Most voters do not like taxes and tax increases. One of the few taxes that was generally accepted and even welcomed when it was first enacted was the tax on gasoline. Unlike most other taxes, Americans recognized that paying this tax would result in improved roads and highways, which they valued. More recently, however, state legislatures and the US Congress have experienced widespread public opposition when they consider increases in gasoline taxes, in spite of growing concern about deteriorating bridges and highways.
Recent strong opposition to fuel tax increases does not mean that Americans are less willing than before to pay taxes in order to have better roads. What it does reflect is voters’ opposition to money paid in fuel taxes being used for purposes other than highway spending. In recent years almost 20 percent of money paid into the Federal Highway Trust Fund (FHTF) has been spent on mass transit. In addition, FHTF money is being spent on recreational trails, historic preservation, and scenic easements. Besides the FHTF money allocated for nonhighway purposes, a growing share is used for earmarks, which reflect political priorities of individual members of Congress rather than the priorities of highway users who pay gasoline taxes. Many drivers do not want to pay higher fuel taxes when less than 75 percent of the money paid in federal fuel taxes is used to maintain and improve streets, highways, and bridges.
Is the answer then a return to the good old days when fuel tax revenue was used in a (relatively) responsible manner? That may no longer be possible. The federal government and many state governments are now controlled by a ruling class that has little respect for the preferences of the general public. Instead, they seek to impose their enlightened ideas of how society should be organized. Hence, they may continue to seek to use fuel and other taxes to subsidize public transit and otherwise promote greater density and less automobile use, even if this is contrary to the wishes of the general public.
Widespread opposition to increases in fuel taxes at the federal or state level thus reflects a fundamental distrust of government. This distrust is based on evidence that the ruling class has its own agenda, which is inconsistent with the preferences of the general public. Given their smaller size, state governments may be more accountable to the voting public, and thus more likely to spend fuel taxes wisely. Recent failure to pass an increase in fuel taxes by the Pennsylvania legislature, however, suggests that voters are not yet ready to trust the Commonwealth to make good use of additional fuel tax revenue. If the federal and state governments can no longer be trusted to spend tax money wisely, a better approach may be to develop innovative local approaches to funding transportation.
Anyone who wants to understand how the political process leads to wasteful spending on public transportation need look no further than the North Shore Connector, a 1.2 mile extension of the light rail line in Pittsburgh. Senators John McCain and Tom Coburn recently criticized this project as one of the three most offensive uses of federal stimulus funds. Recent attempts by the Pittsburgh Post-Gazette and the Port Authority of Allegheny County (PAAC) to defend this project against the Senators’ criticism reflect economic fallacies and also illustrate the process by which interest groups seek to profit from federal and state government money at the expense of taxpayers as a whole.
Defenders of the project point out that its construction provides thousands of jobs while supporting economic development on Pittsburgh’s North Shore. They ignore, however, the opportunity cost. A comparable number of jobs would have been created if the money had been spent elsewhere and much larger benefits would have resulted if the $529 million spent on the North Shore Connector were invested in a private sector project that consumers were willing to pay for.
Consumers will not be willing to pay even close to the more than six dollar per ride cost that would be required to cover the annual interest on the money invested in this project, not counting the operating cost and depreciation. The money spent on this project could be used to buy a brand new $40,000 SUV for each one of the 11,500 riders per day that are expected to use the North Shore Connector.
If it had not been for $62.5 million of economic stimulus funds, construction of the Connector would likely have been halted due to cost overruns. Not only has the cost increased from an original estimate of $363 million to $528.8 million, as noted by the Allegheny Institute (http://alleghenyinstitute.org/administrator/components/com_policy/uploads/vol10no42.pdf), but the project was scaled back in size, as PAAC dropped a planned spur to the Convention Center from the project. The PAAC website does not mention the most recent increase in costs, listing the project as costing $435 million to construct.
Why is so much money being spent on this project? Because about 80 percent of the cost was borne by the Federal Government and one sixth came from the Commonwealth of Pennsylvania, leaving only 3.33% of the cost to be paid by local taxpayers. Thus many Pittsburgh residents are strong supporters of the project. Supporters believe that if the money is not spent in Pittsburgh, it will be spent in some other city. When Uncle Sam pays for it, the cost is divided among the entire US population while the benefits accrue to a much smaller number of local transit agency employees, construction workers, and city residents who expect to use the service. It is not worth the effort of individual taxpayers to oppose this project politically because it costs only a few dollars per taxpayer, while the benefits to local groups are large enough that they are more likely to reelect their representatives in Harrisburg and Washington if projects like this are funded. When this and numerous other projects that benefit interest groups get added to the federal and state budgets, we end up with enormous government debt, which may soon be unsustainable.
About 20 percent of what Americans pay in federal fuel taxes, which goes into the Highway Trust Fund, now goes to pay for public transportation. In light of the transportation funding crisis in Pennsylvania, Governor Rendell wants to use more of this trust fund money to pay for public transit rather than for highways. It would make more sense to use money from fuel taxes as it was originally intended – to pay for highways. Public transit should be funded primarily from fares and if fares are not enough, local governments in the areas served by public transportation should provide the subsidies.
Two economic arguments are used to support subsidies to public transportation- one is that low fares will result in more people using public transit instead of driving, thereby reducing congestion and other external costs associated with automobile use, such as pollution. The second reason for subsidizing public transportation is to provide an affordable alternative for low income and elderly people who do not have access to an automobile.
Although both reasons for subsidizing public transportation have some merit, subsidies from the federal government promote lack of accountability on the part of local transit agencies. Each transit agency competes to get as large a share of federal transportation dollars as possible rather than focusing on making the most of its limited resources. Grants to local transit agencies are a relatively small share of total federal government expenditures so that taxpayers are not likely to notice how inefficiently the money is used. Subsidies from the federal and state governments have resulted in rapidly rising costs and inefficient management. As noted by the Commonwealth Foundation, operating costs of of Pennsylvania’s two major transit agencies rose by a combined total of $245 million more than the rate of inflation between 1983 and 2002 with little or no increase in ridership.
Besides contributing to inefficient management, it is inequitable to use federal fuel taxes, which are paid by rural and urban drivers alike, to pay for transit since public transportation primarily benefits residents of large metropolitan areas. In Pennsylvania, 90 percent of transit operating grants is paid to the Southeast Pennsylvania Transportation Authority and the Port Authority of Allegheny County. But only 50 percent of the state’s population lives in the Philadelphia and Pittsburgh areas that are served by those transit agencies. In those two metropolitan areas, less than five percent of local trips are on public transportation while almost all the rest are by automobile.
The best way to reduce highway congestion is not to subsidize public transportation, but to implement congestion tolls during rush hour. This will provide an incentive for fewer people to drive on congested highways. Using public transit is not the only alternative to driving on congested highways. To avoid tolls, many people may choose to carpool or schedule their trips during different times of the day. With congestion tolls in place, some people will be willing to pay more for public transit. This combined with greater accountability due to local funding will make it possible to reduce subsidies for transit.
Pennsylvania and many other states do not have enough money to maintain highways and bridges adequately. Using the money paid in fuel taxes exclusively for highways and bridges would eliminate most of this funding shortfall. This is a better use of fuel tax revenue than continuing to prop up bloated transit agencies that benefit primarily a small percentage of the residents of the state’s two largest urban centers.