Dedicated Revenue Mechanisms for Freight Transportation Investment (2012)

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N A T I O N A L C O O P E R A T I V E F R E I G H T R E S E A R C H P R O G R A M NCFRP REPORT 15 Subscriber Categories Economics • Finance • Freight Transportation Dedicated Revenue Mechanisms for Freight Transportation Investment The Tioga Group, Inc. Philadelphia, PA Economic Development Research Group, Inc. Boston, MA Shama Gamkhar Austin, TX Steptoe & Johnson LLP Washington, DC TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2012 www.TRB.org  Research sponsored by the Research and Innovative Technology Administration

NATIONAL COOPERATIVE FREIGHT RESEARCH PROGRAM America’s freight transportation system makes critical contributions to the nation’s economy, security, and quality of life. The freight transportation system in the United States is a complex, decentralized, and dynamic network of private and public entities, involving all modes of transportation—trucking, rail, waterways, air, and pipelines. In recent years, the demand for freight transportation service has been increasing fueled by growth in international trade; however, bottlenecks or congestion points in the system are exposing the inadequacies of current infrastructure and operations to meet the growing demand for freight. Strategic operational and investment decisions by governments at all levels will be necessary to maintain freight system performance, and will in turn require sound technical guidance based on research. The National Cooperative Freight Research Program (NCFRP) is a cooperative research program sponsored by the Research and Innovative Technology Administration (RITA) under Grant No. DTOS59-06-G-00039 and administered by the Transportation Research Board (TRB). The program was authorized in 2005 with the passage of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). On September 6, 2006, a contract to begin work was executed between RITA and The National Academies. The NCFRP will carry out applied research on problems facing the freight industry that are not being adequately addressed by existing research programs. Program guidance is provided by an Oversight Committee comprised of a representative cross section of freight stakeholders appointed by the National Research Council of The National Academies. The NCFRP Oversight Committee meets annually to formulate the research program by identifying the highest priority projects and defining funding levels and expected products. Research problem statements recommending research needs for consideration by the Oversight Committee are solicited annually, but may be submitted to TRB at any time. Each selected project is assigned to a panel, appointed by TRB, which provides technical guidance and counsel throughout the life of the project. Heavy emphasis is placed on including members representing the intended users of the research products. The NCFRP will produce a series of research reports and other products such as guidebooks for practitioners. Primary emphasis will be placed on disseminating NCFRP results to the intended end-users of the research: freight shippers and carriers, service providers, suppliers, and public officials. Published reports of the NATIONAL COOPERATIVE FREIGHT RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America NCFRP REPORT 15 Project NCFRP-29 ISSN 1947-5659 ISBN 978-0-309-21399-8 Library of Congress Control Number 2012935153 © 2012 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, RITA, or PHMSA endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not- for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the National Cooperative Freight Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the National Cooperative Freight Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report.

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transporta- tion Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individu- als interested in the development of transportation. www.TRB.org www.national-academies.org

C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR NCFRP REPORT 15 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Andrew C. Lemer, Senior Program Officer Sheila A. Moore, Program Associate Eileen P. Delaney, Director of Publications Ellen M. Chafee, Editor NCFRP PROJECT 29 PANEL Freight Research Projects Peter J. “Jack” Basso, AASHTO, Washington, DC (Chair) Leigh Boske, University of Texas - Austin, Austin, TX Keith J. Bucklew, Indiana DOT, Indianapolis, IN Michael S. Card, Combined Transport, Inc., Central Point, OR Kerry Cartwright, Port of Los Angeles, San Pedro, CA David A. Cole, Maine DOT, Augusta, ME John A. Gentle, John A. Gentle & Associates, LLC, Toledo, OH Jeffrey D. Holt, BMO Capital Markets, Inc., Huntsville, UT Paul E. Nowicki, BNSF Railway, Chicago, IL Ernest B. Perry, III, Missouri DOT, Jefferson City, MO Geoffrey C. Powell, C.H. Powell Company, Linthicum, MD Thomas Bolle, RITA Liaison Tony Furst, FHWA Liaison Edward L. Strocko, FHWA Liaison Peter Friedmann, Agriculture Transportation Coalition Liaison Robin Lanier, Waterfront Coalition Liaison Leo Penne, AASHTO Liaison Martine A. Micozzi, TRB Liaison

F O R E W O R D NCFRP Report 15 explores taxes and fees that might be used to raise revenue to support government investment in freight transportation facilities, primarily for highway transpor- tation. As the final product of NCFRP Project 29, “New Dedicated Revenue Mechanisms for Freight Transportation Investment,” this report assesses such revenue-generating mecha- nisms as motor-vehicle fuel tax surcharges, vehicle registration fees, and distance-based road-user fees, considering their likely effectiveness and efficiency as well as the adminis- trative and institutional issues likely to affect their viability at a national level. The inform- ation will be useful to government policy makers and senior agency officials responsible for funding highway and other infrastructure investments to facilitate goods movement throughout the nation. In discussions related to the federal surface transportation legislation, the American Association of State Highway and Transportation Officials and a number of other asso- ciations have proposed that consideration be given to establishing mechanisms for raising revenues nationally to support investments in infrastructure developed explicitly to facili- tate the movement of freight. The proposal stems from a recognition of the importance of efficient freight transportation to the nation’s economy, the significant differences between desirable design and operating characteristics of infrastructure serving freight versus pas- senger transportation, and the desire to maintain the “user pays” principle that has been a foundation of past federal support for transportation infrastructure investment. Sug- gestions of freight-dedicated mechanisms that might be adopted have included customs duties, shipping-container fees, bill-of-lading fees, weight-based and weight-distance taxes and fees, transportation-value taxes, vehicle sales taxes and registration fees, carbon taxes, and others. The feasibility and likely effectiveness of such mechanisms will be influenced not only by the economics of the freight transportation industry and its customers, but also by a complex web of federal and state laws and international trade agreements. Evolving tech- nology enabling collection and enforcement and concerns that particular taxes and fees may impose disproportionate burdens on particular segments of the economy are also important. In addition, its multimodal nature is a fundamental characteristic of freight transportation; current institutional arrangements for raising revenues and public-sector investment in transportation infrastructure are organized largely around single modes. Previous studies of some of these mechanisms have been made within a context of specific legislative proposals or general exploration of public policy initiatives. Congress and many other stakeholders are interested in identifying all viable options and the implications—both unfavorable and favorable—as well as their potential effectiveness as a source of funds to By Andrew C. Lemer Staff Officer Transportation Research Board

maintain and enhance the nation’s goods-movement capabilities. NCFRP Project 29, “New Dedicated Revenue Mechanisms for Freight Transportation Investment,” was motivated by a perceived need for a more comprehensive framing of feasible, practical options that merit consideration in current policy development discussions. Such research could then inform these current discussions as well as become a basis for subsequent analysis of the broader consequences of implementing dedicated revenue mechanisms to support freight transportation investment at a national level. A team led by The Tioga Group, Inc., conducted research to (1) identify feasible, practical options for providing dedicated revenue mechanisms to support investment in freight transportation infrastructure; (2) provide a comprehensive analysis of the functioning and implications of the potentially most viable options; and (3) assess the relative merits of these potentially most viable options and describe, in detail, requirements for their implementation and operation. The product of the research was intended to be, in effect, a feasibility study of specific revenue mechanisms rather than a review of broad national consequences of implementing one or several such mechanisms as matters of public policy. This report presents the results of the team’s work. The document will be most useful as a review of issues to be considered by agency officials, other policy makers, and the public concerned about mobilizing resources to support infrastructure investment intended primarily to facilitate freight transportation.

C O N T E N T S   1  Summary 1 Candidate Revenue Mechanisms and Screening 5 Summary Comparisons 11 Chapter 1  Background and Research Approach 11 Freight Infrastructure Funding Issues 12 Study Scope and Objectives 13 Study Tasks 13 Literature Review Results 13 Revenue Options 14 Criteria for Evaluation 16 Chapter 2  Option Screening 16 Candidate Revenue Mechanisms 16 Screening Criteria 17 Options Screened Out 18 Public-Private Partnerships and Investment Tax Credits 18 Leading Candidates 19 Chapter 3  Fuel Tax Surcharge 19 Concept 21 Freight FOCUS Act of 2010 21 Diesel Fuel Tax with Non-Freight Refunds 21 Diesel/Gas Tax with Non-Freight Refunds 22 Diesel Fuel Tax with Vehicle ID 22 Diesel/Gas Tax with Vehicle ID 22 Concept of Operations 23 Revenues and Costs 26 Evasion and Enforcement 28 Behavior Incentives 30 Implementation 31 Advantages 33 Disadvantages 34 Chapter 4  Fees for Vehicle Miles Traveled 34 Concept 34 Distance/Vehicle VMT Fees 34 Time/Location VMT Fees 36 VMT Fee Pilot Projects 37 International Experience 37 Congestion Pricing Examples 37 Concept of Operations 45 Evasion and Enforcement 48 Costs and Revenues 56 Privacy Concerns

58 Behavior Incentives 58 Implementation 60 Advantages 60 Disadvantages 61 Chapter 5  Federal Registration Fee 61 Concept 61 Federal and State Excise Taxes and Fees 64 Collection Mechanism 65 Revenues and Costs 67 Evasion and Enforcement 67 Behavior Incentives 67 Implementation 67 Advantages 69 Disadvantages 70 Chapter 6  Economic Impacts 70 Economic Impact Methodology 70 Cost Accrual by Trucking Market Segments 71 Cost Accrual by Commodity and Industry 72 Cost Effect on Industry Growth Potential 72 Tax Substitution Effects 72 Fleet Mix (Applies to Diesel Tax Only) 73 Diversion to Rail (Applies to Fuel and VMT Tax Scenarios) 74 Economic Impact Findings 77 Chapter 7  Findings and Conclusions 77 Leading Revenue-Generation Options 79 Revenue 87 Implementation and Costs 89 Revenue Efficiency 91 Technical Feasibility 93 Multimodal Application 94 Linkage between Use and Payment 95 Incentives 96 Impacts 96 Equity 101 Public and Industry Acceptance 107 Summary Comparisons  110  References  112  Acronyms A-1 Appendix A  Literature Review  B-1  Appendix B  Defining Freight Vehicles  C-1  Appendix C  On-Board Devices in Trucking  D-1  Appendix D  Privacy Issues E-1 Appendix E   Public-Private Partnerships and Investment Tax Credits Note: Many of the photographs, figures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the Web at www.trb.org) retains the color versions.