The Challenge of National Freight Policy: How to Pay For It?
2014 could be the year that a national freight policy begins to take focus in a new authorization bill. There have been several positive movements in this direction over the last few years that portend a possible emphasis on freight.
First, there was the American Reinvestment and Recovery Act (ARRA) which included a new discretionary program called Transportation Investments Generating Economic Recovery (TIGER). As described in an Eno paper last year, by providing funding based on meritorious economic outcomes, with less emphasis on mode, TIGER wound up providing more funding for freight than any other category. While TIGER has its critics, Congress has continued to fund it for years after ARRA in part because of its popularity nationwide and its effectiveness in funding freight projects.
Next there was Moving Ahead for Progress in the 21st Century (MAP-21), passed in the summer of 2012, which made some small but important steps toward creating a national freight policy. It required USDOT to establish a national freight network and a national freight strategic plan to be updated every five years. Unfortunately, MAP-21 did not, as some had hoped, fund a permanent grant program for freight. But it did re-authorize Projects of National and Regional Significance (PNRS), a program that is intended to target freight investment. MAP-21 also led to the creation of a National Freight Advisory Committee (NFAC) at USDOT, which is intended to help accomplish many of the objectives set out in the legislation.
Finally there was the recent report on freight from a House Transportation and Infrastructure (T&I) Committee special panel. The Panel on 21st Century Freight Transportation, chaired by John Duncan (R-Tenn.) and Jerrold Nadler (D-NY), released a report last year. Among other recommendations, the panel suggested the creation of a comprehensive national freight policy and national multimodal network. More surprisingly, the panel also recommended dedicated funding for a multimodal discretionary grant program based on performance.
All of the above actions represent steps in the right direction. However, it is notable that while all of them promote freight investment, none of them provided any movements toward developing large-scale funding for national freight investments. ARRA was intended as a temporary measure and relied on general funds for TIGER, which is a relatively small program. MAP-21 did not designate any specific funding for freight (PNRS was unfunded), and the NFAC is not planning to deal with the issue. The T&I Committee talked about the need for funding, but did not make any specific recommendations.
If the funding issue is not addressed, all the other work in this area will be for naught. Without a funding stream at the national level, we are unlikely to make freight investments that are in the national interest. While states and localities may choose to make investments in freight on their own, they have little incentive to make investments that create national rather than local or regional benefits. A strong national freight program – particularly a discretionary grant program where funding is distributed based on performance – will require a sustainable funding source. The following are some options that have been discussed in the past, along with some of their pros and cons:
- Greater use of tolling. The concept of moving toward greater use of tolling on our nation’s highways is one that has generated support from both sides of the political spectrum. Libertarians and conservatives like it because tolling can serve to more accurately price a good that is in high demand, while also devolving more power to the states (see Bob Poole of the Reason Foundation’s recent proposal on tolling the Interstate). Environmentalists and rail advocates like it because they believe it can discourage driving and provide funding for non-highway modes. Even though relaxing the ban on tolling the Interstate has encountered substantial resistance in Congress in the past, as demand for new revenues grows this option becomes more and more likely.
Unfortunately, there are numerous reasons why it is unlikely to work in providing funding for a national freight program. The most obvious reason is that it will be difficult to use tolls that are collected on a highway facility for anything other than improvements to that facility. A second is that one of the biggest freight organizations – the American Trucking Associations (ATA) – is vehemently opposed to the idea. If ATA could not successfully prevent this option from being realized, they most certainly would work to make sure that tolls could not be used on any other facility besides the one from which they were collected, much less any other mode. Finally, tolling is inherently local and ill suited to a national freight program. The whole idea of a national freight program should be predicated on the concept of a national system. Otherwise it is unlikely to be a substantial improvement over what we have today.
- Increase the diesel tax. It is unusual for an industry to go to Congress and ask to be taxed; yet that is what the trucking industry has been doing. ATA has supported a gas tax increase, including an increase in the diesel tax, for some time. Most recently they supported the proposal by Rep. Earl Blumenauer (D-Ore.) to increase the diesel tax from 24.4 cents to 39.4 cents per gallon over three years. Former Kansas Governor Bill Graves, who is now the President and CEO of ATA, said at an Eno debate in January 2012 that he believes transportation is a national system that should be funded through a national tax on diesel and gasoline.
There are two problems with this funding option. One is the obvious and continued resistance in Congress and the White House to supporting fuel tax increases. But a more fundamental is that it would be challenging to fund a “freight” program with the diesel tax. ATA may be fine with the idea of increasing the diesel tax, but they are unlikely to support it if the proceeds could go towards competing freight modes such as rail. This means that this funding option could likely fund highway freight improvements only, unless it was supplemented by general fund revenues. Focusing only on highways would mean that this would not be a true freight program and would substantially reduce potential benefits.
- Multimodal freight fee. This is the most attractive option from a conceptual point of view. The Bipartisan Policy Center recommended a mode-neutral freight fee in the original report of the National Transportation Policy Project, and the report of the National Surface Transportation Infrastructure Financing Commission analyzed several options of this kind. Among the more interesting concepts they explored were a freight waybill fee, essentially a sales tax or value-added tax on shipping costs for freight. Such a fee is already assessed on air traffic, so it is achievable. This could be a true multi-modal fee that could be used to support multimodal freight investments. It would be a fair assessment of a user-fee on industries that would benefit directly from the resulting public investments.
While this concept has substantial appeal, it would face numerous obstacles in implementation. First, it is likely to bring high administrative costs due to its complexity and the challenges of setting up a new tax assessment method. Second, not all shippers use waybills, which means that a substantial amount of cargo could be missed. Finally, even if these obstacles could be overcome, there is little evidence that the rail industry is interested in being taxed for the purposes of multimodal freight investment. While some railroads benefited from the TIGER program and appreciated the existence of that program, general fund revenues funded TIGER and they might not have been so supportive had they been footing the bill.
If there were an easy way to fund a national freight program, it likely would have been done already. There is substantial agreement within the industry about the need for such a program of investment, and even limited agreement about how those investments should be made. But funding the program will not be easy. Tolls, diesel taxes, and a multimodal freight fee all come with substantial challenges that make them either poor matches for a national freight program or unlikely to be implemented.
Perhaps in our quest to find a funding source, we should look more to what has already worked in the past. The TIGER program, which is the closest thing we have had to a successful multi-modal grant program for freight, was funded by general funds. The last surface transportation bill, MAP-21, was funded in part by a $19.5 billion infusion of general funds. General fund revenues seem to be the only source that has worked effectively in recent history to fund new transportation investments, and there is a strong logic for using these funds for freight. The general public benefits directly from improvements to the freight network because they reduce the cost of goods that everyone must purchase. While freight doesn’t vote, everyone benefits from freight. It is worth considering whether everyone should pay.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.