With the rise of the affordable automobile in the 20th century, Americans overwhelmingly switched to cars, which offered private, door-to-door service. By the 1960s, privately-owned streetcars and bus lines, operating under municipal franchises, were almost all replaced by public sector buses receiving government subsidies. Unfortunately, today, government-operated mass transit has low overall ridership and is highly subsidized, with each ride costing taxpayers $5 in operational and capital expenses.

Over the course of a decade, the Urban Mass Transportation Act of 1964 provided more than $3 billion in federal subsidies to transit capital projects. Despite substantial taxpayer money being directed toward mass transit, ridership continued to decline. By the 1980s and 1990s, local governments felt the pinch of mass transit’s financial burden, even with all of the federal and state subsidies.

As a result, the United States and Western Europe saw an initial wave of transit contracting. A 1998 survey of 259 American transit agencies found that 20.4 percent of transit vehicles, 16.5 percent of vehicle revenue-miles, and 9.4 percent of operating expenses were delivered through purchased services. Contracting for demand-response services far outpaced contracting for fixed-route bus services, as 74.7 percent of demand-response vehicles were operated under purchased services compared to only 6.7 percent for buses. The discrepancy in contracting prevalence between the two modes is primarily due to the higher labor costs associated with demand-response systems.

For fixed-route buses, the initial wave of contracting brought direct savings ranging from 30 percent to 60 percent, and the competitive market brought down public sector costs as well.

For example, prior to adopting a competitive contracting program in 1979, San Diego’s mass transit costs per mile increased at a similar rate to U.S. transit overall. After the conversion, costs per mile increased at half that rate through 1990. This initial wave of transit contracting also saw service quality maintained or improved in cities such as Denver.

Table 1 provides an overview of the prevalence of fixed-route bus contracting and overall bus operating costs at select transit agencies in 1995.

Like any newly adopted practice, mass transit contracting’s best practices were not entirely known by the 1990s. For example, the conservative government that enacted transit contracting in the United Kingdom switched the contract structure, allowing the private operator to retain all fare revenue as the sole source of funding. However, service quality declined as providers looked to cut costs and focus only on transit-dependent riders. Reforms in 1997 created service quality standards and incentive bonuses based on providers exceeding requirements. Today, London continues to contract out its bus service.

In the United States, however, transit contracting, particularly for fixed-route bus services, stagnated among principal cities and their transit agencies. In 1992, the Kansas City area contracted 10 percent to 14 percent of its buses but contracted none in 2018.

While Los Angeles’ principal transit agency contracts only 7.6 percent of its buses, the total contracting rate across the metropolitan area is 30 percent in 2018, up from under 15 percent in 1992.

A 2013 Government Accountability Office survey of 463 transit agencies found that 42.3 percent of agencies with fixed-route buses contracted at least some of their service, with the remaining 57.7 percent operating all bus routes directly.

As in 1998, a greater percentage of transit agencies contracted their demand response service than their fixed-bus routes. Fifty-seven percent of Americans with Disabilities Act, or ADA, paratransit systems utilized purchased services, as did 62.4 percent of non-ADA demand response systems.

The current scope of the private intracity bus industry is a testament to the effectiveness of contracting, as the metropolitan areas of Las Vegas, Austin, Phoenix, and Reno, among others, contract out all bus services successfully.

While private-sector transit and the deregulation of micro-mobility and ridesharing can decrease demand for traditional transit services, contracting transit offers governments a more widely applicable method to decrease transit costs and increase service quality.

Direct savings, which can be over 30 percent, are only one of the benefits, as savings will ripple throughout a city’s and state’s transit sectors.

San Antonio, for example, doesn’t contract buses due to its current low cost of $7.24 per revenue mile. It does, however, contract all of its vanpools and half of its paratransit service, employing contracting’s cost savings where needed. Other cities in Texas, a state comfortable with contracting, sees transit costs well below the largest 50 transit agencies’ cost of $14.32 per revenue mile. For example, Austin’s and Dallas’ costs are $9.89 and $9.40 per revenue mile, respectively.

The private sector typically brings a business-like approach that is more willing to adopt new technology and work hard to establish positive experiences for its passengers. European cities such as Stockholm have allowed private companies to innovate by letting them choose exact routes within a given service area. In the US, private contractors also helped New Orleans begin to address transit pension challenges and restore much of the service lost to Hurricane Katrina.

Barriers exist in contracting transit but they can be overcome. Unions, fearing contracting will decrease labor prices and their political influence, sometimes prevent contracting through collective bargaining agreements. Policymakers should reach out and work with unions to explain why contracting, financial stability, and improved transit service quality constitutes a mutually beneficial proposition. Private operators can follow collective bargaining agreements, pay workers more, and still cut costs.

When unions do not cooperate, cities and counties should leave established centralized transit agencies and provide transit outside of a legacy union’s jurisdiction. Even in states that require private transit workers to be part of the public sector union, contracting has been found to bring down costs and improve service quality.

Most other barriers to contracting transit are largely perceived. Mass transit agencies can maintain and expand control of service with a well-crafted contract. Savings, service quality improvements, and preparing for the future of on-demand private transit are ample impetus to pursue contracting. Federal regulations, such as Section 13(c) of the Federal Transit Act, have never actually prevented a transit agency from contracting. Policymakers and transit agencies should work to communicate the effective and long-term benefits of transit contracting within the context of their metropolitan area.

Setting up a contract begins with determining if the transit agency can provide service with the best overall value. Often it cannot. The procurement process, from informal market sounding to financial close, must set clear expectations that encourage participation and, thus, competition. The final proposal should be chosen from a predetermined rubric that calculates the best overall value, factoring in service quality, scope, and cost.

The contract must be detailed and encompass all areas including duration, bonding, service scope, maintenance, insurance, and pricing. Pricing is the most important component of the contract, as it must encourage competition and mitigate taxpayer risk. Fixed-priced contracts work well when coupled with financial penalties and discretionary incentives set at predetermined levels to promote service quality. Net-price pay fosters a direct relationship between riders and the private entity through the farebox, fostering service quality; to attract bidders to a net-pricing system, a pass-through arrangement can be used to address unpredictably escalating costs such as for fuel.

Transit contracting should always follow three principles: guaranteeing public control, promoting competition, and ensuring transparency.

Public control allows transit to serve its desired function, which is best delivered by private operators. Those operators are, in turn, more cost-effective. A transparent process is one that encourages competition, has clear expectations, and establishes trust, decreasing costs further and promoting service quality.

Full Policy Brief: Contracting Mass Transit Services

The post Contracting Mass Transit Services appeared first on Reason Foundation.

Paratransit services for the elderly and disabled, as well as micro-transit services, are contracted frequently by transit agencies.

Figure 1 lists each of the 20 elements of the mass transit contracting process. And this how-to guide then discusses each step in detail.

Contracting Mass Transit Services: A How-To Guide

For additional background on mass transit contracting, including information on privatization options, contracting’s effectiveness, and safeguarding the public interest, please consult the companion policy brief: “Contracting Mass Transit Services.”

The post Contracting Mass Transit Services: A How-to-Guide appeared first on Reason Foundation.

Of the nation’s most populous states, Ohio (ranked 13^th overall), North Carolina (14^th)—which manages the largest state-owned highway system, and Texas (18^th)—with the second-largest amount of state mileage, are doing the best job of combining road performance and cost-effectiveness. In contrast, New York (ranked 44^th overall), California (43^rd), and Florida (40^th) are in the bottom 10 overall.

The 25^th Annual Highway Report finds the general quality and safety of the nation’s highways has incrementally improved as spending on state-owned roads increased by 9 percent, up to $151.8 billion, since the previous report.  Of the Annual Highway Report’s nine categories focused on performance, including structurally deficient bridges and traffic congestion, the country made incremental progress in seven of them.

However, the pavement condition of the nation’s urban Interstate system worsened slightly. Over a quarter of the urban Interstate mileage in poor condition is in just three states: California, New York, and, perhaps surprisingly, Wyoming.

The study also finds drivers in 11 states spent more than 50 hours per year in traffic congestion, with commuters in the three most-congested states—Delaware, Illinois, and Massachusetts—spending over 100 hours per year in traffic congestion in 2019.

Most states—35 out of 50 —reduced their overall traffic fatality rates. Massachusetts, Minnesota, and New Jersey reported the overall lowest fatality rates while South Carolina, Mississippi, Louisiana, and Arizona had the highest fatality rates.

In the report’s spending categories, Missouri, Mississippi, South Carolina, North Dakota, and Tennessee reported the lowest expenditures per mile. New Jersey, Massachusetts, Alaska, Delaware, and Maryland had the highest costs most per-mile. In total, the 50 states disbursed $151.8 billion for state-owned roads, a 9.2 percent increase from $139 billion in 2016, the previous data available.

The condition of the nation’s bridges improved slightly in 2019. Of the 613,517 highway bridges reported, 46,771 (7.6 percent) were rated deficient. The best rankings go to three states where less than two percent of their bridges are structurally deficient: Texas, Nevada, and Arizona. Meanwhile, Rhode Island reported a whopping 23 percent of its bridges as structurally deficient.

Five states made double-digit improvements in their overall performance and cost-effectiveness rankings:  Arkansas improved from 32^nd to 9^th  overall; Mississippi moved from 25^th to 8^th; Wisconsin went from 38^th to 22^nd; South Carolina jumped from 20^th to 6^th; and Iowa improved from 31^st to 20^th overall.

25th Annual Highway Report Overall Performance and Cost-Effectiveness Rankings

Click a state name for detailed information about its results.

“Although it is tempting to ascribe these ratings to geography or population, a more careful review suggests that numerous factors, including terrain, climate, truck traffic volumes, urbanization and congestion, system age, budget priorities, and management and maintenance practices all significantly impact state highway performance,” says Baruch Feigenbaum, lead author of the report and managing director of transportation policy at Reason Foundation. “The states with the three largest highway systems—North Carolina, Texas, and Virginia—all rank in the top 21 this year. Meanwhile, states with the smallest amount of mileage to manage, like Hawaii, Rhode Island, and New Jersey, are some of the worst-performing states. Prioritizing maintenance, targeting and fixing problem areas, and reducing bottlenecks are among the successful strategies states can use to improve their quality and efficiency.”

Reason Foundation’s Annual Highway Report measures the condition and cost-effectiveness of state-controlled highways in 13 categories, including pavement condition, traffic congestion, structurally deficient bridges, traffic fatalities, and spending (capital, maintenance, administrative, overall) per mile.  The Annual Highway Report is based on spending and performance data submitted by state highway agencies to the federal government for 2018 as well as 2019 urban congestion data from INRIX and bridge condition data from the Better Roads inventory for 2019.

25th Annual Highway Report: Each State’s Highway Performance Ranking By Category

Editor’s Note (Jan. 12, 2021): The Federal Highway Administration (FHWA) has identified an “error in the 2018 HM-64 Highway Statistics table” that it is still in the process of correcting. This FHWA error in the 2018 HM-64 table negatively impacted Wyoming’s pavement condition figures and rankings in the 25h Annual Highway Report. And, as a result, the FHWA data error would have also played a role in Wyoming’s overall ranking falling from 11th overall in the previous report to 36th overall in the 25th Annual Highway Report. 

The post 25th Annual Highway Report appeared first on Reason Foundation.

For the past two decades, transit agencies have chosen to use their increasing taxpayer subsidies to attempt to attract wealthier transit-choice riders to the detriment of lower-income transit-dependent riders. Now, the coronavirus pandemic is further revealing the dire financial situations many transit agencies in the US are facing and it is time for city and state officials to reevaluate their approach to public transportation. One way they can do so is by considering transit contracting, which has evolved over the past 50 years and can help transit systems cut costs, improve service quality, and provide a venue for entrepreneurship.

Transit agencies can contract with private companies to manage a portion, or all of, their services while still maintaining ownership and the ability to set policies and goals. There is a broad consensus that transit contracting saves taxpayers money both directly through reduced operational costs and indirectly by increasing competition with the public sector.

Transit agencies that pursued competitive contracting have been known to save as much as 30-to-50 percent. Savings even occur when contractors pay a prevailing wage determined by existing government employee collective bargaining agreements.

Critics of contracting often make the incorrect argument that any cost savings are due to wage cuts to workers’ pay and service cuts that reduce options for riders. While the 1990s certainly saw some poorly crafted transit contracts do those things and negatively impact service quality, today’s contracting practices are greatly improved and designed to hold private operators accountable through incentives and penalties that allow governments to set and enforce the terms and conditions they want to see.

For example, Transport for London, the transportation agency for the United Kingdom’s largest city, contracts out all of its bus services and uses discretionary bonuses as an incentive for service quality improvements. Accordingly, the private operators are encouraged to experiment, innovate, and adopt new technologies beyond what is stipulated in their contract agreements. Other incentives include contract extensions if an operator is exceeding service and financial expectations, and predetermined bonuses that are distributed after certain service benchmarks are met.

Similarly, penalties are used in most transit contracts. Generally, penalties are doled out if service expectations are not met, with the monetary amount increasing as a given measure of service quality decreases. For example, the city of Phoenix’s contract with First Transit contains a liquidated damages schedule of $5,000— per route—if the company’s on-time performance is below 94 percent. The penalty rises to $10,000 per route if on-time performance drops below 91 percent and grows $15,000 per route if on-time performance falls below 88 percent.

Other service measures built into contracts can detail metrics for service frequency, customer satisfaction, and the number of breakdowns or accidents.

Contracting transit is not the sale of public infrastructure, but rather an agreement setting clear expectations for providing a service. Modern contracting practices have evolved to codify and enforce a transit agency’s desired service standards, cleanliness levels, and customer satisfaction.

This higher level of accountability and goal-setting particularly benefits lower-income transit riders who rely on the services the most.

In contrast, city officials have no such enforcement mechanisms to ensure a high caliber of service quality when transit is operated by the government. In those cases, the transit agency both operates the transit system and measures its own level of service quality, muddying its responsibility to properly identify, report, and address issues. In fact, there may be a negative incentive to avoid fixing problems so the transit agency can tell the city or state government it needs to allocate more taxpayer dollars to the transit agency in order to solve the issues.

Fundamentally, the contracting process is designed to strike the optimal balance between costs and services. The best overall value, which includes service quality, determines which private operator receives the contract. Then the city or transit agency acts as the oversight side body to ensure expectations are met or exceeded, which results in higher accountability.

Contracting transit services can also promote entrepreneurship if cities decrease the barriers to entry. Rather than contracting out all bus service to a sole operator, for example, cities can instead create groups of routes that balance high- and low-demand routes. Small companies can more feasibly bid on smaller contracts. Cities can also stagger contracts by year, allowing for a greater frequency of bidding opportunities. Large companies will likely win some contracts where they provide the best overall value, but decreased barriers allow small businesses to have a fair chance.

Although contracting has been traditionally viewed as a way to cut costs the practice actually deploys a robust set of tools to improve service quality. Accordingly, private transit operators can deliver better mass transit services at lower costs when compared to the government.

Cities and transit agencies should legalize transit contracting, work with labor unions to arrive at mutually-beneficial contracting practices, and encourage competition among private providers.

The post How Contracting Improves the Service Quality and Accountability of Mass Transit appeared first on Reason Foundation.

The 10 states diverting the largest percentage of their gas tax money: New York diverts 37.5% of its gas tax revenue, Rhode Island diverts 37.1%, New Jersey and Michigan divert 33.9%, Maryland diverts 32.5%, Connecticut diverts 27%, Texas diverts 24%, Massachusetts diverts 23.9%, Florida diverts 13.6% and Vermont diverts 13.2%.

The policy brief catalogs state gas tax diversions of the 25 states that employ that practice and outlines potential policies that will strengthen the users-pay/users-benefit model of transportation funding. It also notes that states like California aren’t listed among those diverting state gas taxes. California does not divert its gas tax revenue. Instead, the state collects over $8 billion in revenue per year from vehicle registration and miscellaneous motor vehicle fees. Those funds are partially allocated to programs such as the California Highway Patrol, the California High-Speed Rail Authority and local public transportation agencies and projects.

Infographic: State Gas Tax Money Diverted Away From Roads

Full Policy Brief: Revealing State Gas Tax Diversions

The post The State Gas Tax Money That Is Diverted Away From Roads and Highways appeared first on Reason Foundation.

Many states today, however, divert portions of their state gas tax revenue to the state general fund and other non-highway uses, such as these:

• The largest and most common diversions, found in 20 states, are those to transit and active transportation (pedestrian and bicycle projects). New York and New Jersey, for example, allocate over a third of their respective motor fuel tax (MFT) revenue to transit.
• Ten states divert a portion of their gas tax revenue to law enforcement and safety services, marking the second most common diversion.
• Though less frequent, diversions to education tend to be substantial, accounting for 25.9% and 24.7% of gas tax revenue in Michigan and Texas respectively.
• Other states divert gas tax revenue to tourism, environmental programs and administrative costs. In total, 22 states divert over 1% of their gas tax revenue.

By violating the users-pay/users-benefit principle, diversion poses both immediate and long-term threats to transportation funding. Diversions can leave roads and highways underfunded.

The 10 states diverting the largest percentage of their gas tax money: New York diverts 37.5% of its gas tax revenue, Rhode Island diverts 37.1%, New Jersey and Michigan divert 33.9%,  Maryland diverts 32.5%, Connecticut diverts 27%, Texas diverts 24%, Massachusetts diverts 23.9%, Florida diverts 13.6% and Vermont diverts 13.2%.

This policy brief catalogs state gas tax diversions of the 25 states that employ that practice and outlines potential policies that will strengthen the users-pay/users-benefit model of transportation funding.

State Gas Tax Diversion Rates

Background

On February 25, 1919, Oregon introduced the first gas tax in the United States at a rate of one cent per gallon. The use of gas taxes to fairly fund roads and highways proliferated across the country, as gas usage correlated with vehicle road usage. Within the following decade, each of the then-48 states had adopted its own gas tax.

In 1932, Congress created the first federal gas tax revenue source (one cent) intended to decrease the federal deficit; road and highway funding was traditionally under the purview of states and local governments. The federal gas tax rate was raised by half-a-cent per gallon during World War II and by another half-cent during the Korean War to generate new revenue for national defense.

With the Federal Aid Highway Act of 1956, commonly referred to as the Interstate Highways Act, Congress raised the federal gas tax rate from two cents to three cents and dedicated all of the revenue to the newly created Highway Trust Fund (HTF). The HTF was designed to fund the construction of the new Interstate Highway System utilizing the users-pay/users-benefit principle of taxation.

The users-pay/users-benefit principle simply means that those paying a user tax receive the benefits, connecting a government expenditure with both market demands and a reliable, fair source of revenue. In the case of the gas tax, drivers are proportionally paying for their road and highway use, assuming the revenue is allocated for roads and highways. Overall, government revenue that conforms to the users-pay/users-benefit principle is fair, proportional, predictable and self-limiting, while serving as a signal for investment.

Over the past 100 years, state gas tax rates have increased to accommodate the need to build (and rebuild) highways and to account for inflation. In July of 2019 alone, for example, drivers in 14 states saw gas tax rate increases. A few states, such as Rhode Island and Georgia, mandate periodic indexing of the gas tax rate to account for inflation. New Jersey, on the other hand, ties its gas tax rate to revenue goals.

Figure 1 provides a representative sample of state gas tax rates between 2000 and 2019.

Figure 1: State Gas Tax Rates 2000-2019

Source: “State Motor Fuels Tax Rates: 2000 to 2019.”

Today, a driver in Oregon, who would have paid one cent per gallon in 1919, pays 36.8 cents per gallon in state gas tax and 18.4 cents per gallon in federal gas tax. A penny in 1919 is equivalent to 15 cents in 2020, for the same purchasing power. Today’s vehicles are roughly 17.6% more fuel-efficient than those in the 1920s, though vehicles today are roughly 66.9% more fuel-efficient compared to vehicles in 1960 (when comparing the average fuel economy of 24.7 miles per gallon today, with the fuel economy of the Ford Model T at 21 miles per gallon and average fuel economy of 14.8 miles per gallon in 1960). Based solely on inflation and increased fuel efficiency, that one-cent tax in 1919 would equal 17.6 cents today. Currently, state gas taxes range from 14.32 cents per gallon in Alaska to 62.05 cents per gallon in California, not including the 18.4 cents per gallon federal gas tax.

Rather than dedicating all gas tax revenue to roads and highways, many states divert portions of the revenue to non-road and non-transportation purposes. While those paying gas taxes may see some benefit in non-road and non-transportation spending, these diversions undermine the users-pay/users-benefit principle and promote irresponsible spending behavior. When gas tax revenue is treated as an undedicated stream of governmental revenue, roads suffer, and tax dollars may be wasted on ineffective or irrelevant programs.

Though this brief focuses specifically on the diversion of state-level gas tax revenue, it should be noted that each state funds its road system with a unique combination of fees and taxes, often including motor vehicle registration fees and various sales taxes. Accordingly, a state may divert its registration fees while using all of its gas tax revenue on roads and highways.

A gas tax diversion rate is only one measure of a state’s fiscal responsibility. California, as an example, diverts none of its gas tax revenue. Yet, the state collects over $8 billion in revenue per year from vehicle registration and miscellaneous motor vehicle fees, which is partially allocated to programs such as the California Highway Patrol, the California High-Speed Rail Authority and local public transportation.

Despite the aforementioned limitations, this brief solely examines the diversion of state-level motor fuel tax revenue as a measure of fiscal responsibility for state transportation funding.

Gas Tax Diversions by State

Gas tax diversions vary by state for the 25 states that employ that practice. Figure 2 lists state gas tax diversion rates, or the percentage of state gas tax revenue that is allocated for expenses unrelated to road construction or maintenance. Figure 3 provides a regional diversion percentage. The remainder of this section itemizes all diversions of state level gas taxes. Explanations for each state’s diversion rate can be found in this brief’s appendix.

Figure 2: State Gas Tax Diversion Rates

Figure 3: Average Diversion Rate of Each U.S. Region

Source: State Annual Budget, Transportation Budget and Transportation Fund Statements Data; more detail provided in this brief’s appendix. The regions used in Figure 3 correspond with the classification used by the United States Census Bureau.

Methodology

Although the definition, collection, and allocation of gas tax revenue vary widely in each state, this brief uses the following methodology.

Gas taxes can generally be broken down into two components: a gasoline excise tax and additional fees, both of which are charged at per-gallon rates. Most often, a vast majority of the gas tax rate is composed of a per-gallon excise tax, which is the common label for a gas tax. Additional per-gallon fees are often used to cover the costs of petroleum-tank inspections or specifically designated funds, be they agricultural, environmental, or transportation-related.

In other states, the label of excise tax merely reflects one, a usually older but indistinguishable, component of the gas tax. In the case of New Jersey, the traditional gasoline excise tax is only $0.105 per gallon, while the other fees total $0.309 per gallon. Yet, both components are collected as one coherent gas tax.

Other states, such as Florida, break down their gas taxes into multiple components. Each component, roughly corresponding to legislation, increases the overall gas tax rate, and is governed by its own set of revenue allocation formulas.

Also, to be consistent, this brief uses the term “motor fuel tax” (MFT) revenue to refer to the combination of revenue from per-gallon gasoline taxes, diesel taxes, special fuel taxes, and, in some cases, jet and aviation fuel taxes. Each state reports its MFT revenue differently. Some states collect MFT revenue from road-based and non-road vehicles (boats, trains or planes) separately. In such cases, the exact amount of revenue associated with each transport mode is known, and the allocation process occurs separately. Others collect all per-gallon MFT revenue together and distribute non-highway MFT revenue according to a preapproved formula. In other words, all fuel is subjected to the MFT, and revenue for each transportation mode is allocated at some proportion.

Generally, this brief uses road-based MFT revenue unless there is no way to separate how much revenue was collected from non-road MFTs. For the latter states, any allocation of non-highway MFT revenue to non-highway uses is not considered a diversion.

To calculate the diversion rate, we first examine which state account or fund MFT revenue is allocated to in each state. States such as Georgia and Illinois have dedicated accounts for MFT revenue, which means all expenditures from the government account or fund is from MFT revenue. Other states such as Alabama or Massachusetts, place MFT revenue into a special transportation account, or, as Alaska does, into a general fund account with various other sources of revenue.

When MFT revenue is placed into an account with other sources of revenue, this brief assumes that MFT revenue is distributed proportionally among all expenditures from the account, unless those expenditures have a dedicated source of revenue or state statute mandates further regulations on MFT revenue within a given account.

Most states allocate small portions of their MFT revenue to cover the administrative costs of MFT collection or to provide refunds for agricultural or recreation-based fuel use, neither of which is considered a diversion.

In terms of calculating its gas tax diversion rate, each of the 25 states generally conforms to the outline above while having its own unique circumstances, be they special expenses due to geography, such as ferries in Alaska and Washington, or a particularly complicated allocation formula such as the one used in Florida.

Colorado

Connecticut

Florida

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

New Jersey (FY18)

New York

North Carolina

North Dakota

Oklahoma

Pennsylvania

Rhode Island

South Carolina

South Dakota

Texas

Utah

Vermont

Virginia

Washington

Wisconsin

Before analyzing the above list of diversions, it is important to acknowledge some context. Primarily, this list represents conservative estimates of gas tax diversions as it is difficult to separate administrative expenses and debt services between roads and transit.

Connecticut, for example, allocates 40% of its gas tax revenue, equivalent to $610 million, toward debt services for transportation-related bonds. While this list does not count debt servicing as a diversion, almost a quarter of all transportation bond revenue in FY2019 supported transit. Accordingly, it is possible that Connecticut uses a portion of gas tax revenue to fund transit-related bonding that has little to do with roads or highways.

Additionally, some states allow local governments to divert portions of gas tax revenue. Colorado shares gas tax revenue with local jurisdictions and allows cities and counties to spend up to 15% of their share on transit and 5% on administration. Therefore, the diversion rate for Colorado underestimates the actual amount of gas tax revenue that is diverted.

Finally, each state is unique, and the diversion rate may not necessarily reflect a state’s fiscal responsibility or lack thereof.

California’s lack of diversions appears impressive when compared to other large states. All motor fuel tax revenue in California was placed into the Motor Vehicle Fuel Account of the Transportation Tax Fund, which is used solely on roads and highways. However, California diverts revenue from other driver charges, such as registration and license fees, to law enforcement and rail transportation. Therefore, California still spends revenue generated from automobiles on non-roadway purposes.

Analysis

There are clear patterns in where diverted gas tax revenue is allocated. The most common diversion is for non-road and non-highway transportation, such as trains, buses and pedestrian projects. The following 20 states all divert gas tax revenue to non-roadway transportation projects: Connecticut, Florida, Kansas, Louisiana, Maryland, Massachusetts, Michigan, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, Washington and Wisconsin.

The second most common diversion is for law enforcement, mainly state police, which occurs in nine states: Colorado, Kansas, Kentucky, Maine, Maryland, North Dakota, South Dakota, Utah and Vermont. Similar to the diversions toward transit, the diversions for law enforcement are tangentially related to highways but violate the users-pay/users-benefit principle. Not all drivers use roads that are under the purview of state police, nor do all drivers see a proportional benefit to their road use because of the state police.

Diversions to state environmental agencies and protection programs are fairly common as well. Florida diverts revenue toward its Fish and Wildlife Conservation Commission and its aquatic weed control program. Maine diverts revenue directly to its respective Departments of Environmental Protection. Maryland diverts to its Chesapeake Bay Trust Fund and Washington toward its fish barrier removal program. Michigan and Texas divert large portions of their gas tax revenue to education at 25.9% and 24.7% respectively.

Beyond those aforementioned diversions, both Utah and Vermont divert small portions of their revenue toward tourism promotion, while Rhode Island diverts revenue to its Department of Human Services (DHS), an agency that cares for veterans, the elderly, and those who are unable to take care of themselves. Motor fuel tax revenue is supposed to offset some of the transportation costs incurred at DHS, whether it’s refunding any gas tax paid by its government vehicles or funding paratransit programs. Similarly, Kansas uses MFT revenue to fund mental health grants for the Department of Aging and Disability Services.

Geographically, the only major pattern is that the dense liberal states of the Northeast tend to have high diversion rates. The average diversion rate in the Northeast is 20.3%, well above the 5.7%, 5.2%, and 1.4% average diversion rates in the South, Midwest and West respectively.

New York diverts 37.5% of its gas tax revenue, Rhode Island diverts 37.1%, New Jersey diverts 33.9%, Maryland diverts 32.5%, Connecticut diverts 27.0%, Massachusetts diverts 23.9% and Vermont diverts 13.2%. Diversions to mass transit make up almost all of the diversions in each of the aforementioned states except Vermont. Maine’s diversion rate of 6.6% may be low compared to its neighbors but is still higher than 34 other states.

Unsurprisingly, New York, Rhode Island, and New Jersey not only have the three highest diversions rates but also rank at the bottom (45th, 48th and 50th) respectively on the overall value for money ranking in Reason’s Annual Highway Report. Large diversions are common in northeast states, and drivers suffer where road quality is worse and costs higher than nationwide.

At the same time, Delaware and New Hampshire divert none of their respective revenue, and Pennsylvania diverts only 3.1% of its revenue despite having a fairly robust public transportation system in Philadelphia (although Pennsylvania does divert Turnpike revenue to transit systems).

Of the 10 states with the highest diversion rates, only Michigan at 33.4%, Texas at 24.7% and Florida at 13.6% are located outside the Northeast. Michigan and Texas use gas tax revenue to help fund education, while Florida diverts to mass transit and environmental programs.

Ironically, these diversions could actually harm the departments to which they are allocated in the long term. As electric cars become more common and gasoline-powered vehicles more efficient, gas tax revenue is expected to decline. Texas’ School Fund received $900 million in funding from gas tax revenue in the fiscal year 2019 alone, leaving education in Texas vulnerable to declining revenue.

While high diversion rates are located mainly in the Northeast, low diversion rates are found throughout the country in a great variety of states. Ohio, with its large population, diverts less than 1% of its revenue, as do the less-populated Alaska and Hawaii. Liberal Oregon and conservative Wyoming divert none of their respective gas tax revenue, nor do snowy Minnesota or sunny New Mexico.

Recommendations

Gas tax diversions are a product of public policy, not ideology, climate, or demographics. Accordingly, there are steps that any state can take to decrease its diversion rate while acknowledging its own unique public policy needs.

States could enact legislation or constitutional amendments that prevent diversions of gas tax revenue in the first place. Georgia’s constitution, for example, restricts the use of motor fuel tax revenue to roads and bridges for construction, maintenance, and financing. The most effective route, as demonstrated by Georgia, is to deposit all gas tax revenue into its own account and restrict the use of that account to roads and highways. States can also pursue legislation or a constitutional amendment to designate gas tax revenue as dedicated revenue regardless of what account the revenue is deposited in.

States should create restrictions on gas tax revenue that meet the needs of their state without allowing for diversions to tangentially related projects. Alaska, Indiana, and Iowa all treat MFT revenue as dedicated and place a restriction on its use. South Dakota allocates gas tax revenue toward radio communications, but that infrastructure is needed for driver’s safety in the rural state. On the other hand, Utah restricts gas tax revenue but diverts revenue to facilitate Bus Rapid Transit on roads and highways.

Alabama has particularly robust laws that outline what gas tax revenue may be used at the state, county, and municipal levels. For example, local governments can use their share of gas tax revenue to fund plant removal as a part of road maintenance, but they may not use gas tax revenue to purchase herbicide.

States with programs that depend on diverted revenue may find the outright elimination of diversions to be politically infeasible. Such states could mandate a 10% annual decrease in their diversion rate and require that roads and highways meet certain quality thresholds before any revenue is diverted.

New Jersey, which allocates roughly $360 million in MFT revenue to NJ Transit per year, would have the more manageable task of raising $36 million in new transit-related revenue each year, possibly through a value-added tax placed on real estate within a mile of an NJ Transit train station or directly on an express bus route. Additionally, NJ Transit could reevaluate the necessity of unprofitable routes.

Similarly, Texas, a state where just under $900 million of MFT revenue is allocated to education, would have to decrease its diversion by $90 million per year. Texas would likely have to audit its education spending, a positive process in the long-term while finding more appropriate, reliable sources of revenue.

Over the course of a decade, these states would completely transition away from diversions, benefiting roads and highways while preparing transit and schools for the projected decline in MFT revenue.

In the long term, as electric vehicles become the norm and gas tax revenue declines, states could use dedicated mileage-based user fees (MBUFs) to equitably fund highways. MBUFs would replace state gas taxes and distribute the exact costs of highways onto those who use highways, eliminating the problem of diverted revenue.

Full Policy Brief: Revealing State Gas Tax Diversions

The post How Much Gas Tax Money States Divert Away From Roads appeared first on Reason Foundation.

With decreased vehicle traffic during the coronavirus shutdowns, many major cities are closing streets to create more outdoor spaces for both public and private uses. San Francisco, Oakland, Minneapolis, New York and Seattle are among the many cities creating public spaces out of roadways.

This “open streets” movement seeks to transform roadways into the pedestrian- and bike-exclusive corridors, limit through-traffic, and decrease speed limits—with the goal of creating outdoor spaces conducive to social distancing. New York’s 40 miles of open streets operate daily from 8 a.m. to 8 p.m., in line with police staffing availability, and the city looks to expand the program to a total of 100 miles.

Oakland says its “slow streets” will ultimately stretch for 74 miles. Even smaller cities, such as the Boston suburb of Brookline are increasing sidewalk widths and creating temporary bike lanes.

Hoboken, New Jersey, has repurposed street space for private purposes, allowing local restaurants to create outdoor seating in a previously public rights-of-ways. These “str-eateries” allow patrons to eat at restaurants with a decreased risk of contamination, providing a lifeline for local establishments. In Cincinnati, eight restaurants have opened seating in closed roadways or former parking lanes in the historic Over-the-Rhine neighborhood.

Open streets have the immediate public health benefit of decreasing crowding when outdoor space is in high demand, but some activists want to make these changes permanent.

Outlier events should not be the basis for permanent changes to a city’s infrastructure. An open street is more of a novelty than a sustainable practice, similar to a carnival set up in a municipal parking lot or a sidewalk sale on Main Street.

Take for example New York City’s open streets pilot program in March, which was suspended within 11 days. The city found there was not enough usage of these spaces to justify the necessary policing cost. In May, New York City tried again, as the warming weather increased demand for outdoor space.

In the short-term, cities could restrict the pedestrianization of streets to holidays and weekends during the summer. And any city looking to create open streets should first open its parks and outdoor recreational facilities. Additionally, as the stay-at-home orders are lifted and the economy recovers, cities need to ensure they have adequate road capacity to meet the demand of returning workers, students, and customers.

Permanent open streets are analogous to previous “road diets” attempted in cities such as Los Angeles, where road capacity was artificially decreased to slow traffic and discourage driving. Anti-car activists hoped that road diets would make driving so inconvenient in the urban core that individuals would choose to take mass transit or active transport options, like walking and cycling.

While adult leisure bike sales are up 121 percent during the coronavirus pandemic, as people seek ways to get out and exercise, active transport is not a realistic mode of commuting for most suburban and exurban workers.

Open streets do temporarily address weather-dependent increases in demand for outdoor spaces and open up the opportunity for outdoor seating to help restaurants. In the long-run, however, adequate parking and vehicle access are required to attract customers and employees. Decreased road capacity also hinders the freight industry, increasing delivery times and costs, particularly in urban cores.

In the second half of the 20th century, pedestrian malls were a go-to method for cities trying to revive their downtowns in the age of the shopping mall. But few remain today. Cities temporarily allowing the use of open streets this summer during the pandemic is one thing but cities thinking they can keep cars off of major streets permanently will likely repeat the costly economic failures of pedestrian malls.

The post The Benefits of Using Roadways as Public Spaces Are Limited and Temporary appeared first on Reason Foundation.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II.1 Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to the 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies. In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally not favoring the use of tolls, they created the concept of availability payments as a means to finance long- term concession projects.

Other governments in Europe adopted a different form of highway concession. Generally not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings. In the highway sector, nearly all long- term concession P3 projects in Canada, Germany, the U.K., and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes the addition of express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations.3 These cases are called “hybrid” concessions in this chapter.

Eight of the top 10 worldwide P3s that reached financial close in 2019 use availability payments, continuing a growing trend over the last six years. The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions (discussed above) in which toll revenues help the government cover the costs of its AP obligations.

Part 1 Overview

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure
3.1 Largest International Surface Transportation P3s
3.2 Countries Reaching Financial Close On First P3

Part 4 U.S. Highway Concession
4.1 Largest U.S. Highway P3s
4.2 2019 Highway P3s

Part 5 Federal Policy On P3 Concessions
5.1 Overview Of Financing Tools
5.2 A Recent History Of Federal Transportation Policy
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation And Highway Activity By State
6.1 Overview Of State P3 Legislation
6.2 2019 State Legislative P3 Activity
6.3 State Concession Activity

Annual Privatization Report 2020 — Surface Transportation

Other chapters of Annual Privatization Report 2020 are here and past editions of the Annual Privatization Report are available here.

The post Annual Privatization Report 2020 — Surface Transportation appeared first on Reason Foundation.

As the scooter industry evolves, it’s important for cities to avoid over-regulating. Local governments should try to create conditions that allow competition and innovation. Unfortunately, Washington D.C.’s recent decision to allow only four companies to provide scooters in the city picked winners and losers and is likely to stifle competition and hamper mobility. 

The District Department of Transportation (DDOT) is reducing the number of scooter operators while increasing the number of scooters to 10,000. Instead of artificially limiting the number of operators cities should encourage competition among e-scooter operators. But, as Axios reported in December:

The District DOT this month selected four companies — Uber-owned Jump, Lyft, Skip and Spin — to deploy up to 10,000 scooters starting in January. That cuts the current number of operators in half (Bird, Lime, Bolt and Razor won’t be returning), but nearly doubles the number of scooters allowed.

Restricting the number of scooter operators might be something that smaller cities trying to attract companies would need to do to lure a company to their area, but Washington, D.C. already had eight scooter companies and didn’t need to pick winners and losers. To justify its intervention and restrictions, DDOT claimed some users have an aversion to potentially downloading more than four apps to access the full scope of scooters available in the city.

This is an odd argument. DC would not limit the number of car manufacturers, rental car companies, or private bus operators to just four companies in the city. DDOT’s rationale also makes little sense because scooter riders can stick to a preferred company or set of scooter companies if they’d like, in part because DC requires scooter operators to operate in every ward of the city. 

DDOT clearly acknowledges the benefits of increased mobility — by increasing the number of permitted scooters from 5,235 to 10,000. But, unfortunately, by decreasing competition between e-scooter companies, D.C. is likely driving up costs for scooter users and decreasing their options.

Razor, for example, currently operates scooters with attached baskets in D.C. but the company was not chosen as one of the four companies so now riders who sought out scooters with the baskets will just have to hope one of the government-chosen companies adds baskets to its scooters. Unfortunately, the companies may not have the motivation to do so since the reduced competition in the market takes away the impetus for companies to innovate for niche markets with unique needs, such as serving physically disabled individuals or the elderly who may not be able to use a traditional e-scooters.

In a worst-case scenario of transportation regulation and licensing gone awry, New York City’s taxi medallions, which are required to operate a taxi, illustrate how restricting competition, granting special licenses or medallions, and other regulatory actions helped inflate prices and created a crisis in the city’s taxi industry, which was turned upside down when new ridesharing companies successfully entered the market and offered customers increased individual mobility at a lower cost than taxis. 

Rather than overregulating scooters, decreasing mobility options for residents and tourists and causing prices to rise, cities and transportation planners should be hoping transportation-related companies enter their markets and deliver competition and innovation that helps cities, residents, and visitors. Accordingly, local governments and transportation agencies should not arbitrarily restrict the number of scooter operators. Instead, all scooter companies that meet safety requirements and comply with existing ordinances should be able to operate and attempt to attract customers with their tailored products and services. 

The post As Cities Seek to Regulate Scooters, They Should Avoid Picking Winners and Losers appeared first on Reason Foundation.

With over 1.6 million commuters daily and speeds that can average less than five miles per hour, Manhattan’s chronic traffic problems could be reduced by the city’s congestion pricing plan. After its implementation, the congestion pilot program is set to charge cars and trucks traveling south of 60th Street, with exemptions made for buses, taxis, for-hire vehicles, emergency vehicles, and vehicles with disabled parking plates. In theory, the charge could reduce peak-hour traffic congestion on some of Manhattan’s busiest roadways.

The Westside Highway and FDR Drive, which circle the island and provide access to the outer boroughs, will not be subjected to the congestion pricing.

While the exact rate is yet to be determined, the Traffic Mobility Review Board (TMRB) is considering a peak-period congestion charge for cars of up to $9.18 and up to $22.95 for trucks. A plan that was primarily focused on improved mobility rather than simply raising revenue would set a lower charge. For example, the congestion pricing proposal being considered in Seattle has a much lower rate. While the cost of living is higher and traffic congestion is certainly worse in New York City than Seattle, the difference in congestion pricing is much greater than the difference in congestion.

The TMRB prefers a variable pricing approach where the congestion pricing charges would be highest when demand on the roads is highest, providing a monetary incentive for commuters to avoid driving when the city is most prone to congestion. This makes sense. Unfortunately, the main focus of TMRB seems to be to guarantee that congestion pricing revenue produces at least $1 billion a year, an amount that would allow the Metropolitan Transportation Authority (MTA) to secure $15 billion in revenue bonds by 2024.

The MTA plans to use $15 billion in bonds to modernize New York’s public transit system. Eighty percent of revenue collected from the congestion pricing would be allocated toward transit within the city, specifically the New York City Subway, Staten Island Railway and MTA regional bus operations. The remaining 20 percent would be allocated to commuter rail, equally split between the Long Island Railroad and Metro-North commuter rail. 

Thus, congestion pricing revenue would primarily benefit New Yorkers who use the public transportation system. While commuters who drive or take the bus would ideally see the benefit of decreased traffic below 60th Street, some commuters may have to switch their commute times to avoid the charges or use public transit.

Over the long-term, the congestion pricing revenue is likely to benefit transit commuters, especially those who live near a subway station in the city or a train station on Long Island, Staten Island or in Connecticut. Westchester County’s Bee-Line Transit Buses, however, go only as far as the Bronx so they aren’t expected to see any benefits, like decreased traffic congestion or increased funding. More troubling, if congestion pricing raises demand for transit there will be no revenue to address the increased demand on public transit in New Jersey.

Even New Jerseyans who already avoid driving into Manhattan face additional financial barriers when compared to commuters on the other side of the river. The price of a ticket for a 1.5-mile ferry ride from New Jersey to Midtown is $8.00 one way, while parking at the ferry terminal is $20.00 for the day. A five-mile ride on the Staten Island Ferry is free and parking costs $8.00 for 18 hours. Furthermore, the 14-mile Staten Island Railway connects the length of the island to the ferry terminal and charges only $2.75 each way. A similar 15 mile NJ Transit train ride from Fairlawn, NJ, to Penn Station costs $7.25 each way.

Since New Jersey residents will pay a portion of the congestion pricing fees, they should receive some of the revenue for transit and highway projects. Potentially, revenue could fund projects that provide affordable parking for and decreased congestion around major transit hubs, such as Secaucus Junction, Hoboken, or Newark’s Penn Station. After all, the large concentration of commuters into Midtown Manhattan makes New York more conducive to transit services than anywhere else in the country. 

New York’s congestion pricing, furthermore, will serve as an unequal double-charge on some drivers and not others. Currently, drivers from the outer boroughs often pay nothing in tolls to enter Manhattan. The Queensborough, Williamsburg, Manhattan and Brooklyn Bridges, as well as most connections between the Bronx and Manhattan, have no tolls. Drivers from New Jersey pay a one-way $12.50 toll with an E-ZPass or $15.00 in cash to enter New York City on any of the Port Authority’s bridges and tunnels. The charging discrepancy is not simply about size either, as the free-to-use Manhattan Bridge is over 40 percent longer than the George Washington Bridge.

The TMRB’s current plan to address double tolling is to provide an automatic credit for drivers who enter the congestion zone directly from a tolled crossing. Put another way, a driver using the Lincoln Tunnel would spend $12.50 to use the tunnel and only about $3.32 for congestion pricing, while a driver using the non-tolled Brooklyn Bridge would pay $9.18 for the congestion pricing. Drivers who pay a toll to enter Manhattan outside of the congestion zone, like those using the George Washington Bridge, will not be offered a credit. 

If New York’s congestion pricing is to successfully alleviate gridlock in Manhattan, TMRB needs to acknowledge that the selective double-charging of users of certain bridges and tunnels could significantly shape the demand for highways and mass transit. Accordingly, drivers who bear both a bridge toll and full congestion pricing deserve to see some of the benefits of the congestion pricing revenue, be it through increased transit or access to parking facilities.

New York’s congestion pricing plan has the potential to alleviate traffic congestion and create better commutes for everyone. To do so, New York should allocate new revenue to projects throughout the New York area fairly, from highway alterations and parking garages to projects that expand the scope of transit options.

The post The Shifting Burden and Benefits of New York’s Congestion Pricing Revenue appeared first on Reason Foundation.

These diversions weaken the users-pay argument for the gas tax and end up harming the quality of our roads.

Oregon passed the first motor fuel tax in February 1919 to fund road construction. Early revenue was allocated to build the Pacific Highway and the Columbia River Highway. Within the following decade, all states and the District of Columbia had their own motor fuel taxes.

Today, gas taxes are levied by every state, ranging from 14.32 cents per gallon in Alaska to 62.05 cents per gallon in California.

While the proliferation of electric cars and increased fuel-efficiency of conventional engines threaten the long-term viability of fuel taxes to fund road maintenance sufficiently in the long-term future, the diversion of gas tax revenue toward non-road projects plays a significant role in the current condition of roads and highways and is important in assessing the gas tax’s long-term viability as a way to build and maintain roads.

Northeastern states have some of the largest percentages of fuel tax diversions. Connecticut is the state that diverts the largest portion of its motor fuel tax—57.8 percent. While Connecticut’s fuel tax generated over $506 million in 2018, 40 percent of it funded general state debt and a large portion went to subsidize mass transportation. Meanwhile, perhaps not surprisingly, Connecticut’s highways ranked 44th in overall performance and cost-effectiveness in the most recent Annual Highway Report.

Connecticut’s northeast neighbors are the states with the second, third and fourth highest diversion rates: New York, Rhode Island and New Jersey, respectively. New York diverts 37.4 percent of all fuel tax revenue toward mass transit. Also troublingly, of its non-diverted gas tax revenue, New York allocates $379 million to pay down the New York Department of Transportation’s (NYDOT) debt. In fact, only 13.8 percent of New York’s gas tax revenue is specifically dedicated to current highway and road capital projects, while another 25.4 percent is allocated for NYDOT operations—a category which includes the cost of road maintenance, from salaries to equipment costs, but also additional administrative diversions.

Rhode Island allocates 27.9 percent of its motor fuel tax revenue to mass transit and an additional 2.9 percent to the Department of Human Services (DHS) to cover the transportation costs of veterans and disabled individuals, among others. Those transferred funds, however, are simply deposited into DHS’s operating budget, leaving little accountability over the allocation of how the money is actually spent.

New Jersey’s overall diversion rate of 34 percent is composed of a $676 million allocation of gas tax revenue to NJ Transit, New Jersey’s public transportation corporation, and a $2 million allocation to fund various sidewalk and pedestrian projects it says are meant to transform certain municipalities into transit-oriented villages.

Many other states also divert revenue toward public transportation, with prime examples being Maryland and Massachusetts, which divert 27.8 percent and 23.7 percent of their gax tax revenue to mass transit respectively. Smaller diversions toward public transportation include Michigan at 1.6 percent, Tennessee at 3.3 percent and Vermont at 2.6 percent. Colorado authorizes its municipalities to use 15 percent of their fuel tax revenue share on transit, which accounts for about 5 percent of overall gas tax revenue in that state.

States also frequently use gas tax money to fund state-level executive departments. Michigan diverts 25.9 percent and Texas diverts 24.7 percent of gas tax revenue to school aid funds. Similarly, Georgia diverts 13.1 percent of gas tax revenue to K-12 and secondary education. Kentucky distributed a quarter of its motor fuel tax revenue to help balance the budgets of any executive department running a deficit. Colorado, Maine, Pennsylvania and Vermont all use a portion of their gas tax revenue to fund state police operations.

Small line-item diversions can add-up as well. Washington state, for example, diverts $3.9 million to vanpool services, $11.1 million to bike and pedestrian programs, $9.4 million to bike and pedestrian safety, $4 million to two separate sidewalk programs, and a whopping $37.5 million toward fish barrier removal efforts. Combined with other diversions toward rail and buses, Washington’s overall diversion rate is 10.2 percent of its gas tax revenue.

Other increasingly common diversions are things like North Carolina’s 3 percent diversion toward municipal sidewalks and bike programs and Vermont’s 1.2 percent diversion for visitor center construction and maintenance.

And then there’s North Dakota, which diverted $4.7 million, just under one percent of its fuel tax revenue, to its Ethanol Subsidy Fund. Thus, North Dakota effectively subsidizing a component of the very fuel that it’s taxing.

While the long-term future of gas taxes is likely limited, with a shift toward mileage-based user fees making the most sense, states need to prioritize road and bridge maintenance. Some of the state governments claiming they do not have the funding to make much-needed improvements to their roads and highways would have they weren’t diverting gas tax money to non-road uses.

Gas taxes aren’t supposed to be a slush-fund for states. Drivers pay gas taxes and transportation departments and politicians should ensure those taxes go toward maintaining and improving roads and bridges.

The post Where Do Gas Taxes Go? States Divert Fuel Taxes to Schools, Police, and Fish Barrier Removal appeared first on Reason Foundation.

But modern cars vary significantly in their fuel efficiency, with hybrids getting over 50 miles per gallon and electric vehicles using no gas and thus paying no gas taxes at all. This, combined with governments diverting gas tax money to non-transportation purposes, is weakening the original users-pay principle behind the gas tax.

An increasingly major problem with the fuel tax is states diverting gas tax money intended to maintain roads to non-roadway purposes.  During the 2018 fiscal year, for example, Maryland (ranked 39th, in overall highway performance) shifted $13 million of gas tax revenue to the Chesapeake Bay 2010 Trust Fund and $2.8 million to waterway improvements. That same year, California (ranked 43rd in overall highway performance), transferred a portion of its gas tax revenue from the State Transportation Improvement Fund highway account into the Public Transportation Account, allocating much of this funding for intercity trains and local transit programs, like ferries in San Francisco. 

That’s not what drivers are supposed to get from their gas taxes. Tolls, on the other hand, treat vehicles more evenly, are easier to tie to specific highway use, and create a more precise and fair example of the users-pay principle. 

Toll road revenues can and should be tied directly to the highway the tolls are paid on. The tolls can be dedicated to ongoing maintenance on that specific highway, with enforceable guidelines preventing governments or transportation departments from diverting the funding to other uses.  Thus, unlike today’s gas taxes, toll revenues generated by highways could ensure that drivers pay directly for the roads they use. 

Additionally, with proper guidelines in place, tolls provide a predictable source of revenue for infrastructure maintenance. Drivers, by deciding to use certain roads, show transportation authorities where new roads are needed and where investments should go.

Tolls can also help manage traffic congestion on gridlocked highways in major cities. Using variable pricing on toll roads means there can be a lane, such as express toll lanes in congested metropolitan areas, priced to ensure the toll lane is always free-flowing so drivers have the option to choose an uncongested trip.

On I-10 and I-110 in Los Angeles, the California Department of Transportation and the Los Angeles County Metropolitan Transportation Authority partnered to convert high-occupancy-vehicle (HOV) lanes into high-occupancy-toll (HOT) lanes. HOT lanes allow vehicles that do not meet that carpool lane’s standards to use the lane by paying a variably priced toll that rises and falls based on congestion.

Similarly, Florida’s Department of Transportation and the Metropolitan Planning Organizations of both Miami-Dade and Broward counties coordinated a project to convert HOV lanes into HOT lanes, with the prices set to ensure that the managed lane flows freely at least 50 miles an hour even during peak rush hours.

While gas taxes may have once served as a good example of the users-pay principle, today fuel taxes fail to address changing technology, like electric vehicles that use roads but don’t pay gas taxes. Furthermore, fuel taxes are increasingly being diverted to non-roadway projects, which often results in highways deteriorating as needed road maintenance is often postponed or scrapped altogether due to funding problems. 

Gas taxes were intended to pay for the roads we use but they aren’t doing that today. Replacing gas taxes with tolls would provide a more reliable stream of sustainable revenue to build and maintain highways.  

The post Replacing Gas Taxes With Tolls Would Improve Fairness, Quality of Highways appeared first on Reason Foundation.