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Financing a Broken Transportation System

Jeff Siegel | Friday February 27th, 2009 | 2 Comments

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We often talk a lot about the high or volatile cost of oil, and how this impacts consumer and investor behavior. For instance, when gasoline crossed the $4.00 per gallon mark, demand for hybrid vehicles soared, and millions in funding started to flow into the high-performance battery sector.
Of course, there’s also the excessive environmental costs that are too high to even attempt to quantify accurately. From the obvious public health-related issues to the massive loss of natural capital, these are costs that are very real, but are not likely to ever be fully accounted for both in Washington and in the private sector.
And what about the costs associated with maintaining our nation’s vast and complex system of roads and highways? Given today’s economic environment, coupled with a call to invest heavily in infrastructure projects, these costs are now being scrutinized. And it’s not looking pretty.


According to a recent report issued by the National Surface Transportation Financing Commission, our surface transportation system has deteriorated to the point where our safety, economic competitiveness, and quality of life are at risk. And the worst part is this surface transportation system is highly-underfunded and simply unsustainable if drastic measures aren’t taken soon.
Here’s an excerpt from that report, entitled, Paying Our Way: A New Framework for Transportation Finance…

“Our system is underpriced. Basic economic theory tells us that when something valuable – in this case roadway space – is provided for less than its true cost, demand increases and shortages result. Shortages in our road system are manifested as congestion. All too often the prices paid by transportation system users are markedly less than the costs of providing the transportation services they use (including pavement repair) – much less the total social costs (including traffic congestion and pollution). This underpayment contributes to less efficient use of the system, increased pavement damage, capacity shortages, and congestions.”

Bottom line: The government desperately needs to find a new, more effective way to get the funding necessary to maintain our surface transportation system. And one recommendation from the commission is a potential mileage fee. Basically collecting road taxes based on miles driven. The commission recommended this tax, with a plan to phase out the gasoline tax by 2020.
The commission also suggested a ten cent per gallon increase in the current federal gas tax and indexing that tax to inflation. Today, the gas tax is not indexed to inflation, and has actually lost one-third of its purchasing power sine 1993.
A carbon tax on on fuels was also recommended to be allocated to the highway fund.
Some say the taxes on miles driven would penalize those who live in parts of the country where people simply have longer commutes. Others say that it rewards those who drive less, and ultimately use less fuel.
Readers: What do you think? We’d love to hear your comments on this.


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  • Darius

    Yes! But don’t forget rail, bike and transit. All far more efficient modes of travel which stimulate real economic development, unlike the strip malls which come from new highways.

  • http://www.greenchipstocks.com Jeff

    Agreed!