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May 04, 2012

Transportation: $57 Billion? Let's Take a Closer Look

Traffic2New fuel efficiency and carbon pollution standards are ensuring consumers have better choices at dealerships that will help them save money.  According to NRDC, proposed standards for 2017-2025 vehicles could save Americans $68 billion per year by 2030 because we will be using much less gasoline. 

Using less gasoline also means fewer gas taxes get collected, so it is logical that the Congressional Budget Office would assess what impact fuel efficiency standards would have on gas taxes, and therefore how much money goes into the Highway Trust Fund (that’s how it’s funded).

This week the Congressional Budget Office came out with a hypothetical look at how the proposed 2017-2025 standards will affect the Highway Trust Fund (PDF). To do this, CBO comes up with a hypothetical look at what would happen over the next 11 years to the Highway Trust Fund if gasoline tax revenues declined by 21%.

I suppose that’s an interesting question, hypothetically.  And the answer to this hypothetical, according to CBO, is $57 billion drop in revenue to the Highway Trust Fund between 2012 and 2022. That’s nothing to sneeze at when our nation’s transportation system, highways and transit (as well as investments in safe biking and walking) are almost entirely driven by how much revenue gas taxes generate each year.

CBO explains that they looked at the fact that new fuel efficiency and greenhouse gas standards will gradually result in a fleet of vehicles that use less gasoline (that’s a good thing), which means that we are buying less gasoline (also a good thing) and therefore paying less federal gas taxes.  The CBO notes that improved fuel efficiency would eventually cause annual gas tax revenues to fall by 21% -- in 2040.  For some reason, however, CBO chose to apply that out-year reduction in 2040 to the years 2012-2022. 

That’s an interesting hypothetical but really not the real world impact of improving vehicle fuel efficiency.  It is fair to say that CBO tries to caveat their $57 billion hit to the Highway Trust Fund by noting that the full 21% reduction doesn’t actually happen for 30 years and their case is illustrative.  Hmm.  So why did CBO come out a $57 billion reduction in revenue to the Highway Trust Fund, make recommendations about how to solve this hypothetical problem from spending less on transportation to putting in more general revenues into the pot and finally raising the gas tax?  That’s a tough question to answer.

The facts are facts.  The nation’s roads, bridges, transit systems  and more are largely funded out of the Highway Trust Fund which in turn is funded from the 18.4 cents collected for every gallon of gasoline (there’s a tax on diesel too) we buy.  Even though we buy a lot of gasoline – some 121 billion gallons in 2011 – we have a bit of a problem.  Gas taxes are just not generating enough revenue to pay for what we need.  CBO provides this handy chart that shows that over time the amount of revenue going in – fuel taxes – is less than what is being spent.  That is a problem. 

Transportation
(click image to enlarge)

It is also true that shifting our vehicle fleet from gas guzzlers to gas sippers (or vehicles that ditch the pump all together) will mean less revenue coming into the Highway Trust Fund.  On the other hand, thanks to the Administration’s standards for new vehicles, which kick in this year and will demand continuous improvement of vehicles through 2025, we will be saving more than $125 billion a year at the pump by 2030, reducing our addiction to oil and spewing out a lot less pollution.

We went back and took a look at what EPA and DOT estimated for how much less fuel we will be using each year thanks to cleaner cars.  We confirmed that CBO is pretty close to what EPA and DOT estimate for reduced fuel consumption in 2040.  In 2040 a 21% reduction would mean that we’d generate roughly $6.1 billion less in revenue than without the standards (assuming the 18.4 cent gas tax stays flat).  But, EPA and DOT show that it takes a long time before you hit that 21% reduction.  CBO acknowledges that but goes ahead and applies that reduction to every year starting in 2012.  That’s funny math but we admit easier than making a calculation based on estimated fuel savings in each year and adding them up. 

***

UPDATE: If you check out the right table (III-68 in the Preamble) that EPA and DOT provide in the proposed rule the impact of the proposed standards on HTF revenues for 2012-2022 is more like $2.5 billion.  That's a far cry from the hypothetical $57 billion.

***

The fact is that we need to take a close look at what kind of transportation system we want in America.  Everyone who moves in this country, whether by car, transit, biking and walking, knows that our existing systems are in desperate need of repair.  As a bike commuter, I am tempted to start a “Bikers for smooth Roads” coalition.

More Americans are demanding access to transportation choices that will help them move without getting in their car.  We can’t get this kind of transportation system without paying for it.  The 18.4 cents of gas tax on each gallon of gas purchased is not enough, with our without improvements to fuel efficiency.  CBO is right that we need to address this problem – spending less on a system that is already verging on collapse is really not an option if we want our economy to grow and safely get to all of the places we want to go.  We can increase gas taxes, make it a sales tax, put a fee on each barrel of oil, or we can start paying per mile we drive.  There are other ways to generate revenue.  But first, CBO should give us some good math, not a hypothetical.

Maybe CBO should have titled their report “Hypothetically, How Would Proposed Fuel Economy Standards Affect the Highway Trust Fund?

-- Ann Mesnikoff, Director of the Sierra Club Green Transportation Campaign

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