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34–793 PDF 2007

STRUCTURE OF THE FEDERAL FUEL

TAX AND THE LONG-TERM VIABILITY OF THE HIGHWAY TRUST FUND

(110–22)

HEARING

BEFORE THE

SUBCOMMITTEE ON 

HIGHWAYS AND TRANSIT

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 27, 2007

Printed for the use of the 

Committee on Transportation and Infrastructure

(

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

JUANITA MILLENDER-MCDONALD, 

California 

ELIJAH E. CUMMINGS, Maryland 

ELLEN O. TAUSCHER, California 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

JULIA CARSON, Indiana 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

RUSS CARNAHAN, Missouri 

JOHN T. SALAZAR, Colorado 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

DORIS O. MATSUI, California 

NICK LAMPSON, Texas 

ZACHARY T. SPACE, Ohio 

MAZIE K. HIRONO, Hawaii 

BRUCE L. BRALEY, Iowa 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ACURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

JERRY MCNERNEY, California 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

WAYNE T. GILCHREST, Maryland 

VERNON J. EHLERS, Michigan 

STEVEN C. LATOURETTE, Ohio 

RICHARD H. BAKER, Louisiana 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CONNIE MACK, Florida 

JOHN R. ‘RANDY’ KUHL, JR., New York 

LYNN A WESTMORELAND, Georgia 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

(II)

SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES 

PETER A. DEFAZIO, Oregon 

NICK J. RAHALL II, West Virginia 

JERROLD NADLER, New York 

JUANITA MILLENDER-MCDONALD, 

California 

ELLEN O. TAUSCHER, California 

TIM HOLDEN, Pennsylvania 

MICHAEL E. CAPUANO, Massachusetts 

JULIA CARSON, Indiana 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

GRACE F. NAPOLITANO, California 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A ARCURI, New York 

CHRISTOPHER P. CARNEY, Pennsylvania 

JERRY MCNERNEY, California 

BOB FILNER, California 

ELIJAH E. CUMMINGS, Maryland 

BRIAN BAIRD, Washington 

DANIEL LIPINSKI, Illinois 

DORIS O. MATSUI, California 

STEVE COHEN, Tennessee 

ZACHARY T. SPACE, Ohio 

BRUCE L. BRALEY, Iowa 

HARRY E. MITCHELL, Arizona 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

JOHN J. DUNCAN, JR., Tennessee 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

RICHARD H. BAKER, Louisiana 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JOHN L. MICA, Florida 

(Ex Officio) 

(III)

(V)

CONTENTS Page

Summary of Subject Matter .................................................................................... vi

TESTIMONY 

Buechner, William, Vice President for Economics and Research, American 

Road and Transportation Builders Association ................................................. 3

Marron, Donald B., Deputy Director, Congressional Budget Office .................... 3

Pisarski, Alan, Private Consultant ........................................................................ 3

Sperling, Daniel, Professor and Director, University of California-Davis, Institute of Transportation Studies ............................................................................ 3

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Altmire, Hon. Jason, of Pennsylvania .................................................................... 21

Mitchell, Harry E., of Arizona ................................................................................ 22

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Buechner, William R. .............................................................................................. 25

Marron, Donald B. ................................................................................................... 37

Pisarski, Alan E. ...................................................................................................... 53

Sperling, Daniel ....................................................................................................... 64

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34793.055
(1)

HEARING ON STRUCTURE OF THE FEDERAL 

FUEL TAX AND THE LONG-TERM VIABILITY 

OF THE HIGHWAY TRUST FUND 

Tuesday, March 27, 2007, 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

SUBCOMMITTEE ON HIGHWAYS AND TRANSIT, 

Washington, DC. 

The subcommittee met, pursuant to call, at 2:00 p.m., in Room 

2167, Rayburn House Office Building, the Honorable Peter DeFazio 

[chairman of the subcommittee] presiding. 

Mr. DEFAZIO. Okay, let’s get started. I want to thank my Ranking Member, Jimmy Duncan, for being here today and the witnesses for being here. Perhaps the state of the Highway Trust 

Fund and the income into the Trust Fund is not to a lot of people 

an earthshaking topic. But it is one of two key components, as we 

move forward and look at the reauthorization of the next highway 

and transit legislation in 2009. 

Obviously we are also investigating the other component, that is, 

what is it we have to maintain and what is it we have to build to 

enhance the system. But the other side is, how are we going to pay 

for it. If we look back to SAFETEA-LU and just before SAFETEALU, the estimates of the Bush Administration’s Department of 

Transportation were, we basically needed $375 billion investment 

over the term of the bill to tread water. Obviously our resources 

were short of that. We did as good as we could, coming up just 

under $300 billion. 

So we need to understand how the gas tax is going to fare in the 

future, the Trust Fund, the other associated taxes that contribute 

to the Trust Fund, and hopefully look toward a way to make more 

robust investments in the future. Obviously other things have happened since the last time the gas tax was updated, the extraordinary run-up of construction costs. And obviously, increased traffic. So we need to take a very hard look at all these issues, and 

I appreciate your all being here today. 

I now recognize my Ranking Member, Mr. Duncan from Tennessee. 

Mr. DUNCAN. Thank you, Mr. Chairman. I am pleased that we 

are holding this hearing today on the structure of the Federal fuel 

tax and the long-term viability of the Highway Trust Fund. 

When the SAFETEA-LU bill was signed into law two and a half 

years ago, I think many people realized that we would at some 

point have to reevaluate how we fund the surface transportation 

2

projects, and probably need to do that before the next reauthorization bill is considered. This hearing begins that very important 

process. 

Ever since the HIgwhay Trust Fund was created in 1956, the 

Federal fuel tax has been the primary source of revenue for the 

Trust Fund. The Highway Trust Fund, as most people know, most 

of the people who are here today, also receives revenue from taxes 

on tires and truck and trailer sales and annual sales on heavy 

trucks. However, the vast majority of the revenue deposited in the 

Highway Trust Fund is derived from Federal taxes on gasoline, diesel fuel and other special fuels. 

We are now reaching a point in history where we need to evaluate whether or not the current revenue structure of the Highway 

Trust Fund can stand the test of time. For 50 years it has served 

us well. However the vehicles we drive are rapidly changing. Fuel 

efficiency is increasing. Electric hybrid vehicles are gaining in popularity and major auto manufacturers are talking about mass-producing plug-in electric vehicles. 

I have seen some of the research being done in this area firsthand at the National Transportation Research Center in my district in Knoxville. Researchers at the NTRC are some of the leading experts in developing advanced power electronic devices. As 

transportation shifts from combustion-driven vehicles to hybrid 

electric, plug-in, hybrid and fuel cell vehicles, the research being 

done at this facility I think will be very critical, very important. 

This shift in how we fuel our vehicles will reduce our dependence 

on foreign oil and may have positive environmental impacts. However, it may also force us to change how we fund the Highway 

Trust Fund. A tax on fuel is our primary source of revenue, as I 

have mentioned, for the fund. As we incorporate technologies that 

reduce the amount of fuel we use, we will see a reduction in revenue into the trust fund that is attributed to the fuel tax. While 

this is not an immediate concern, it is something we need to think 

about as we begin to write the next reauthorization bill. 

I look forward to hearing from the experts that we have assembled here today and hope that they will provide us some real insight on the current status of the Highway Trust Fund and how 

long into the future the current financing structure of the Trust 

Fund can sustain our Nation’s surface transportation needs. 

Thank you, Mr. Chairman. I yield back. 

Mr. DEFAZIO. I thank the Ranking Member for that statement, 

helping put this hearing in context. 

If there are no other opening statements, we will move to the 

witnesses. In terms of the order prescribed, whatever it says there, 

I guess it’s the order up there. Mr. Marron, Deputy Director of 

CBO, go right ahead. 

3

TESTIMONY OF DONALD B. MARRON, DEPUTY DIRECTOR, 

CONGRESSIONAL BUDGET OFFICE; WILLIAM BUECHNER, 

VICE PRESIDENT FOR ECONOMICS AND RESEARCH, AMERICAN ROAD AND TRANSPORTATION BUILDERS ASSOCIATION; DANIEL SPERLING, PROFESSOR AND DIRECTOR, UNIVERSITY OF CALIFORNIA-DAVIS, INSTITUTE OF TRANSPORTATION STUDIES; ALAN PISARSKI, PRIVATE CONSULTANT 

Mr. MARRON. Thank you, Mr. Chairman, Mr. Ranking Member, 

and members of the Committee, it is a pleasure to be here today 

to discuss the status of the Highway Trust Fund. 

In my opening remarks, I would like to make four points. First, 

CBO projects that under current law, revenues to the highway account of the Highway Trust Fund will fall short of outlays over the 

next few years. As a result, the account will become exhausted by 

the end of 2009. 

If obligation limitations and RABA adjustments are set at the 

levels authorized in SAFETEA-LU, CBO estimates that outlays 

during 2007 through 2009 will total about $117 billion. Revenues 

over that period are projected to be about $108 billion, $9 billion 

lower than outlays. Transfers from the highway account to the 

transit account would total about $2 billion over that period. Putting those figures together, CBO projects that the highway account 

balance would decline by almost $11 billion by the end of 2009. 

More specifically, the balance would fall from about $8.9 billion at 

the start of 2007 to negative $1.7 billion at the end of 2009. CBO 

similarly projects that the mass transit account will become exhausted in 2012. 

Second, about 90 percent of the revenues for the Highway Trust 

Fund come from fuel taxes that are fixed in nominal terms: the 

18.3 cents per gallon tax on gasoline and gasohol and the 24.3 

cents per gallon tax on diesel. Because the tax rates are fixed in 

nominal terms, tax revenues are ultimately determined by fuel use. 

Fuel use in turn is driven by real economic growth, fuel prices, fuel 

economy and the types of fuel that are used. Economic growth increases fuel purchases and tax revenues. Higher fuel prices and 

higher fuel efficiency both reduce fuel purchases and revenues, and 

changes in the types of fuel can either raise or lower revenues, depending on the particular tax rates and the energy content of the 

fuel. 

Third, because revenues are driven by fuel use, they tend to grow 

more slowly than the nominal size of the economy. For example, 

CBO projects that fuel tax revenues will grow about 1.5 percent per 

year over the next 10 years, compared to nominal economic growth 

of 4.6 percent per year. 

I should note, however, that the fuel tax revenues did grow faster 

than fuel use over the last 10 years. That happened because of several law changes that shifted resources into the Trust Fund from 

the general fund. In 1998, for example, revenues from the 4.3 cents 

per gallon tax that was originally enacted in 1993 were shifted into 

the Trust Fund from general revenue. In 2005, tax credits for ethanol were restructured so that they reduced general revenues rather than Trust Fund revenues. 

Fourth and finally, I should emphasize that these projections, 

and really any projections of revenues and outlays for the Highway 

4

Trust Fund, are subject to significant uncertainty. There is uncertainty about spending, for example, because it will depend on decisions made by the Congress and the Administration regarding 

basic annual funding levels for the program and the adoption of 

RABA adjustments. Spending rates will also be influenced by the 

decisions of State and local governments. 

There is uncertainty about revenues because of uncertainty 

about future economic conditions. The economy could grow faster or 

slower than expected, oil prices could rise or fall above projected 

levels, and alternative fuels could develop faster or slower than expected. Such economic changes would result in different revenue 

levels. 

There are also uncertainties about the key technical assumptions 

that relate economic activity to revenues. Consumers might adjust 

to changes in fuel prices more or less than we expect. Fuel and 

truck purchases might be more or less responsive to increases in 

economic activity. Any of those changes could affect revenues. 

Given these uncertainties, the highway account could become exhausted either earlier or later than our current estimates indicate. 

Thank you, and I would be happy to answer any questions. 

Mr. DEFAZIO. Thank you, Mr. Marron. 

Mr. Buechner. 

Mr. BUECHNER. Mr. Chairman and members of the Subcommittee, thank you very much for inviting the American Road 

and Transportation Builders Association to testify on the viability 

of the motor fuels excise tax. 

Let me start with the most immediate concern, the balance in 

the Highway Trust Fund. The Highway Trust Fund balance will be 

exhausted by the end of fiscal year 2009. The Federal Highway Administration estimates a $200 million deficit, the Congressional 

Budget Office $1.7 billion. The figures are somewhat variable, depending on what assumptions you make. 

The fear is that the way we are going to deal with that is to cut 

highway funding, either by foregoing the RABA adjustment in fiscal year 2008 or cutting the program in 2009. But there is a better 

alternative, which is to repeal or restructure most of the remaining 

Federal motor fuel excise tax exemptions. 

As you know, the Federal Highway program is user-fee financed 

through revenues, primarily from taxes on gasoline and diesel 

fuels. But there are some highway users that are exempt from the 

tax for reasons that have nothing to do with transportation policy. 

Repealing or funding these exemptions from the general fund, as 

was done with the ethanol incentive in 2004, would add about $1 

billion per year to highway account revenues. This approach was 

endorsed by the Administration in its fiscal year 2006 budget submission and was included in the version of SAFETEA-LU passed 

by the Senate. It would pretty much rectify any of the deficit projections that are on the table. 

Beyond 2009, there are two concerns affecting the viability of the 

Federal Motor Fuel Tax—the impact of higher CAFE standards 

and rising construction costs. Very briefly, CAFE standards for cars 

and light trucks have very laudable goals. They reduce our dependence on foreign fuel and they improve air quality. But they also reduce tax revenues for the Highway Trust Fund. 

5

NHTSA has recently announced a 10 percent increase in CAFE 

standards for light trucks that would be effective with the 2011 

model year. This will have an impact on Highway Trust Fund revenues, as Don pointed out, in the long term. But it won’t be significant until well after the years covered by the next reauthorization 

legislation. 

We currently replace about 7 percent of the 230 million cars and 

light trucks registered in the U.S. each year. So it takes more than 

14 years to completely replace the entire fleet. If you go through 

the math on the trucks that will be affected by this, you find that 

the new CAFE standards for light trucks would reduce Highway 

Trust Fund revenues by about $100 million in fiscal year 2012 and 

maybe as much as $300 million or $400 million by 2015, which is 

about 1 percent of projected revenues for that year. 

If you look at hybrid vehicles, which are the only other kind of 

cars on the road right now that are of serious concern here, they 

only comprise like 2 or 3 percent of automobile sales each year. The 

average revenue foregone would be in the range of $30 million a 

year. So that is an issue for the long term. 

Far more important for the short term is the erosion of the purchasing power of the fuel tax. Since 1993, when Congress enacted 

the current tax rate, the purchasing power of the Federal Motor 

Fuels Tax has fallen by more than 35 percent. The big issue in 

2004 was rising steel prices, which I have shown in the first chart. 

You see the big increase in 2004. In 2005 and 2006, these rapid increases started spreading to core highway construction materials. 

These charts show what happened to the price of aggregates, 

crushed stone, which is the major material for highways, ready-mix 

concrete went way up, asphalt paving mixtures and diesel fuel all 

rose rapidly. Diesel fuel more than doubled in three years. 

So in these three years, the cost of highway construction materials has risen more than 35 percent. When you factor in wages 

and overhead, which have risen much less, the cost increase is still 

at least 20 percent in three years and in some parts of the country 

it is much higher. 

This next figure shows the erosion of the purchasing power of the 

Federal gas tax due to these higher construction costs. In 2007, for 

example, the 18.3 cent per gallon gas tax purchases about what 

11.6 cents would have bought in 1993. Here is a chart showing 

what the gas tax would have to be to maintain that 18.3 cent purchasing power. 

In summary, the Federal Motor Fuels Excise Tax is not a broken 

model. It can continue to serve as the foundation for financing the 

highway and mass transit programs for SAFETEA-LU reauthorization and probably for some years beyond that. None of the potential 

threats to the tax base will have a significant impact for some 

years to come. The purchasing power of the tax, though, is the 

problem and has been significantly eroded by higher construction 

costs. It certainly can’t support the level of Federal highway investment needed today to maintain mobility and support economic 

growth. 

That is where I would like to stop and I thank you very much 

for the opportunity to testify. 

6

Mr. DEFAZIO. Thank you. That was, particularly the graphics, 

very compelling. 

We will now move to our next panelist, Mr. Sperling. 

Mr. SPERLING. Thank you, Mr. Chairman and members of the 

Subcommittee. Thank you for the opportunity to speak to you regarding the fuel excise tax. 

My statement addresses the effect of alternative fuels and vehicle 

fuel economy on fuel tax revenues. I note that I have devoted most 

of my professional career to studying energy use and transportation. This includes working closely with all of the major car and 

oil companies in the world. And I note that I also served on the 

2005 National Academies TRB committee that drafted the report, 

the Fuel Tax and Alternatives for Transportation Funding. 

My remarks are based in part on the findings of that study, but 

the conclusions and recommendations I will offer are my own. So 

my testimony addresses two concerns. One is addressing, ensuring 

adequate funding for transportation and secondly, reducing greenhouse gas emissions from transportation. So I have three points. 

The first point responds to a fear that we have just been hearing 

about in the transportation community that the use of alternative 

fuels, hybrid cars, other fuel efficient vehicles will reduce gas tax 

revenues. My assessment and the assessment of the 2005 National 

Academies report is that the gas tax is structurally sound for the 

near future. And this agrees with the previous speaker. 

Improved fuel economy and the introduction of alternative fuels 

are unlikely to be great enough to threaten the viability of the gas 

tax for at least the next 10 years and probably longer. The 2005 

National Academies report concluded ‘‘The existing revenue sources 

will retain the capacity to fund transportation programs at historical levels.’’ Now, the simple explanation for this conclusion is as 

follows. First, population continues to increase, vehicle use continues to increase. Second, plans to tighten CAFE standards that 

we are hearing about a lot in the news that the President is proposing and others, will have a large effect eventually. But probably 

not for quite a few years, for a number of reasons, including a slow 

turnover of vehicles. 

Thirdly, the rapid increase in alternative fuel use will be mostly 

with ethanol, which is fully taxed and thus its use does not affect 

gas tax revenues. The alternative fuels that are not currently 

taxed, natural gas, hydrogen, electricity for plug-in hybrids, are unlikely to be used in large volumes for at least 15 years and probably longer. 

A reasonable projection is that gasoline and ethanol, the taxed 

fuels, will continue increasing, peaking in about eight to ten years 

and then start to slowly dip. For energy security and climate 

change reasons, I personally hope that this down-turn in gasoline 

use happens faster. But it is unlikely. I have a different point of 

view than some of the others on the panel on that. 

My second point is that if we agree that more funding is needed 

for highways and transit, and I do believe that very strongly, then 

this funding need can be generated by simply raising the gas tax 

a few cents per gallon. Adding five cents per gallon costs a vehicle 

owner an extra $30 a year per vehicle. This would solve any transportation funding problems for many years. 

7

The third point is a longer term solution, looking ahead in terms 

of restructuring the financing. It is to restructure the gasoline and 

diesel taxes to reward low carbon fuels in such a way as to assure 

continued increases in the transportation funding stream. Since alternative fuels will slowly become an increasing share of the fuel 

supply pool, why not tax them in accordance to their effect on climate change. 

Keep in mind that some fuels already generate much higher 

greenhouse gas emissions than others. For instance, gasoline produced from tar sands in Canada generates about 20 to 50 percent 

more greenhouse gases per gallon than gasoline produced from conventional oil. At the other extreme, the production of biofuels made 

from crop residues, switchgrass. other cellulosic material, dramatically reduces greenhouse gases, in some cases to zero. Why not 

charge a higher tax for high carbon fuels and a lower tax for low 

carbon fuels? The rates can be adjusted periodically to sustain revenue flows into the Transportation Trust Fund. This new carbonbased tax solves the long-term structural problems of the gas tax 

and provides incentives for low carbon fuels. 

Thank you. 

Mr. DEFAZIO. Thank you. 

And then to our final panelist, Mr. Pisarski. 

Mr. PISARSKI. Thank you very much, Mr. Chairman, Mr. Ranking Member and distinguished members. It is always a pleasure to 

come back to talk to the Committee. 

Last year, we celebrated the anniversary of the financing plan 

that created the Highway Trust Fund in 1956 and the pay-as-yougo system that made the interstate possible. The pay-as-you-go system was a Congressional decision, after a toll-based system was 

found too limiting and a bonding system too expensive. The fundamental understanding is that of a user compact between Government and road users in which users pay according to the costs they 

exert on the road system and Government expends those funds in 

ways that are responsive to user needs. The responsibilities are 

mutual and reciprocal. 

To be effective, a charging system for road use must to be fair 

to users as well as adequate in generating resources. To be fair, it 

is best for the fee system to be a surrogate for the miles traveled 

by vehicles and proportionate to the effects on the road system. The 

fuel use charge system does it about as well as one could imagine. 

The system’s effectiveness can go wrong in two ways, either in 

the fundamentals or in the effects of time. In the fundamentals, it 

can simply be the original user charges are inappropriate or the expenditures may not be focused properly on user needs. Over time, 

the relationship of the elements changes with fuel economy, inflation costs, construction costs, new technology and the new demands 

that the society makes on the system. All of these problems are directly addressable, analytically, legislative, by policy, by indexing 

systems or other means. We expect more of our systems today. Trying to accomplish more has placed great strains on the investment 

system. 

Some analysts would foresee a system that could charge not just 

for miles driven, but for miles driven at certain times and at cerVerDate 0ct 09 2002 10:17 Oct 23, 2007 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 P:\DOCS\34793 HTRANS1 PsN: JASON
8

tain places with certain congestion levels. I think few taxing systems are really capable of that kind of precision. 

The early years of the system I think is really very important to 

recognize. The relatively coarse mechanism employed to generate 

revenues were compensated for by massive growth both in the fuel 

rates that were charged and growth in auto use, the ownership of 

the automobile and the dramatic growth in vehicle miles of travel. 

You see that in the slide presented here. 

One of the key factors for the future is in many respects the 

saturation of many of these trends. The white, non-Hispanic population has reached effective saturation in automobiles and driver’s 

licenses. Increases in per capita VMT have stabilized. Current estimates of 20 year VMT growth out into the future range below 2 

percent, contrasted to the 3 and 4 percent annual rates that we 

saw in past decades. 

While all of these factors are significant, to me the greatest impact on the user charge system and its adequacy have not been demographic or technological. They have been the result of fiscal and 

policy decisions that have distorted the pay-as-you-go system with 

expanded targets for funding, transit and others, fiscal constraints 

on the process, impounding, CAFE and obligation limits, and the 

erosion over time of the value of the funds as we fail to make timely adjustments. The fear of future erosion of the system’s revenues 

from new alternative fuels and new vehicle technologies are relatively distant in terms of serious impact and can be addressed as 

long as we keep in mind the relationship between road use and the 

user fee. It is the other challenges that will be a more serious 

threat to the viability of the system. 

Much has been made of the public’s resistance to fuel tax increases. It is more to the point that the public may have lost faith 

in the validity of our vision and our ability to execute our plans 

that leads to a real distaste for increases. When a sound menu was 

put before the public by agencies that are trusted, the success has 

been substantial around the Country. 

Overall, the pay-as-you-go system, tied to the trust fund mechanism, has been immensely effective. Other nations have used the 

gas tax as a cash cow, seeking consciously to separate road program costs from road taxes in order to tap into the immense benefits the public receives from road use. Other funding approaches 

are not immune from that same problem. In effect, then, one of the 

great benefits of the present system is that it establishes an upper 

limit on what can be charged to road users. In my mind, the integrity of dedication to highways of the user charge is the most fundamental aspect of the user compact. If that connection to transportation is lost, the injury to America’s high mobility society will be 

massive. 

Than you so much, and I would be happy to answer any questions. 

Mr. DEFAZIO. Thank you, and thanks to the other panelists for 

your testimony. 

There does seem to be a little bit of variance in opinion on the 

panel, which I would like to invoke some discussion over. As I read 

through your testimony and listened to you today, at the moment, 

construction increases and costs of construction are obviously a 

9

very major factor in our capability of using the current funds and 

gas tax to meet our needs. 

But then in the out years, the question of course, it is kind of 

a crystal ball what might happen there, but it is also a crystal ball 

how quickly the new technologies are going to evolve and what impact that will have. We have a bit of testimony on both sides. I 

would like you to discuss that. Is the gas tax viable for a 10 year 

window, 20 year window, your best guess? Perhaps with some adjustment for either inflation or construction costs inflation, and if 

each one of you could address that. 

Mr. Marron? 

Mr. MARRON. Sure, I am happy to go first. Playing the standard 

CBO card, I am not sure I am in a position to use the word viable. 

What I can say is in our baseline, in the projections that we prepared here and in our baseline, we do have revenues from the gas 

tax rising over the ten year projection window. So they are viable 

in the sense that revenues are on an upward trajectory as fuel use 

rises. 

In constructing those estimates, we look at these issues about alternative fuels and whether they will cause revenues to go down. 

We have a little bit of that in the baseline, but as several of the 

other panelists say, we don’t expect a lot of that over the next 10 

years. And thus far, we always look 10 years in the future, we 

haven’t actually looked out beyond that. 

Mr. DEFAZIO. Okay. 

Mr. BUECHNER. I think even with new technologies being developed, it just takes a long time to implement them and get them 

into the fleet. So I think 10 years, 15 years, and certainly for the 

next reauthorization, I don’t see any threat other than minor erosion from hybrid cars and a little bit from the increase in the 

CAFE standard. 

But it is more a question of, when you are looking to the next 

reauthorization, what do you want to accomplish with the Federal 

highway program? What is the vision for the program? What is the 

structure? And what revenues are needed to meet those goals? 

At that point, Congress would have to make a decision about 

what the gas tax rate should be. But I think the base will be there. 

Mr. DEFAZIO. Well, given the run-up in construction costs, given 

what you just said, if we didn’t make any adjustment in the gas 

tax in the next transportation bill, and given the fact we are looking at potential exhaustion of the trust fund, although there will 

be ongoing revenue in 2009 to 2010, I mean, it would seem to me 

that you would be looking at a larger deficit between need and capability. 

Mr. BUECHNER. Oh, much larger, yes. 

Mr. DEFAZIO. Does anybody disagree with that? 

Mr. BUECHNER. To emphasize what you are saying, the current 

level of the gas tax is insufficient to meet our highway and transit 

investment needs. 

Mr. DEFAZIO. All right. And we will be. As you pointed out, you 

do need to know what you are looking to do. We are going to be 

holding other hearings on the needs of the system. We are sort of 

on two tracks here. One is examining our current funding and its 

prospects and alternatives for funding, and the other track is, what 

10

is our vision, what are our base needs, what are the enhancements 

that we want to look to add to the system. 

Does anybody else want to comment? Yes, Mr. Pisarski. 

Mr. PISARSKI. Again, I agree that probably out 20 years the system will still be very effective. And we need to support it even beyond that to make sure it is dedicated to transportation. But the 

concern is that we are, as you mentioned earlier, facing the $375 

billion backlog number, and that number is now higher with the 

new Condition and Performance report. We are not close to being 

able to respond to that. So we must recognize that we need to expand the funding that can be made available. 

One of the focus points in my view, because we have declining 

VMT into the future, is we have an immense backlog of investment 

that is identified in the FHWA report documents. Once we get past 

that backlog, I would like to argue that there is a more steady 

state and that we will have a more reasonable problem to address 

into the future. But that backlog is about one reauthorization’s 

worth of funding. That is the level of the backlog. 

Mr. DEFAZIO. So what do you quantify the backlog at? 

Mr. PISARSKI. One reauthorization——

Mr. DEFAZIO. The last one, $300 billion? 

Mr. PISARSKI. 1.0 reauthorization; yes, something on that scale. 

I don’t know that they have developed a new number. I would have 

to ask them. But I would guess it has to be $375 billion to $400 

billion. 

[After the hearing, Mr. Pisarski stated the following for the 

record: the 2006 Condition and Performance report cites a value of 

$430 billion as the highway backlog, excluding rural and urban 

local streets; and $65.2 billion in the bridge backlog.] 

Mr. DEFAZIO. All right. I think we have exhausted that topic. 

Does anybody have any thoughts on the last question? Then we 

will turn to other members of the panel. But if we add an index, 

if we wanted to index it, what would you use, to avoid some of the 

deficit in the future? What would be the most reasonable sort of—

yes, Mr. Sperling? 

Mr. SPERLING. Well, as I suggested, there are basically two ways. 

You can just index it up at some rate. Of course, many people are 

suggesting refashioning the whole tax system into a VMT type system, even a more pure user-based system. Having participated in 

that gas tax committee for two years and listened to all the proposals, in principle I thought it was a great concept. But the more 

you dig into it, the more complicated and difficult it becomes to actually implement. I still think we need to be experimenting and exploring and developing that, and maybe at the State level it would 

be more fruitful as kind of an experiment, as Oregon is doing, for 

instance. 

But the other is to rethink the gas tax, as I suggested and make 

it more tied to the environmental goals as well. I know the transportation community hates that idea, because they like a pure revenue stream, unadulterated by these other considerations. But in 

fact, the transportation community has been lagging behind other 

sectors of our society in addressing some of these environmental 

and especially energy and climate considerations. This seems to me 

a very effective way, a mechanism, this idea of a higher tax on high 

11

carbon fuels, lower tax on low carbon fuels, in a way that will generate perhaps even more public support than just saying, oh, well, 

we’re just raising the gas tax another nickel or dime and hopefully 

you see the benefits from it. 

Mr. DEFAZIO. Should we be looking at producer level or consumer level taxes? Right now we have consumer level taxes. Should 

we be looking at, given your position with a focus on carbon production, should that be at the producer level or would you continue 

it at the consumer level? 

Mr. SPERLING. In California what we are doing is introducing 

something called a low carbon fuel standard. And that is imposed 

at the producer level, but in such a way that producers can trade 

credits, buy and sell credits. One possibility is that they can buy 

and sell those credits with the auto makers as well, based upon 

their CAFE performance. 

So it would be easier to manage at the producer level, from the 

vehicle producer and fuel producer. I would be very reluctant to 

bring it more downstream toward the consumer, because it would 

get very complicated. 

But on the other hand, what is really important, I think that 

Congress and political leaders need, that I would suggest need to 

do is, get people to engage in a way that they feel some responsibility. I think that is the only way that we are going to deal with 

our energy and climate problems. 

Mr. DEFAZIO. Okay. Mr. Pisarski will be the last one, then I have 

to move on to other members. 

Mr. PISARSKI. Thank you, sir. I would suggest that it should be 

a series of indexes that would make the most sense. One would be 

an inflation index, one would be a cost of construction index, and 

one would be an index that related to changes in vehicle fuel economy. Even if you didn’t employ every one of them, if you knew 

what those numbers were and how each was working, and you understood the relationship to the total program, I think that would 

be a very effective goal. 

I will add one small point. In Texas, we just finished a study for 

the Governor’s Business Council. They are talking about an inflation index of the Federal tax, that they are going to compensate for 

the losses in their revenue from their State gasoline tax and also 

from the Federal gas tax. It is an interesting concept. 

Mr. DEFAZIO. Thank you. 

Mr. Duncan. 

Mr. DUNCAN. Mr. Chairman, since I am going to be here until 

the end, I want to go first to our members in the order in which 

staff tells me they came in. So Ms. Drake would be, I would like 

you to recognize Ms. Drake first. 

Ms. DRAKE. Thank you, Mr. Chairman. 

Dr. Buechner, I thought it was very interesting that you were 

talking about exceptions. We talked about exceptions when I was 

in the State legislature in Virginia, in the tax code, got a lot of 

pushback. But could you expand on that? Could you tell us what 

exceptions you think are valid or are not valid or how we could do 

that? 

Mr. BUECHNER. Of the current exemptions that result in a loss 

of revenue to the Highway Trust Fund, there are five major ones: 

12

first, vehicles used on the road by State and local governments; vehicles used by non-profit educational institutions; school buses; 

intra-city municipal bus systems; and over-the-road intra-city buses 

are exempt from paying the motor fuel tax. The tax is collected 

when they purchase fuel and then refunded to them, which they 

must apply for. 

When we had this problem with the ethanol incentive in 2004, 

the way it was addressed was to credit the Highway Trust Fund 

with the full 18.3 cents per gallon and then provide the refund 

from the general fund. And in this case, when you think about reasons for these exemptions, these are all vehicles that use the roads. 

And they all should be paying their share. But if there is a reason 

to relieve these users of that tax, it shouldn’t come out of the Highway Trust Fund. There is a better way of doing it, which would be 

to reimburse them from the general fund. 

Ms. DRAKE. Next question, Mr. Chairman, is, do you have any 

other suggestions other than gas tax or these exemptions of getting 

additional money in this fund. You are probably aware in Virginia 

that the Governor and the general assembly have just agreed on 

a pretty comprehensive plan State-wide and in various regions and 

have a lot of different mechanisms. So I just wondered if your industry has looked at, are there other things that should be proposed? 

Mr. BUECHNER. Our industry has, and this will be the subject of 

another hearing, a proposal that we have for addressing our highway investment needs with a separate sub-fund in the Highway 

Trust Fund that would involve user fees levied on shippers. It is 

something that we have fleshed out and we can provide it to you. 

And we will do that. 

Ms. DRAKE. Thank you. I also wonder if your industry, how involved they are in alternative fuels, and just wanted to point out 

to you that Old Dominion University in Norfolk, Virginia is working on a bio-diesel that is created from algae. Higher carbon content than corn or soy, but very interesting work that maybe they 

would like to take a look at. 

I wanted to ask Mr. Pisarski, you mentioned in your testimony 

about transit and other modes receiving money from the Highway 

Trust Fund. I am wondering if you think that maybe that should 

be changed and the money in the Highway Trust Fund should be 

for highways and if we should look at other alternatives for transit 

and other modes? 

Mr. PISARSKI. I think we certainly should be looking for other alternatives. The pressure that has been put on the Highway Trust 

Fund, trying to meet these new goals, has, I think, exhausted it. 

And to open it up to general revenue and other alternative sources, 

just as Dr. Buechner was saying, it is not that you don’t think 

those things are valuable, attractive or useful, it is just that as 

they use the road they should be paying for it. You want to look 

for other alternatives to support them, general revenue or other 

mechanisms. 

Ms. DRAKE. Thank you. Thank you, Mr. Chairman. I will yield 

back. 

Mr. DEFAZIO. Thank you. 

Mr. Mitchell? No? Okay. We are back now to Mr. Bishop. 

13

Mr. BISHOP. Thank you, Mr. Chairman. Thank you for having 

this hearing. 

What I would like to explore, if I could hear from all of you is 

what your thoughts are on resolving the dilemma. Clearly one policy imperative that we have on the national level is to drive down 

fuel consumption and increase fuel efficiency. If we do that, we depress revenue going into the Highway Trust Fund. Mr. Sperling, 

you talked about perhaps finding some way of taxing vehicles, or 

is it feasible to tax vehicles that receive poor emissions ratings or 

poor environmental ratings. 

I would just be interested in hearing from all of you on what is 

the most constructive way to resolve that dilemma. Because obviously, both ends are desirable. We want to make sure the Highway 

Trust Fund is adequately funded. We want to drive down consumption. How do we reconcile two mutually attractive goals that are at 

odds with one another? 

Mr. MARRON. I guess I will go first, so we will be in order. Again, 

not making any recommendations but just looking at the playing 

field, clearly increasing the gasoline tax would have both of those 

effects, would have the effect of discouraging driving, encouraging 

more fuel-efficient cars. But we are in a range where the consumer 

reactions are such that you would nonetheless raise significantly 

more revenue. So that would accomplish the twin goals that you 

laid out. 

In addition, various proposals for having tolling and then having 

the revenues from tolls go into the Trust Fund would again have 

the effect of discouraging some driving and being a revenue source. 

Mr. BUECHNER. I frankly can’t add much to that. The notion of 

raising the gas tax is certainly going to be helpful to the Highway 

Trust Fund. To the extent that it does resolve some of these other 

issues, that would be very helpful as well. 

Mr. BISHOP. Thank you. Mr. Sperling? 

Mr. SPERLING. Yes, I think it will not be difficult to adjust the 

taxes based upon the quality of the fuels. I say that because in the 

next few years, it s going to be done, there is going to be a system 

put in place, in California we are doing it, as I mentioned, the low 

carbon fuel standards, where we are developing, this is getting 

kind of sophisticated, where we are taking from the academic world 

this concept of life cycle analysis, life cycle emissions, and we are 

codifying it. We are putting it into law in California. The U.S., at 

the Federal level, is probably going to be doing the same thing because of the renewable fuels program, renewable fuels standard 

that is floating around in Congress and the Executive Branch right 

now. The EU is doing that, the U.K. is doing that. 

So this idea of being able to label the fuels and track them is 

something that is going to be done anyway. So to attach taxes to 

it, fuel taxes, will not require any major new institutional apparatus. 

Mr. BISHOP. Okay, thank you. I yield back, Mr. Chairman. 

Mr. DEFAZIO. I thank the gentleman. Mr. Boozman? 

Mr. BOOZMAN. Thank you, Mr. Chairman. 

Have any studies been done on exactly what the effect of increasing the fuel cost is in the sense that, you know, you go to Europe 

and it looks to me like they have the same problem that we do. If 

14

Americans can get there in a reasonable length of time and there 

is parking, it looks to me like they are going to drive their cars, 

unless we get dramatically higher, and if we get dramatically higher, none of use are going to vote for that, because the American 

people won’t tolerate it and I think rightfully so. So it really is just 

a complex thing. 

But is there a study like that that indicates at what point you 

really do affect, because it does seem that especially in America, 

that people again, to me the thing that really mitigates whether or 

not they are going to do it is the parking problem. Yes, sir? 

Mr. SPERLING. Yes, there has been some good research, including 

with some of my colleagues, over the last few years. We have found 

just what you are saying, that the idea, we use this concept of elasticity of demand. And it used to be, back in the 1970s, that for 

every 10 percent increase in fuel price, you would get about a 3 

percent reduction in fuel consumption, gasoline consumption. Now 

for every 10 percent, we are getting about a half percent reduction. 

In other words, consumers are very inelastic, compared to almost 

any other product. We have seen that, all you have to do is look 

at the statistics the lats few years. Prices doubled and there was 

very little effect on gasoline consumption. 

So certainly some people were hurt by those high fuel prices. But 

the overall effect is that people are not responsive to high prices. 

So when we talked about gas taxes, we should be thinking about 

why do we want high gas taxes. It probably won’t change behavior 

very much. It will have two effects, of course, it generates more 

revenue and it does raise the threshold for investors in alternative 

fuels. That is a very important concept to keep in mind. 

Mr. BOOZMAN. I think you can impact the size of cars, the fuel 

efficiency and people will buy smaller cars and gravitate that way, 

that have a higher fuel economy. But it is just an interesting phenomenon. Mr. Marron? 

Mr. MARRON. Yes, sir, I just wanted to say that in our estimates, 

I think it is important to distinguish between the short run effect 

and the longer run effect. What we have seen from recent price increases is that over the short run, people are quite inelastic in 

their demand for gasoline. There is some effect, but it is quite 

small, as the other witness mentioned. 

Over long time periods, as you were just hinting, there are more 

margins along which people can respond in terms of choosing their 

car, choosing their transportation patterns. So there is some noticeable effect. In the elasticity terms, as you mentioned, over the 

longer run, we have an estimate of about 30 percent in those 

terms. So if you increase gas prices 10 percent, you would see 

about a 3 percent reduction in use, which is not enormous, but is 

something. 

Mr. BOOZMAN. So do you think we will wind up with some hybrid? Certainly the problem of taxing a battery-powered car, and 

we do have battery-powered cars now that will run 150 miles an 

hour, go 200 miles and things. They are working hard to shrink the 

size of the battery. That problem, compared to a gasoline engine 

that gets 50 miles to the gallon is a different animal. 

So do you think we will ultimately wind up with some hybrid, 

taxing those two differently? 

15

Mr. BUECHNER. I would think, the one fuel that does cause a 

problem is electric cars. Because that is a fuel that can be delivered 

without requiring a separate delivery system. But fuels like gasoline, hydrogen, natural gas, can’t be delivered directly to the consumer except going through a system where you could find a place 

to tax them. So electric cars will pose a problem. 

But I think any of the other alternative fuels, so long as there 

is a separate delivery system and you can impose a tax at some 

point that can be collected, you just have to set your base and set 

what the rate will be. In fact, even natural gas used in automobiles 

is taxed at the same rate today as gasoline. So there is just that 

one problem with electric cars that I see as a long-term problem. 

Mr. BOOZMAN. But you have to fix that one, or you will drive people into, they will gravitate to the other to escape the tax if it is 

not done. 

My time is up. Thank you, Mr. Chairman, and thank you all very 

much. 

Mr. DEFAZIO. Thank you. Mrs. Capito? 

Mrs. CAPITO. Thank you, Mr. Chairman, and I thank the gentlemen, too. 

We have talked along and around the question that I am getting 

ready to ask. So if you have already answered it specifically, I 

apologize. In West Virginia, we tag part of our, a portion of our 

State gasoline tax is pegged to the price of gasoline, it is recalibrated every year. The past year, the Governor suspended that 

growth in the tax as a measure to try to keep the price of gasoline 

down. It ended up costing $53 million to the State, and now he is 

scrambling to try to make that up to match. 

Have you all ever looked at tagging a portion of the Federal gas 

tax so that every year, I guess either it would be indexed or indexed to a portion of the price of gas? Is this a concept that you 

have taken from, say, our State and tried to extrapolate in the Federal system? 

Mr. BUECHNER. There are two alternative ways of doing that. 

The one that you use in West Virginia, which is a sales tax levied 

as a percent of the sales price, will fluctuate up and down as the 

price of gasoline changes. But an alternative is to link the tax rate 

to an index that is somewhat related to the cost of highway construction. One possible index is the consumer price index. There 

are other indexes that partially, at least, track the cost of highway 

construction. Either way, year after year, the tax rate is adjusted 

so that you can actually maintain the same amount of highway investment. 

There are other States that use the sales tax approach. They find 

that it is a little bit disruptive to their planning, because it does 

go up and down with the price of gasoline. 

Mrs. CAPITO. I had another question on public-private partnerships. In a State like West Virginia, even though we are a small 

State, the cost of building our highways is extremely high, because 

of our terrain. The cost of building per mile is so much more than 

what you would normally think in a State the size of ours. 

So we are trying to look at public-private partnerships for financing road construction. What do you see the future of that? I just 

had some folks in my office earlier this morning who are not in 

16

favor of that because they want to know, does the public money become private or does the private money become public, and how 

does that work? And then it also raises the issue, I think, of toll 

roads, which is a little bit separate. Do you all have an opinion on 

that public-private financing aspect of road construction? 

Mr. PISARSKI. I guess I will start the trouble by responding. I 

think there are many opportunities that we are all looking at because of the lack of funds both at the State and at the Federal 

level, and we should be open to them. In many instances, in the 

State of Virginia, for instance, and other States, it has been an effective tool. But I have a feeling that we are moving very fast into 

some of these things and not very carefully in some cases. I think 

we are going to find out that there are problems that begin to arise 

that we weren’t prepared for. 

So I guess my concern would be, I am very open to it, I am very 

positive about it, but I would really want to be very careful as we 

proceed. 

Mrs. CAPITO. One of the questions that came up today in our discussion was if the construction becomes more of a private emphasis 

than a public emphasis, are there safety issues involved, what 

standards are these construction dollars going toward? I think that 

is a legitimate question and one, I would agree with you that we 

would need to go into if we are going to go that direction or look 

at it seriously, we ought to look at some pilot studies or something 

to see that we don’t all of a sudden think this is a panacea, this 

is the greatest thing and it ends up unsafe conditions and less 

checks and balances. 

I yield back. Thank you. 

Mr. DEFAZIO. Mr. Boustany? 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

Mr. Pisarski, the backlog figure you gave as an estimate, $375 

billion to $400 billion, is that just a Federal backlog or does that 

include State? 

Mr. PISARSKI. That is the national backlog that comes out of the 

Condition and Performance report and analysis of the conditional 

performance report. 

Mr. BOUSTANY. Okay. Because many States have backlogs, too. I know for instance my State of Louisiana has about a $13 billion 

backlog, and we are struggling with how to deal with that back 

home. Most of you or all of you talked to some extent about increasing the gasoline tax. What about the States? States are looking to increase gasoline tax, so it seems to me that we are heading 

for a brick wall on this. So that becomes a problem. 

I know you partially answered my question, when Mr. Bishop 

asked about whether or not assuring adequate funding and reducing greenhouse gases, are they mutually exclusive goals and how 

do we go about it. You brought up the issue of adjusting tax based 

on fuel quality. How complicated is that? And how would we pay 

for that? And would paying for it come out of the Highway Trust 

Fund? 

Mr. SPERLING. As I said earlier, I think institutionally it can be 

done, and it will be actually in five or six years, I think it will be 

easier to do, because we are putting all the systems in place to do 

it for other reasons for these carbon standards, using life cycle 

17

models and metrics and so on. So I think that is all going to be 

codified and fairly routine. Then in terms of the revenue stream, 

you can make it revenue neutral in the sense that you can make 

sure that trajectory goes up at whatever slope you want by the 

mix. Because we can forecast, five years out we can forecast very 

well. Fifteen years, the crystal ball gets a little hazy. But five 

years, eight years, we can do pretty reliably. So we can project 

ahead, I think, without too much trouble. 

Mr. BOUSTANY. Do you have a sense of what the cost will be to 

make that transition? 

Mr. SPERLING. The cost to, in a sense, society? 

Mr. BOUSTANY. Just the actual cost to be able to set up a system 

whereby you can create these adjustments on the fuel tax based on 

fuel qualities? There is obviously some cost involved in making a 

transition to that type of model. Do you have a sense of what the 

cost would be? 

Mr. SPERLING. I think because we are doing it anyway, the additional cost in a sense to the this gas tax system would be minor, 

very, very minor, almost negligible, because we would be doing it, 

we will be doing it anyway. 

Mr. PISARSKI. Going back to your first question about State 

taxes, historically what has happened is when you see a Federal 

gas increase, then a lot of the States recognize that in order to 

match the Federal funds they are going to need an increase in 

funds. You will frequently see State taxes follow along. It is always 

a very effective tool at the State level to, in effect, justify a tax increase as it is needed to be able to match the Federal response. 

Another item I wanted to add, going back in history, this is during the last energy crisis. The big bump-up in 1979 where I was 

in the Department of Transportation and the price was very high 

by those standards. One of the arguments that we used on the gas 

tax increase was that for every ten cents a gallon that the price of 

gasoline dropped we added one cent in Federal tax. So that as the 

gas prices dropped 30 or 40 or 50 cents, you would pick up one 

penny, you would pick up a penny Federal gas tax for every 10 

cents the price dropped. Obviously it would effectively disappear. 

I think that kind of notion was very clear. We also offered the 

States an arrangement where you would take a penny off the Federal tax for every penny that the State tax rose. And we had no 

takers. 

Mr. BOUSTANY. Have we become conditioned with regard to the 

elasticity now? Because earlier, when there were oil shocks, clearly 

there was a major decrease in utilization. It seems to me that as 

a society, we have become much more conditioned. So that has created this inelasticity. 

Mr. PISARSKI. Yes. I follow the consumer expenditure survey very 

closely. What people tend to do is they take it out of other transportation expenditures. They are less likely to buy a new car because they are going to wait and hold it longer, because their 

transportation costs are high this year. Unless they are trying to 

find something that is really fuel efficient. They tend to hold their 

share of total income roughly constant going for transportation. 

Mr. BOUSTANY. Thank you . My time is up and I yield back. 

Mr. DEFAZIO. I thank the gentleman. 

18

Mr. Duncan? Ms. Fallin? 

Ms. FALLIN. Thank you, Mr. Chairman. I actually do not have a 

question, but as I was listening to the debate something came 

across my mind. In my State of Oklahoma, I remember we put a 

proposal to the vote of the people about whether to raise their gasoline taxes. So I was sitting here trying to remember what all was 

the percentage of the vote. I think it went down by like 75, 80 percent, people that voted against a gasoline tax increase. So that was 

kind of the mood of our State back, I think it was about three or 

four years ago. 

One of the biggest concerns we have in our State is just getting 

back a good share of the money we send into the Federal Government. Of course, Oklahoma has always been a donor State. So I 

guess if anything ever came about that the taxes were changed, my 

State would certainly want to get back its fair share. That is probably not a question, but just a statement about our State. 

Thank you, Mr. Chairman. 

Mr. DEFAZIO. It is good representation. We thank you for being 

a donor. My State was until very recently a donor State. So I know 

how it goes, that is always a big debate. 

For perspective, my State repeatedly turned down a gas tax increase until it was linked to, it was instead of just raising the tax, 

it was a specific problem, which was failing bridges, was identified. 

And the tax increase was dedicated to a very large bond issuance 

to retire the bonds. So people saw immediately quite a substantial 

investment. At that point they were willing to vote for it, because 

they said, okay, we see what we are going to get now, and it is 

quite substantial. And they were willing to vote for it. But if it was 

just sort of, well, we are going to raise the gas tax, they were—so. 

Mr. Duncan? 

Mr. PISARSKI. May I comment on that, sir? 

Mr. DEFAZIO. Sure. 

Mr. PISARSKI. I think that is absolutely right. At the State level, 

it is very frequently tied to a menu. ‘‘This is what we will do if you 

give us this money.’’ And at the Federal level, I think it is the same 

thing, rather than simply talking about more money. You need to 

have a vision, as I made the point in my testimony. If we were 

talking about the preservation, protection, expansion and effective 

utilization of the interstate system, I think the public would understand that kind of a concept. 

Mr. DEFAZIO. Or if we were talking about Mr. Sperling’s infrastructure deficit and we were issuing infrastructure deficit bonds, 

which were retired by a small increment on the gas tax. 

Mr. PISARSKI. Yes. 

Mr. DEFAZIO. Just an idea. I didn’t make a formal proposal, in 

case there is any press here. 

Mr. Duncan? 

Mr. DUNCAN. Thank you, Mr. Chairman. 

Mr. Marron, you mentioned in your testimony that Trust Fund 

spending has exceeded Trust Fund revenues by about $16 billion 

since 2001. Was there any time where Trust Fund spending exceeded revenues prior to that? 

Mr. MARRON. Which way do you want it, a period during which 

outlays were previously higher than revenues? 

19

Mr. DUNCAN. Right. 

Mr. MARRON. My crack folks are looking at their tables here. Actually, I think I have a graph in the testimony that addresses that. 

So Figure 1, you can see outlays exceeding revenues kind of in the 

1994 time period, and then a few years occasionally prior to that. 

Mr. DUNCAN. Mr. Sperling, you say in your testimony, large 

drop-offs in fuel tax revenue are unlikely for the next 10 years. 

Funding gaps can easily be solved over the next 20 years or so with 

very small increases in the fuel taxes. Yet we are already off from 

the projections that we got last year. I am wondering, I guess what 

I am wondering about, some people are already saying that troubles in Iran are going to lead to really big increases in the cost of 

oil. What would happen if that, if the price of oil doubled here in 

the next year or two? You said that with each 10 percent increase 

in the cost of gas that there was a 3 percent decrease? What was 

it you said about that? 

Mr. SPERLING. I said that is what it used to be. Now it is like 

half of a percent to 1 percent. Mr. Marron said that in the long 

term, it would be back to 30 percent. I would disagree with that, 

or I would suggest that is likely not true, because while theoretically correct, I am the professor, but I am going to argue against 

the theory, in practice what we have seen is oil prices fluctuating 

up and down. What has happened is people have been conditioned 

to believe that oil prices are not going to stay high. 

So in fact this so-called long term response or long term elasticity 

never happens, or hasn’t happened the last 25 years. From what 

I understand about oil markets, it is probably not going to happen 

in the future either, because the fundamental cost of production of 

oil is maybe $25, $30 a barrel. There are a lot of countries making 

an awful lot of profit. It is actually much less than $25 in almost 

all cases. 

So the price of oil, if you talk to any expert, the price of oil can 

be anywhere, including the CEO of Exxon, the price of oil can be 

anywhere from $30 to $70 to $80 and they really can’t predict that. 

So your scenario is very possible. But the question is, what is the 

consumer response. It is not at all clear that there ever will be this, 

it is not clear that the price is going to stay very high for a long 

time. And it is not clear that consumers are going to have any kind 

of fundamental, durable, lasting response to high prices whenever 

they do happen. 

Mr. DUNCAN. Well, you know, none of these things are easy. You 

said it can easily be solved with a very small increase in the fuel 

taxes, yet Dr. Buechner mentioned removing the exemptions. Yet 

the main exemptions are for the State and local governments and 

transit agencies and I can tell you that every one of us is being 

bombarded every day by people from State and local governments 

who are up here trying to get more money. If we start removing 

those exemptions, boy, they will scream to high heaven. Then you 

talk about tolls, I can tell you, in my State there are no tolls. If 

we start putting those in, if people thought I was responsible for 

a toll, I would be voted out in the next election with no question 

about it. 

[Laughter.] 

20

Mr. DUNCAN. The fuel tax, the Chairman noted in almost every 

State they vote those down every single time. Maybe it would be 

possible to do a tiny little increase if you tie it into some project 

that is very popular. But it just looks like you have a very difficult 

situation there. What do you say, Mr. Pisarski? 

Mr. PISARSKI. Yes, it is difficult. If you look at where there have 

been successes and where there have been failures, success is always tied to a program where the people trust the State government, the State DOT, to do a good job and where they have laid 

out a menu or laid out a program. In most of the cases that I have 

seen, I am thinking of Ohio as one of the best examples, where 

they were very sorry that they had not asked for more after they 

succeeded. There are a number of States that have succeeded in 

creating indexes. 

So there is, I think, more concern than there needs to be. I think 

the public recognizes these needs and we just need to make that 

case to them better. I look at the European system, going to your 

question about the price of oil. If you count the taxation, the value 

of a barrel of oil in Europe coming out of the ground is like $300 

a barrel. And it doesn’t come out of the ground with tax on it. So 

I guess my point is that there is an immense benefit to the society, 

to every society, from the automobile and from the use of petroleum 

fuels. People are willing to pay immense sums for that benefit and 

the Europeans have discovered that. That is why their tax system 

is so high. 

Mr. DUNCAN. Well, you talk about trusting the State DOTs, I am 

not sure, actually through, pretty much through no fault of their 

own, most of the State DOTs are not that popular. I remember in 

Knoxville, we used to have a mayor and I didn’t get in any public 

dispute with him, but he used to attack the State DOT all the time 

because they were doing all this highway construction there in 

Knoxville. And it was very unpopular while it was going on. 

But what I told people, I said, well, if the interstate in West 

Knoxville, just think if it was still two lanes instead of five like it 

is now. My gosh, we would have been in a horrible situation. So 

you have to put up with it. Now I think it is popular, but it sure 

wasn’t for those several years while we were going through it. 

All right, well, thank you very much for your testimony. You 

have been a very helpful and informative panel. Thank you, Mr. 

Chairman. 

Mr. DEFAZIO. Thank you. Any other questions? 

Okay. With that, I thank you for your testimony and this committee is now adjourned. 

[Whereupon, at 3:37 p.m., the committee was adjourned.]

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