By Ron Thaniel
March 9, 2009

A bi-partisan commission established by Congress through the 2005 federal surface transportation law, SAFETEA-LU, urged the federal government to fundamentally shift the way it collects revenues to fund transportation infrastructure February 26.

Culminating nearly two years of study and deliberation, the National Surface Transportation Infrastructure Financing Commission’s recommendation is to shift from our current funding approach, based largely on indirect user fees in the form of federal motor taxes, toward a new system built around more direct user charges in the form of fees for miles driven.

The Commission’s argument is that by charging vehicle drivers a mileage fee embodies the “user pays” principle and more accurately aligns the costs and benefits of the surface transportation system to those who are using it. More transparent charges for using infrastructure may also spur drivers to use the system more efficiently, reducing the overall investment need.

In its final report Paying Our Way: A New Framework for Transportation Finance (http://financecommission.dot.gov/), the Financing Commission also offered specific recommendations for addressing the significant and widening gap between federal investment and the nation’s transportation infrastructure needs.

The current federal surface transportation funding structure that relies primarily on taxes imposed on petroleum-derived vehicle fuels is not sustainable in the long term and is likely to erode more quickly than previously thought. This is due in large measure to heightened concerns regarding climate change and dependence on foreign energy sources, which are creating a drive for greater fuel efficiency, alternative fuels, and new vehicle technology.

Another key finding is that the current indirect user fee system based on taxes paid for fuel consumed provides users with only weak price signals to use the transportation system in the most efficient ways.

Given the current funding shortfall, the Commission concluded that the best near-term options for federal investment are increases to current federal fuel taxes and other highway trust fund revenue sources. Federal gasoline would increase $0.10, and the federal diesel tax would increase $0.15 increase in the federal diesel tax. All special fuels taxes would receive increases, and the Commission recommends indexing these rates to inflation.

In addition, the Commission is suggesting that properly structured financing techniques and government financial programs, including those focused on facilitating partnerships with the private sector, can plan an important supplementary role. To this point, the Commission is recommending reauthorizing the federal credit program for surface transportation (originally authorized by the Transportation Infrastructure Financing and Innovation Act of 1998 [TIFIA]) with a larger volume of credit capacity, broadened scope, and greater flexibility.

The Commission is recommending preserving the integrity of the Highway Trust Fund structure.

By 2020, the Commission is recommending deployment of a national mileage-based user fee that will gradually replace the gasoline and diesel taxes. Furthermore, once deployed and implemented, mileage-based fees and any other charges should set to meet the designated federal share of national surface transportation investment needs, and index these rates to inflation. Once a national fee system is in place the need for the motor fuel-based revenue sources for the Trust Fund will be eliminated. To the extent, however, that surface transportation fuels are subject to a charge in the future to account for their carbon emissions, the Commission is recommending that an appropriate portion of those proceeds be credited to the Highway Trust Fund and dedicated to funding carbon-reducing transportation strategies.

The Commission is the second of two panels created by the SAFETEA-LU. The first Commission focused on both financing and policy. This Commission focused solely on financing.