IFF Policy Brief: Idaho Highway Funding - Alternatives for raising revenue

IFF Policy Brief: Idaho Highway Funding - Alternatives for raising revenue

by
Wayne Hoffman
January 23, 2009
Wayne Hoffman
Author Image
January 23, 2009

Summary: Raising taxes will not solve Idaho's surface transportation issues. Any gas tax increase is unsustainable, will likely require successive increases and will merely subsidize the inefficiencies government highway programs experience. Many international, state and local governments have had positive experiences with private highways and bridges. Idaho should examine successful privatization models.

Introduction
Idaho is one of many states struggling to pay for transportation infrastructure. However, a tax increase will not solve Idaho's highway problems. An increase in the gas tax, in particular, will not solve Idaho's problems. Governor Butch Otter's current proposal, which includes a 40 percent increase in the gas tax over 5 years, will not cure the backlog; in fact, once the gas tax increase is fully implemented, it will still fail to keep up with demand.

What are the alternatives? Several states and countries have successfully privatized entire transportation corridors. Those projects yield long-term benefits for drivers and taxpayers - benefits which should not be ignored now.

Background
The centerpiece of many transportation infrastructure proposals is the gas tax. Idaho currently charges 25 cents for each gallon of gasoline sold. This rate has been in place since 1996. Prior to 1996, the state Legislature raised the rate over time; in 1976, the gas tax was 8.5 cents. State lawmakers increased the tax to 11.5 cents in 1981, added another penny in 1982 and two more cents in 1983. The rate was adjusted in 1988 to 18 cents, and again in 1991 to 21 cents. The governor's current proposal calls for an increase of two cents per year for five years, at the end of which the tax will sit at 35 cents per gallon.

Such a proposal is not unique to Idaho. Several states are considering gas tax increases to augment depleted highway trust accounts. The federal government is also struggling with its 18.4 cents per gallon fuel tax. In 2008, Congress appropriated $8 billion to the federal highway trust account in order to keep it solvent. However, the gas tax is a victim of new trends and mandates that are unlikely to change.

First, Congress is requiring more fuel efficiencies from automakers. That means even as the number of vehicle miles increase, fuel consumption is remaining flat or decreasing. Second, gas prices in excess of $4 a gallon caused a reduction in gas consumption that predictably will reoccur once prices return to last year's record levels. Finally, new efforts are underway to further reduce oil consumption by utilizing "green" technologies such as hydrogen- or electric-propelled vehicles. As the public adds these vehicles to the fleets already on the highway, the state's highway trust will further deteriorate.

Other taxes and fees are included in Governor Otter's transportation proposal. However, an increase in taxes on rental cars, for example, unfairly and arbitrarily singles out an industry to help subsidize surface transportation efforts, and it serves as a form of double-taxation; those who rent cars still pay the gas tax. And the action is premature because two recent reports prove that such increased fees will merely be used to subsidize inefficiency and hyper-regulation. An audit of the Idaho Transportation Department shows as much as $40 million could be saved by changing procedures and operations within the agency. The U.S. Government Accountability Office released a draft report last year that concluded as much as 40 percent of the cost of transportation projects are the result of federal regulations.

Analysis
Many states and countries have had success leaving design, construction and maintenance to private companies. Idaho's early history includes several private transit efforts, some of which are still reflected in modern place names. Brownlee Reservoir and Dam is named for the ferry operated by John Brownlee during the Boise Basin gold boon of the 1860s. Eagle Rock ferry near what is now Idaho Falls played a huge role in the development of the transportation and economic infrastructure of the region.

In 1864, the Idaho territorial legislature gave the Oneida Road, Bridge and Ferry Company a franchise to operate the ferry and bridge over the Snake River. The privately-built bridge served as a conduit from Soda Springs to Montana's gold fields. The territorial legislature also granted franchises for other road projects throughout the region.

Today, private companies successfully service highways and other transit projects throughout the United States and the world. Highways in California, Texas and Virginia are designed, constructed and managed by companies holding long-term leases of up to 99 years. In fact, there are more than $25 billion in privately-funded construction projects at various stages of development throughout the U.S. Properly-written concession contracts include performance benchmarks and restrictions on toll increases. These safeguards ensure that the private contractor overseeing the road keeps the road in good repair and restricts the company from imposing excessive tolls. Additionally, some research and experience have shown that privatization of highway projects results in cost savings as well as more consistent and predictable outlays for highway maintenance.

Conclusion
There is no question Idaho is need of new investment in surface transportation. We believe an increase in taxes would be a no-win solution. Higher taxes would only be used to subsidize state and federal transportation inefficiencies. Idaho's transportation infrastructure is frail because of these inefficiencies, not in spite of it. The success being experienced in other states with publicprivate partnerships should be expanded and encouraged in Idaho. Such projects could be used to help augment and improve Idaho's transportation corridors and also stabilize the costs of maintenance and other upkeep. At a minimum, the state should consider a pilot demonstration project to see how successful a privately-managed transportation corridor can operate in Idaho and compare those results against the baseline of a government-managed corridor.

(Click here to download a printable version of this Policy Brief)

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