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7 Conclusions and Recommendations
Pages 179-201

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From page 179...
... The committee also iden tified reforms for the highway and transit finance systems that are worthwhile regardless of the future revenue potential of the present system of highway user fees. In considering options, it focused on how finance arrangements can affect the per formance of the transportation system through their influence on the decisions of travelers and on government investment and management decisions.
From page 180...
... The committee considered the gravity of two kinds of possible structural prob lems that may pose threats to the viability of the established funding arrangement. They are, first, that changes in automotive technology, rising fuel prices, or new energy or environmental regulations may greatly depress gasoline and diesel fuel consumption and therefore revenue from fuel taxes and, second, that the user fee finance principle that has been the basis of highway finance may be eroding in practice, as indicated by a proliferation of new applications of user fee revenues and growing dependence on revenue from sources other than user fees.
From page 181...
... Nonetheless, the implica tion of the projections the committee reviewed is that if such changes occur, they are more likely to be the result of government intervention than of energy market developments. Erosion of Established Finance Practices Government transportation finance practices have been remarkably stable and resilient since the creation of the present federal highway program in 1956.
From page 182...
... To assess whether adherence to traditional finance practices is declining, the committee examined trends in the application of user fee revenue to nonhighway purposes, reliance on revenue from sources other than user fees to fund trans portation, and devolution of transportation responsibilities to local governments (since local governments usually have not had direct access to fuel taxes and other instruments for charging highway users)
From page 183...
... In national totals, state revenues from highway users nearly equal the states' highway spending: the sum of all state imposed highway user fee revenues and federal highway aid received by states was $93.4 billion in 2003, and current spending by states for highways plus state grants for highways to local governments was $92.0 billion. However, the balance between revenue and spending varies from state to state.
From page 184...
... However, an unwillingness by legislatures to maintain revenues because of inherent, particular characteristics of highway user fees could be viewed as bring ing into question the viability of the present fees. For example, the structure of fees might come to be regarded as unfair, or fuel taxes might become especially unpop ular because of the rapid rise of fuel prices.
From page 185...
... Reliance on dedicated revenue from user fees reduces the risk that total spending will greatly exceed justified levels, since it is unlikely that the revenue would sustain a facility that produced low levels of benefits for users in relation to its costs. Also, in the political process of setting highway budgets and fees, users are unlikely to support fee levels beyond those that benefit them or to support proj ects that yield low returns.
From page 186...
... Gaining the efficiency benefits of charging fees to highway users does not require that the revenues raised be dedicated to highways. User fees are beneficial as long as they induce savings in the costs of highway travel (for example, conges tion, pollution, or road wear costs)
From page 187...
... If such a road charging scheme were in effect and highway spending depended on revenue from the fees, expenditures would tend to be directed toward parts of the highway network that generated revenues sufficient to pay for improvements. Pricing would affect investment decisions through several mechanisms: ­ Revenues from peak charges and the response of traffic to the charges would accurately indicate the value the public places on individual highway facilities and would reveal the locations where capacity expan sions would have the greatest benefits.
From page 188...
... The organization of transportation programs today often departs from this rule, in part because local governments are limited in their ability to collect user fees. A goal of reform should be to allow each jurisdiction to collect fees from all users of its facilities.
From page 189...
... 5. Reform Opportunities The committee considered two kinds of proposals to overhaul the system for charging highway users: an expanded network of toll roads and lanes on high density expressways, with variable pricing, but using present toll technology; and a road use metering and mileage-charging system that could function on all roads, using technology that automatically measured road use and assessed charges.
From page 190...
... Therefore, arrangements will be needed for funding toll roads with a combination of tolls and other highway user fee revenue. Soliciting private-sector participation in construction and operation of toll roads may in certain circumstances secure funding for projects that would not otherwise be carried out.
From page 191...
... · Setting appropriate prices. Because of inexperience, highway agencies do not now have the competence to set mileage fees that maximize the benefits of the transportation system or to use the information provided by fee revenues to improve the payoffs from capacity expansions.
From page 192...
... Privatization of the operation of certain roads could also help insulate pricing decisions from narrow considerations. The general introduction of mileage charging would have profound effects on every aspect of the management of transportation programs.
From page 193...
... Too little is known about the magnitude and methods of evasion of federal and state fuel taxes and other highway user fees. However, evidence indicates that it is a significant problem and that better enforcement could increase revenue.
From page 194...
... An incentive that subsidizes road use by forgiving payment of highway user fees can unnecessarily increase the cost of meeting the conservation or emissions goal by encouraging inefficient use of roads. From the standpoint of transporta tion finance, promoting energy conservation with a broad-based energy tax rather than a motor fuel tax would have an added advantage -- it would segregate revenue of the energy tax from revenue of fuel taxes that were intended as user fees and devoted to covering transportation agency expenditures.
From page 195...
... Therefore, the federal government should adopt a strategy of encouraging states to experiment with arrangements for tolling and private-sector participation in road development. To this end, Congress should liberalize the restrictions in the federal highway program that now prevent states from using aid to build toll roads and instituting tolls on roads built with federal aid.
From page 196...
... It was noted in Conclusion 5 above that the most important reason for seeking private-sector par ticipation may be the value of bringing the private sector's perspective and exper tise to the problems of developing and managing toll roads. If tax-exempt bond finance is the incentive used to attract private involvement, the public subsidy this entails must be worth the improved results that increased private participation in the projects brings about.
From page 197...
... Staged Implementation After technically practical systems have been demonstrated, several paths exist for continuing with implementation in stages, to allow highway agencies and the traveling public to learn about new road charg ing systems and decide whether to proceed further. An individual state or city that wished to proceed with mileage charging would face enormous difficulties because of the high fixed costs of building the first imple mentations, the complications created by interstate traffic, and the probable even tual need for national coordination of standards and policies.
From page 198...
... · Payers of mileage taxes in the pilots should receive refunds of fuel taxes and other user fees they have paid in a way that is visible to them.
From page 199...
... This risk imposes a limit on the potential of existing highway user fees as a transit funding source. · Federal and state transportation aid ought to serve primarily to relieve local governments of the burden of serving nonlocal needs rather than subsidize local services.
From page 200...
... Lack of information hinders comparative evaluation of present finance arrangements and alternatives. There is little systematic information on how the existing structure of charges, subsidies, and grant programs affects the decisions of road users and transporta tion agencies, even though these interactions undoubtedly exert strong influence on the benefits and costs of transportation programs.
From page 201...
... Parts of its charge are to study alternative revenue sources to fund the surface transportation system for the next 30 years and to develop a transition strategy to move to new funding mechanisms. Although the commission can begin evaluations, development of fundamentally new finance arrangements and the supporting evaluations would extend well beyond its term.


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