U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
Many factors that affect the equity and efficiency of the highway user fee structure have changed since the last Federal HCAS. User fees have been modified several times; the composition of the highway program has changed, especially with the dedication of Federal fuel taxes to support mass transit; and the use of the highway system for personal and freight transportation has changed. These changes are reflected in changes in the overall equity of the Federal highway user fee structure for the various classes of vehicles using the highway system. In general, the equity of highway user fees, as measured by ratios of Federal user fees paid by different vehicle classes to their shares of Federal highway-related costs, has improved since 1982.
Although under the current distribution of Federal-aid highway program expenditures the overall Federal user fee structure is more equitable than it was in 1982, inequities remain both across different vehicle classes and among vehicles within the same class. Many of the heaviest trucks continue to pay less than their share of highway costs while many light trucks, pickups, and vans pay more than their share of highway costs. At any given weight, trucks with more axles generally have lower cost responsibility and pay a larger share of their highway cost responsibility than trucks with fewer axles. The equity and efficiency of the highway user fee structure could be improved if each vehicle class more nearly paid the highway costs for which it is responsible.
The bulk of the analysis of user fee equity assumes that the distribution of Federal funds for different types of improvements in 2000 will be similar to the distribution in the 1993-1995 base period. Current budgetary limitations may preclude funding the Federal highway program at levels that would keep pace with traffic growth and the investment requirements to maintain the physical C&P of our highway system. In the long run more funds at all levels of government will have to be spent on system preservation to maintain the physical condition of the highway system. Greater Federal expenditures for system preservation could increase the overall cost responsibility of heavy trucks and result in those vehicles paying a smaller share of their highway cost responsibility than under the current program composition. On the other hand, more effective pavement and bridge management programs and expanded use of LCCA in making infrastructure investment decisions may help reduce long term system preservation costs. If a greater share of Federal funds were obligated for capacity enhancement, the relative cost responsibilities of different vehicle classes would remain about the same as they are today, but increased funding for mass transit and system enhancements would lower the overall cost responsibility of heavy trucks and increase costs for autos and light trucks. While effects on user fee equity should not be a factor in deciding the most desirable mix of program funding, once decisions are made on program composition, implications for user fee equity should be evaluated.
Six general user fee options were analyzed to assess the extent to which they could improve overall Federal user fee equity. This study did not, however, evaluate implementation issues associated with these user fee options such as administrative costs or potential industry impacts.
Several conclusions can be drawn about the types of user fee changes that could have the greatest impact on equity and efficiency. First, adding an additional penny to the diesel differential could reduce the underpayment by all heavy trucks, although little change is observable in overall equity ratios. Adding 6 cents per gallon to the diesel differential could improve equity ratios for all vehicle classes, but would not have as great an effect on correcting inequities among vehicles in the same class that register at different weights. The diesel tax is very good at reflecting differences in the amount of travel by various vehicles, but it does a poor job in reflecting differences in cost responsibility related to vehicle weight.
Eliminating the $550 cap on the HVUT that applies to all vehicles registered above 75,000 pounds would reduce an inequity in that tax that generally benefits heavy vehicles that generally have the greatest cost responsibility. This option would improve user fee equity for the largest heavy truck class -- tractor-semitrailers registering at 80,000 pounds -- and would have a larger impact on vehicles registering above 80,000 pounds, but its overall effect would be marginal. Changing the overall HVUT rate structure to reflect more closely differences in cost responsibility among different vehicle classes would further reduce inequities, not only for vehicles over 75,000 pounds, but also for heavy single unit trucks that as a group have some of the lowest equity ratios of any vehicle class. Large changes in a flat tax such as the HVUT, however, can adversely affect equity among vehicles having different annual VMT. The incidence of a flat tax such as the HVUT on a per mile basis can vary significantly among vehicles with different annual VMT while their cost responsibilities per mile may be very similar. If HVUT rates were increased substantially for the heaviest vehicles, improvements realized in equity across weight groups would be partially offset by increased inequities among vehicles that have different amounts of annual travel. But, of the potential changes to existing user fees that were investigated in this study, changes in the HVUT rate structure produce the greatest improvement in overall equity. The rate structure analyzed was designed to come as close as practical to equity, but lesser changes in HVUT rates also could reduce inequities in the Federal highway user fee structure.
Preliminary analyses of WDT options show that they could reduce inequities both across and within vehicle classes more than changes to existing user fees. Perfect equity cannot be achieved with any tax because of the many different vehicle configurations used to haul various commodities, but much of the inequity in the existing highway user fee structure could be reduced with a WDT because it can be calibrated to match the cost responsibility of different vehicle classes at different weights and operational characteristics. This is particularly true for an axle-WDT whose rates vary not only with gross weight, but also reflect differences in cost responsibility among vehicles with different numbers and types of axles.
The analysis of user fee alternatives conducted for this study was very limited, and was intended only to explore the relative improvements in equity that could be realized from several generic types of user fee options. Other options also could improve user fee equity and efficiency. The analysis of user fee options has not attempted to maintain strict revenue neutrality, but revenue neutrality might be a desirable feature of Federal user fee changes implemented to improve equity, especially during the current period of budget limitations. One method for achieving revenue neutrality would be to reduce the gasoline tax at the same time that rates for one or more truck taxes were modified to more closely reflect truck cost responsibilities.
Decisions that could significantly affect estimates of future highway cost responsibility will shortly be made. The first is reauthorization of the surface transportation programs. This study has assumed that the distribution of Federal program costs will be similar to the current distribution, but if major changes in the composition of the Federal highway and transit programs were made in reauthorization, these assumptions might no longer be valid and future distributions of highway cost responsibility could change significantly.
The second factor that could significantly affect decisions regarding potential Federal user fee changes to improve equity is the uncertainty regarding future TS&W policy. For analytical purposes, this study has assumed that TS&W policies will remain the same through 2000. If any changes in TS&W policy are examined during or following surface transportation reauthorization, cost recovery issues also should be examined. If significant changes in truck size and weight limits are implemented, user fee options, including the potential for significantly improving user fee equity through a national WDT, could be evaluated. Even in the absence of changes in TS&W policy, Congress may wish to consider potential benefits of a WDT or changes to existing Federal user fees that would improve equity.
There are limited opportunities to improve economic efficiency by reflecting external costs of highway transportation in Federal highway user fees. Marginal costs associated with additional trips by different classes of highway users were found to vary widely according to where trips are made. If users pay the full marginal cost of their travel, they will only make trips whose benefits exceed the costs of the travel, and economic efficiency will improve. If, however, users are charged too much for trips that entail few external costs, trips whose benefits exceed their real cost will not be made and economic efficiency will be reduced. A comparison of existing Federal user fees with marginal costs in different types of areas found that most vehicle classes pay at least as much in user fees as the estimated Federal portion of marginal costs in rural areas, but pay less than their marginal cost in urban areas. A complete assessment of potential efficiency gains that might be realized from changes in Federal user fees was beyond the scope of this study, but it appears unlikely that trying to charge users for external costs associated with their highway travel by increasing existing Federal user fees would improve economic efficiency. However, there are opportunities for improving economic efficiency through charges at the local level that reflect congestion, air pollution, and other external costs of highway use. Furthermore, there are opportunities to reduce external costs of highway transportation through highway improvement programs or regulatory actions that make highway transportation safer, reduce congestion, and contribute to reducing air pollution and other environmental impacts of highway use and operation. Through the CMAQ improvement program, funding for enhancements, and activities throughout the planning and project development processes for every highway project, significant progress has been made in reducing adverse highway impacts, improving highway safety, enhancing the Nation's productivity, and providing mobility for all segments of society.
More frequent cost allocation studies in the future would provide valuable information not only about user fee equity but also intermodal subsidy issues, changes in social costs of highway transportation, and other policy issues. Several States routinely update their HCASs every several years, and the same should be done for Federal cost allocation. Periodic updates would allow emerging issues to be analyzed in a timely fashion, much in the same way that the Department's C&P Report has considered emerging issues in recent years. Updating the Federal HCAS on a fixed schedule may not be necessary if factors affecting cost responsibility do not change, but the Department intends to update the cost allocation study more frequently than it has in the past, especially in connection with any proposed changes in the composition of the highway program, changes in TS&W policy, changes in highway user fees, or similar changes that could affect the equity or efficiency of the Federal highway user fee structure.