Friday, December 01, 2006

"It’s incredible information that we were rather surprised to figure out."


Report: Eight-cent indexed gas-tax increase can replace tolling

December 1, 2006

by Christine DeLoma

The Lone Star Report
Volume 11 issue 16
Copyright 2006

New toll roads aren’t the only pathway to financing the state’s transportation needs, according to a recent report commissioned by the Governor’s Business Council (GBC).

An eight cent increase in the gas tax indexed for inflation may be all that’s needed to pay for new state roads over the next 25 years.

In outlining the report at the Nov. 28 meeting of the Study Commission on Transportation Financing, David Ellis of the Texas Transportation Institute offered lawmakers several toll-less financing alternatives to meet the state’s future transportation needs in the eight largestmetropolitan areas.

A flat increase in the gas tax, Ellis said, is possible but not optimal. “The fuel tax loses buying power to inflation every year because it is a tax based on the unit of volume. It’s not related to costs of projects,” he said. Nonetheless, he said, a 31-cent increase per gallon in the gas tax would provide for the Department of Transportation’s (TxDOT) unfunded needs, as opposed to the estimated $1.21 increase frequently cited by Texas Transportation Commission (TTC) chairman Ric Williamson.

However, TTC commissioner Ted Houghton, a member of the study commission, called the gas tax regressive. “I think when you get down to it,” said Hougthon, “is raising the gas tax the way to go? Or is tolling and concessions and CDAs (comprehensive development agreements) and pass through financing and those other tools in the toolbox. [A]re those the ways to get to where we need to go? So the debate is, raise the gas tax. It seems to me, Mr. Chairman, that’s where we are, or continue on the plan that we have set forth that we believe is going to achieve our needs without putting it on the backs of the taxpayers on a regressive based system.”

Study commission member Michael Stevens, who is also chairman of the GBC’s Transportation Task Force, said the significant discrepancy in numbers results from TxDOT’s failure to take into account the increase in growth population in their revenue projections, as well as the increase in vehicle miles traveled.

Those factors alone, Stevens said, would generate enough additional income to eliminate the need for higher gas taxes.

“The reason for the importance of this issue,” Stevens told Houghton, “is your position is, and has been, that the reason we should follow your line of reasoning is because it takes a $1.20 increase in the gas tax to do anything to solve the problem. It does not require that amount of money. It is a debate that is worth having. It is a debate that has not occurred, and I welcome[it].”

Stevens added that TxDOT also included the cost of city and county roads, which it is not responsible for, in its projections for the construction costs over the next quarter century. “The $86 billion problem is a problem that includes city and county roads,” he said.

What TxDOT needs is closer to $60 billion, he said. Of that figure, the GBC report estimates TxDOT would need $44 billion for the state’s eight largest metropolitan areas.

Indexing the gas tax can address the $44 billion state shortfall, Ellis said. The last increase occurred in 1991 when it was increased to 20 cents. Due to inflation, the tax is worth less than 14 cents a gallon in terms of purchasing power.

According to the GBC report, indexing the state and federal portions of the gas tax to the highway cost index (HCI, which is a percentage of the annual increase in highway construction costs) would pay for the shortfall. Yearly highway construction costs have increased between 0.5 percent and 1.5 percent faster than inflation over the past 15 years.

“If you just create an index against the state and the federal portion of that tax, which is a little over a penny a year increase,” Stevens said, “that penny a year can pay for the entire shortfall for the state’s portion. It’s staggering. It’s incredible information that we were rather surprised to figure out.”

Ellis said additional revenues generated from the index would be deposited into the Texas Mobility Fund or similar fund to service the debt on the bonds. An eight-cent increase in the gas tax, coupled with the HCI, would pay for the transportation costs for both metropolitan and rural areas.

Houghton, however, wasn’t buying into it. “It sounds like it is a replacement for the current system,” he said. “If you’re depending upon motor vehicle taxes, I think we’re headed down a rocky, rocky road. And we can debate the numbers, and you can increase the gas tax, but it is our contention that eight cents won’t put a dent into your number of $44 billion. It’s just not going to happen. And we believe that. And we’ll continue to prove that testimony anywhere in the state of Texas.”

Houghton said the current system of tolling roads, and the proceeds from concessions, would provide a revenue stream available for building free roads or rail, something GBC’s report did not take into consideration. When the state, he said, awards the project to construct SH 121 in Dallas, it will receive over $1 billion in concession fees. Houghton also said that revenues from the gas tax cannot be used for alternative transportation projects like rail.

Ellis, in defending the report, said, “[W]hat we’re trying to do is develop a way to understand what some of the other options are.”

Stevens said the gas tax index is just another option. “We don’t recommend just that. We recommend tolls roads, We recommend local option taxes considered for the local portion.” If such is the case, Houghton said he wouldn’t be opposed to indexing the gas tax to generate additional revenue, saying we still need “all the tools in the toolbox.”

© 2006 The Lone Star Report:

For more on the toll tax versus the gas tax [CLICK HERE]