As Congress turns its attention to the country’s aging infrastructure, it should rethink how that infrastructure is paid for — and who pays for it.
With more attention expected to be placed on infrastructure conversations this year, America’s roads, bridges and rails will be focus points of public policy in 2020.
Flaws in America’s infrastructure are widely recognized, as demonstrated by the American Society of Civil Engineers’ (ASCE) most recent report card, which reinforced the deteriorating state of the nation’s infrastructure with the issuance of a “D+” rating.
But this rating doesn’t reflect the condition of national infrastructure across the board. Despite these discouraging trends in certain aspects of American infrastructure, freight rail remains a point of optimism for shippers and taxpayers alike. As members of Congress debate infrastructure, it is apparent that freight rail is a model for other industries, as similarly equitable alternative funding models have garnered bipartisan support.
Railways: An Infrastructure Bright Spot
Railroads consistently outperform all other methods of transport when it comes to American infrastructure, earning a “B” in the ASCE report. Freight rail infrastructure is funded by those that benefit the most from them: private freight railroads. Privately-owned freight rail companies – not taxpayers – spend billions each year, about 40% of their revenue, on equipment and infrastructure projects. Not only is this investment proactive, but its benefits are widespread, positively impacting businesses, consumers and passenger rail organizations. Success is shared when a more reliable rail network makes other industries more competitive.
The need for investment in American infrastructure is never-ending, and railroads understand that there remains progress to be made. In forward-looking statements during recent earnings calls, executives at major U.S. freight railroads highlighted their desire to continue maintaining and improving their networks and equipment, investing in new technologies, and making the rail network even safer and more efficient than it is today.
- Quick Fact: Large trucks underpay their federal cost responsibility by around 27 cents per gallon of fuel, while railroad investments in infrastructure average $26 billion annually. This dynamic allows trucks to deflate rates, creating a competitive disadvantage for railroads.
The Highway Trust Fund is Underfunded, and Roads are Suffering as a Result
The insolvency of the Highway Trust Fund (HTF) only exacerbates current infrastructure problems, driving taxpayers to pay billions each year for worsening roads and bridges. The HTF has experienced a chronic budget shortfall since 2008, with Congress appropriating more in spending than the HTF receives in tax revenues. This has required Congress to authorize additional transfers from the Treasury — to the tune of $143 billion in recent years. The Congressional Budget Office (CBO) expects that this shortfall will continue if new revenue is not injected.
The primary culprit rests in the fact that the gas tax has not been raised since 1993. It has remained at 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel for nearly thirty years, despite inflation, improved fuel efficiency and fluctuations in the price of gas. The effects of this do not go unnoticed — roads received a “D” in the ASCE report card, with only public transit falling behind them.
As intermodal traffic becomes an increasingly large portion of freight rail’s business, the issues with American roads and highways are more apparent to consumers than ever — directly affecting freight rail’s ability to compete and lower consumer costs. Though railroads have directly invested in growing their intermodal franchise, the taxpayer subsidization of trucking infrastructure makes for an unfair competition.
Alternative Funding Models Enjoy Bipartisan Support
The insufficiency of gas taxes is felt nationwide. Consumers, members of the rail community, and policymakers alike recognize the need for a new funding model for the long-term. Researchers have shown that a Vehicle Miles Traveled fee, or VMT, would be more equitable and efficient than the current gas tax.
As vehicles become more fuel-efficient, gas taxes only grow less productive. Additionally, the current gas tax has failed to keep pace with inflation.
Scaled fairly, a VMT directly captures road use and the impact it imposes, including among commercial shippers like trucking companies. Heavier trucks cause a disproportionate amount of infrastructure wear-and-tear, and a VMT fee for trucks could better account for this damage. Once expanded more broadly, a VMT would also be fairer and more equitable for everyday drivers, not discriminating against cars based on fuel efficiency or forcing non-drivers to pay into the HTF through cash transfers.
Infrastructure issues know no political party — policy experts of various political leanings support a VMT, including the nonpartisan Rand Corporation, the free-market Competitive Enterprise Institute, and the Progressive Policy Institute. Moreover, research by the Brookings Institution indicates that implementing a VMT fee would increase social welfare by 20% compared to a gas tax that raises an equivalent level of revenue. The researchers argue that a VMT would result in a higher level of government revenues and larger decreases in congestion, accidents and local air pollution.
- Quick Fact: Current taxes and fees on trucks fall short, funding only 80% of the repairs needed to address the damage they cause to American infrastructure.
A Call to Action: Congress Should Act to Create a Sustainable Funding Model for U.S. Highways
Recent actions by Congress to make infrastructure a 2020 priority are a good sign for freight rail, its shippers and the health of American infrastructure. It’s clear among consumers and transportation industry insiders that the precedent of paying for infrastructure improvements using taxpayer money cannot continue. Freight rail is funded by the private companies that use it and should be kept front-of-mind as an example of a more equitable, efficient, and societal beneficial funding system.