Contact:  Steve Hansen (Director of Communications)  (202) 225-7749
 Email: Steve.Hansen@mail.house.gov
     Justin Harclerode (Deputy Director of Communications)  (202) 226-8767
  Email: Justin.Harclerod@mail.house.gov
To:  National Desk/Transportation Reporter
July 16, 2002

        Washington, D.C. - Transportation officials and stakeholders at a Congressional hearing today outlined their suggestions for ensuring adequate long-term funding for the Highway Trust Fund, including addressing the inequitable tax rates that apply for certain alternate forms of fuel, such as ethanol-blended fuel.

        The hearing by the U.S. House Highways and Transit Subcommittee was held to examine the viability of the Trust Fund in preparation for the reauthorization of the Transportation Equity Act for the 21st Century (TEA 21) next year.

        “The collection of fuel taxes will continue to finance highways and transit for some years to come.

        “However, the combination of factors such as special tax breaks for alternative fuels, technological advancements in the efficiency of car and truck engines, and future fleet introduction of fuel cells and electric or hybrid cars, all make it imperative that we begin now to explore new ideas on how to continue the financing of highways and transit systems.”

        Gasoline is generally taxed at 18.4 cents per gallon: money that goes to the Highway Trust Fund and to states to pay for highway and transit improvements.  Ethanol blended fuels are partially exempt from this tax.  The proportion of ethanol contained in each gallon determines the size of the exemption.  The most common ethanol blend contains 90% gasoline and 10% ethanol and is currently taxed at 13.1 cents per gallon – an exemption of 5.3 cents.  Additionally, 2.5 cents of the tax received on each gallon is transferred to the General Fund instead of the Highway Trust Fund.  Thus, the total loss to the Trust Fund resulting from ethanol blend fuels versus gasoline is 7.8 cents per gallon.

        “Preliminary estimates show that the provisions will cost the Trust Fund nearly $4 billion in foregone receipts,” said Young.  “At current trust fund levels, this sum represents approximately 10 percent of a current year’s funding level.  Unless you think your state can live with that kind of reduction, we need some serious thought about the policy of mandating a fuel that doesn’t pay its fair share into the Highway Trust Fund.”

        At the hearing, Young was told by Robert Dineen, President of the Renewable Fuels Association, that he would work with Young during the Energy Bill conference to protect the Highway Trust Fund from the significant drain that would result from the increased ethanol use with no adjustment to how highway user fees are collected.

        “At a time when we face the massive task of rebuilding history’s greatest public works project, we also face the ominous warning that our basic source of financing that system is at risk, ” said Ohio Governor Bob Taft, who represents a state where 50 percent of the interstate highways need to be re-engineered and rebuilt.  “We see clear signs that the federal Highway Trust Fund – the basic financial cornerstone of our infrastructure network – is at risk.”

        According to Governor Taft, Ohio is a leading user of ethanol in the United States.  Forty percent of gasoline sold at the pump in Ohio is attributed to gasohol sales, versus 11 percent nationally.

        “We estimate that Ohio’s federal highway apportionment is reduced by $150 million annually as a result of our substantial use of ethanol,” said Governor Taft, describing this as a penalty levied by the lower tax rate and General Fund subsidy.

        The national impact of the ethanol tax exemption and resulting lost Trust Fund revenue is substantial all over the country.  Larry King of the American Association of State Highway and Transportation Officials said, “According to the most recent FHWA [Federal Highway Administration] estimates, in FY 2001, the combination of the reduced tax on ethanol and the diversion of a portion of that tax to the General Fund resulted in $1.1 billion dollars less distributed to the Highway Account.  All states are impacted, regardless of their ethanol use.”

        “The ethanol-induced foregone Highway Trust Fund revenues will grow to almost $4 billion by 2012 and average almost $2.7 billion per year,” added Dr. Peter Ruane of the American Road and Transportation Builders Association.

        King and AASHTO advocated the creation of a Transportation Finance Corporation – independent of the federal government – tasked with getting greater value from the investment of highway improvement dollars.

        Tom Walker, Director of the Wisconsin Transportation Builders Association, advised the Subcommittee to consider indexing the motor fuel tax to the Consumer Price Index.  According to Walker, this will allow the federal aid highway program to keep pace with inflation and provide a more reliable source of funding to states.

        Dr. John Kuhl of the University of Iowa discussed research into a new user fee collection system designed to more accurately account for all relevant factors regarding a user’s actual impact on the highway system.  Kuhl suggested such a system would more equitably charge motorists for their use of highways, regardless of the type vehicle propulsion used.