program to grow to $
44
billion by FY 2009, far short of the $
60 billion needed just to
maintain current structural, safety and traffic conditions.
Whether
Congress will, in fact, adopt any, or all, of these options is at this point a
matter of conjecture.
What is abundantly clear is that a
minimally-adequate federal highway program after TEA-21 will require significant
new revenues, beyond these seven options.
The main sources of funds for
federal highway investment are the fees paid by highway users in the form of
excise taxes on motor fuels--gasoline, diesel fuel and gasohol. Each penny of
the motor fuels excise taxes currently generates about $
1.7
billion per year, with about $
1.4 billion being deposited into
the Highway Account of the Highway Trust Fund and $
260 million
deposited into the Mass Transit Account.
ARTBA has endorsed an increase
in highway user fees as needed to maintain current structural, safety and
traffic mobility conditions on the nation's highways and bridges. But highway
users should not be asked to pay any more than absolutely necessary. The
proposal I want to outline this morning is designed to provide the necessary
level of federal highway investment during the next six years at the minimum
cost to highway users
"Two Cents Makes Sense" - A Funding Proposal to
Meet the Investment Requirements Outlined by the U.S. Department of
Transportation and AASHTO
On July 16, 2002, ARTBA
announced a needs based financing proposal for TEA-21
reauthorization--"Two Cents Makes Sense." The financing plan is
a refinement of the funding recommendations ARTBA published in March 2001.
The "Two Cents Makes Sense" plan would provide the revenue stream
necessary to double the annual federal investments in highways--to
$
60 billion--and mass transit--to almost $
14
billion- -by FY 2009. This proposal is the only one currently being discussed
that would grow federal highway investment during the next authorization period
to the level the U.S. Department of
Transportation (USDOT), the
American Association of State Highway and
Transportation
Officials (AASHTO) and the American Public
Transportation
Association (APTA) report is the minimum needed just to maintain current safety,
traffic congestion and structural conditions.
The "Two Cents Makes
Sense" plan would provide steady, predictable and manageable federal highway
program increases--in $
5 billion increments--from
$
35 billion in fiscal 2004 to $
60 billion in
fiscal 2009. Federal transit investment would increase under our proposal in
$
1 billion annual increments. This would be achieved through:
- more efficient cash management of Highway Trust Fund (HTF) revenues;
and
- a small, annual adjustment in the federal motor fuels excise user
fee rate to assure the revenue stream necessary to cover the government's cash
outlay in that year for the highway and transit programs.
Our proposal
is a logical evolution of the concept embraced by Congress in TEA-21 of directly
linking annual highway investment to the user fee revenue stream.
Under
our proposal, the TEA-21 budget firewalls and protections would be maintained.
This would include annual funding guarantees in the authorization legislation
and the budgetary protections for the highway and mass transit programs,
including the separate budget categories and the point of order in the House
Rules that can be raised against legislation that would reduce the guaranteed
funding.
More Efficient Cash Management of Highway Trust Fund Revenues
Under TEA-21, as has been the case for several decades, the federal
government has been collecting more highway user revenue each year than it
actually needs to pay the annual bills--or outlays--for the highway and transit
programs. As a result, this money is being "warehoused" for up to seven years
before it is actually spent. That's why the trust fund balance continues to
balloon. Here's how it happens:
Based on years of analysis, the White
House Office of Management & Budget and the Congressional Budget Office have
determined federal highway funds spend out over a period extending seven years.
This spend out rate is unique among federal programs. Unlike the case with
virtually every other federal program, of every dollar obligated during a fiscal
year for the federal highway program, only 27 cents will actually have to be
paid out of the HTF Highway Account during the first year. The next year, 42
cents will be paid, followed by 17 cents the third year and smaller amounts in
following years (See Figure 2).
This "lag" between collection of user
fee revenue from motorists and truckers to actual complete spend out of those
revenues causes the significant annual growth in the Highway Trust Fund balance.
Absent changes, the Highway Trust Fund's Highway Account balance would grow
steadily through FY 2010.
ARTBA proposes to correct this inefficient
money management by returning the federal highway program to a true
"pay-as-you-go" approach.
Returning to a True "Pay-as-You-Go" Approach
In the
reauthorization, Congress would set annual
investment targets to work toward accomplishing needs based performance results.
This could be accomplished by starting with $
35 billion in FY
2004 and ramping in $
5 billion increments annually thereafter
to $
60 billion in FY 2009. This would similarly be done for
transit investment. Once these authorization levels are established, the
Congressional Budget Office would determine the annual cash outlay needed to
fund the new authorization, plus remaining past authorizations.
The
reauthorization legislation would also include authority for an
annual adjustment of the federal motor fuels user fee excise rate to produce the
amount of revenue to the HTF needed to meet the highway and transit program cash
outlays for the year. This adjustment would have two parts: (1) a base
adjustment to protect that purchasing power of the highway and transit programs
that would be linked to the annual Consumer Price Index (indexing); and (2)
depending on U.S. Treasury revenue projections for the Highway Trust Fund from
all sources during the upcoming year (i.e., could include possible recapture of
ethanol revenues, interest on the trust fund, prudent use of the existing HTF
balance, revenues from innovative financing) an adjustment in the motor fuels
rate above indexing that is necessary to provide the revenue needed to meet the
outlay target.
By implementing these recommended changes, it is possible
to increase federal highway and transit investment significantly without a
large, one time increase in the motor fuels excise user fee rate (which would
also exacerbate the HTF balance build up just discussed).
Funding the
annual authorizations we have proposed, would, with implementation of the
changes we have recommended, require at most an annual adjustment of the federal
motor fuels excise user fee rate of 2.2 cents per gallon. Approximately one-half
cent of that increase would be the result of indexing to the CPI. If the HTF
revenue stream were enhanced by redirection and equitable taxation of ethanol,
use of the existing HTF balance, more revenues due to a robust economy--any or
all--the annual adjustment in the motor fuels excise user fee rate would be
lower than 2.2 cents per gallon (including indexing)! (See Figure 3)
Revenue RABA Provision: An Approach that Eliminates Current RABA
Political and Program Planning Problems.
The "Two Cents Makes Sense"
proposal would also replace the TEA- 21's RABA (Revenue Aligned Budget
Authority) adjustment with a "Revenue RABA Provision." The necessary user fee
increases in Figure 3 were calculated using the most recent Highway Trust Fund
projections by the U.S. Department of Treasury and the Congressional Budget
Office. When TEA-21 is reauthorized, new calculations, based on the then current
data, may indicate user fee increases slightly higher or lower than those in
Figure 3.
Under a "Revenue RABA Provision," if revenues into the HTF
during any given fiscal year were to fall short of outlays, then the following
year the statutory motor fuels excise user fee rate would be automatically
allowed (or certified) to increase by the amount required to offset the deficit
and make the trust fund whole. This would eliminate the political problems and
program disruptions that have occurred with the FY 2003
transportation appropriation caused by the current RABA
construct.
Conversely, if revenues to the HTF were to exceed required
outlays during a fiscal year, then the following year the motor fuels excise
user fee rate would be automatically decreased by the amount needed to offset
the resulting surplus.
This "Revenue RABA Provision" would ensure that
the highway and mass transit program does not contribute to the federal deficit
during the next six years.
Looking Rationally at the Impact of an Annual
Two Cent User Fee Adjustment: The Real World Gas Price Experience
During
the past year and a half, the retail price of gasoline has fluctuated by an
average 2.5 cents per gallon per week! (See Figure 4). In 14 of the weeks, the
average national retail price of gasoline either increased or decreased by 5
cents per gallon or more. In 39 of the 75 weeks shown in Figure 4--or more than
half the time--the average retail price nationally fluctuated at least 2 cents
per gallon from one week to the next.
What this means, of course, is
motorists are used to paying each week the level of annual adjustment in the
federal motor fuels excise user fee rate proposed by ARTBA to support a
$
60 billion federal highway and $
14 billion
federal transit program by FY 2009!
ARTBA commissioned Zogby
International to conduct a national survey of likely voters July 9-12, 2002,
which found almost 70 percent would support an annual 2 cent per gallon increase
in the federal motor fuels tax rate if the money it generated was used
exclusively for
transportation improvements. A 2 cent gas tax
increase would cost the average driver $
12 per year, or 6 cents
per day. That compares to the estimated $
259 each motorist pays
per year in extra vehicle repair and operating costs driving on poor roads.
Tables 2 and 3, found at the end of this testimony, provide an analysis
of how our "Two Cents Makes Sense" proposal would benefit individual state
highway programs, based on both the existing apportionment formulas and in
response to proposals to increase minimum state returns to 95 percent.
Maintenance of Effort Provision to Ensure Program Growth in Every State
A key component of financing highway, bridge and mass transit
improvements is the partnership between federal, state and local governments to
develop and maintain the nation's surface
transportation
network. It is critical for all partners to make an appropriate commitment to
transportation investment. Unfortunately, a number of states
let their own funds for highway and bridge investment lag upon realizing the
increased federal funds they would receive under TEA-21.
To ensure
increased federal surface
transportation investment actually
results in more funds for
transportation improvement projects,
ARTBA believes the
reauthorization of TEA-21 should include a
"maintenance of effort" provision that makes increased apportioned federal funds
contingent on individual state highway and transit program investment levels
consistent with, at least, their prior year investment.
Mr. Chairman,
thank you again for the opportunity to testify before the subcommittee on this
important subject.
I would be happy to respond to questions.
LOAD-DATE: October 1, 2002