Real story on transportation subsidies

Funding America’s Transportation System

The real story on subsidies.

America’s huge investment in her transportation system over the past 200 years is in
part responsible for her rise to greatness as a world power.

Our unity as a nation is sustained by free
communication of thought and by easy
transportation of people and goods...Together, the
uniting forces of our communication and
transportation systems are dynamic elements in
the very name we bear-United States. Without
them, we would be a mere alliance of many
separate parts.

President Dwight Eisenhower

Maintaining that system today, renewing it, and employing useful technology to solve
its problems is essential to our global competitiveness.

Transportation Infrastructure and Ownership

Of our three main transportation systems, rail is unique in that 99% of U.S. route-miles
are owned, managed, financed, and maintained by private
sector railroads.   By contrast, 99% of the nation’s roads and most bridges are
financed, owned, and usually maintained by the public sector. Likewise airports are
government owned, financed, and maintained while air traffic control systems and
weather information services are
provided by government agencies.

The Public/Private Partnership

Operators of private sector highway vehicles and aircraft have developed market-
driven transportation services that move people and goods
as the infrastructure has been provided by the public sector. These largely profitable,
tax paying enterprises enjoy popular support at all levels of government and have
seen investment in their modes’ infrastructure system continually increase.

An implicit public/private partnership has developed between our government and
private sector. This healthy system has been crucial to the creation of some of the
world’s most advanced and
extensive air and road facilities.

The advent of the American rail system came about in a different time when the central
government was much less interested in providing
internal improvements and instead left the task to states and the private sector.

Since 1916 when the states and federal government made building a modern air and
highway transport a national priority, our railroads have been at a competitive
disadvantage. Each successfully invested dollar in private sector railway infrastructure
must produce a competitive timely return in the capital markets. But railroad managers
must compete with other modes where investments in asphalt, concrete, and traffic
control systems do not have to pass the same investor test. They must
only pass a political and administrative one. Low margin bulk freight shippers may
accept that 15 mph train dragging across town but the traveling public, accustomed to
65 mph urban expressway, won’t.

Subsidy or Investment?

Rail advocates are frustrated by pundits and bloggers which brands proposed
spending on passenger rail a “subsidy,” while spending for
aviation and roads is considered an “investment.”

The implicit public/private partnership works well for aviation and roads because
private sector operators and individual users make a contribution towards construction
and maintenance of publicly-owned infrastructure in the form of user taxes. Once
upon a time, these fees were sufficient to build many of the highways we have today.
But no longer. Inflation, the recession, and more fuel efficient vehicles are depressing
government revenues. Congress and the State Legislature have had to make
successive appropriations of general revenue to transportation programs.

The reality is that the marketplace, answerable to investors like the railroads, could not
have made the system of roads we enjoy today possible. Cross-subsidies used to
make it work for the government.   Most fuel taxes are generated from travel on a
relative few miles of the national system of roads, usually in urban areas. In fact 30%
of vehicle travel occurs on city streets whose costs are primarily borne by all taxpayers
whether they are users or not. Travel on most segments of intercity highway is simply
too light for them to pay their way. Even in the case of Oklahoma’s turnpike system,
some must rely on cross-pledged revenue. An explicit subsidy.

For the commercial aviation industry to continue to operate profitably, general tax
revenues are essential. Airlines passengers were not assessed ticket taxes until 1971
nor did they pay airport facility charges until 1991. Virtually all commercial airfields in
use today were built before the institution of passenger taxes. Today aviation tax
revenues are used to build new airports, runways, air traffic control systems, and
navigation aids. However, an additional three billion dollars annually is required to
operate and administer these facilities and it is paid by all taxpayers whether they fly or
not.

Prior to 1962, rail passengers also paid ticket taxes and for a number of years
railroads paid a 4.3 cent per gallon diesel fuel tax. These funds however were not
invested in rail infrastructure. The federal government has acted twice on rail’s behalf
to create new quasi-government corporations to sustain critical rail operations in the
face of private sector failure. Government named CEOs used public general
revenue funds to partially support vertically integrated infrastructure, maintenance,
and operations. This all-public scheme differs again
from the successful public/private partnership model. It is a primary reason why
spending on rail is held to a different standard than that used
for aviation and roads.

Recalling again that the implicit public/private partnership has helped make our air and
road system the best in the world, we don’t propose
changing the institutional paragon.    The problem though is that this system favors air
travel and highways to the detriment of rail and its potential users. Its time that we
rethink how our passenger
rail system is organized and the share of transportation resources it deserves.

The following piece was an posted as an anonymous response to a libertarian
blog in Wichita that was critical of passenger train development in Kansas:

It is important to note that the entire highway system loses money, and so does the
FAA’s Air Traffic Control System (the airports are another matter—the biggest ones
make money off the parking, concessions, etc., but smaller-town airports usually are
net losers).

In other words, the question for passenger rail critics is: Why do you expect rail to be a
business when its competitors are simply treated as government transportation
programs? Why should passenger trains be held to a higher (commercial) standard of
financial performance when highways and civil aviation are not? If there is a business
case for roads, why did the Federal Highway Trust Fund just go broke and have to be
bailed out with a $20-billion congressional subsidy from the General Fund? Why does
every state subsidize its road program with sales, property and income taxes? If the
politicians are so insistent that transportation programs be “profitable,” why are they
too chicken to raise the federal motor fuel tax, which has not been increased in the last
20 years? And why are state legislators subsidizing their roads with taxes raised from
non-users? State gas taxes aren’t rising either—not enough to keep up with inflation
much less offset all road building and maintenance costs.

Most of the studies I have seen indicate that roads recover a maximum of 2/3 of their
costs from user fees, such as motor-fuel taxes, license-plate and drivers-license fees,
traffic fines, etc. The balance is subsidized, just as passenger trains are.

But some roads are subsidized at rates much higher than 33%. One example is State
Route 99 in Texas, as a recent case indicates.

Several years ago Texas Gov. Rick Perry became alarmed at the size of the subsidies
the state was paying into its road program, so he asked TxDOT to develop a program
to turn most of the state’s highways into toll roads that would recover their costs from
user fees. This program was very controversial. Motorists really hate paying the full
cost of their driving, and politicians hate to upset them by insisting they pay the full
cost. So to make his case as strong as possible, Gov. Parry asked TxDOT to develop
an analytical mechanism to identify just what each piece of road was likely to cost—for
construction and maintenance—over its lifetime. The service life of a typical highway is
now considered to be 40 years. After that maintenance can no longer keep pace with
deterioration and the road must be dug up down to the dirt, the broken concrete and
asphalt hauled away and the whole thing rebuilt.

So TxDOT developed something called the Texas Asset Value Study and began
analyzing some of the state’s most important highways to see what they really cost to
build and keep up and how much of that cost would be covered by the gas tax on cars
and trucks. What they found out was that a typical busy highway, such as a 15-mile
stretch, motor-fuel taxes were contributing only about 16% of the costs. The rest was
all being subsidized. If every motorist using SR 99 were to be assessed the full cost of
his or her driving on that road, the gasoline tax would have to be raised to $2.60 a
gallon.

The results of the study were so controversial that Gov. Perry’s toll-road program was
discontinued and the story about the study was quickly taken down from the TxDOT
Web site. I first heard about it in a blog from Wisconsin (which is attached) that
appeared in early 2008. The blog at that time contained a live link to the TxDOT story
about the Asset Value Study. When I first ran across the Wisconsin story a year later I
was unable to activate the link, so I e-mailed and then called TxDOT to see if they
would send me a copy of the original story. Nobody at TxDOT would return my e-mails
or voice mails. Finally, in desperation, I put out an All Points Bulletin asking everyone
in my network whether anybody had saved the original story. It turned out that George
Chilson, president of the National Association of Rail Passengers, had saved it when it
first appeared. He e-mailed it to me, and I have been using it ever since to take the
wind out of the sails of anti-train critics and highway advocates who claim that “roads
pay for themselves through gas taxes.” No way. My friend Stu Nicholson at the Ohio
Rail Development Commission says the federal government and all of the states have
been practicing “vehicular welfare” and that cars are the biggest welfare queens in the
U.S., sucking up huge volumes of subsidies that nobody wants to hear about.

Which is why TxDOT took the truth off their Web site.