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FUNDING THE NATION’S FREIGHT SYSTEM 

(113–38) 

HEARING 

BEFORE THE

PANEL ON 

21st-CENTURY FREIGHT TRANSPORTATION 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

OCTOBER 10, 2013 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

Available online at: http://www.gpo.gov/fdsys/browse/ 

committee.action?chamber=house&committee=transportation 

(II) 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

BILL SHUSTER, Pennsylvania, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee, 

Vice Chair 

JOHN L. MICA, Florida 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

LOU BARLETTA, Pennsylvania 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

DANIEL WEBSTER, Florida 

STEVE SOUTHERLAND, II, Florida 

JEFF DENHAM, California 

REID J. RIBBLE, Wisconsin 

THOMAS MASSIE, Kentucky 

STEVE DAINES, Montana 

TOM RICE, South Carolina 

MARKWAYNE MULLIN, Oklahoma 

ROGER WILLIAMS, Texas 

TREY RADEL, Florida 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

RODNEY DAVIS, Illinois 

MARK SANFORD, South Carolina 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

TIMOTHY J. WALZ, Minnesota 

STEVE COHEN, Tennessee 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN GARAMENDI, California 

ANDRE ́ CARSON, Indiana 

JANICE HAHN, California 

RICHARD M. NOLAN, Minnesota 

ANN KIRKPATRICK, Arizona 

DINA TITUS, Nevada 

SEAN PATRICK MALONEY, New York 

ELIZABETH H. ESTY, Connecticut 

LOIS FRANKEL, Florida 

CHERI BUSTOS, Illinois 

PANEL ON 21ST-CENTURY FREIGHT TRANSPORTATION

JOHN J. DUNCAN, JR., Tennessee, Chairman 

GARY G. MILLER, California 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

RICHARD L. HANNA, New York 

DANIEL WEBSTER, Florida 

MARKWAYNE MULLIN, Oklahoma 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

DANIEL LIPINSKI, Illinois 

ALBIO SIRES, New Jersey 

JANICE HAHN, California 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

Hon. Sean T. Connaughton, Secretary of Transportation, Commonwealth of 

Virginia ................................................................................................................. 5 

Leif Dormsjo, Deputy Secretary, Maryland Department of Transportation ....... 5 

Robert D. Atkinson, President and Founder, Information Technology and 

Innovation Foundation ........................................................................................ 5 

Jack L. Schenendorf, of Counsel, Covington & Burling LLP ............................... 5 

David Seltzer, Principal, Mercator Advisors LLC ................................................. 5 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Hon. Sean T. Connaughton ..................................................................................... 36 

Leif Dormsjo ............................................................................................................. 47 

Robert D. Atkinson .................................................................................................. 53 

Jack L. Schenendorf ................................................................................................ 62 

David Seltzer ............................................................................................................ 105 

SUBMISSION FOR THE RECORD 

American Road and Transportation Builders Association (ARTBA), written 

statement, and Budgetary Impact of Highway Transportation Services Tax, 

prepared for ARTBA by PricewaterhouseCoopers ............................................. 119 

iv 


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October 8, 2013 

SUMMARY OF SUBJECT MATTER 

TO: Members, Panel on 21 51 Century Freight Transportation 

FROM: Staff; Panel on 21 51 Century Freight Transportation 

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_R_E_: ______ Pa_n_e_I_I-_le_a_ri_n=-g ()~"Funding the Nation's Freight Sy_st_e_m_'_' ______ _ 

PURPOSE 

The Panel on 21 51 Century Freight Transportation will meet on Thursday, October 10, 

2013, at 1:00 p.m., in 2167 Rayburn House Office Building to receive testimony related to the 

ways in which freight projects can be funded. At this hearing, the Panel will receive testimony on 

the various proposals on ways to raise new revenue and use existing revenue more wisely in the 

funding of freight infrastructure projects aeross the Nation. The Committee will hear from the 

Honorable Sean T. Connaughton, Secretary ofthe Virginia Department of Transportation: Leif 

Donnsjo, Deputy Secretary of the Maryland Department of Transportation; Robert D. Atkinson, 

President of the Information Technology and Innovation Foundation; Jack L. Schenendorl; Of 

Counsel for Covington and Burling, LLP; and David Seltzer, Principal for Mercator Advisors. 

BACKGROUND 

A safe, efficient, and reliable intermodal freight transportation network is critical to the 

Nation's long-tenn economic health and competitiveness. Unfortunately, the Congressionallyestablished National Surface Transportation Policy and Revenue Commission found that over the 

last several decades, investment in the Nation's fi'eight network has not kept pace with the needs 

ofthe increasingly global economy. These investments are generated through a combination of 

public and private sources. 

Highways 

The landmark Federal-Aid Highway Act of 1956 (P.L 84-627) authorized a 41,000-mile 

National System oflnterstate and Defense Highways and established the Highway Trust Fund. 

The revenues capitalizing the Highway Trust Fund are collected primarily from users of the 

highway system through federal taxes on fuels and various taxes on trucks. 
v 


Insert offset folio 2 here 85021.002

Since the enactment of this legislation, funding from the Highway Trust Fund (IITF) has 

been provided to states via formula for the planning and construction of key highway projects 

that enable the movement of freight. Most highway-related freight projects, as well as some 

freight rail and freight intermodal projects, are currently eligible to receive funding under one or 

more existing Federal surface transportation programs. Many large freight projects, however, are 

multimodal in scope, and some aspects of these projects may be ineligible for funding rrom the 

HTF. This puts project sponsors in the position of having to cobble together funding for large 

multimodal rreight projects rrom a variety of different sources. 

The HTF is also facing a significant revenue shortfall, raising questions about the ability 

of the HTF to be able to sustain current investment levels. [n recent years, outlays from the BTF 

have been significantly greater than the amount of revenues collected in highway user fee 

revenues. As a result, between fiscal year 2008 and fiscal year 2014, Congress has transferred 

approximately $54 billion from the General Fund to maintain the solvency of the HTF. This HTF 

solvency issue is expected to continue, with CBO projecting that the HTF will face a cash deficit 

of$126 billion over fiscal year 2012 to fiscal year 2023. 

Harbor Maintenance Trust Fund 

The Harbor Maintenance Trust Fund (HMTF) is also a source of funding for freight 

projects. This trust fund is capitalized by revenues raised by the Harbor Maintenance Tax 

(HMT). The HMT, an ad valorem tax, is collected on maritime imports and is assessed at a rate 

0[0.125 percent of cargo value ($1.25 per $1,000 in cargo value). The tax revenues are deposited 

into the HMTF 1T0m which Congress appropriates funds for dredging harbor channels. In recent 

years, HMTF annual expenditures appropriated lor harbor maintenance have remained relatively 

flat. 

Transportation Investment Generating Economic Recovery (TIGER) 

The Transportation Investment Generating Economic Recovery (TIGER) discretionary 

grant program is funded through the General Fund of the Treasury and administered by the 

Department of Transportation (DOT). The TIGER program was originally created as part ofthc 

American Recovery and Reinvestment Act of2009 (P.L. 111-5) and is a competitive grant 

program whereby DOT distributes appropriated funds for transportation infrastructure projects 

around the Nation. The TIGER program has been funded every year since its inception in 2009. 

Under DOT's TIGER grants, many rrcight project'> have successfully received funding. 

However, due to the demand and structural limitations of the TIGER program as well as the 

large expense of many key Ii'eight transportation facilities, the dollar amount of each grant under 

TIGER is generally insufficient to fund individual freight projects in significant measure. As 

such, the TIGER program is helpful in bringing freight projects online, but without additional 

resources is insufficient as a means of funding for such facilities, in and of itself 

Similar in many ways to the TIGER program is the Projects of National and Regional 

Significance (PNRS) program authorized by Congress in the Moving Ahead for Progress in the 

21 st Century Act (MAP-21). This program provides competitive grant funding for high-cost 

2 
vi 


Insert offset folio 3 here 85021.003

surface transportation projects that provide significant national and regional economic benefits 

and increase global competitiveness. MAP-21 authorized $500 million for the PNRS program 

from the General Fund for fiscal year 2013. As such, the PNRS program is subject to annual 

appropriations and has not yet received funding. 

Transportation Infrastructure Finance and Innovation Act (TfFIA) program 

Another tool that project sponsors have in funding large-scale infrastructure projects is 

the TransportationlnlTastructure Finance and Innovation Act (TlFlA) program, which is 

capitalized at $1 billion in fiscal year 2014. The T[FfA program provides federal credit 

assistance to project sponsors through low interest-rate loans. Through participation in the TlF[A 

program, federal funds can be leveraged to provide greater purchasing power for large 

transportation facilities. 

Surface Transportation Commissions 

In 2005, Congress passed the Safe, Accountable, Flexible, and Efficient Transportation 

Equity Act-A Legacy for Users (SAFETEA-LU; P.L. 109-59). Recognizing the importance of 

reliable funding for public infrastructure, Congress included provisions in SAFETEA-LU to 

create two commissions to study the issue of transportation infrastructure linancing and revenue 

generation. 

These two commissions--the National Surface Transportation Infrastructure Financing 

Commission and the National Surface Transportation Policy and Revenue Study Commissionmade numerous findings, including policies that apply specifically to freight transportation 

projects. Both called for significant increases in transportation infrastructure investment from 

both the public and private sectors, and explored a variety of means to generate this additional 

revenue. Some of the new revenue ideas studied by these commissions, and others, had freight 

specific elements, including a transportation surcharge to existing customs duties, a freight 

waybill tax, a vehicle-miles-traveled tax that includes weight and load considerations, a container 

fcc, increases to the Harbor Maintenance Tax, increases to the fuel tax, a national trade gateway 

corridor fee, and a maritime goods movement user lee. 

State Transportation Funding Packages 

Many states arc also faced with inadequate funding to address their transportation needs. 

As a result, some states have recently passed measures to increase state revenue for 

transportation projects. 

One such state was Virginia. In May 2013, Virginia Governor Bob McDonnell signed a 

statewide transportation funding plan that he had worked with the state legislature to develop. 

The proposal, HB 2313, "Virginia's Road to the Future," raises revenue through a variety of 

sources including: eliminating the excise taxes on gasoline and diesel and replacing them with 

sales taxes on gaso line and diesel; increasing the state sales tax; and imposing a fee on 

3 
vii 


Insert offset folio 4 here 85021.004

alternative fuel vehicles. The plan is expected to provide approximatcly $6 billion in additional 

transportation limding (more than $3.4 billion in additional statewide transportation funding, 

more than $1.5 billion in additional funding for Northern Virginia, and more than $1 billion in 

additional funding for Hampton Roads) over the next five years. 

Public Private Partnerships 

In addition to the public grant funding, individual states have begun using public-private 

partnerships (PPPs) to stretch governmental contributions to large freight transportation projects. 

A recent PPP at the Port of Baltimore provides a primc cxample ofa freight transportation 

facility that was brought online as a result of cooperative planning and development between 

private industry and governmental entities. 

In January 2010, the Maryland Port Administration and a private port operator entered a 

50-year lease and concession agreement for the Seagirt Marine Terminal at the Port of 

Baltimore. Under the agreement, the port operator is responsible for daily operations and the 

construction of a new 50-foot berth, including four ship-to-shore cranes. The port operator will 

also make hundreds of millions of dollars of capital improvements to the terminal. After making 

an annual payment to the Maryland Port Authority, the port operator will receive the net 

revenues from the business developed by the expanded terminal facility. 

WITNESS LIST 

The Honorable Sean T. Connaughton 

Secretary 

Virginia Department of Transportation 

Leif Dormsjo 

Deputy Secretary 

Maryland Department of Transportation 

Robert D. Atkinson 

President 

Information Technology and Innovation Foundation 

Jack L. Schenendorf 

Of Co lInse I 

Covington & Burling, I.LP 

David Seltzer 

Principal 

Mercator Advisors 

4 
(1) 

FUNDING THE NATION’S FREIGHT SYSTEM 

THURSDAY, OCTOBER 10, 2013 

HOUSE OF REPRESENTATIVES, 

PANEL ON 21ST-CENTURY FREIGHT TRANSPORTATION, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The panel met, pursuant to call, at 1:00 p.m., in Room 2167, Rayburn House Office Building, Hon. John J. Duncan, Jr. (Chairman 

of the panel) presiding. 

Mr. DUNCAN. I want to go ahead and call this hearing to order 

because we may have some votes here in just a few minutes. 

And, first of all, I want to welcome everyone to this hearing of 

the Transportation and Infrastructure Committee’s Panel on 21stCentury Freight Transportation. 

And, as I mentioned, it looks like we may have votes anywhere 

from 1:40 to 2:10 this afternoon. So, with that, I want to recognize 

Ranking Member Nadler for a unanimous-consent request. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, I request unanimous consent that the chairman 

be permitted to declare a recess during today’s hearing. 

Mr. DUNCAN. All right. Hearing there are no objections, that will 

be so ordered. 

This special panel was created by Chairman Shuster and Ranking Member Rahall of the Transportation and Infrastructure Committee to examine the current state of freight transportation in the 

United States and how to improve that transportation so we can 

strengthen our economy. 

Under the House and committee rules, this panel exists for 6 

months. We held our first hearing on April 24th, so we have less 

than 2 weeks left before we must conclude our activities. 

In the 6 months that we have been together, the panel has held 

six hearings, participated in three roundtable discussions, and 

traveled to southern California, the Memphis region, and the New 

York City region. We have met with numerous members of the 

freight community and discussed many different aspects of the Nation’s freight transportation network and how it impacts each of us 

in our everyday lives. 

The panel is working on drafting a report that will provide recommendations to the committee on ways to modernize the freight 

network and make the United States competitive in the 21st century. We have been working very hard toward this goal, and we 

plan to issue our report to the committee in the next couple of 

weeks. 

2 

Our discussion this afternoon is the last public hearing the panel 

will have, and we have saved a very important topic for our final 

hearing. Today, the panel will receive testimony on ways to raise 

new revenue and how to use existing revenue more wisely in the 

funding of freight infrastructure projects. 

There are many sources of funding for freight projects. Federal 

trust funds, State and local revenue, and private investment combine to deliver projects that facilitate the movement of freight 

around the United States. 

A safe, efficient, and reliable intermodal freight transportation 

network is critical to the Nation’s long-term economic health and 

competitiveness. Unfortunately, a congressionally established commission found that, over the last several decades, investment in the 

Nation’s freight network has not kept pace with the needs of our 

economy. 

Our purpose today is to hear from our expert panel of witnesses 

on this topic so that we can make better decisions in the future regarding how to invest in freight transportation infrastructure. 

There are many different proposals, and all of them have strengths 

and weaknesses. We will hear from our witnesses and carefully 

weigh what they have to tell us. 

We have an excellent panel of witnesses before us today. And it 

is a good timing for them to be here right at this key point in the 

activities of this panel. I am confident that they will be able to help 

us understand the different proposals regarding new sources of 

funding for freight projects as well as ways to better use the funds 

already available to us. 

We have the Honorable Sean Connaughton, who is secretary of 

the Virginia Department of Transportation; Mr. Leif Dormsjo, who 

is the deputy secretary for the Maryland Department of Transportation; Mr. Robert Atkinson, who is president of the Information 

Technology and Innovation Foundation; an old veteran of this committee, our friend, Jack Schenendorf, former staff director of this 

committee, who is of counsel for Covington & Burling; and Mr. 

David Seltzer, who is the principal for Mercator Advisors. 

Thank you very much for being here. 

And I now will yield and recognize the ranking member, Mr. 

Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. And thank you for holding this important hearing. 

As I said at the panel’s initial hearing, we believe that the overarching and most important question facing this panel is how best 

to fund and finance the freight transportation system over the long 

run. Throughout our hearings, we have consistently heard testimony that, despite the significant growth in use of our infrastructure, we are not making the investments necessary to bring these 

systems up to date, much less making the investments necessary 

to accommodate future growth. 

If we fail to address this underlying question of how to pay for 

the Nation’s intermodal transportation network, all we will have 

are lofty visions, stacks of plans, and piles of freight network maps. 

That will not address the Nation’s goods-moving needs or strengthen our economic competitiveness. 

3 

SAFETEA–LU established two commissions to frame the choices 

confronting Congress in developing a 21st-century surface transportation system and to recommend how best to pay for it. In terms 

of investment levels, both commissions reached very similar conclusions: One, we are significantly underinvesting in all modes of surface transportation; and, two, significant increases in investment 

from all levels of Government and from the private sector are necessary to meet the future needs of the Nation’s surface transportation network. 

The policy commission called for an annual investment of be- tween $225 billion and $340 billion every year by all levels of Government in the private sector over the next 50 years. The current 

annual capital investment from all sources in all modes of transportation is $85 billion—in other words, between a third and a 

quarter of what is necessary. Unfortunately, Congress ignored 

these findings and recommendations and authorized 2 years of relatively flat investment levels in MAP–21. 

While Congress has avoided making difficult choices to fund 

transportation investment, many States have not. A number of 

States have enacted ambitious legislative solutions—lucrative to 

their infrastructure—to generate additional revenue to meet their 

transportation infrastructure investment needs. We are pleased to 

have two of those States, Maryland and Virginia, with us today. 

The message we should take from the passage of State transportation revenue packages should not be that the States can take 

care of the funding gap we face on their own. Yes, the States are 

doing more, but so must, emphatically, the Federal Government. 

Ensuring that the transportation needs of interstate commerce 

are met is a fundamental role of the Federal Government. The safe 

and efficient movement of freight through the United States impacts the day-to-day lives of every American and is critical to the 

long-term economic health and competitiveness of the Nation. 

And I would add that, with the possible exception of the current 

day, all the major political parties in the United States since Albert 

Gallatin was Secretary of Treasury, since Henry Clay presented his 

American System, since the Whigs supported the American System, the transcontinental railroad, right up to today, all major 

American political parties have supported the Federal Government’s role in infrastructure. And that must continue. 

Mr. Chairman, this panel has the opportunity and the responsibility to provide the Federal leadership necessary to ensure that 

funding is available to attain a freight transportation network that 

works for the 21st-century economy. The Transportation Committee has traditionally been the lead advocate in Congress for increased investments in our Nation’s infrastructure. If we do not 

step up to the plate and demand that the necessary investments 

are made, we will continue to limp along in current funding levels, 

and the purchasing power of those dollars will continue to decline. 

This panel and its forthcoming report provide an ideal opportunity to show that the Transportation and Infrastructure Committee is serious about addressing the needs of the Nation’s intermodal transportation network and reducing the growing infrastructure investment deficit. It is my hope that the work of this panel 

will provide a framework for the committee to use in developing 

4 

legislation that include the tools and the resources to meet the future needs of all modes of transportation and develop a 21st-century intermodal transportation network. 

Again, Mr. Chairman, thank you for holding this important hearing. I look forward to hearing from the testimony of our witnesses 

on this matter. 

I thank you. I yield back. 

Mr. DUNCAN. Thank you very much. Mr. Miller. 

Mr. MILLER. I am really interested in hearing the witnesses. You 

know, freight movement is extremely important in my district. Its 

critical, competitive nature we need out there. Financing is an 

issue everybody is dealing with. Especially with the shutdown 

today, financing is becoming critical. 

I am going to be very brief. I have some questions for the panel, 

but I would like to hear the presentations. I yield back. 

Mr. DUNCAN. Thank you very much. Ms. Brown. 

Ms. BROWN. I would like to hear the witnesses also, so I yield 

back on questions. 

Mr. DUNCAN. All right. Mr. Hanna. 

Mr. HANNA. Nothing, sir. 

Mr. DUNCAN. All right. Mr. Sires. 

Mr. SIRES. I would like to hear the witnesses. 

Mr. DUNCAN. All right. 

Mr. NADLER. Only Mr. Hanna didn’t say he wanted to hear the 

witnesses. 

Mr. DUNCAN. Mr. Webster. 

Mr. WEBSTER. No, thanks. 

Mr. DUNCAN. All right. Ms. Hahn. 

Ms. HAHN. I would like to hear the witnesses, but I am giving 

my statement first. 

Mr. DUNCAN. Go ahead. 

Ms. HAHN. There are 10 microphones, and I have one of them. 

Mr. DUNCAN. Yeah. 

Ms. HAHN. Chairman Shuster and Ranking Member Rahall both 

said that when it comes down to finding ways to finance our Nation’s transportation system, all options need to be considered. I 

think this hearing is going to provide a perfect forum to discuss all 

those options. 

In a couple of weeks, our committee is expected to issue a set of 

recommendations to the full committee on freight policy. One of the 

most important recommendations we will need is an answer to how 

we are going to come up with a long-term solution to funding our 

Nation’s transportation system. In fact, it is questionable how effective any other recommendation will be without addressing this 

issue. 

Nowhere is that more evident than the problem in Los Angeles. 

According to a recent report, nearly 64 percent of our roads in Los 

Angeles County are listed in poor condition and costing our drivers 

$832 a year, well over the national average of $377. This is frankly 

appalling, and I believe it is a reason we need to be looking at any 

and all options to address the continuing funding shortfalls in the 

Highway Trust Fund. 

And as a driver of an electric vehicle who has not been to the 

gas station in 2 years, I am very interested in exploring another 

5 

way so that people like me can pay our fair share by vehicle miles 

traveled. So I hope we can hear some good information on that proposal. 

Thank you very much. 

Mr. DUNCAN. Thank you. Mr. Mullin. 

Mr. MULLIN. Well, with, you know, respect to my colleague’s comment about the electric vehicle, her and I have discussed this, my 

diesel truck more than pays her way. So I am ready to just hear 

what the witnesses have to say. 

Mr. DUNCAN. All right. Mr. Lipinski, do you have any statement? 

Mr. LIPINSKI. Thank you for holding this hearing. 

Obviously, everyone knows, we have gone through all these hearings all over the country, and the bottom line is how are we going 

to pay for this. So I look forward to hearing from the witnesses. 

Mr. DUNCAN. All right. Well, thank you very much. 

And since this is our final hearing, I will say this: that almost 

everybody on this committee wanted to serve on this panel, but we 

wanted to keep this to a smaller size and get people who would be 

more active in it. And it shows you how active all the Members are 

when 10 of the 11 members of this panel are here today to hear 

your testimony. So let’s begin. 

Our first witness is the secretary of the Virginia Department of 

Transportation, the Honorable Sean Connaughton. 

TESTIMONY OF HON. SEAN T. CONNAUGHTON, SECRETARY OF 

TRANSPORTATION, COMMONWEALTH OF VIRGINIA; LEIF 

DORMSJO, DEPUTY SECRETARY, MARYLAND DEPARTMENT 

OF TRANSPORTATION; ROBERT D. ATKINSON, PRESIDENT 

AND FOUNDER, INFORMATION TECHNOLOGY AND INNOVATION FOUNDATION; JACK L. SCHENENDORF, OF COUNSEL, 

COVINGTON & BURLING LLP; AND DAVID SELTZER, PRINCIPAL, MERCATOR ADVISORS LLC 

Mr. CONNAUGHTON. Mr. Chairman, members of the committee, 

thank you very much for having me here today. The opportunity 

to talk—— 

Mr. NADLER. Could you use the mic? 

Mr. CONNAUGHTON. Is it on? Can you hear it, sir? 

Mr. DUNCAN. Maybe pull it closer to you maybe. I don’t know. 

Mr. CONNAUGHTON. Is it on? Can you hear me now? OK. 

Mr. Chairman, members of the committee, thank you very much 

for having me here today. We appreciate very much the opportunity to talk about freight and freight mobility. This is something 

that is very important to Virginia, and we are very excited to see 

in MAP–21 at least the first real discussion of freight and freight 

planning at a national level. 

In Virginia, we can look at freight as a key ingredient of our 

economy. Just some of the numbers for you to think about is that 

almost 50 percent of our State’s gross domestic product is actually 

related to freight-related industries. Twenty-eight percent of our 

GSP and then 34 percent of our employment are tied to industries 

that use our freight system. 

Because of that, Virginia has been a leader when it comes to 

freight. We have, actually, different funds that we use for our 

freight system. We actually have three different funds that are 

6 

paid for out of dedicated fees and taxes that support our freight 

rail system. We have one that is for the Class I railroads, another 

one for the Class III railroads, and another one for rail industrial 

access. 

We also have a specific fund for our port and for supporting capital improvements in and around the Port of Virginia, which is one 

of the largest ports on the east coast. 

And then, finally, we have a very, very vibrant freight mobility 

program within our State DOT. And what we do there is we have 

a—we actually were one of the leaders in actually coming out with 

a State freight plan and trying to match it up with projects in different parts of the State where we have could actually make some 

improvements on the highway system that also would help move 

our freight system forward. 

One of the challenges that we are facing, like most other States 

and most of our entire program, is that we are essentially running 

out of money because we were completely dependent on the gas 

tax. The gas tax in Virginia had not been raised in almost 26 years. 

Just due to inflation, we saw almost a 54-percent reduction in the 

buying value due to inflation. 

But then on top of it, what we also started seeing is some of the 

comments were made before about the introduction of alternativefuel vehicles, the much higher CAFE standards, and the fact that 

we were just seeing some changes in our driving patterns in Virginia and our driving habits. What that essentially meant was that 

we had seen, even though we had more cars registered in the 

State, more vehicle miles being driven in the State, we actually 

saw a decrease in the amount of gas tax revenues coming in. 

The State decided, through—you know, we did everything, like I 

say, that we were supposed to do. Been very, very innovative with 

the moneys we had—all types of public-private partnerships. We 

established our own infrastructure bank. We did everything that I 

think most DOTs were encouraged to do with innovation. But even 

after that, we could show very clearly to our legislature that we 

needed additional revenues. 

We ended up actually putting forward a very, very, I am going 

to say, different proposal—and that came from our administration, 

from Governor McDonnell’s administration—that we would do 

away with the gas tax and switch it over to a sales tax. And, essentially, the sales tax, when we looked at what the sales tax reflects, 

it is much more indicative of economic activity in Virginia and obviously in other parts of the country. 

Our House of—essentially, our House of Delegates supported 

that and actually reported it out. Our Senate did not, and they supported, actually, an increase in the gas tax. What we ended up 

doing was seeing a compromise where we actually reduced the 

amount of gas tax, at the same time bumped up the sales tax, and 

ended up dedicating all of that to transportation. 

We ended up having other additional fees and some general revenues that were increasingly dedicated to transportation. We put a 

$64 fee on all alternative-fuel vehicles. And, essentially, what this 

has meant is that we are going to be generating about $1.5 billion 

more a year for our transportation program in Virginia, which not 

only will go to highways but it will go to transit, it will go to pasVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
7 

senger rail, our intercity passenger rail. It will also go to our port 

fund and our rail funds, as well. 

So, essentially, what we have been able to do is make our transportation funding program much deeper, much broader, and much 

more well-founded, to the point that, actually, we have now been 

put on—because we have a special fund in Virginia, when I sell 

bonds and go out to the market, like we are shortly, we are actually rated a little bit differently, and we actually have a positive 

outlook because of the changes we made this year in Virginia. 

And, actually, our estimates are tracking right along with what 

we said they were going to do. And what is interesting about it is 

we saw again and continue to see a decrease in the amount of revenues coming in from the gas tax. 

So, I think in Virginia we understand as a jurisdiction, as a 

State, that this is very, very important, freight. It is critical to our 

economic activities and our future. And we very much encourage, 

obviously, the Federal Government to take much more of a leadership role in this area, particularly because all the improvements 

that we make in Virginia are for naught if our neighbors to the 

east and west and to the south don’t make the similar types of improvements, as well. 

So thank you very much. 

Mr. DUNCAN. All right. Thank you. Mr. Dormsjo. 

Mr. DORMSJO. Chairman Duncan, Ranking Member Nadler—— 

Mr. NADLER. Use the mic, please. 

Mr. DUNCAN. I don’t know why these microphones aren’t picking 

up, but apparently you are going to have to sit very close to the 

microphones. 

Mr. DORMSJO. OK. I hope that helps. 

I am here to talk about three issues. I wanted to discuss how the 

State of Maryland has used public-private partnerships to leverage 

private investment in infrastructure but freight more specifically. 

I also wanted to talk about the comprehensive transportation revenue package that the Maryland General Assembly passed earlier 

this year. It is of a similar scale to the Virginia measure, but we 

got there in a somewhat different way. Lastly, I also wanted to talk 

about some successful examples of our State working in partnership with the Federal Government. 

First of all, with regard to freight public-private partnerships, in 

2009 Governor O’Malley launched an initiative to develop a marine 

terminal berth in the Port of Baltimore, the Seagirt Marine Terminal, to accommodate larger vessels that will transit the Panama 

Canal after the expansion project is completed in 2015. To do so, 

we needed to attract private investment to deepen the berth at our 

existing terminal and to install the most modern, state-of-the-art 

cranes to handle the cargo coming in on those larger vessels. 

We did not have the resources in our budget to execute that 

project at the time. We had the designs completed, but they were 

essentially sitting on a shelf. We were unable to execute that critical project. 

We used a 12-month solicitation process to evaluate public-private partnership proposals, and when we got to the end of that 

process, we successfully contracted with a firm, Ports America 

Chesapeake, to enter into a 50-year lease and concession agreeVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
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ment where they would be required to make $250 million in upfront investment and then have the operations and maintenance 

responsibility for the facility on a go-forward basis. 

In addition to shifting those costs to the private sector, the State 

benefited from a revenue share on the cargo that came in over 

time, reducing our exposure to the downside risk that the traffic 

would not show up. 

That deal was consummated in 2010. In 2012, the whole project 

was completed. We had the berth developed, the dredging done, 

and the cranes installed much faster than the State of Maryland 

would have been able to do on our own through a traditional procurement. 

It was a very significant project because it represented a true 

partnership between the public and private sectors. Not only was 

the private sector able to use tax-exempt private activity bonds for 

this transaction at investment grade, but we were able to bring 

along our partners in the labor unions, particularly the longshoremen and the crane mechanics represented by AFSCME. They were 

all stakeholders in this deal to make sure that we had not only the 

best technology installed at the facility, but also solid labor relations and efficient and harmonious dealings with the staff. So it 

was truly an example of business, Government, and labor working 

together. 

We anticipate that the investment and the revenues generated 

from this project will exceed $1.3 billion over the life of the 50-year 

contract. 

With that success, the State of Maryland ventured into other P3 

projects. In 2012, we completed a P3 project to redevelop two travel 

plazas along Interstate 95. Both the Chesapeake House and Maryland House happen to be two of the busiest rest areas in the entire 

country, and they had aged significantly in terms of their amenities 

and were in need of a refresh. We entered into a public-private 

partnership to redevelop those facilities, and we are halfway completed with that project. 

Next year we will be working with the Federal Transit Administration as we go through a solicitation process for a public-private 

partnership to deliver a $2.2 billion light-rail project in the suburbs 

of Washington, DC. That is the Purple Line project. 

So we have viewed public-private partnerships as a tool. It is not 

a way to supplant or replace the need for steady investment from 

both the State and Federal Governments in transportation, but we 

do think that for 5 to 15 percent of our capital needs, public-private 

partnerships are a suitable application. 

I want to turn my attention briefly to the Transportation Infrastructure Investment Act, which was passed in Maryland earlier 

this year. 

We, too, understood that we were falling behind with regard to 

system preservation and transportation investment across many 

modes in the State of Maryland. The General Assembly acted earlier this year to raise $4.4 billion over 6 years for the Transportation Trust Fund that we have in the State of Maryland. 

We did rely on the gas tax. We did not take the more novel approach that Virginia did. We do believe that there is a linkage beVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
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tween gasoline consumption and the utilization of the transportation system. 

There were three components of our bill. The first was a CPI adjustment to the existing gas tax. The second component was the 

gradual introduction of the sales tax to gasoline purchases. And the 

third component was tying inflation increases to our transit fare 

policy. And so, between those three measures, we were able to 

bring in $4.4 billion of new investment. 

The last thing I wanted to mention is that we have had some 

successful partnerships with the Federal Government through the 

TIGER program. If there were followup questions on that specific 

project, I would be happy to answer those. 

Mr. DUNCAN. All right. Thank you very much. Mr. Atkinson. 

Mr. ATKINSON. Thank you, Chairman Duncan and Ranking 

Member Nadler and other members of the committee. It is a pleasure to be here today. 

I am president of ITIF, a think tank, but I served as the chair 

of the National Surface Transportation Infrastructure Finance 

Commission, one of the two commissions that was created under 

SAFETEA–LU. We focused principally on surface transportation, 

so that is what my comments today will be on. And I will stress 

that they are my comments, not necessarily the Commission’s comments. 

I think one of the key factors to recognize is, because truck 

freight shares so much of the same network with passenger vehicles, that improving freight transportation on the roads essentially 

means improving the entire system, not just the truck system. And, 

currently, the performance and conditions of highway system in the 

U.S. are certainly substandard. 

There are certainly specific improvements that could be made 

that would target truck travel. These could include the establishment of truck-only toll lanes, a stronger focus on expanding lastmile investments around ports, and relieving freight bottlenecks. I 

would add that if we want to move toward a truck toll lane system, 

which the Commission supported, that is going to require Congress 

to alleviate some of the restrictions on tolling the existing interstate system. 

When it comes to raising revenues—I think that is the key; if we 

don’t raise enough revenues, we are not going to be able to make 

the investments we need—the Commission really focused on two 

areas. 

One is in raising existing revenues. And with regard to trucks, 

one of the key recommendations we made was to increase the 

heavy vehicles use tax. This is a tax that has not been increased 

since 1983 and essentially now, in inflation-adjusted dollars, is half 

of what it was 30 years ago. Doubling this would restore the purchasing power to 1983 levels and would raise an additional approximately $1 billion a year. In addition, we recommended indexing the HVUT and the tire tax, excise tax on tires, to inflation. 

In the moderate term, what the Commission strongly recommended was that the country transition to a vehicle miles travelled tax system, not just because of the issue that the Congresswoman raised about nongasoline vehicles, but because having a 

10 

VMT system allows a much more efficient system of pricing that 

is related to costs imposed. 

That is a complex endeavor, to be sure, but one of the recommendations that I would make is that for a VMT system, that 

we start with trucks. Trucks are much easier to do. There are 

fewer of them than passenger vehicles. The costs per truck, as a 

share of total costs, is significantly less. And the advantages of 

doing a truck VMT system would be significant because trucks impose higher costs on the overall system that a VMT system could 

charge for. 

Now, one of the things that you will hear is that there are specific problems with a truck VMT system, and let me just mention 

what some of those objections are. 

One is that a VMT system would essentially be a tax increase. 

It is important to stress that the VMT system is completely agnostic toward how much money one raises. You could have a VMT system that raises less money, the same amount of money, or more 

money; it is completely separate. So the notion that this would be 

used to raise more money from trucks, I think, is not a valid objection. 

A second objection that we hear is that this would be double taxation. Trucks already pay money; why would we ask them to pay 

more? And, again, if we did this the way the Oregon pilot program 

did, you would rebate existing taxes. So trucks who are in a VMT 

system would not pay the heavy vehicle use tax, the tire tax, other 

truck taxes, nor would they pay the diesel tax. You can design systems that easily make it so they don’t have to pay double taxes. 

A third concern we hear about is privacy. It is a complicated 

question but, frankly, I think, in some ways quite simple. You can 

design a VMT system that is 100 percent private, where nobody 

knows what roads the truck went on, the time of day, any of that. 

Only the truck knows that, if you will. Just as when you drive in 

your own car with a Garmin or a TomTom or other type of device, 

Garmin doesn’t know where you are, you know where you are. The 

satellite just gives you information. So I think it is important to 

recognize the privacy issue is really a political issue. It is not a real 

issue, in the sense of you can design systems that are completely 

anonymous. 

Lastly, cost. There have been some claims that such a system 

would cost a lot of money. There is a study done for the State of 

New York moving to a truck-only system, and it found that it 

would cost a little bit more than the gas tax in terms of administrative costs but not significantly more. 

Finally, I would say the Commission agreed and argued that we 

need to have a better and more up-to-date cost-allocation study on 

how much trucks actually do pay. The last allocation study was 

more than 12 years old, but what it found was that certain 

trucks—but, overall, heavy trucks only pay between 85 and 90 percent of the costs they impose on the system, suggesting that the actual payments by trucks should go up. Now, again, the Commission 

recommended that Congress charge DOT with updating that study 

and find out if that misallocation is still the case today. 

Thank you very much. 

Mr. DUNCAN. Thank you very much. Mr. Schenendorf. 

11 

Mr. SCHENENDORF. Thank you, Chairman Duncan, Ranking 

Member Nadler, and other members of the panel, for giving me 

this opportunity to appear before you today. 

This panel has the difficult task of developing recommendations 

on ways to modernize the national freight system. In today’s political climate, this task must seem almost impossible. But I am, nevertheless, optimistic—— 

Mr. DUNCAN. We are going to have to have you get—I am sorry, 

I don’t know what is happening. But we are going to have to get 

you a lot closer to the microphone. 

Mr. SCHENENDORF. Is that any better? 

First, the—but I am optimistic for four reasons. 

First, the need for increased investment in our national 

multimodal freight network is irrefutable. It has been thoroughly 

documented by commission after commission, study after study, 

and report after report. And as you saw in your September 24th 

hearing, the users of the national freight network, the ones who 

pay the freight bills, are pleading for increased investment. 

Second, there has been a long tradition of bipartisan support for 

promoting the safe and efficient transportation of goods in interstate and international commerce. Since the first days of the Republic, our national leaders from all parties have made Federal investment in our waterways and ports, our railroads, our highways, 

and our airports a priority. I think the vast majority of Republicans 

and Democrats in Congress today are looking for something they 

can agree on, something they can accomplish together. This could 

be that thing. 

Third, the users of the system are not only willing to pay for this 

increased investing, they are asking to pay more. This is extraordinary in today’s political climate. All they ask is that the fees be 

fair and that the revenues be invested wisely to increase the speed, 

capacity, and reliability of our multimodal freight network so that 

they can compete in the global marketplace. 

Fourth, increased investment and paying for it through user fees 

so as to not increase the deficit or debt is critical to any pro-growth 

economic agenda. Without systemic improvements to the national 

transportation network, freight transportation will become less efficient and reliable, hampering the ability of American businesses to 

create private-sector jobs and compete in the global marketplace. 

For these reasons, I believe that the vast majority of Members 

of Congress understand the need to act. This provides a great opportunity for Republicans and Democrats to once again come together and show the American people the two parties can solve 

problems together. 

I would now like to turn to the options for funding and financing 

the improvements to the national network. My written testimony, 

including the appendices, discusses a number of options. Suffice it 

to say that an all-of-the-above approach is needed. Federal, State, 

and local governments and the private sector need a full toolbox of 

funding and financing options if we are to close the freight investment gap. 

I would urge you to also think outside the box and consider new 

ideas. One such idea is the proposal set forth in Appendix C, which 

is a paper written by Elizabeth Bell, an associate at Covington, and 

12 

myself. This proposal would employ two targeted user fees—a Federal interstate user fee and a Federal motor carrier user fee—to 

supplement, not replace, existing Federal transportation revenue 

sources. 

All vehicles using the Interstate Highway System would pay the 

Federal interstate user fee, which would be collected through an E– 

ZPass type of system that would be entirely electronic with no tollbooths. Fees would be established on a corridor basis, with the fees 

on less congested rural portions of the interstate less than the fees 

on highly congested portions, thereby reflecting the different costs 

associated with repair and modernization. The fees would be set at 

the level necessary to pay for the improvements—no higher, no 

lower. 

It would be a pay-as-you-go system—no debt service, no diversion, no demand management fees. All of the revenues generated 

by the fee would be deposited in a special account in the Highway 

Trust Fund and would be used exclusively to modernize the Interstate Highway System, the backbone of the national freight network. 

The Federal motor carrier user fee would be imposed on commercial trucks’ usage of all roads and would be collected through a 

GPS-type system currently being used by many trucking companies. Importantly, trucks would not be double-charged for miles 

traveled on the interstate. Rather, those files would be recorded 

through the Federal interstate user program. All of the revenues 

generated by this fee would be deposited in another special account 

in the trust fund and would be used exclusively for freight-related 

improvements, including intermodal facilities. 

The entire national highway network would benefit by this approach. Together, these two user fees would take pressure off the 

Highway Trust Fund and allow its exiting revenues to be used to 

upgrade the noninterstate highways on the national network. 

In conclusion, Mr. Chairman, the national surface transportation 

network is a crucial and dangerously neglected driver of our economy. As a country, we cannot avoid making the choice to address 

this problem, and inaction is the wrong choice. We must act now. 

Mr. DUNCAN. Thank you very much, Mr. Schenendorf. Mr. Seltzer. 

Mr. SELTZER. Thank you, Mr. Chairman. And I’d like to thank 

the panel for inviting me to testify this afternoon. 

You have heard expert testimony today from several of the witnesses concerning Federal policy toward funding issues. I would 

like to briefly survey Federal policy regarding financing tools, both 

those currently available and several potential initiatives for the 

panel’s consideration. 

Federal policymakers have four broad policy tools to stimulate infrastructure investment: grants, regulatory streamlining, credit assistance, and Tax Code incentives. 

Grant funding, as we are all acutely aware, is severely constrained by fiscal limitations. Regulatory reforms have little, if any, 

fiscal impact but may not provide a deep enough subsidy to advance major projects. 

The last two Federal policy categories, credit assistance and Tax 

Code incentives, appear more promising today because they, (A) enVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
13 

courage project sponsors to identify new revenue streams to support financing; (B) bring the market discipline of private co-investment, which can improve project selection; and, (C) avoid the highscored budgetary cost associated with traditional grants. 

There are four existing Federal financing tools applicable to 

freight projects. 

First, private activity bonds, or PABs. To date, a total of $8.2 billion of the $15 billion national volume cap for highway and intermodal freight PABs have been issued or allocated. Of the 17 

projects selected by USDOT, 4 are specifically for intermodal 

freight projects, all part of CenterPoint Intermodal’s Midwest real 

estate portfolio. 

Second, TIFIA. Since inception, USDOT has made a total of 

$11.8 billion in loans for 36 projects. Two of the loans, totalling 

$390 million, 3 percent of the total, are for freight-only or predominantly freight projects—Reno Transportation Rail Access Corridor 

and Port of Miami Tunnel. 

Third, the RRIF program. As of September 30th, FRA reports 

making 33 direct loans, totalling $1.7 billion. Approximately half of 

the dollar volume was for 27 different freight rail projects, the balance for passenger rail. 

Finally, State infrastructure banks, or SIBs. These, as you know, 

are loan-revolving funds seeded with Federal grants and State 

matching funds. Most of the loans have been for highway projects. 

To date, only Colorado and Pennsylvania have set up Federal loan 

accounts for freight rail, with relatively small loan activity. 

Now, looking toward the future, while TIFIA and RRIF have 

played a useful role, many observers believe that Federal credit assistance could be provided more effectively if there were a stronger 

institutional platform, such as an independent Government corporation. It could have an independent board of directors and an 

expert staff drawn from industry, whose sole mission would be to 

provide and monitor credit assistance to projects of national and regional significance. This national entity could also make loans to 

SIBs, which, in turn, could re-lend the funds to local freight and 

other projects. 

In addition, the Federal Tax Code could play an expanded role. 

Unlike Federal credit, tax incentives do not require the Government to assume default risk on loans. And if policymakers wish to 

provide long-term financing at rates below the Treasury rate—the 

typical TIFIA and RRIF lending rate, which today is about 3.75 

percent—the budgetary cost of doing so should be cheaper using 

the Tax Code than Federal credit. 

Now, the administration earlier this year proposed expanding the 

PAB volume cap for highway and intermodal projects from $15 billion to $19 billion. While that is a step in the right direction, in 

today’s market there is only a minimal savings, about a quarter of 

1 percent, between PAB and taxable borrowing rates. 

The administration has also proposed an optional taxable bond 

program with a 28-percent interest subsidy. If that proposal were 

broadened to also include freight facilities conferring public benefits, this would be more cost-effective than PABs, further reducing 

borrowing costs for freight projects by a quarter to a half a percent. 

14 

An even more effective tool would be establishing a new class of 

qualified tax credit bonds for surface transportation. These are taxable-rate State and local debt obligations where investors receive 

an annual tax credit in lieu of cash interest from the borrower. A 

Federal subsidy of the interest on these long-term bonds is tantamount to a 60- to 70-percent outright grant in terms of the financial benefit to the project. 

Two companion bills with bipartisan sponsorship were introduced 

in June to establish a $50 billion transportation tax credit bond 

program, H.R. 2534 and S. 1250, the Transportation and Regional 

Infrastructure Project, or TRIP, Bonds Act. Either of these bills 

could serve as a basis for legislation assisting freight. 

In conclusion, in an era of constrained Federal resources, a combination of credit and tax incentives can play an important role in 

advancing major freight investments with a relatively small Federal budgetary impact. 

Thank you for the opportunity to appear before you. 

Mr. DUNCAN. Well, thank you very much. 

As usual, I am going to save my questions until the end and 

yield to my Members at this time, starting with Mr. Miller. 

Mr. MILLER. Thank you, Mr. Chairman. 

Mr. Seltzer, I enjoyed your testimony. I am used to hearing a lot 

about fee increases and taxes and such, and you are being a little 

more innovative out there. I serve on Financial Services and we 

hear a lot of that, and we talk about Government involvement in 

HUD and Export-Import Bank. The difference is Export-Import 

Bank lends to a diverse sector out there, so there is no risk associated with one sector crash versus another, so they are pretty diverse. 

And in your testimony, I would like to focus on the large freight 

infrastructure projects, independent Government platform you 

talked about. And if you create and amass capital to finance these 

projects, who would underwrite these platforms? 

Mr. SELTZER. In my testimony, I suggested a Government corporation that could take a portion of the responsibility currently 

being managed by Department of Transportation under the TIFIA 

and RRIF programs. So it would basically be the same suite of 

credit products but through a separate organization whose sole 

focus would be extending credit assistance. 

Mr. MILLER. Now, I recognize the benefit we provide through 

HUD and we provide through Export-Import Bank. You know, we 

are concerned about taxpayer risk. But just a question: Why can’t 

the private sector finance these projects now? 

I am not opposing what you are saying. I am throwing some 

questions out that you will be asked. 

Mr. SELTZER. Well, in the transportation sector, it is a very small 

segment of projects of any mode that are fully self-supporting from 

user charges. Most of them, even the recent toll roads and express 

lanes, have had some segment of governmental-contributed capital 

or assistance, whether it is State, local, or Federal dollars, in order 

to provide the service at a cost-effective charge to the public. 

Mr. MILLER. There is always going to be a concern about politics 

getting involved, that financial decisions might be made in quesVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
15 

tionable ways. How would you monitor the progress of this if it did 

occur? 

Mr. SELTZER. That is an excellent question. I think sunlight is 

the best disinfectant, and if you had a bipartisan board of people 

from the transportation and finance and construction sectors whose 

deliberations would be open to public purview, I think that would 

reduce the likelihood of politically motivated decisions being made. 

Mr. MILLER. I introduced a bill to replace Freddie and Fannie. 

And the biggest concern there and I have here is: How do you establish the necessary capital reserves to protect the taxpayers from 

losses? 

Mr. SELTZER. Another valid point. So Freddie Mac and Fannie 

Mae were GSEs, Government-sponsored enterprises, that had private shareholders. And part of the—— 

Mr. MILLER. Which never worked. They made the profits, and 

the Government and taxpayers took the risk. 

Mr. SELTZER. Right. So the concept here would be a Government 

corporation, like the Export-Import Bank or Overseas Private Investment Corp., that I think most observers feel have been operated prudently, but there is no private shareholder—— 

Mr. MILLER. So you are going to have internal underwriting done 

by the facility agency, whatever you want to call it, so you are 

keeping Government and other entities out. You are underwriting 

these projects based on the merit of the project. Is that how it is 

to be done? 

Mr. SELTZER. Yes, sir. 

Mr. MILLER. OK. 

You also state in your testimony the regulatory reforms. And I 

did the first one in 2005 that said, if you meet NEPA standards, 

you don’t have to go through your, you know, State twice and do 

both. There are adverse financial impacts if you don’t do that, if 

you don’t streamline it, and that can be very helpful to streamlining projects if you do it improperly. 

Then you go on to mention the usefulness of streamlining to permit an environmental review process. Beyond permit an environmental review process, are there additional ways we can reduce 

regulatory burdens? 

Mr. SELTZER. I am sure there are. And I would like to invite my 

colleagues, particularly the two State DOT—— 

Mr. MILLER. Well, that is my question. How can Congress help 

you? 

Mr. SELTZER. Well, I think on the environmental side, we have 

seen the benefit of that with the expedited treatment in terms of 

the NEPA process. 

In my own view, that is a necessary but not sufficient condition 

to bring projects to financial feasibility. They still, in many cases, 

need some other form of governmental assistance. 

Mr. MILLER. OK. The question we need to ask, if you are looking 

for that, is, what obstacles do you foresee in attempting to achieve 

regulatory reform in regards to freight? 

Mr. SELTZER. As a consultant, I think I would answer with the 

standard phrase: Clearly, that is a subject worthy of further study. 

Mr. MILLER. God bless you. Thank you. 

I yield back. 

16 

Mr. DUNCAN. Thank you. 

Mr. Nadler? 

Mr. NADLER. Thank you. 

Mr. Connaughton and Mr. Dormsjo, can you address your States’ 

freight investment needs under the current highway formula program, even with the higher share, or will you still have unmet 

needs? 

Mr. CONNAUGHTON. Mr. Nadler, in Virginia, we receive around 

$900 million per year from our highway allocations and our transit 

allocations. That is becoming a smaller and smaller portion of our 

overall program. Just a few years ago, it might have been one-fifth. 

In the next 5 years, it will be down to one-seventh of the amount 

of money we get for transportation. 

Mr. NADLER. So you still have unmet needs. 

Mr. CONNAUGHTON. Yes, sir. In fact, and we are—and we took, 

obviously, these steps this year. However, when you look at—Virginia is—and I am going to say a positive thing—we are continuing 

to grow, the economy is still strong, population growth—— 

Mr. NADLER. You are still going to need it. 

Mr. CONNAUGHTON [continuing]. But we still have needs. 

Mr. NADLER. Thank you. 

Mr. Dormsjo, same answer? 

Mr. DORMSJO. Essentially, yes. I don’t think the proportions that 

Secretary Connaughton mentioned match up exactly with Maryland, but—— 

Mr. NADLER. OK. 

Mr. DORMSJO [continuing]. The answer is yes. 

Mr. NADLER. Given the significant backlog of maintenance and 

reconstruction needs facing States, given what you just said, it is 

clear we need additional resources. 

We also need a different way to fund these projects, because 

freight investments, particularly large-scale, multijurisdictional 

projects do not fare well in a flat-funded, State-based formula plan. 

Mr. Connaughton, do you agree with this assessment? And do 

you agree that there is a need for a strong Federal role and dedicated revenue stream to advance intermodal freight projects, particularly multi-State? 

Mr. CONNAUGHTON. Yes, sir, very much so. 

In fact, just to give you an example for us is the I–81 corridor 

that runs through Virginia. We are the largest portion of I–81. It 

is almost 325 miles. And it is the highest percentage of trucks in 

any road in Virginia. The challenge we have is it is very expensive. 

We are taking bits and pieces and expanding it. But if you think 

about it, we get to Maryland and West Virginia, which only have 

between, I think, the two of them, only about 25 miles’ worth of 

that road. 

So we can spend all this money; yet, however, if our sister States 

don’t end up spending as much money, we are very low priority for 

them. I mean, this is the challenge, and this is really where we 

need Federal leadership, when looking at what happens in other 

States. When you make these investments in specific States, what 

happens in the next State down? 

Mr. NADLER. Mr. Dormsjo, same question. 

17 

Mr. DORMSJO. Yes. I would say that one of the most compelling 

arguments that we articulated during the legislative session in Annapolis when we were talking about the need for increased investment and infrastructure was the ability to make sure that we had 

adequate matching dollars for Federal funds across many modes. 

That really captured the attention of our legislature. The prospect 

that we would not have adequate local dollars to match against the 

Federal programs was something that had great resonance. 

Mr. NADLER. Thank you. 

Mr. Schenendorf and Mr. Atkinson, both commissions on which 

you served called for increasing and indexing the gas tax and existing truck-related user fees as part of their recommendations for addressing the near-term investment gap. We have heard criticisms 

of this recommendation since many believe the gas tax is antiquated and inefficient. 

Can you explain the Commissions’ rationale for continuing to 

rely on the gas tax in the near term? And how long do you feel the 

gas tax will remain a viable revenue source to finance surface 

transportation investments? 

Let me give it all to you at the same time. 

And can you discuss some of the other revenue options available 

to Congress to generate revenue for freight-related transportation 

projects? And did your commissions evaluate the importance of 

maintaining or strengthening the user linkage to the revenue 

source? 

So, what is the rationale for continuing to rely on the gas tax in 

the near term? How long will the gas tax remain viable? What 

other revenue options do we have available? 

Mr. ATKINSON. I could start. 

The reason we, the Commission—first of all, I should add, by the 

way, our commission was really—was a wonderful experience, in 

many ways, because it was a very diverse group of individuals, diverse from political affiliation, diverse from across the country. 

And when we started the Commission, as a broad generalization, 

we had a, shall we say, a concern among Republican members of 

the Commission with increasing gas taxes and a concern among 

Democratic members among moving to PPPs and tolling and public-private partnerships. By the end of our deliberations over 18 

months, we all agreed that we needed more revenue from the gas 

tax and we needed more tolling, we needed more PPPs. So we were 

able to come to a consensus. 

The reason we argued for the gas tax so strongly in the short and 

medium term is we believe that the system is best funded by user 

fees. Using other kinds of fees to fund the system lead to inefficient 

behavior. That is the principal reason. 

Mr. DUNCAN. Let me apologize to all the witnesses. We have had 

votes going on for about 8 or 9 minutes now, so we are going to 

have to stop and take a couple of votes. And then we will start the 

questioning at the conclusion of those votes. I apologize, but we will 

be in recess. 

Thank you. 

[Recess.] 

18 

Mr. DUNCAN. All right. We are going to come back into session 

now, and I am going to have Mr. Nadler repeat his question to 

some extent, and, Mr. Atkinson, you can answer. 

Mr. NADLER. Thank you. I was asking Mr. Schenendorf and Mr. 

Atkinson can you explain the Commission’s, referring to the Commission that you all served on, rationale for continuing to rely on 

the gas tax in the near term, how long do you feel the gals tax will 

remain a viable revenue source for surface transportation, and can 

you discuss some of the revenue options available to Congress for 

freight-related transportation projects? For Mr. Atkinson and Mr. 

Schenendorf, or Mr. Schenendorf and Mr. Atkinson, whichever way 

you want. 

Mr. ATKINSON. Well, thank you. 

I think I talked a little bit about the tax gas. One of the key reasons we endorsed the gas tax, or other types of programs like a 

VMT, is we believe that users should pay the full cost of their— 

the costs they impose on the system, and cross-subsidies through 

other means just leads to inefficiency. If users have to pay what 

they are imposing, they will use the system most efficiently. 

In terms of your question how long will the gas tax last as a viable source, it will last a long, long time. It is just really a question 

of what the rate is. We are a long way away from moving to a fleet 

that is not powered by gasoline, at a minimum, I would argue, 20 

years away. That is not to say we shouldn’t plan now and move to 

a VMT. I think we should move to a VMT immediately on trucks 

because of all the benefits. But the gas tax is a long-term sustainable revenue source. 

We did review a lot of other revenue sources in our report, which 

I would encourage you to look at if you haven’t. As I mentioned, 

there are vehicle fees for trucks, there are custom fees, there are 

container fees. There are a whole range of fees that we can look 

at. Our whole focus was on aligning those fees as closely as possible to what the users should pay. 

Mr. SCHENENDORF. Mr. Nadler, we came to very, very similar 

conclusions actually as the other commission. We started off by 

projecting out economic growth and population growth out for a 

number of years from the time we started the study, and basically 

what that showed is that you needed to make a very, very significant investment in the overall national system in order to, one, 

preserve what we have and rebuild the interstate system, which is 

50 or 60 years old now, and also to provide the additional capacity 

that is needed. And of all the revenue options that we looked at, 

the only ones that generated in the short term the revenue that 

was needed if you applied the user fee principle, which we strongly 

believed in, was the gas tax. That was the only way to generate 

the money. 

Mr. NADLER. And not the VMT tax? 

Mr. SCHENENDORF. The VMT tax would generate it, but in order 

to have the VMT tax—and we endorsed the VMT, a shift to the 

VMT tax, but that is going to take a period of time in order to implement that. I think Rob is right that you could do it more quickly 

on the trucking side of it. But to actually implement that as a replacement for the gas tax is at least, in my judgment, 10 to 15 

years from now before you would be ready for that, if then. And 

19 

therefore in this interim period, you have to find some alternative, 

and the gas tax is actually a very, very good surrogate for a user 

fee during that period. 

Now, I was asked a question. The paper that we read was basically if you couldn’t raise the gas tax, and you couldn’t get to the 

VMT quickly enough, what could you do in the interim, and that 

is where using the E–ZPass-type system, which the public accepts 

on the interstate to generate the funds for the interstate, combined 

with the truck user tax, which could be implemented more quickly, 

is something that could be put in place fairly quickly. Not a year 

or two; it would probably take 3 or 4 years to get that completely 

up and running, but that could be done in order to generate the 

additional revenues that you need. 

Again, I would encourage you, we looked at a number of options, 

too, and we had a color chart, which is in appendix B of my testimony, which basically lays out those options and then kind of analyzes them across a number of criteria. 

Mr. NADLER. Thank you. My time is way expired. I yield back. 

Mr. DUNCAN. Thank you very much. 

Mr. Webster. 

Mr. WEBSTER. Thank you, Mr. Chairman. I can’t remember exactly who said this, but I think it was one of the two DOT Secretaries. Who raised $1.5 billion? 

Mr. CONNAUGHTON. Virginia, sir. 

Mr. WEBSTER. Virginia. OK. Is that a 1-year immediate raise in $1.5 billion, or is it over a period of time? 

Mr. CONNAUGHTON. That is per year. 

Mr. WEBSTER. Per year. And you did a tax swap? 

Mr. CONNAUGHTON. What we essentially did was we originally 

proposed to do away with the gas tax and switch over completely 

to a sales tax, essentially make it revenue neutral the first year, 

but because the sales tax grows, it would bring much more money 

in. The compromise at the end of the day was a diversion of some 

general revenues over a swap out, lowering the gas tax by almost 

7 cents a gallon and then upping the statewide sales tax by 0.3 percent. 

Mr. WEBSTER. Was that part revenue neutral? 

Mr. CONNAUGHTON. No, sir. But by the time—quite honestly, it 

was started that way, but—— 

Mr. WEBSTER. So initially it was revenue neutral, and then it 

grows. 

Mr. CONNAUGHTON. That is right. But because of the way it has 

now been set up, this year it will generate close to $1 billion more, 

and then it moves up within 2 or 3 years, when all of it is phased 

in, $1.5 billion a year. 

Mr. WEBSTER. Do either of you have an infrastructure trust fund 

or kind of an infrastructure bank of some sort? 

Mr. CONNAUGHTON. We do, sir. We have a Federal one, but we 

have a pure State one with only State money that we use to fund 

projects. 

Mr. DORMSJO. Maryland does not. 

Mr. WEBSTER. How do you fund the SIB? 

Mr. CONNAUGHTON. We have moved—we are entitled to a certain 

percentage of the State’s revenue surplus every year, and we have 

20 

been running surpluses, so we have transferred about $400 million 

into our bank, and we have used it for various projects where we 

have lent money to a bridge project, we lent money to a road 

project, another road project. We have something for our port. We 

lend at very low interest rates just so it becomes a foundation loan 

to help the overall project move forward. 

Mr. WEBSTER. So all of the projects that would qualify would be 

revenue-producing? 

Mr. CONNAUGHTON. Yes, or the sponsor, such as a locality, or in 

one case it is actually a development that actually is in a key location that they are going to have to build this road anyway, and 

they proffered to do it, but we were able to move it up faster and 

actually provide transportation relief now. They are paying these 

proffers, the development proffers, back as essentially for the debt 

service on the loan. 

Mr. WEBSTER. OK. Then when you did the tax swap, you were 

only trading gas tax and sales tax, but I think you said you added 

in some general revenue? 

Mr. CONNAUGHTON. Yes, sir. We actually took a small—there 

was a fight. Our senate and our house, one wanted new revenue, 

one wanted diversion from existing revenues. They ended up doing 

a little bit of additional revenues and a little bit of additional general fund revenues being dedicated, as well as an alternative fuel 

vehicle tax, as well as an increase, a slight increase, in our motor 

vehicle sales tax, which is a separate tax from the sales tax. 

Mr. WEBSTER. And in Maryland you raised money also, additional revenue. Didn’t you say you did that? 

Mr. DORMSJO. Yes. The gross majority of the revenue was from 

new taxes, but there was some additional bonding capacity that 

came from our general operations. That was a small part of it. 

Mr. WEBSTER. Was it sales tax, or was it a gas tax? 

Mr. DORMSJO. It was a combination of an incremental increase 

on the existing gas tax, the volume-based tax, and then the gradual 

application of the sales tax to gasoline, not a broad sales tax increase. 

Mr. WEBSTER. I had one other question about the tolling of the 

interstate with an E–ZPass. Was that based on level of service, or 

is it based on just a per-axle cost? So in some cases where you do 

revenue, you know, based on the flow of traffic, so you are paying 

for a service, or was that for axle, just a per-axle charge? 

Mr. SCHENENDORF. First of all, it could be designed in different 

ways. I believe that we concluded that it would probably be a different charge for trucks than it would be for automobiles. But it 

was basically the service level. In other words, corridors that 

were—didn’t have a great deal of traffic, didn’t go through urban 

areas, didn’t have big congestion problems, those corridors would 

pay a lower fee than the I–95-type corridors, which have very 

heavy congestion, those segments wearing out, that the cost to 

modernize that corridor would be much greater, and so people traveling in that corridor should pay a little higher fee. So we thought 

of it mostly in terms of service for the corridors. 

Mr. WEBSTER. Thank you very much. 

Mr. DUNCAN. Thank you very much. 

Ms. Hahn. 

21 

Ms. HAHN. Thank you, Mr. Chairman. 

So as I said in my opening statement, one of the options I am 

interested in exploring is the VMT. Mr. Atkinson, you talked the 

most about it, but I don’t know some of the other members of the 

panel had any comment. I know Oregon has been vetting this for, 

I think, 10 years, and they are going to roll it out in a pilot program in 2015. 

Have you looked at what they have studied, what they have 

learned? And what are the—I know you were talking about it only 

in terms of trucks, but I am interested, of course, and as we said, 

we are encouraging more people to drive alternative-fuel vehicles, 

electric vehicles, vehicles that get a lot more mileage per mile. 

So what are the downsides; what are the upsides; is this something we ought to look at at a Federal level? 

Mr. Atkinson, you can answer, but if some of the others have any 

comment on what you think the VMT—what are the upsides, what 

are the problems that you think we would encounter? 

Mr. SCHENENDORF. Well, just as a comment to what Rob had 

said, our commission came to the same conclusion, that we definitely in the long term need to find a replacement for the gas tax; 

that VMT types of proposals seem to make the most sense, but it 

is going to take time to get there. There are a number of obstacles 

that have to be overcome, and some of them political, some of them 

technical, some of them just getting the entire fleet to be ready to 

shift to that kind of approach that was going to take time. 

You know, I still think that you are talking 10, 15 years from 

now before you could really, on a nationwide basis, move to that 

kind of an approach. We recommended that basically you do it as 

quickly as possible; that you do the research, you do the pilot studies, like Oregon, and you do whatever else you need to do to be 

able—— 

Ms. HAHN. Do we have to do it again, or can we look at what 

Oregon is doing and learn from them? 

Mr. SCHENENDORF. Oh, we will learn from what Oregon is doing, 

but I think is going to take more and different kinds of approaches 

to eventually get us to the point where something is ready for nationwide implementation. 

Mr. ATKINSON. Just quickly, there is a study that DOT funded, 

I think at the University of Iowa, that looked more in depth, and 

I would encourage you to look at what the results of that study 

have been. 

I actually think we can get to a VMT in a certain number of 

years, but each year we wait is another year we won’t get to it. So 

it is just really a question of beginning that process. That is one 

of the reasons why going to a truck VMT first is a good approach, 

because the system you will build for that will be a system that can 

scale up and then be used for the passenger VMT system. 

Part of what has to happen ultimately is that original equipment 

manufacturers of cars and trucks will need to be installing essentially these on-board units as part of the original equipment, and 

that takes a while for the fleet to be able to do that. 

Ms. HAHN. Why can’t we just use the odometer? 

Mr. ATKINSON. You certainly could. But what our commission argued is that the biggest benefit from the VMT is actually not raisVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
22 

ing the money, it is being able to price roads more accurately. So, 

for example, lots and lots of places would like to move to congestion 

pricing as a way to manage congestion in peak hours. It is very, 

very hard to do that without a VMT. If you had a VMT, you can 

just easily do congestion pricing by just pricing the lookup table 

that says between 7 a.m. and 9 a.m., you have to pay this for the 

road. 

The second thing about that is for trucks you can easily install 

axle weight sensors so that each truck has a weight sensor, and 

then you price according to the road you are on, can it handle 

heavy weights. You price according to the weight of the truck. 

In Germany they found after implementing their heavy vehicle 

toll system, VMT system, that they reduced empty truck travel by 

about 10 percent because trucks were now being more efficient. So 

I think that is the main reason is you can just get much more efficiency. 

Ms. HAHN. Thank you. 

So, Mr. Dormsjo, how do I—I have heard everybody say it, and 

I wasn’t sure how to pronounce it. 

Mr. DORMSJO. Dormsjo. 

Ms. HAHN. OK. We were close. 

So I was very interested in the Port of Baltimore and the project, 

the public-private partnership project that you—I couldn’t see in 

the testimony exactly how much that one terminal initially cost. 

Mr. DORMSJO. It was about $110 million, and then there were 

$140 million of related highway improvements. 

Ms. HAHN. Were you able to use any of your Harbor Maintenance 

Tax dollars for that project? 

Mr. DORMSJO. No. 

Ms. HAHN. Yeah. That was all I was thinking about, listening to 

you was I love public-private partnerships. I think that is great. I 

was curious of the $15-per-container fee that you added on, it 

sounded like, to help pay for this project and wondering how the 

shippers are feeling about getting doubly taxed. I think the Port of Baltimore gets about $40 million—or collects $40 million annually in the Harbor Maintenance Tax, and yet it 

comes back to Washington, DC, and sits in a fund that we now 

have about a $9 billion surplus. So I have been advocating that we 

use the Harbor Maintenance Tax to fund our infrastructures at our 

ports so that all of our ports can be dredged and ready to accept 

the big ships that come in, or just to keep their main channels open 

and running. Many ports suffer from a constant need for dredging. 

So it is one thing to talk about new taxes and new fees. It is another thing to talk about how we should use the tax that we are 

already collecting for the purpose for which it was collected. So I 

would like hear from some of you, I know my time is out, on how 

important you think it is that we actually use the money that you 

are collecting for the purpose at your ports for which it was collected. That was a loaded question. 

Mr. DORMSJO. Sure. Let me just try to unpack that a little bit. 

I totally agree that the needs in the harbor dredging space are 

being unmet, and that there is a deficit in terms of what we need 

to do across the country to keep the channels open. I do think that 

once those needs are met, there is a logic to making sure that there 

23 

is flexibility for sponsors and port authorities to make land-side investments. I think that that is a good idea. 

With this particular case, there was no public investment in the 

project, it was completely privately funded and financed, so we 

didn’t put in State dollars or Federal dollars or local dollars. It was 

an investment from the private sector because there was a revenue-generation component. The $15 per container is not a fee. It is actually a revenue share 

back from the private equity firm to the State of Maryland. There 

will be no additional costs on the shipping side of things. We 

thought that the benefit of that $15 revenue share was that over 

the long term, that would keep the private sector and the public 

sector aligned, focused on trying to grow volume, and that $15 per 

container revenue share is only triggered if we get to a certain 

level. So that was an incentive for us to stay working closely with 

the private sector at the terminal itself. 

Ms. HAHN. But you would be in favor of getting more of your 

Harbor Maintenance Tax dollars back. 

Mr. DORMSJO. Oh, yes. 

Mr. DUNCAN. Thank you very much. 

Mr. Mullin. 

Mr. MULLIN. I was just glad she was done. Sorry. 

Ms. Hahn, you know we get along great. 

I tell you, thank you for being here today. Obviously we want to 

continue our economic growth, and the only way we do that is 

being able to move our products from A to B. And we have an infrastructure that we have abused, and we have to find a revenue 

source for it. 

One thing we can all agree on this panel, regardless of what letter is in front of our name, we know the need of this country and 

the responsibilities of this country falls upon the Transportation 

and Infrastructure Committee, and we have to find revenue for it. 

And even though it is uncomfortable sometimes to talk about in a 

situation like this, in order to move forward on any business, you 

have to invest in it. In this country we have to invest, and not just 

abuse. And I appreciate the States that have took the initiative to 

do it. 

In Oklahoma we are doing the same, but we still have a larger 

network of waterways, of rail, and of roads that it takes for the 

States to be able to get the products there. 

I think, Mr. Atkinson, did you bring up the sales tax—tax on diesel? 

Mr. ATKINSON. Yes, sir. 

Mr. MULLIN. I have a question about that. I drive a diesel. I also 

have a farm that we use a lot of diesel on. At the same time I also 

have diesel trucks, semis on the road. And I understand the idea 

of maybe adding 10 cents for diesel tax, but ultimately when I am 

hauling a product from A to B, I get actually to pass that cost on. 

But there is a whole other area of individuals that drive diesels, 

like myself, that there is no way for us to add that cost on. 

Is there any way to separate those two, or would everybody that 

drives a diesel vehicle just have to be paying that price? 

Mr. ATKINSON. So we looked at that on the Commission. I am 

going to forget—— 

24 

Mr. MULLIN. Pull that mic to you, I am sorry. 

Mr. ATKINSON. We looked at this on our commission, and Jack 

may know the answers, but there is a provision, I believe, in the 

current system where farmers, for example, who are buying diesel—— 

Mr. MULLIN. No, the farmers are different. I had that, red diesel 

and green diesel. 

Mr. ATKINSON. They don’t have to pay. 

Mr. MULLIN. There is two separate. But when I pull up to a diesel pump, which I do literally just about every other day, I am pulling up to the same pumps the semis are filling up at. 

Mr. ATKINSON. Got it. 

So as I said in my written testimony, if we are going to raise 

taxes on trucks, heavy trucks, and we don’t dedicate all of it to 

truck projects, then we should also increase taxes at a commensurate level for passenger vehicles, whether they are light-duty 

trucks like you might drive or just a regular gas-using passenger 

vehicle. 

So I agree with your point. If we were to raise the diesel tax, I 

would argue we should also raise the gasoline tax so that it is 

equal. 

Mr. MULLIN. But at the same time it doesn’t—Ms. Hahn, what 

she said in her opening statement about her driving an electric vehicle or the natural gas vehicles. So what I am afraid of is we just 

put a diesel tax out there, we are just putting a Band-Aid on a 

larger issue, and what this panel needs to do, and that is what we 

are discussing, is an idea of how to fix it, not just patch it. 

Go ahead, sir. 

Mr. CONNAUGHTON. Yes, sir. We in Virginia, when we changed 

our gas tax, we actually for the first time split out gas and diesel. 

So we lowered the gas tax, but we actually went to a percentage, 

6 percent on the diesel, which is about 21, 22 cents per gallon. So 

it went up. The thing is that for those passengers, people who are 

driving diesel vehicles, like yourself, all you have to do is actually 

declare it on your income tax returns, and we will pay you back 

as if you were paying—— 

Mr. MULLIN. Did you see a drop in your State of sales of diesel 

vehicles? I mean, I would imagine there are a lot of manufacturers 

out there—let us just talk about fuel efficiency. Diesel, small diesel 

motors, your little four cylinders, they have done so much with 

these that they can actually get better gas mileage than you have 

in gas vehicles. 

So over in Europe there is a lot of diesel vehicles, and in a lot 

of other countries there are a lot of diesel vehicles, but are we 

going to shoot ourselves in the foot, because if the idea is to get 

efficiency levels up, which this administration is trying to do, if we 

add so much tax to just the diesel, the manufacturers will be— 

there won’t be a big incentive to buy those. 

Mr. CONNAUGHTON. We worked with some of the manufacturers 

about this issue. Because this mechanism already exists in our 

State revenue collections—you mentioned before about the different 

types of diesel and the farm use, nonfarm use. We already had a 

mechanism in place if a farmer purchased nonfarm diesel out in 

25 

the street, they could go in and actually get a tax return. They 

would get paid back. 

We are using that same mechanism for passenger vehicles. The 

manufacturers seem to be OK with that. So we right now have not 

seen a change in diesel purchases out there, because there is a 

mechanism. For every year, they can actually just come in, put it 

on their tax return, show the receipts, and we will pay them back. 

Mr. MULLIN. Right. And I won’t ask the question, I just want to 

lay it out there for Mr. Schenendorf. This toll that we are talking 

about, I would be curious to know the infrastructure, how much 

cost that we are going to have to invest in a toll system for each 

State for the interstates, and who is going to pick up that tab, 

where it is going to come, and then how long it is going to take 

to get the funding back for our investment. I know that is a big 

question that you probably don’t have the answer to, but if you 

could, if you have it, could you get it to my office? 

Mr. SCHENENDORF. Surely. I will do that. 

Mr. MULLIN. Thank you. 

I yield back. 

Mr. DUNCAN. Thank you very much. 

Mr. Sires. 

Mr. SIRES. Thank you, Mr. Chairman. I represent—I am from 

New Jersey, which is one big transportation hub, and the pressure 

on the infrastructure is constant. I mean, whether it is getting 

merchandise from the port—you know, the merchandise that comes 

through the ports goes through about 80 percent of the region. 

Only 20 percent goes to the interior of the country. So you can see 

the constant pressure. 

Toll is out of the question, raising the New Jersey Turnpike tolls. It is just too high now. Going to the city now is about $15. 

Raising the sales tax, we are already, I think, at 7 percent. I 

don’t know what it is in Virginia. Much lower. I figured that. We 

don’t want to get to be as high as New York. That is the problem 

with New Jersey. Sorry, Jerry. 

But, you know, we certainly have to come up with something. I 

don’t know exactly what. We have some good ideas, and some of 

the ideas, you know, raising the gas tax and some of the other 

things. But what do you think happens to our economy if we can’t 

find a solution to this? And I am not talking about the next 6 

months or a year, because I know the pressure on the roads in New 

Jersey is just constant. I know they are investing a lot of money 

currently in the turnpike, and that was because the tunnel that 

was going to New York was canceled, and they are using some of 

that money. The transportation trust in New Jersey is just about 

bankrupt. There is no appetite to raise the gas tax. 

So, you know, where do we go from here if we don’t have this 

appetite to do some of the difficult things that need to be done in 

order to keep our infrastructure going? 

Mr. SCHENENDORF. I can take a crack at that based on the Commission’s work. Again, we projected out population growth and economic growth, and basically our national infrastructure is going to 

come to gridlock. In the past we have been living off of the fact that 

the Greatest Generation provided a new interstate system. We 

really haven’t had to pay on the interstate the costs of rehabilitaVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
26 

tion and reconstruction that are coming due. In addition, the interstate had excess capacity in it, so our economy and population 

grew, and it was able to absorb that. 

Well, we have reached the point where that is no longer the case. 

And so as we move forward, and we hopefully grow our economy, 

and we are definitely going to have more population, the road system and the rail systems aren’t going to be able to handle it without a significant increase in investment to keep what we have in 

good shape and to provide the take additional capacity where it is 

needed. And it is going to cost money. People are going to have to 

pay for that. 

But people are going to have to see the vision that this is what 

they need, because otherwise they are sitting in traffic, it is getting 

more and more expensive and less and less reliable for businesses 

to move things. And that is why the shippers are up here asking 

you to increase these fees, because we have reached that point 

where they can see what is right down—it is not a long tunnel, it 

is right there. And that is why they are coming forward. And they 

are the ones that have to pay the bills, and they are saying, this 

is a justified investment. We are prepared to pay more to get this 

investment. 

Mr. SIRES. Anybody else want to take a—— 

Mr. CONNAUGHTON. Most of our gas tax actually went into our 

maintenance fund, and over the last 10 years, because we are a 

maintenance-first State by law, we have had to take over $3 billion 

from our construction account and move it over to maintenance. Actually this year we were going to go up to $500 million. So we can 

actually put a price tag on some of this inactivity, particularly on 

the gas tax. 

But the thing is that our legislature, it took them 12 years of 

fighting about this issue and everything, and finally we had done 

everything that we have been asked to do looking for P3s, infrastructure banks. We laid off 1,000 people. We did all the things, 

squeezed everything out the system we could squeeze, and we still 

showed them at the end of the day we had to act, and that was 

the only way that we finally got everyone to agree on the changes 

we brought in Virginia this year. 

Mr. SIRES. Fortunately New Jersey has, I think, one of the lowest 

State taxes on gasoline, but yet there is no will to even put a nickel 

or a dime on the gas tax to deal with the Transportation Trust 

Fund. 

Mr. CONNAUGHTON. Sir, one thing we were able to show was a 

real shock was the new CAFE Standards at 54 miles per gallon 

coming in, and we could show them that just to catch up for inflation, we would have to move our current—what was the 17.5 cent 

gas tax up to 36 cents, and then to catch up due to the new standards coming in, we would have to then move the gas tax up to 

about $1.80 or so. And that is when people finally started understanding what was—some of the troubles with the gas tax and 

what we are facing out in the future. 

Mr. SIRES. You know, I know people talk about the private sector, and I have been involved with combinations of the private-public sector, but one of the things that I find is that the private secVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
27 

tor, they don’t really have the time to wait 25 years to get their 

money back. 

I mean, if you are a municipality, you built a parking garage, 

and somehow you work with the private sector, they want their 

money pretty soon. But if you built it with a municipality, it will 

take 20, 25 years, but it is all right, you get the money back in 20, 

25 years. 

But the private sector seems to be wanting almost instant gratification or instant profit, and I am concerned that in some of the 

areas where you are going to be able to work with the private sector, it is fine. New Jersey, I mean, it is very congested, but some 

of the other areas in the country where you don’t have the kind of 

congestion, I don’t think you are going to get too many people involved in a public-private sector venture. I mean, am I wrong? 

Mr. SCHENENDORF. No. I think what we found is that the innovative financing is an important part of the solution, but it is a niche 

part of the solution. The overall investment that is needed in the 

overall network on a systemwide basis involves finding funding 

sources far beyond the public-private partnerships and other kinds 

of innovative financing techniques. 

There is no question they shouldn’t be thrown out. There are certain projects that they work for, and that is part of the solution. 

But that isn’t the solution to investing in the national infrastructure. 

Mr. SIRES. That is not a total solution. 

Mr. CONNAUGHTON. Sir, I should point out, in Virginia last year 

we closed more P3 deals than anyplace in the country. In fact, we 

were number two in the world, right after the United Kingdom. 

The concession out here on the Beltway and 95 are 75 years. The 

tunnel deal we have down in Hampton Roads is actually a 58-year 

deal. But there is only—as you mentioned, there is only certain 

places that you can actually do these types of deals where there is 

investors interested in taking that sort of long view and building 

and actually running the concession for a long time. 

Mr. SIRES. It seems it is something good for the East and maybe 

some parts of the West, but I think some of the places in between 

it may not make a lot of sense for some of these private ventures. 

Mr. ATKINSON. Our commission probably was a little more optimistic than Jack’s. If we had the same level of tolling as Florida 

and Texas do, which is not a lot—they have a fair amount, but not 

certainly a lot—we could be raising an additional $25 to $30 billion 

a year nationally. 

The way we looked at it on our commission was that the needs 

are so dramatic that we have to put everything on the table. I 

think if we had a national tolling system, we could raise a lot of 

money, and we could raise a lot of money in the middle-of-the-country States. But certainly we have to raise the gas tax. 

Americans pay half to travel on a mile of road today than they 

paid 20 years ago in inflation-adjusted dollars. So we have had a 

national policy of saying every year we are going to cut the cost you 

pay, and it should be no surprise what the result is. 

Mr. SIRES. You are talking about a national toll system which 

will be added on to the State system. Is that what are talking 

about? 

28 

Mr. ATKINSON. I think two things. I do think we need to toll the 

interstate to pay for it. But ultimately, as I said before, I think we 

have to move to a VMT system. 

One of the advantages, by the way, of a VMT system is it puts 

private-sector projects on a much more competitive basis. The reason—for example, there is a road out here in Virginia, the Dulles 

Greenway. I think that is a 100-percent privately funded road. It 

is very hard to do those because you are competing with free. I can 

drive out to Leesburg on Route 7 and not pay anything other than 

my gas tax, or I can drive on the greenway. 

One of the advantages of doing a VMT system is that basically 

every road you have to pay for, and you enable a much more robust 

set of projects to be developed. So, again, I think this is such a serious problem, we have to put everything on the table. 

Mr. SIRES. Thank you very much for being here today. It is not 

easy. 

Mr. DUNCAN. All right. Thank you very much. 

Secretary Connaughton, did I remember this correctly that you 

said you are receiving approximately $900 million from Federal 

sources a year; is that correct? 

Mr. CONNAUGHTON. Yes, sir, $930 million or so. 

Mr. DUNCAN. And that that now is about one-fifth of your total 

budget. 

Mr. CONNAUGHTON. Yes, sir. 

Mr. DUNCAN. So your budget is $4.5 billion, roughly. 

Mr. CONNAUGHTON. $4.5 to $5 billion. 

Mr. DUNCAN. And then the $1.5 billion that the new taxes add 

on, that will move your budget up to roughly $6 billion a year for 

transportation? 

Mr. CONNAUGHTON. Yes, sir. 

Mr. DUNCAN. But you said that the Federal sources, you estimate 

in a short time, but you didn’t really say an exact time, are going 

to go down to maybe one-seventh. 

Mr. CONNAUGHTON. Yes, sir. When we start looking at the Highway Trust Fund, right now if you just looked at purely revenues 

coming into the Highway Trust Fund, we should be, I guess, receiving about $650 million. We start running out those numbers on the 

Highway Trust Fund and how much we are receiving, and at some 

point when you deal with this issue, either you increase revenues, 

or we are going to see a decease in our expenditures or the money 

coming to the State. 

And then we also see with the increased revenues coming into 

the State system that we will be up—in about 6 or 7 years, we will 

be up to almost $7 billion in our program. 

Mr. DUNCAN. Knowing that it is not possible to satisfy any Government agency’s wish for money, what kind of job are you able to 

do with the budget that you have? Now, I am not saying in a 

dream world you wish you had five times, three times as much 

money as you have now. But are you meeting the needs of the 

State of Virginia at that level, or are you just doing half of what 

you need to be doing, or what can you say about that? 

Mr. CONNAUGHTON. We are catching up. Mr. Chairman, I think 

there is never enough money for transportation. It is one of these 

things. And I think in some ways we are our own worst enemies 

29 

when we talk about this from our side of the table in that we always throw up these trillions and trillions of dollars of needs. The 

thing is that if you look at the revenues coming in, you figure out 

ways to make it stretch. We are now doing design builds. We are 

doing public-private partnerships. We are figuring out ways to, say, 

looking at more IT. We are investing heavily. In fact, we have 

privatized our traffic operations areas, centers, and trying to make 

it a statewide system so that we can actually get more IT, better 

IT to control traffic. 

Out here on 66 you will see next year the new system we are 

putting in, which will control individually the lanes and the speeds 

in the lanes and will open and close lanes based on conditions. 

So there is never enough money. The issue is is certainty in the 

system, how much money you have coming in, focusing on those 

projects that have a bigger effect on transportation and congestion 

and mobility. 

Mr. DUNCAN. I have read in the Washington Post that there is 

NOVA and RVA. 

Mr. CONNAUGHTON. Yes, sir. 

Mr. DUNCAN. And I get the impression that you are having to 

spend a pretty big portion of your transportation budget in northern Virginia. How are you figuring that out? 

Mr. CONNAUGHTON. Yes, sir. Well, first off, I have a special fund, 

meaning that all the taxes and fees are dedicated to transportation, 

and then we control where they go, the allocations, by a statewide 

board that I chair. We have different formulas, you know, that go 

to different types of systems, interstate, primary, secondary, things 

like that. We have transit allocations. We have our port fund. We 

have all these different things. 

Up to recently, actually the rest of the State was actually subsidizing the growth and the activity, economic activity, up here in 

northern Virginia, particularly if you saw all the money we are 

putting into transit. But we try to equalize it out. The rest of—Virginia is one of the few States where we control the entire road system. So we have actually the third largest State-controlled road 

system in the country. And the rest of the system has really been 

seriously degrading because of all the money we have had to be 

putting up here in northern Virginia. But we are actually now trying to catch up and do more maintenance out there. 

Mr. DUNCAN. What is the population of Virginia now? 

Mr. CONNAUGHTON. It is $8.2 million. 

Mr. DUNCAN. $8.2 million? 

Mr. CONNAUGHTON. Yes, sir. 

Mr. DUNCAN. And, Mr. Dormsjo, what is the population of Maryland now? 

Mr. DORMSJO. It is about $5.5 million. 

Mr. DUNCAN. And what is your budget for transportation? 

Mr. DORMSJO. On an annual basis it is a little bit north of $4 

billion. 

Mr. DUNCAN. $4 billion. 

Secretary Connaughton, how does your infrastructure bank 

work? You said that you got $400 million. 

Mr. CONNAUGHTON. Yes, sir. 

30 

Mr. DUNCAN. Was that just a one-time movement of $400 million 

into that? I mean, we have this rail infrastructure loan program 

that is not being used much at all. Are you having quite a bit of 

demand for loans from your infrastructure bank? Tell me a little 

bit about that. 

Mr. CONNAUGHTON. Yes, sir. We set up a—we had a Federal infrastructure bank where you put Federal money in and potentially 

help loan to Federal projects. But there is lots of—I am going to 

say lots of strings attached to that. 

We decided to set up our own infrastructure bank with purely 

State revenues. Most of the money has come from—we get a piece 

of the State surplus every year. It ranges from $25 to $80 million. 

We take it and put it into this essentially revolving account. 

We make loans. We actually have a bridge project down in the 

Hampton Roads area that we are lending to this locality to build 

a bridge that will have a toll on it, and they have essentially 30 

years to pay that back at a low interest rate. They were able then 

to use that low-interest loan to get much better rates on their 

bonds and improve their overall rating on the city. 

I have this project out in Loudoun County where we are lending 

to build this road, and they are paying back on their mandated 

proffers that the developer is paying into. We have another one 

where we use the loan, some money, as a credit enhancement to 

make another project’s bond rating stronger and more appealing. 

Mr. DUNCAN. Are you making these loans to private companies, 

or are you making them to cities or counties, or a combination? 

Mr. CONNAUGHTON. A combination. We want a local sponsor. We 

want a locality to sponsor a project, but actually we can also give 

loans to private entities as well. 

Mr. DUNCAN. And what has been the reaction so far? 

Mr. CONNAUGHTON. It is extremely positive. Because what we are looking for are ways for us to essentially take $300 or $400 million that we put into this and to actually maximize the investment 

in getting as many different projects going as possible, projects that 

would not normally get to move forward, and then we are going to 

take the revenues in there and actually put it back into additional 

projects as the money comes in. 

Mr. DUNCAN. Right now do you have several projects that are on 

the drawing board or that have been requested, and do you have 

a waiting list? 

Mr. CONNAUGHTON. We have quite a few projects who have 

asked to be considered for this, but right now we have essentially 

hit that $400 million, so we are going to have to wait for the next 

tranche of money to come in before we can go out. 

We have two more projects, smaller projects. Since we put a lot 

of money into this bridge project, a lot of money into this road 

project, quite a bit of money into this bond essentially and revenue—this bond enhancement fund. We only had a small amount 

of money. We have got a couple of small projects that we are going 

to support. One is a rail project, and another one is related to my 

port. And then we will wait to see where the revenues are next 

year, put money into that bank, and then go back out again. 

Mr. DUNCAN. Mr. Dormsjo, I understand that Virginia has trust 

funds that are mode-specific, but Maryland is mostly mode-neutral. 

31 

Is there an advantage or disadvantage to either system, or what do 

you see as to the advantages or disadvantages? 

Mr. DORMSJO. I will let Sean comment after I make my assessment, but I think the integrated structure is advantageous, and I 

think there is a tremendous benefit to the State of Maryland to 

have a common pool of revenues from our airport, our port, the 

Motor Vehicle Administration fees and charges that can be flexibly 

deployed as we try to deliver the most worthy capital projects. 

We have periods of time in our State’s history when we have had 

to get large highway projects done, so we have overweighted our 

capital program towards those critical projects in the highway 

space, and then there have been other times when we needed to 

make expansions at BWI Airport, and we have had the resources 

to make those investments. Now we are emphasizing transit investments more so than we have in the past. So we like the structure of a trust fund that is not broken up into different accounts. 

Mr. DUNCAN. All right. Secretary Connaughton, you can comment about the question to Mr. Dormsjo if you like, but also I am 

curious about your inland port. How is it going? 

Mr. CONNAUGHTON. It is doing excellent. 

One of the things first to address this issue about these individual funds, we have this broad fund, special fund called Commonwealth Trust Fund, and then we have subaccounts with dedicated fees towards it. So I have one for aviation, one for my port, 

and several for my rail, and then the highway maintenance, and 

then the highway construction accounts. 

We like it for a few things. First is it gives us the ability to plan 

out and work with the private sector on the use of these funds. And 

so like the rail accounts, we require some sort of participation. We 

put in some, they put in some. It gets more buy-in and more, I am 

going to say, focus on dealing with some—particularly in the 

freight issues, because it is no way. When you look from a place 

like Virginia where you have northern Virginia, a freight rail 

project is going to have to compete with a Metrorail project. And 

one handles 700,000 people a day; the other one handles several 

thousand cars. So it is railcars a day. It is very difficult for the rail 

projects to compete in that sort of climate. 

So we have these accounts. We are putting $40 million per year 

into freight rail. We are putting $40 million a year into port infrastructure. We are putting about $20 million a year in our air. It 

is not big in the context of all the other funds, but we are able to 

deal with our problems. 

Also, when we came to this political issue of passing legislation 

this year, we had all the modes; we had almost 80 or 90 different 

groups from every mode working together to get the bill through 

because they all saw some benefit from it. 

Our inland port is actually—some of the things we are trying to 

do in our freight rail, in our freight plan, in trying to cause modal 

shifts, we move about 35,000 to 40,000 containers a year at the inland port, and so we are intercepting trucks from off of 81 and off 

of 66 that would normally drive all the way down to our port and 

back. So if you drop it at our inland port, it is as if you drove it 

down to Norfolk. 

32 

We are building a similar facility at the southern end of 81 down 

in Montgomery County that is going to have the same arrangement, and then now we have started up the same sort of activity 

at the Port of Richmond, which is a small port. It is right on 95. 

We are building rail enhancements to it, and we are taking a barge 

service and we are loading containers at the port and taking them 

up the James River. And there we have only started service a couple years ago. We have taken about 8,000 containers, meaning 

about 16,000 trucks, off of 64 every year. And that is what we are 

trying to do is cause a modal shift. We are not trying to make 

money on it, we are just trying to get those trucks off the road and 

intercept them. 

Mr. DUNCAN. I remember years ago there was a study about having a freight-rail corridor up and down I–81, from Harrisburg down 

through Virginia and so forth. That has been sort of a dream, I 

guess, for a long time. 

Mr. CONNAUGHTON. We are actually supporting the Crescent 

Corridor project of Norfolk Southern. We obviously put State 

money into the Heartland Corridor to make them—I mean, the 

Commonwealth of Virginia put money into a project that actually 

made rail improvements in West Virginia and Ohio because we 

viewed it as helping our competitiveness. We have just committed 

over $30 million for this tunnel right over here, the Virginia Avenue tunnel, to allow double-stack trains to run on the CSX line 

there. 

So we are doing everything we can, even putting our money in 

States outside of, obviously, Virginia to improve our—— 

Mr. DUNCAN. Well, I will tell you, many, many years ago I requested the first money for the first study of that Crescent Corridor 

at the request of Norfolk Southern and because it made so much 

sense to me. In fact, I saw benefit, great benefits, even to Tennessee. 

Mr. Atkinson, did I understand you to say that your study or 

your report showed that trucks pay 85 to 90 percent of the costs 

of the damage they do; is that correct? 

Mr. ATKINSON. We referred to a study, a cost allocation study, 

that was done by the U.S. Department of Transportation in 1997 

and then updated in 2000 that indicated on the whole that that 

was about what trucks paid relative to the costs. Some trucks—if 

a truck were traveling with a very light load, it would actually pay 

more than—it would pay less than what its overall costs were. A 

truck with a heavy load would actually pay a lot less than its overall costs. But on net it appeared from that study that trucks are 

subsidized relative to rail. 

Mr. DUNCAN. I know I have gone way over. 

Mr. NADLER. Could you yield just for a question on that point? 

Mr. DUNCAN. Go right ahead. 

Mr. NADLER. Thank you. 

Just on that point, there was a study a number of years ago 

which you may be familiar with that said that the—I don’t remember if it was a 70,000- or 80,000-pound truck did the same damage, 

wear and tear, and vibration damage to a highway as 9,600 automobiles. Are you familiar with that study? And if so, if that is accuVerDate Aug 31 2005 11:46 Apr 11, 2014 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\PANELO~1\10-10-~1\85056.TXT JEAN
33 

rate, how can you reconcile it, because they don’t obviously pay 

9,600 times what a car pays? 

Mr. ATKINSON. I am not familiar with that particular study. I am 

familiar with studies that suggest that very heavy trucks—passenger vehicles do very little damage to most roads. Damage is 

caused principally by heavy trucks, which is why I argued in my 

testimony that you could—the technology does exist to move to a 

VMT system that has axle weight sensors on them, and you could 

charge a truck commensurate with the actual damage they are 

doing on particular roads. 

For example, some roads are not designed even for heavy trucks, 

and when a heavy truck goes on that road, they do a lot of damage. 

Other roads are designed for heavy trucks, and they will do less 

damage. But there is no incentive now for trucks to go on the right 

road, if you will, and there is no incentive for trucks to be more 

efficient in that sense. So that is why I do think charging trucks 

commensurate with their actual costs that they impose on the system, particularly pavement damage, is an efficient thing for our 

country to do. 

Mr. NADLER. But agreeing on the concept and the goal of doing 

exactly that, it was a USDOT study from many years ago, the 

9,600, because I used to quote it when I was in the State assembly, 

so I don’t know if it has been updated, but if a very heavy truck 

does that kind of damage, and yet trucks overall do pay 85 to 90 

percent, it would sort of lead to the implication that maybe heavier 

trucks ought to pay much higher taxes. 

Mr. ATKINSON. Yes, it would. I agree with that. 

Mr. NADLER. Thank you. I am finished. 

Mr. DUNCAN. Mr. Schenendorf, you used the word ‘‘extraordinary’’ in referring to the fact that most of the trucking industry 

seems to be united, and a lot of the inland waterway users are at 

with paying more, and it is pretty extraordinary to have industries 

that are willing to pay more. 

In the report you did, what has been the reaction to other parts 

of your report, like, for instance, from aviation and rail and so 

forth? And I will ask you and Mr. Atkinson both, are you satisfied 

with the reactions to your reports, or the action or lack of action 

since those reports came out? 

Mr. SCHENENDORF. Well, ours, like Rob’s, it all focused on surface transportation since we didn’t look at aviation, and basically 

both studies came to very, very similar conclusions. 

You know, I will be honest with you: Everybody agrees and can 

recognize what is happening, but nobody wants to raise money. Nobody wants to have more investment and to pay for that, even 

though that is what is called for. 

I said it in my testimony, the studies, you know, could fill this 

room that have been done and come to the same conclusion, and 

that is we need to invest more. But then when you start talking 

about, well, how are we going to pay for it, nobody wants to raise 

taxes, nobody wants to put tolls or user charges on. And so consequently the investment hasn’t been made, and because the investment hasn’t been made, the system functionality is deteriorating. 

34 

That is what business sees. That is why shippers are coming to 

you and saying, we want to pay more if you will help fix this system. And that is why it is not just the trucking industry and the 

barge owners, it is the shippers, it is the people who are actually 

using that system. And, of course, they ultimately are going to be 

paying for it because it is their goods that are on these trucks or 

water or barges, and they are saying, we are willing to pay more 

because we are seeing what is happening. And they are becoming 

less competitive, the system is less reliable, it is becoming more 

costly. Inaction is becoming more costly to them than actually raising the money to do the investment that is needed to provide the 

capacity and the reliability. 

So I am disappointed. And it is not going to change, I don’t think. 

I don’t think what needs to be done can be done by one political 

party. It is not going to change, in my judgment, until the two parties can come together. And I think a lot of people think maybe the 

grand bargain is the way to do that. 

And just because of the economic growth potential, SimpsonBowles put in a significant increase in the motor fuels taxes and 

spent it all, because of the linkage to the economic growth. 

And so I think that, you know, maybe it will take something like 

that in order to allow this to happen. But it has to be a situation 

where the two parties come together and say, this is what is right 

for America. And today’s—— 

Mr. DUNCAN. Well, traditionally, this committee has done better 

at coming together than almost any committee in the entire Congress. 

Mr. Seltzer, you know, one of the problems on all these transportation-related projects is that they, over the past many years, have 

taken three or four times as long as they should have or needed 

to or compared to other countries. Do you think we could do more 

to speed things up? 

I know, for instance, that you are familiar with the Tappan Zee 

project. I understand the NEPA process was speeded up on that 

project. 

Mr. SELTZER. Correct, sir. But it is not just the environmental 

and regulatory approval. It is the actual design-build construction 

that expedites the completion of the projects if the funding/financing is there. 

So we are seeing more and more projects, not just toll-backed 

projects that are generating their own revenue stream, but even 

projects supported by State highway funds being done through public-private partnerships—P3s—with so-called availability payments, which are general State or local government resources paid 

to a private team responsible for designing, building, delivering, operating, and financing the system. 

So it is not just a toll-road concept; it could be applied and is 

being applied more generally. 

Mr. DUNCAN. Of course, when we are forced to, we can move 

pretty fast, like on the Interstate 35 bridge in Minnesota. 

Mr. SELTZER. Right you are, sir. 

Mr. DUNCAN. All right. 

Mr. Sires, anything else you want to ask about or add? 

35 

Mr. SIRES. No. I was just curious about the last—build, design, 

and operate. In my district, we did a light rail that has been very 

successful, you know, design-build, that moves about 50,000 people 

now in a very congested area. And it has worked out very, very 

well. There was a lot of skepticism when we first started with this 

project. So I have the experience where it worked and it saved a 

lot of money. 

Mr. DUNCAN. Mr. Nadler, any—— 

Mr. NADLER. No. 

Mr. DUNCAN. Well, we have kept you far too long, but you have 

been very helpful. 

And I will tell you this. We are getting ready to write this report 

and these recommendations here in the next few days, so if you 

have anything you wish to add that we didn’t get to here today or 

if you have any specifics you want to have us take a look at, get 

them to us right now. And we need all the help we can get. 

Thank you very much. That will conclude this hearing. 

[Whereupon, at 3:27 p.m., the panel was adjourned.] 

36 


Insert offset folio 5 here 85021.005

Written Testimony 

Of 

The Honorable Sean T. Connaughton, Secretary of Transportation 

Commonwealth of Virginia 

Before 

The Committee on Transportation and Infrastructure 

Panel on 21 st Century Freight Transportation 

United States House of Representatives 

On 

Funding the Nation's Freight System 

October 10, 2013 
37 


Insert offset folio 6 here 85021.006

Written Testimony 

Of 

The Honorable Sean T. Connaughton, Secretary of Transportation 

Commonwealth of Virginia 

Before 

The Committee on Transportation and Infrastructure 

Panel on 21't Century Freight Transportation 

United States House of Representatives 

On 

Funding the Nation's Freight System 

October 10, 2013 

Mr. Chairman and distinguished members oftl1e Panel, iliank you for the opportunity to 

appear before you today to discuss funding the nation's freight system and what states, such as 

ilie Commonwealth of Virginia, are accomplishing in this arena. 

Introduction 

As home to one of the largest seaports on ilie East Coast, four major cargo airports, two 

Class I freight railroads, and some of the nation's most heavily traveled truck corridors, freight 

transportation pJays a tremendous role in the Commonwealth of Virginia's economic prosperity. 

However, like all states, and the nation as a whole, ilie Commonwealili must continue to take the 

steps necessary to adequately plan for and invest in our freight infrastructure. Virginia's efforts 

in this area are paying dividends. The initiatives and projects implemented during the 

McDonnell Administration are helping ensure that Virginia's burgeoning manufacturing, 

distribution, and other business sectors have the infrastructure necessary to grow, create jobs, and 

maintain ilie Commonwealili's position an10ng ilie most business friendly states in the nation. 

Freight in Virginia 

Centrally located along the East Coast of the United States, the Commonwealth of 

Virginia is within a one day drive of 40 percent ofilie U.S. population and a two day drive of70 

percent of the U.S. population. Fifty-five percent of the U.S. population resides within a 750 

mile radius. This central location plays a critical role in the impact freight transportation has on 

the overall Virginia. economy. 
38 


Insert offset folio 7 here 85021.007

Each year, Virginia's multimodal freight transportation system handles around 900 

million tons of freight valued at approximately $2 trillion. Much of, but certainly not all of, this 

impact is generated due to Virginia's central location and the Port of Virginia. The P011 of 

Virginia, which will be discussed in greater detail below, makes Virginia a gateway to 

international trade and helps support much of the economic impact generated through freight 

transportation. 

For example, Virginia is home to over 6,000 manufacturing establishments, which 

exported over $18.1 billion in goods in 2011. These manufacturing facilities ship and receive 

their goods into and out of the Port of Virginia through a global logistics network that supports 

over 68,000 jobs. Each year global logistics supports approximately 20,200 jobs in tlUcking, 

19,300 jobs in warehouse, and 14,600 jobs in transportation support. Global logistics related 

activities in Virginia have a direct economic output of $8.6 billion and support an additional $6.6 

billion in indirect output. 

Looking at the broader impacts of freight on Virginia's economy, roughly 50 percent of 

Virginia's output, 28 percent of our gross state product, and 34 percent of our employment are 

generated through freight-related industries. Economic estimates forecast that this impact is 

projected to grow tremendously over the next 30 years with freight industry output projected to 

increase by 100 percent, freight industry gross state product by 70 percent, and freight industry 

employment by 20 percent. Further, freight tonnage is projected to grow by 113 percent, with 

international container trade and air cargo trade each projected to grow by more than 200 

percent. 

Virginia'S freight industry is supported by the third Jargest state-owned highway network 

in the U.S., the third largest seapOlt on the East Coast, two Class r national freight railroads, nine 

short line railroads, and four intemational cargo airports. Over the past decade, Virginia has 

advanced several major infrastructure projects to improve our freight-related infrastlUcture. 

Several key examples include completion of the Nortolk Southem Heartland Corridor, which 

provides double-stacked rail access from the Port of Virginia to the Midwest; completion of 

Phase r of CSX Railroad's National Gateway, which was celebrated here in Wa~hington earlier 

this week; widening Route 58 to four lanes between Virginia Beach and 1-77 in southwest 

Virginia; completion of the Route 164 median raitline, which improved rail access to APM 

2 
39 


Insert offset folio 8 here 85021.008

Tenninals in Portsmouth, the most technologically advanced marine cargo terminal in the United 

States; and expanding use of the James River Barge Service's 64 Express to transport containers 

to and from the Port of Virginia. 

Additionally, several major projects designed to enhance our freight transportation 

network are also underway. Examples include the 1-564 Intermodal Connector in Hampton 

Roads, new truck climbing lanes and safety improvements on 1-81, and widening 1-64 from 

Newport News to Williamsburg. While these projects are all tremendous steps to improving not 

only our freight-related infrastructure but also our transportation networks in general, Virginia, 

like all states and the nation as a whole, must continue to take innovative steps to better plan for 

and fund the future infrastructure necessary to support projected demand in freight 

transportation, attract new economic development opportunities and create jobs. 

Virginia's Freigbt Plan 

Recognizing the importance offreight'S role in transportation planning, the 

Commonwealth recently completed the Virginia Statewide Multirnodal Freight Study. This 

study, which began in the mid-2000's and culminated with a final report in 2010, serves as the 

foundation for freight planning in Virginia. Phase I of the study focused primarily on collecting 

data and inventorying conditions and needs, while Phase II focused on identifying both short and 

long-term projects and strategies for improving freight transportation in Virginia. 

The study concluded that, while Virginia'S transportation planning process has 

historically done a good job of accounting for future congestion, it did not connect the growth 

trends of trade and business to transportation demand, nor did it assign impact or value to the 

freight transportation industry in terms of growing congestion or planned transportation 

improvements. To remedy this situation, the study made findings and recommendations, aside 

fi'om identifying potential freight related projects, to address these issues: to prescribe an 

effective freight transportation policy; to make more accurate statement~ to decision-makers and 

the freight community as to what the Statewide Transportation Plan does for freight mobility; 

and provide tools to Virginia's transportation planners to evaluate recommendations and make 

decisions based on collaborative transportation goals that impact, not only freight transportation 

providers, but every consumer that pays for their service. 

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Today, not only are many of the projects identified in the freight study underway or 

programmed for the near-teIID, but freight plays a central role in Virginia's long-term 

transportation planning process. The Virginia Multimodal Freight Plan, set to be complete by 

December 2013, develops policy recommendations for freight which reflect stakeholder input 

from the Virginia Freight Transportation Advisory Committee (VFTAC), the Virginia Freight 

Transportation Technical Committee (VFTTC), and the VTrans performance based planning 

process; organizes and supplements information from the 20 I 0 Multimodal Freight Study to 

meet new Federal requirements for state freight plans introduced in Moving Ahead for Progress 

in the 21st Century (MAP-21); provides recommendations for strategies and projects types to 

achieve the goals of MAP-21; and identifies policy initiatives that can be translated into project 

recommendations at the agency level. The Virginia Multimodal Freight Plan not only serves as a 

key input to VTrans, Virginia's long-range transportation plan, but also fulfills new Federal 

requirements that states identifY major freight needs within statewide freight plans in order to 

qualify for increased Federal funding for freight projects. 

Rail Funding 

Virginia has also long recognized the importance rail infrastructure plays in the Virginia 

economy and freight transportation network. In recognition of this importance, the Virginia 

General Assembly has created and funded three separate funds geared towards fimding our rail 

infrastructure: the Rail Enhancement Fund (REF), the Rail Industrial Access Fund (RIAF), and 

the Rail Preservation Fund (RPF). Through the REF, the Commonwealth helps fund up to 70 

percent of the costs of major rail infrastructure projects. Examples of such projects include the 

Heartland Corridor and the National Gateway as referenced above. 

The Rail Industrial Access Program helps connect businesses to freight rail service by 

funding the construction or improvement of railroad tracks and facilities to serve industria! or 

commercial sites where freight rail service is currently needed. This grant program supports 

localities, businesses, or industries seeking to provide freight rail service, through Virginia's 

shortline railroads, between the actual site of an existing or proposed facility and common carrier 

railroad tracks. The RPF also provides grants to improve shortline railroad infrastructure. 

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Port of Virginia 

The Port of Virginia is one of the Commonwealth's most important economic assets. 

According to an economic impact report compiled by the Mason School of Business at the 

College of William and Mary, the port annually supports over 343,000 direct and indirect jobs 

and generates $41 billion in revenues, over $13 billion in payroll, and $1.2 billion in state and 

local taxes. In calendar year 2012, the Port handled over 2.1 million TEUs, the second highest 

cargo volume in its history, and it is on pace to exceed that number this year. 

As the only East Coast port currently capable of docking post-Panamax class vessels, the 

Port of Virginia is poised to undergo tremendous growth over both the short and long-term. 

Today, the Port is the only port on the East Coast with the 50 feet deep chatmels necessary for 

today's larger vessels, and Virginia's facilities have both the existing and planned terminal 

capacity to accommodate significant gro·wth. Additional advantages include the lack of 

overhead restrictions in shipping lanes, access to two Class I railroads, good labor relations, and 

Virginia'S overall business climate. 

PurSUatlt to state law, the Virginia Port Authority receives 4.2 percent of Virginia's 

Transportation Trust Fund. This funding, which amounts to approximately $39 million per year, 

is dedicated to the Commonwealth Port Fund (CPF). These CPF funds are the principle 

dedicated source of revenues for port related capital expenses, and are typically used to fund debt 

service on port bonds. The VP A receives no general fund revenue, and operations are funded 

through terminal operating revenues. A portion of terminal operating revenues are also used to 

support port related capital expenditures. 

The Port of Virginia is not without its challenges, both internally and externally. Over 

the course of the past three years, the McDonnell administration has strived to create new 

efficiencies and reduce the costs associated with port operations. This effort culminated in this 

year's reorganization of the operating structure between the Virginia Port Authority (VPA) and 

its operating arm, Virginia International Terminals, principally in an effort to eliminate 

redundancies and reduce operating costs. As the reorganization atld other reforms are 

implemented, the cost savings for the port will help generate additional revenues that can be 

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utilized to fund additional on dock infrastructure improvements and to help fund off-dock 

highway and rail projects. 

A major external challenge facing the Port of Virginia is the movement of containers into 

and out of its cargo facilities in Hampton Roads. Over two-thirds of the containers moving into 

and out of the port move via truck. Becanse of the port's location in Hampton Roads, truckers 

hauling containers to and fro~ the port must pass through one of several major bottlenecks at the 

region's bridge-tnnneis and fight congestion on I-64 or travel rural Route 460 to connect to other 

major arteries. These bottlenecks are among some of the most congested infrastructure facilities 

in the Commonwealth and cost shippers time and money. 

To combat this congestion, the Port of Virginia has over the years initiated a number of 

projects to reduce truck traffic on Virginia'S highways. For exanlple, the VPA owns and 

operates an intermodal facility at the Virginia Inland Port in Front RoyaL This facility enables 

truckers traveling from the Midwest and Northeast to offload their containers and put them on 

rail for the remainder of the trip to Hampton Roads. Additionally, the VP A leases and operates 

the Port of Richmond, which is served by the James River Barge Service. The 64 Express has 

grown from one weekly trip to two trips per week, and will soon expand to three trips per week. 

This service enables truckers to offload their containers in Richmond to avoid the congested I-64 

corridor. Finally, the Commonwealth is working with Norfolk Southern to construct the new 

Elliston Intermodal facility in Montgomery County. However, despite these intermodal 

successes the Commonwealth and the VP A must address the bottlenecks referenced above for 

the port to utilize its advantages and achieve its projected growth. 

Freight Projects 

Addressing the port's highway related bottlenecks has been among the McDonnell 

Administration's top transportation priorities. Not only do these bottlenecks hurt the port's 

future competitiveness, but they also negatively impact the daily lives of those citizens living and 

working near the port. However, because the Hampton Roads region is surrounded by water, 

these projects cost many billions of dollars. Addressing these bottlenecks alone - both to 

generally improve our transportation infrastructure and help the Port of Virginia grow will cost 

well over $] 0 billion. 

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The Virginia Department of Transportation is currently undertaking two projects in the 

Hampton Roads region through partnerships with the private sector. These projects - the 

Downtown Tunnel/Midtown Tunnel/MLK Extension Project ("Midtown Tunnel") and the Route 

460 Conidor Improvement Project ("Route 460")·- are both utilizing innovative financing 

meehanisms to make otherwise unaffordable projects affordable, and will not only improve 

freight transportation, but significantly reduce eongestion for cornnmters and truckers alike. By 

partnering with the private sector, not only is Virginia leveraging a limited state investment to 

complete billions of dollars worth of infrastructure, but these projects will be completed much 

sooner than if the state funded them entirely on their O"lD. 

The $2.1 billion Midtown Tunnel Project, which is being eonstructed by Elizabeth River 

Crossings, wiil lead to the refurbishment of the existing Downtown Turmel, a new two-lane 

tunnel next to the existing Midtown Tunnel, and an extension of the Martin Luther King 

Expressway to provide greater interconnectivity between the two facilities. The Downtown 

Tunnel is the most congested facility east of the Mississippi River, and the Midtown Tunnel 

provides a critical cOlmection for truck traffic to and from the port, as it provides access to Route 

58 and Route 460 for truckers cOlmecting to Interstates 85 and 95. The additional tube at the 

Midtown Tunnel will provide much needed additional capacity as the port continues to grow, 

and the MLK extension will enable both commuters and truckers to more easily choose between 

the two tunnels based on incidents and other congestion. 

The Route 460 Project, while not a traditional P3 project, demonstrates how innovative 

approaches to transportation projects not only help the freight industry, but can also improve 

emergency preparedness, reduce congestion, attract economic development, and create jobs. The 

existing Route 460 is a four-lane rural road running through several smaIl towns and 

communities. It is not designed to accommodate significant truck traffic, and is frequently prone 

to flooding and major delays from incidents. However, because of the corridor's proximity to 

the port and a CSX rail line, many of the local governments throughout thc corridor are 

undertaking aggressive economic development campaigns to attract the manufacturing 

companies, distribution centers, and intermodal facilities that will support future growth at the 

Port of Virginia. 

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The Route 460 Project is a new 55 mile, four-lane, limited access tollway that will run 

parallel to the existing Route 460. To fund the project, VDOT has established a 63-20 

corporation to issue $216 million of tax-exempt bonds, with VDOT providing $930 million in 

funding and the Virginia Port Authority providing $250 million, pending a determination on a 

TIFIA loan. From a freight standpoint, the new 460 will provide faster access to Interstates 85 

and 95 for those trucks that currently travel existing Route 460, while providing a more timely 

alternative for those truckers that cun-ently choose to travel through the tunnels and up Interstate 

64. Also, the new roadway will significantly enhance emergency preparedness by serving as a 

new evacuation route from Hampton Roads, and will generally serve as an additional artery for 

the hundreds of thousands of tourists and vacationers visiting the region each year. 

Perhaps more importantly, because of its key location near the Port of Virginia, the new 

Route 460 will help attract thousands of jobs and countless economic development opportunities 

from companies looking for direct, easy access to the port and surrounding intermodal facilities. 

A 2012 economic impact study conducted by Chmura Economics projected that once complete, 

the direct and indirect benefit of the new Route 460 and related growth at the Port of Virginia 

could result in as many as 25,000 new jobs and nearly $14 billion in economic impact. 

These two projects are emblematic of the types of investments that must be made to 

enhance our nation's freight infrastructure, and they demonstrate the type ofinnovative 

partnerships that must be utilized in the face of constrained financial resources. Public-private 

partnerships - whether traditional partnerships for road construction, innovative new financing 

mechanisms like that utilized for the Route 460 partnership, or shared investments with railroads 

- must playa critical role in the future funding of freight infrastructure throughout the nation. 

MAP-21 

For the first time ever in federal transportation policy, Moving Ahead for Progress in the 

21't Century (MAP·21) recognized the importance offreight transportation and the role the 

efficient movement of commercial goods plays to growing the United States' global 

competitiveness. MAP-21 's freight related provisions include the designation of a National 

Freight Network, the development of a national freight strategic plan, prioritization of projects to 

improve freight movement, encouraging states to form state freight advisory committees and 

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establish freight plans, and the implementation of national performance mea~ures for assessing 

freight movement on the interstate system. 

In Virginia, we welcome recognition of the importance offi-eight in federal surface 

transportation policy. As noted above, Virginia previously created a freight advisory committee 

and freight plan, and we are currently in the process of updating our plan to comply with the 

provisions of MAP-2 1. Additionally, the enhanced funding opportW1ities for projects on the 

National Freight Network are a welcome addition to federal surface transportation policy. 

As the Chairman of the American Association of State Highway and Transportation 

Officials Special Committee on Intermodal Transportation and Economic Expansion, I can also 

say collectively that the new importance placed on freight transportation at the federal level is a 

tremendous step forward. However, as with any new policy, I believe there are certain areas 

where we still must improve as Congress begins to look toward a reauthorization. Specifically, 

the National Freight Policy should recognize the importance of moving goods between 

popUlation centers and rural areas, as well as the multimodal and intermodal nature of freight 

transportation. Additionally, Congress should provide enhanced eligibility for states to 

undertake multi-state planning initiatives and projects given the inter-state nature offreight 

transportation. A further consideration should also be expanding the National Freight Network. 

The initial 30,000 mile cap is too restrictive and does not adequately recognize the differences 

between states in designating Critical Rural Freight Corridors. Lastly, as we work in partnership 

with the federal goverrnnent to implement the new performance measures, it is imperative that 

Congress not make changes so states have an OPPOrtW1ity to assess their effectiveness. 

Conclusion 

Freight transportation is a critical component of the Commonwealth of Virginia's and the 

nation's overall economic prosperity. Both states such as the Commonwealth and the federal 

goverrnnent are making tremendous progress in recognizing this importance and beginning to 

adequately plan for future growth in freight transportation. As we coniinue our efforts, it is 

imperative that we continue to maintain the long-standing partnership between the states and the 

federal goverrnnent on transportation policy. The federal government must continue to provide 

states with the flexibility and tools contained in MAP-21, while fully funding the Highway Trust 

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Fund, and states must continue to look for innovative new solutions to solving transportation 

funding at the state leveL 

Mr. Chairman, distinguished members ofllie panel, thank you again for the opportunity 

to be here today. I look forward to our continued partnership as we work to build the 21 st 

Century freight networks necessary to ensure our continued economic prosperity. 

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Testimony of 

Leif Dormsjo 

Deputy Secretary, Maryland Department of Transportation 

Regarding 

"Funding the Nation's Freight System" 

House Panel on 21 st Century Freight Transportation 

Octo her j(), 2013 
48 


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Good morning. Chairman Duncan, Ranking Member Nadler, members of the Panel, my 

name is LeifDormsjo, Deputy Secretary of the Maryland Department of Transportation 

(MDOT). Thank you for the opportunity to provide this testimony on behalf of the State of 

Maryland and speak about the utilization of Public Private Partnerships, or P3s, to help 

address Maryland's infrastructure needs. 

I will outline how, combined with traditional federal and State funding sources, Maryland 

has successfully implemented P3s to accelerate the delivery of critically needed projects. I 

would like to emphasize that the benefits ofP3s arc not a substitute for traditional federal 

and State funding sources. P3s can be a valuable tool in the toolbox but must be viewed as 

a supplement to predictable and stable federal and State investments. 

Marylanders suffer from some of the worst congestion nationwide. Combined, the highest 

priority transportation project in every Maryland County and Baltimore City would cost 

over $12 billion to construct. These challcnging economic times call for new ways to do 

business. We realizcd that we needed to tind innovative ways to make more effective and 

efficient use of public resources. Through P3 delivery of an enhanced Seagirt Marine 

Terminal, we have demonstrated that P3s can create greater overall value tor the State. We 

arc now taking the lessons learned from this project and applying them to a broader 

statewide, programmatic approach to P3 project delivery. 

Seagirt Marine Terminal 

Under Governor Martin O'Malley's leadership, we were able to complete the biggest port 

project in the State's history. On January 12,2010, Maryland entered into a 50-year lease 

agreement with Ports America Chesapeake to construct and operate the Seagirt Marine 

Terminal at the Port of Baltimore. 

For this P3, the Maryland Port Administration leased its 200-acre Scagirt Marine Terminal 

to Ports America Chesapeake. In return, Ports America constructed a 50-foot berth and 

agreed to make needed capital investment over the life of the lease, as well as taking 

responsibility for the terminal's operation. We estimated that 5,700 new jobs were created 

with 3,000 coming from constructing the 50-foot berth and from the resulting Maryland 

Transportation Authority highway projects. We expect 2,700 additional jobs will result 

from increased container business resulting from the Panama Canal project. From a State 

revenue perspective, it will generate about $15.7 million every year in additional tax 

revenue for Maryland. 

The total investment and revenue from this agreement to the State of Maryland has the 

potential to reach more than $1.3 billion over the entire 50-year term. This includes an 

annual revenue stream of $3.2 million in fixed rent and an additional $15 per container 

above a 500,000 container threshold. 

Scagirt was completed in 2012, two years ahead of schedule. As a result, Baltimore has 

now become the second port on the East Coast to have unrestricted access to both a fully 

functioning 50-toot channel and 50-foot berth. We are now prepared and well positioned to 

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receive the expected increase in the number and size of ships expected to travel to East 

Coast ports as a result of the Panama Canal expansion. 

During the Seagirt P3 process, it became clear that communication and transparency was of 

utmost importance. In order to ensure a smooth and well-coordinated process, it was 

imperative to not only structure a transaction that would provide significant economic 

benefit to all parties, but to also keep key decision-makers apprised of any significant 

developments. Other characteristics that supported the success of the Seagirt P3 included: 

Well-defined objectives and evaluation criteria issucd by MDOT at the beginning of the 

process. Clear goals dcmonstrate a commitment to proceed by the government. 

Reasonable expectations by both the public sector and private operator and a 

willingness to work together. It is important to have a mutual appreciation of risk 

sharing and long-term objectives. 

Commitment by the government and the private sector to the success of the project. Thc 

complimentary resources and skills of partners provide synergistic benefits. 

The agreement must bc a win-win tor the public and private sectors. Such alignment of 

interests establishes a relationship between the public and private sectors based on 

partnership, not confrontation. This provides the appropriate motivation to ensure that 

service quality is upheld to a high standard over the lifetime of the asset. 

The process should involve a well-coordinated reviews and approval process that 

enables timely closing. Throughout the process, it is important to make sure the goal 

line is clearly visible to all key stakeholders and decision-makers. 

Applying Seagirt Lessons Learned to a Programmatic P3 Approach 

MDOT is now applying the lessons learned from the Seagirt P3 to enhance its overall 

approach to P3 projects and processes. In addition to the P3 that is currently under 

construction for the lWO Travel Plazas on 1-95, Governor O'Malley and Lieutenant 

Governor Anthony Brown recently announced that one of our New Starts projects, the 

Purple Line, will be Maryland's first transit P3 project. We are also evaluating elements of 

the Red Line in Baltimore City that may be appropriate for the P3 process. 

Under the leadership of the O'Malley-Brown Administration, the Maryland General 

Assembly recently passed the State's Public-Private Partnership legislation, which took 

effect on July 1,2013. The legislation provides the private sector with a stronger, more 

predictable, and streamlined process that balances risk and protects the State's interests. It 

draws upon the experience with Sea girt and provides a clear framework for delivery of 

future P3s. 

Under the new P3 law and guided by new P3 regulations, MDOT is developing a more 

programmatic approach to identification, screening, and advancement of potential future 

transportation P3s. Over time, this will result in a substantial pipeline offuture P3 projects 

across all transportation modes. Advancing P3s through this programmatic approach will 

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expedite asset delivery and tree up State dollars to be used for other critical projects. Over 

time, P3s aeross all of the Stale's infrastmcturc sectors could contribute between six 

percent and ten percent of Maryland's annual capital budget, creating as many as 4,000 

jobs. 

Transportation Infrastructure Investment Act of 20 13 

As much as we recognize the benefits ofP3s, they cannot and should not be viewed as a 

substitute for traditional funding sources. There is a great deal of synergy between the P3 

legislation and the Governor's Transportation Infrastmcture Investment Act 01'2013. 

Thanks to the leadership of the Governor, Lieutenant Governor, Maryland Senate President 

Miller, Maryland House Speaker Busch and members of the General Assembly, this 

Maryland Act is already starting to pay dividends. 

This historic Transportation Investment Act will shape the future of transportation in 

Maryland and provides MDOT much-needed resources to seriously address the pent-up 

demand for transportation projects. With $4.4 billion in new funding that will make a real 

difference in Maryland's quality of life, we can now move projects that have already been 

studied, planned, and designed into the construction phase. The $4.4 billion in new funds 

will create an estimated 57,200 jobs and spark billions of dollars in economic activity_ 

Since the bill signing in May, Governor O'Malley and Lieutenant Governor Brown have 

held a series of public events to announce more than $3 billion of the $4.4 billion in new 

funding to advance priority projects throughout the State. 

The additional benefit from the Transportation Investment Act is the spin-off effect it will 

have to support the economic engines for Maryland from BaltimorelWashington 

International (BWI) Thurgood Marshall Airport and the Port of Baltimore to our freight 

business. From improving our environment to making it easier to get to work and to move 

freight, the positive impacts of the new $4.4 billion in new projects over the next six years 

will be felt across the State. 

Focus on Freight Mobility and Intermodal Connections 

Although the focus of my testimony has centered on the importance of a variety of funding 

and financing options to build a multi-modal transportation network, I would also like to 

address the broader charge of this panel to address freight transportation. MDOT is a 

multimodal agency with a strong history of providing investment critical to efficient goods 

movement in the WashingtOn/Baltimore metropolitan region, along multistate freight 

corridors including 1-95 and the CSX National Gateway, and throughout Maryland, the 

United States, and the world. 

MDOT is involved in everything from the management of our State-owned short line 

railroad serving the vital needs of agricultural customers on the Eastern Shore, to ensuring 

international cargo handled at the Port of Baltimore or BW1 Thurgood Marshall Airport, 

moves efficiently along our rails and roadways. 

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We are fortunate that Maryland's State funding and organizational structure provide a 

f1exible environment to plan and fund intermodal and freight mobility improvements. 

MDOT has a dedicated, mode-neutral funding source; the Transportation Trust Fund (TTF) 

is a pooled fund, supported by motor vehicle excise taxes and vehicle fees, fuel tax 

revenues and a portion of the State sales and corporate income taxes. None of these 

revenue streams are tied directly to a stove piped program or project. Using this flexible 

fund, we can and do apply State funding to intermodal passenger and freight projects. 

Unfortunately, being the birthplace of rail in America has one disadvantage - our first-ofits kind infrastructure is now the oldest collection of tunnels, bridges and track. Located 

along colonial-era distribution pathways and built to 1870's standards, these facilities have 

significant capacity and clearance limitations that preclude access by industry-standard 

double-stacked containers to the Port of Baltimore. Addressing this impediment is a high 

priority for Maryland and the region. We are employing innovative mechanisms and 

partnerships and seeking federal funding to help remove thesc barriers. 

In recent years, Congress has made significant investments aimed at supporting intennodal 

and freight projects through thc United States Department of Transportation (USDOT) 

Transportation Investment Generating Economic Recovery (TIGER) program that gives 

states the ability to consider large-scale, big-ticket, and multi-modal projects. 

A P3 relatcd to the CSX Transportation's National Gatcway Initiative was one ofthc 

earliest beneficiaries of the TIGER program, receiving $98 million in the first phase of the 

project using grant funding from the American Recovery and Reinvestment Act (ARRA). 

Although this grant did not extend the federal investment far enough to move freight from 

the Port of Baltimore or to serve domestic markets in the Baltimorc-Washington region, the 

effort spurred public and private partners to work together in dcvelopment of an intermodal 

facility in Baltimore. 

Thanks to the support of our Congressional Delegation, Maryland was able to secure a 

TIGER V grant for $10 million in federal funding for the Port of Baltimore. Earlier this 

month, we werc very pleased to welcome Vice President Biden, Senator Mikulski, Senator 

Cardin, and others to the Port of Baltimore to discuss its impact. The $29 million project 

will use dredged material from the Port's main access channel to create a 7.6-acre eargo 

staging area in a prime location near the vessel berth. Rail access will also be added at 

Fairfield to improve the Port's handling of autos and roll on/roll off equipment. 

In addition to TIGER, the President's High-Speed and Intercity Passenger Rail (HSIPR) 

initiative provides indirect freight benefits by reducing highway and air congestion and 

through improvements to system reliability and safety. Under this program, Maryland 

received funding for three projects critical to the Northeast Corridor: the Baltimore and 

Potomac (B&P) Tunnel Preliminary Engineering and NEPA ($60 million); BWI Station 

Area Improvements PE and NEPA ($9.4 million); and the Susquehanna River Railroad 

Bridge Replacement PE and NEPA ($22 million). These projects will require significant 

future federal funds to construct. 

5 
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MDOT also participates in farther-reaching regional coalitions such as the 1-95 Corridor 

Coalition, the 1-81 Corridor Coalition, and the Coalition of Northeastern Governors to tie 

our State efforts to a largcr contcxt and develop idcas to advance conncctivity and mobility. 

One product of these cooperative efforts was the Mid-Atlantic Rail Operations Study 

(MAROps) of the 1-95 Corridor Coalition. MAROps recommended $12 billion in rail 

capacity improvement projects in a five-statc rcgion. When chokepoints are eliminated, 

increased rail capacity will stimulate gro\vth and accommodate a major shift from longhaul trucking to more energy-efficient frcight rail. The region could then realize an annual 

increase of$1.3 billion in business output and 9,800 more jobs. The MAROps study 

confirms the need for national support for major rail improvement projects, especially 

extremely complicated, multi-billion dollar projects including Baltimore's passenger and 

frcight rail tunnels. 

These investments bcncfit the rcgional and national cconomies as well as the environment. 

Further, investments can be made in areas where additional highway and bridgc capacity is 

too cxpcnsive or right-of-way is no longer available. 

While states and private freight companies can address many smaller projects on their own 

or with existing federal formula and loan programs, ongoing and permancnt commitmcnt 

from thc fcderal governmcnt is necessary to initiate and complete major projects. We hope 

to obtain fedcral funding to help build solutions that will allow the East Coast to handle the 

tremendous grov,th in frcight anticipated over the next few decades. These investments can 

also have multimodal benefits. In Maryland, the benefits of passenger or freight projects 

are often shared among intcrcity passenger, commuter, and freight raiL 

Maryland and many other states are developing the necessary plans and preparations for 

future opportunities, and we encourage continued and increased federal support to further 

these efforts. Intermodal and freight connectivity projects must be part of the balanced, 

flexible and multimodal transportation system our nation needs to compete in a 21 st century 

global economy. 

Thank you for your attention to this important subject. 

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Robert D. Atkinson 

President and Founder 

Information Technology and Innovation Foundation 

Hearing on Funding the Nation's Freight System 

Bcfore the Committee on Transportation and Infrastructure 

Panel on 21 st Century Frcight Transportation 

United States House of Representatives 

October 10, 2013 
54 


Insert offset folio 23 here 85021.023

Chainnan Duncan, Ranking Member Nadler and members of the Committee, I appreciate the 

opportunity to appear before you to discuss the issue of funding the nation's freight system. 

I am the president and founder of the Information Technology and Innovation Foundation (ITlF). ITIF is 

a nonpartisan research and educational institute whose mission is to fonnulate and promote public 

policies to advance technological innovation, productivity and competitiveness. In addition, I served as 

the Chair of the Congressionally-mandated National Surface Transportation Infrastructure Financing 

Commission, one of two commissions created in the SAFETEA--LU legislation. The Commission 

released its final report to Congress in 2009. My comments today, however, reflect the view of IT IF and 

not necessary those of the Commission. 

The Commission's charge was to examine financing issues related to our nation's surface transportation, 

in particular highways and transit. As such, I will not address issues related to air and water 

transportation and will concentrate on truck freight transportation. Because freight moved by trucks 

largely shares the same road network with passenger vehicles improving truck freight transportation 

largely means improving the entire highway and road system generally. However, as discussed below 

there are some specitic improvements that can be made that would target truck travel. including the 

establishment of truck-only tolilanes/roads. In addition, there are specific steps that can be taken to 

increase funding from trucks. To do this. in the short-tenn I recommend that Congress should increa~e 

existing truck taxes, including the Heavy Vehicles Use Tax and diesel fuel taxes. In the medium tenn, I 

recommend that Congress should require that all heavy trucks move to a vehicle miles traveled tax system 

(VMT) and that all other taxes paid by trucks be eliminated. Finally, [ recommended that Congress 

authorize a study to assess whether imbalances that have been documented in past studies between the 

burden that freight-carrying vehicles (especially heavy commercial vehicles) impose on the system and 

the funds they generate for the HTF still exist. 

The Extent of the Problem 

As you have heard in other hearings the U.S. surface transportation system faces major challenges. From 

1980 to 2006, automobile vehicle miles traveled (VMT) increased 97 percent and truck VMT increa~ed 

106 percent, while over the same period the total number of highway lane miles grew only 4.4 percent. 

From 1982 to 2005, hours of delay per traveler increased 171 percent and total hours of delay increased 

425 percent; over this same period, the total cost of congestion increased 383 percent and in the nation's 

437 urban area~ that cost is now estimated at over $78 billion per year. As of 2006, over half of total 

VMT on the overall federal-aid highway system occurred on roads that were in less than good condition, 

many of which are in rural areas that connect these regions to each other and to urban centers. Over onequarter of the nation's bridges are structurally dellcient or functionally obsolete. From 1994 to 2006, tonmiles of freight moved by truck and rail grew by 31 percent and 52 percent, respectively. And in 2008, 

the top 25 truck bottlenecks in the United States (primarily at interstate interchanges) accounted for 

approximately 320 million total vehicle hours of delay and 37 million truck hours of delay each year. 
55 


Insert offset folio 24 here 85021.024

Truck I'olicy Iss lies 

There are three principal issues involved in improving freight transportation for trucking: I) how to invest 

funds in ways that help truck freight movement; 2) how to raise more money for these investments; and 3) 

how to ensure that trucking pays for the full costs they impose on the system. 

Investing in Truck Freight Projects 

Because for the most part cars and trucks share a common infrastructure, any comprehensive solution to 

truck transportation challenges will require a comprehensive solution to our nation's roads and highways. 

This is because the performance and conditions of the nation's highway and road system are clearly 

substandard. Improving the entire system will have beneficial impacts for trucks as well as for passenger 

vehicles. 

Having said that, in freight transportation, there is one nearly universal truth: almost every unit of freight 

reaches its final destination via truck. Yet alleviating freight congestion bottlenecks and addressing thc 

"first mile" or "last mile" linking public to private freight intrastructure are frequently not part of the 

federal-aid highway system and may even be overlooked by state and local transportation planners. As 

evidenced by the limited last-mile investments around ports, the general lack of focus on alleviating 

freight bottlenecks, and the calls by many stakeholders fill' a "national freight program." many ofthe 

nation's ireight investment needs do not get adequately addressed through cun'cnt federal policies and 

funding programs. 

Because any freight-related revenue mechanism becomes an operating cost for the freight industry, visible 

benefits are necessary to generate the industry support required to make the mechanism politically viable. 

Thus. dedicating a significant portion of any additional freight-generated funds for freight purposes would 

improve their political viability. These projects include focusing on areas of freight-oriented congestion 

generally on the national highway system and on intermodal or border crossing projects. including access 

to and from ports. 

Funding to Support for Freight Pro.jects 

There are two ways to pay for increased expenditures that would help truck travel: increasing the amount 

freight pays or obtaining the funds from other sources. Given the chronic underfunding of slll'facc 

transportation and the significant federal budget defiCit, it makes little sense to obtain funding from other 

sources. Diverting monies from the general fund either increases the deficit or reduces needed spending 

on other areas. Taking money from the Highway Trllst Fund means that the existing level of 

underinvestment WOllid only get larger and the conditions and performance orother parts of the system 

would get worse at a more rapid rate. Increasing other taxes means that these tax revenues cannot be used 

for other purposes such as debt reduction. Moreover, one key principle the Commission believed should 

guide surface transportation funding is that the user should pay for the costs they impose on the system. 

Increasing funding for Ireight-oriented projects without asking the trucking industry to pay more violates 

this principle. 
56 


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With the possible exception of a container tax that could be used to fund an intennodallborder crossing 

program, the best way to increase funds from freight in the short tenn is by increasing the fees that the 

trucking industry currently pays into the federal Highway Trust Fund (HTF) and in the medium term by 

supporting the expansion of truck-only toll lanes/roads and moving to a vehicle miles traveled (MVT) fee 

system for trucks. 

Increase truck taxes 

The trucking industry pays a variety ofditferent taxes to support the HTF. In 2007 about $3.8 billion was 

raised through a 12 percent federal sales tax on the retailer's sales price for tractors over 33,000 pounds 

gross vehicle weight (GVW) and trailers over 26,000 GVW. Another $1 billion was raised through the 

federal Heavy Vehicle Use Tax, which requires trucks with a GVW of 55,000 pounds or more to pay an 

annual tax of$100, plus $22 for each 1,000 pounds over 55,000 pounds. This tax isjustitied in part 

because it helps to recover some of the system damage costs caused by heavier vehicles. The remaining 

$500 million was raised through a federal excise tax on tires, which charges 9.45¢ for each 10 pounds of 

maximum rated load over 3,500 pounds. In addition, trucks pay a tax on diesel fuel. which raised $10.1 

billion. 

To raise funds needed for expanded investment, Congress should douhle the Heavy Vehicle Use Tax 

(HVUT) to account for the fact that it ha<; not been increased since 1983 (doubling would recapture lost 

purchasing power) and then index the Hvur and the excise tax on truck tires to int1ation going forward. 

The fact that this tax has not been increased since 1983 means that the trucking industry pays less in real 

tenns each year. as its revenues increase every year due to int1ation. Doubling the tax would raise 

approximately an additional $1 billion per year. In addition, if Congress does not want to increase fuel 

taxes (diesel and gas) it should at least index them to inflation. For not doing this is to have a defacto 

policy of cutting the taxes road users pay every year. 

If Congress does increase and, where relevant, index for inflation the current fees, including the diesel 

tax. truck tire taxes, and the Heavy Vehicle Use Tax-· and does not also increase the taxes paid by 

passenger vehicles, then a portion of these fees should be available only for freight-related investments. 

depending on the extent to which trucking does not currently pay its full share of system costs (as 

discussed below). 

Enable truck-only toll lanes/roads 

Significantly improving our nation's surface transportation infrastructure requires investment and that. by 

detinition, is not tree. Tolling can playa key role in generating the funding to pay for expanded capacity. 

While broad-based tolling to support new capacity expansion is required to improve mobility. especially 

if Congress does not increase funding for the Highway Trust Fund, there may be opportunities to develop 

truck-only toll lanes and/or roads. There are several steps Congress can take. First, Congress can require 

the federal Department of Transportation to structure the federal highway program so that it provides 

incentives for states to adopt tolling a<; a solution. Too many states do not want to support toll-funded 

projects because of fear of public opposition, despite the fact that toll projects are usually supported by 

the public after introduction. Lowering the share of federal ti.mding for non-toll projects from its current 

90 percent share, while funding the full 90 percent for toll projects would provide a stronger incentive for 
57 


Insert offset folio 26 here 85021.026

states to establish more toll projects. In addition, enabling truck-only toll lanes on the Interstate system 

will require Congress removing the restriction on tolling the Interstate or at minimum allowing additional 

capacity on Interstates to be tolled. 

Moving to a Truck VMT system 

The policy change with the most promise is to move to a vehicle miles traveled system (VMT) for 

trucking. Because of the significant advantages of a VMT system, coupled with the fact that at some 

point in the future a significant share of vehicles are likely to be powered by electricity, it is largely only a 

matter of time before vehicles pay to use roads on the basis of a VMT system. As such, Congress should 

accelerate the transition to a VMT system by requiring that trucks adopt the system first. 

The advantage of starting a national VMT program with trucks are two-fold. First, the scope of the 

program would be smaller (there are many fewer trucks than cars), making it easier to implement. In 

addition, the cost of a VMT system for a truck is a much smaller component of overall vehicle cost than 

for passenger vehicles, and any system could be designed around the technology already installed in the 

trucks. Second, the benefits from a VMT system for trucks is higher than for cars, in part because the 

variation of costs imposed by trucks on the system is much higher than it is for passenger vehicles. 

At least one nation has adopted a truck VMT system. In 2005, Gennany began charging all heavy 

vehicles (i.e., trucks over 12 tons) for all miles driven on roughly 7,500 miles of motor ways throughout 

the country. Tolls are charged per kilometer based on a satellite Global Positioning System (GPS) for 

most vehicles, and they vary by axle number (trucks with more axles pay a higher toll since they 

presumably do more damage to the road)' and vehicle emission class (trucks that pollute more pay a 

higher toll). A manual online payment and on-road enforcement system is available for truckers who do 

not want to participate in the satellite-based system. Toll payments are in addition to existing motor fuel 

taxes and other fees; 50 percent of these revenues are spent on roads, 38 percent on rail, and 12 percent on 

waterways. In 2009, average tolls were 12.4 euro-cents per kilometer and are adjusted based on vehicle 

emission characteristics. Initial findings from the pricing system indicate that the shift to more direct user 

charges has led to increased efficiency in Germany's heavy vehicle industry and provided benefits the 

German economy as a whole.' 

A truck VMT system could be designed in the following way. Trucks over a certain size and weight 

would be required to have an on-board unit installed (in new trucks such equipment would be mandatory) 

that would allow the unit to identify where it is, the time of day and day of week, and the charge for the 

segment of roadway the truck is traveling on. In addition, trucks would have axle weight sensors installed 

which would measure the weight ofthe truck per axle. Trucks would pay based on a number of different 

factors: the truck weight (heaver weights would pay more); emissions per mile ("dirtier" trucks would pay 

more); type of road (trucks would pay more to travel on roads not designed for heavy trucks and less on 

roads designed for them), and overall miles. In addition, trucks could be charged on the basis of 

congestion, with higher prices for driving on roads that are normally congested (e.g. urban freeways at 

rush hour periods). The system could be set up to collect and remit both state and federal taxes. 

There are a number of advantages to a VMT system over the current way trucks pay federal taxes. First, 

taxes would be more carefully related to costs imposed. Trucks that do more damage to roadways, add to 
58 


Insert offset folio 27 here 85021.027

congestion and pollute more would pay more. This in turn would increase efficiency by reducing 

payment damage, encouraging trucks to drive with fuller loads, and to pollute less. In addition, a truck 

YMT system would make it easier to implement truck-only toll lanes/roads as the payment system would 

be already in existence. And anonymized data on truck travel would help to identifY when and where 

truck bottlenecks exist and to help measure their severity. 

The trucking industry, however, has testified before this Committee that it opposes a truck-only YMT 

system. It provides several reasons for its position which are examined here. 

One objection is that a YMT would be used to increase the taxes paid by trucking. f lowever, the key 

thing to understand about a VMT system is that it can be used to generate less, the same, or more revenue; 

just as existing tax mechanisms can by lowering, raising or keep the tax rates the same. How taxes and 

fees are collected is a completely separate matter from the amount that are collected. 

A second concern is that a VMT system (like tolling) could cause diversion, leading trucks to travel on 

roads other than the most efficient for them. [n fact, a truck VMT system would have the exact opposite 

effect. By pricing thc segments of roads based on the total cost a truck imposes on it, trucks would have a 

stronger incentive to make the most societally efficient route choices. Moreover, a YMT system can be 

easily structured so a, to not double-charge trucks that are driving on tolled roads or bridges. The onboard computer would be able to download a pricing data base that would tell it when the truck is driving 

on a toll road and the truck would be charged only the toll, and not the YMT fee on top. 

A third concern is that a YMT system would lead to trucks being subject to double taxation. However, 

any system should be designed (as the Oregon Department of Transportation VMT pilot program was) so 

as to not charge a diesel tax when a YMT-enabled truck buys fuel. Likewise, the tire tax, HYUT and 

vehicle tax would not be charged on trucks equipped with a VMT system. 

A fourth concern is that there is no need to move to a YMT system until there is signi ficant penetration of 

alternative fuel (e.g., electric vehicles). But this assumes that the principal purpose of a YMT system is 

simply to raise revenues. In fact, the purpose ofa VMTsystem, whether it is for passenger vehicles of 

truck is not just to raise money hut to charge fees that match that actual costs imposed on the system. 

Moreover, moving first to a truck YMT system it will be easier to later transition to a passenger VMT 

system, which will take more time. And during this time the growth of electric vehicles will surely 

increase. 

A fifth concern is around privacy. To be sure, there is a very real concern among policy makers and the 

general public that a road pricing system that charges based on when and where individuals travel 

inherently threatens privacy. But in fact, the privacy concerns are largely based on a misperception of 

how these systems actually work. Any VMT design centers on the use of an on-board unit (one in each 

vehicle) that would contain a GPS receiver that receives satellite signals enabling it to calculate vehicle 

location in real time and a computer that calculates the associated YMT charge. The key point is that the 

satellite signal is only a one-way signal "telling" the car receiver where it is, and therefore outside the 

vehicle there is no tracking of where individuals travel. [n essence, this receiving function of a YMT 

system would function like the GPS devices that millions of Americans have already installed in their cars 

without worry of privacy loss. 
59 


Insert offset folio 28 here 85021.028

The more critical question related to privacy is what happens to the travel information that is stored on the 

on-board unit Such a system can and should be designed so that the information transmitted to the 

administering agency would only relate to the bulk charges due and would not include specific 

information about trip origins and destinations, routes, or time of traveL In other words, the 

administrating agency would only receive information that a particular vchicle owes a particular amount 

each month, It should be noted that such a system would provide considerably more privacy than other 

information technology systems in our society, such as credit card and cell phone systems, where the 

relevant company knows not just how much a person owes but where the individual made purchases and 

what phone numbers were called (and, in fact, approximately where the person is when making a call). 

Moreover, information should be transferred from the vehicle to the administrative agency (or gas pump) 

in secure ways--for example, by encrypting the data transfer. 

A sixth concern relates to pricing flexibility, with the industry asserting that it does not have the ability to 

absorb increased costs. As noted above any system can be structured to be revenue neutral should 

Congress decide to do this. But even if the overall revenues from trucking are the same, some segments 

of the industry or kinds of trucks could pay more (while others pay less). To ensure that charges are 

appropriate and encourage efficient use, prices must be established through a sound analytical process 

that considers the findings from cost allocation studies as well as broader policy considerations. But some 

representatives ofthe freight industry argue that they cannot always pass on added costs. While the 

industry may not be able to pass along all the costs of targeted tolls to customers in the short run, 

especially under weak economic conditions, truckers should be able to do so in the moderate and long 

term if the fees are stable or changed with sufficient advance notice. Indeed, a Transport Research Board 

report argued that these costs could be passed on to customers,' and a study of the German heavy-vehicle 

toll system suggested that, overall, the trucking industry was able to do so.' In other words, stable, 

nondiscriminatory pricing, possibly supported by national information systems that let truckers and 

shippers know the likely costs of tolls for any particular route, should not adversely affect the trucking 

industry as a whole. 

Moreover, per-mile pricing would create incentives to combine shipments in ways that minimize trip 

mileage. For example, the German heavy-vehicle comprehensive road pricing system has led to a 10 

percent drop in empty trucks on long-distance trips, a 7 percent increase in containers moved by train, and 

a 6 percent increase in the purchase of truck tractors that emit less pollution.' 

A final concern expressed is over administrative costs. It is likely that any VMT system would have 

higher costs of administration than the current truck tax system. However, VMT system costs are not 

likely to be significantly higher, and more importantly, as discussed above. a VMT system would likely 

generate signi ficantly greater benefits. As an analogy, the administrative costs of credit card systems are 

higher than that associated with cash, but most Americans use credit cards and most merchants accept 

them because ofthc significant benefits they provide. 

A VMT pricing system will have three major cost components. First, there will be the capital investment 

costs to enable the implementing agency to administer VMT charges. These will include costs for items 

Stich as hardware, system development, and start-up. These costs willlikcly be large-preliminary 

research conducted for U.S. DOT estimated initial agency capital costs for a comprehensive (passenger 
60 


Insert offset folio 29 here 85021.029

vehicle and truck YMT system) in the range of$1O billion-but they would also likely be amortized over 

20 or more years and could be lower due to declining information technology costs." 

Second, there is the cost associated with installing technology (e.g" GPS receiverslYMT charge 

calculators) in the vehicle fleet, which is currently difficult to assess. Most trucks already come 

equipment with GPS receivers, meaning that the costs of installing a system (YMT charge calculator) 

would be less. If done as standalone units that are retrofitted into existing vehicles. the cost would be 

relatively high. But if the necessary hardware were part of a broader vehicle technology platfonn that is 

installed in vehicles as original equipment on a large scale, the incremental cost to enable YMT pricing, 

on an individual vehicle basis, could be small. 

The third cost component of comprehensive pricing will be the recurring cost to administer it. Preliminary 

U.S. DOT research estimates that administrative costs for a national system of road pricing using GPS 

technology would be 1.7 percent of estimated revenues (equivalent to the cost of processing credit card 

transactions). Although this is more than the cost of administering the current motor fuel taxes, estimated 

at 1.0 I percent of revenues, it would still represent a comparatively inexpensive fee to administer.' One 

study of moving to a truck YMT system for New York State estimated that the costs ofthe program 

would be higher than the gas tax but but "signiticantly less than the costs to collect other transportation 

fees including registration fees and (oils, and less than the costs for the German truck toll system.' 

Moreover, as technology and experience with pricing improves, administrative costs are likely to tall. 

The Oregon experiment provides another data point to inform this discussion. Under the pilot program, 

vehicles were retrotitted with on-board equipment that could identifY where and when the vehicle was 

traveling, record the mileage by category, and communicate this information to the systems of 

participating gas stations when the vehicle was at the pump. These systems then made the appropriate 

adjustments to the driver's bill to account for YMT taxes. The annual cost to administer a similar system, 

deployed on a comprehensive statewide basis, is estimated to be $2 million, or about twice what it now 

costs Oregon to collect motor fuel taxes.' 

Ensuring That Trucking Pays it Full Costs 

There appears to be some evidence that truck freight is not paying its fair share, not just on an overall 

basis but for certain trucks and on certain routes. As the DOT found in its last cost allocation study: 

As a class single [truck] units will pay less than their share of highway costs, but the lightest 

single units will pay more than their share of highway costs. Combination trucks as a group will 

pay 90 percent of their highway cost responsibility in 2000, but like single units, there is large 

variation depending on the weight of the vehicle. Combination trucks registered at less than 

50,000 pounds will pay 60 percent more in user fees than their share of highway costs while 

combinations registered over 80,000 pounds will pay on average only about 60 percent of their 

highway cost responsibility. '" 
61 


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!f this is still the case, it suggests that trucking enjoys a defacto government subsidy of about 10 percent 

of total highway cost imposed, especially when compared to the freight rail industry which largely pays 

for its facilities and operations through its own revenue, As snch, it suggests that increases in truck fee 

payments, especially if structured through VMT system which can more accurately levy fees that match 

costs imposed, would not only increase revenues for the HTF, but would increase freight system 

efficiency. 

This is especially important in the context offreight rail and trucking competition. !ftrucks are not 

paying their full costs, then rail is at an unfair competitive disadvantage. But rather than address the 

problem of subsidy with adding yet another subsidy (e.g. a tax incentive for rail investment) a better 

policy would be to reduce the subsidy to trucking my requiring them pay their full costs. As such, the 

Commission recommended that Congress authorize a study to assess whether imbalances that have been 

documented in past studies between the burden that freight-carrying vehicles (especially heavy 

commercial vehicles) impose on the system and the funds they generate for the HTF still exist. 

Endnotes: 

1. Ideally any vehicle miles traveled ~ysrelTI for heavy vehicles would charge by axle wciglH, sin>.:c Ellis is the faeror most correlated with 

pavement damage. Real-time axle weight sensors have been developed, hm they would have to be fuHy tested before widespread 

deployment would be possihle. 

2. Claus Doll a and Axel Schaffe, "Economic Impact of the Inrroduction of the German HGV 'Toll Syw:m," Tran:;port Policy, vol. 1 Ii, 

issue 1, January 2007. 

3. Transportation Research Board, Paying Our Way: Estimating lv!argilud Social Costs of Freight Transpormtiotl (Wa5hingron, DC: 

1996). 

4. noHa and Schaffe, op. cit. note 20. 

5. Presentation to the National Surf<1Cc Transponatiol1 Infrasuucture Financing CommiSSion by (he German Federal Ministry of 

Transport, Building and Urban Affairs, September 2U07. 

G. !:lased on preliminary analysis provided by [he U.S. DOT, 

7. Ibid. 

8. "A Practical Approach to Truck VMT Fees Including Some Financial hnplicarions and Possible Impacts on Traffk Congestion." 

Delcan Corporalion, Calmar Tekmatics, :md Greater Ruffalo Niag;u3 Regional TransponacioH Council, April 2011. 

9. Based on supplemental informacion provided by lhe Oregon Oepartment ofTransporration. 

10. "Executive Summary," federal Highway Adminisnarion, 1997. hup:llwww.fhwa.dot.gov/policy/hcasffinallexecsum.hrm. 
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Testimony of Jack Schenendorf 

Before the 

Panel on 21 5t Century Freight Transportation 

Committee on Transportation and Infrastmcture 

United States House of Representatives 

Thursday, October 10, 2013 

Thank you, Chairman Duncan, Ranking Member Nadler, and other members of the 

Committee, for giving me the opportunity to appear before the Panel on 21 5l Century 

Freight Transportation to testify on "Funding the Nation's Freight System." r commend 

Chairman Shuster and Ranking Member Rahall for crcating this Panel to examine the 

current state of freight transportation in the United States and how improving freight 

transportation can strengthen the United States economy. 

I am Jack Schenendorf. I am Of Counsel at Covington & Burling LLP in Washington, 

D.C. Prior to joining Covington, I served on the staff of this Committee for 25 years. I 

also served as Vice Chair of the National Surface Transportation Policy and Revenue 

Study Commission (hereinafter referred to as the "Policy and Revenue Study 

Commission") from 2005 until 2008. 

The views I express here today are my own. They do not necessarily reflect the official 

position or views of Covington or the Policy and Revenue Study Commission. 

At a time when Congress needs to renew its investment in America's transportation 

infrastmcture, it is a special honor to appear before this distinguished Committee. For 

almost 60 years ago, it was the leaders of this Committee, in cooperation with its Senate 

counterpart committee and President Eisenhower, who had the vision, the wisdom, and 

the political will to make a major investment in America's future. 

By authorizing the Interstate Highway System, by establishing the Highway Tmst Fund 

to fund constmction of it, and by almost tripling the federal motor fuels tax to pay for it, 

Con&rress took an action that was instmmental in making America strong and in 

developing the world's largest economy and most mobile society. 

As President Eisenhower stated: 

"Our uni~v as a nation is sustained by free communication of thought and by easy 

transportation of people and goods ... Together the unifj)ing forces of our 

communication and transportation systems are dynamic elements in the very 

name we bear-- United States. Without them, we would be a mere alliance of 

many separate parts. " 

The interstate Highway System changed travel in America. It provided greater capacity 

and made long-distance travel practicable. It made travel faster, safer, and less expensive 
63 


Insert offset folio 32 here 85021.032

on a per mile basis. It has become one of the foundations of America's competitive 

success in the global marketplace. And it made America stronger and more secure. 

And as is often the case with major transportation initiatives, Democrats and Republicans 

came together to put America's interests first. There are no Republican roads or 

Democratic bridges. There are only American roads and American bridges. 

If there was ever a time for Congress and the President, for Republicans and Democrats, 

to come together to take a similarly daring look at our nation transportation network, it is 

now. The Nation faces challenges similar to those of the Eisenhower era. Due to the 

global economy, however, the imperative for change is even stronger. 

Our national transportation network is at a crossroads. It is aging, and it is running out of 

capacity. It is time for new leadership to step up with a vision for the next 50 years that 

will ensure U.S. prosperity and global preeminence for generations to come. 

MAP-21 took an important first step by modernizing our Nation's surface transportation 

policies for the 21 51 century. The leaders of this Committee are to be commended for that 

effort. 

But reform alone is not enough. Increased investment is critical as well. My testimony 

today will focus on what MAP-21 left undone-ensuring an adequate level of investment 

in our national surface transportation network, with a focus on the national freight 

system. 

Investing in the Nation's Freight System 

The safe and efticient movement of freight throughout the Nation is critical. Our 

economy depends on it. Our international competitiveness depends on it. The ability of 

our businesses to grow and create private sector jobs depends on it. Our way of life 

depends on it. Our ability to access jobs depends on it. From the clothes Americans 

wear to the cars they drive to the food they eat, the freight transportation system impacts 

all aspects of everyday life. 

Freight does not move on one mode of transportation. It moves on ocean vessels, 

highways, railroads, air carriers, inland waterways, ports, and pipelines. Because freight 

movement is multi-modal in nature, it is important to consider the system as a whole. 

Bottlenecks arising at any point on the system can seriously impede freight mobility and 

drive up the cost of the goods impacted. 

For this reason, improving the efficiency and safe flow of freight across all modes of 

transportation is critical to the health of the United States economy and the future of the 

Nation's global competitiveness. Financing these improvements has proven to be a 

challenge. 

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My testimony will address three topics: (I) Investing in the National Network, (2) 

Specific Freight Investment Options, and (3) A New National Approach. 

Investing in the National Network 

Part of the solution is modernizing the national transportation network. Freight 

transportation will be a principal beneficiary of the increased investment necessary to 

keep our existing national transportation network in good condition and to provide the 

additional capacity needed to support a growing population and economy. Appendix A 

discusses these options in detail. 

Federal investment in a nationwide freight system is appropriate. Interstate commerce is 

the cornerstone defining the Federal role in transportation. The Federal interest in 

promoting efficient interstate and international flows of goods and services has motivated 

it to support waterway, port, road, canal, and railroad building since the earliest days of 

the Nation. Indeed, the development of the United States cannot be understood without 

knowledge of the Federal role in promoting and funding freight transportation 

infrastructure. 

Without systemic improvements to the national transportation network, freight 

transportation will become less efficient and reliable, hampering the ability of American 

businesses to compete in the global marketplace. It's time to act. 

Specific Freight Funding Options 

Given the strong Federal interest in freight movement, Congress will also need to make 

available a variety of funding sources to meet specific freight investment needs. A full 

range of financing options will be needed. 

The Policy and Revenue Study Commission recommended a number of freight 

funding/financing options for Congress to consider, including innovative financing 

mechanisms-TIFIA, infrastructure banks, public-private partnerships, and the like. 

These are set forth in Appendix B, along with a summary analysis of each option. 

Congress should create an accountablc and transparent programmatic linkage between an 

assessed freight fee and the selection and funding of projects that facilitate increasing 

volumes of freight. The payers of such a fee must realize the benefit of improved freight 

flows resulting from projects funded by the freight program. Such a fee should be 

designed to ensure that commerce is not burdencd by local and state proliferation of such 

fees; no mode of transportation or port of entry is disadvantaged; and the ultimate 

consumer bears the cost. 

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A New National Approach 

If the current political climate makes it impossible to increase existing revenue sources, 

then we must develop alternative mechanisms to generate the necessary revenue. 

Innovative financing mechanisms-TIFIA, infrastructure banks, public-private 

partnerships, and the like-can help, but they are not the solution. While useful on 

certain individual projects, they will not generate enough revenue for the system-wide, 

sustained investment that is needed over the long term. 

One way to move forward would be to employ two targeted user fees to supplement, not 

replace, existing Federal transportation revenue sources. Congress could establish a 

Federal Interstate User Fee to modernize the Interstate Highway System and a Federal 

Motor Carrier User Fee to improve freight facilities that benefit the freight industry. 

This approach is derived from a paper written by Elizabeth Bell, an associate at 

Covington, and myself. The paper is attached as Appendix C. 

Here's how they would work: 

• Federal Interstate User Fee 

o All vehicles using the Interstate Highway System would pay a user tee. 

The fee would be collected through an "EZ Pass"-like system, which 

would be entirely electronic. There would be no tollbooths. 

o All of the revenues generated by the fee would be deposited in a special 

account in the Highway Trust Fund. The revenues would be used 

exclusively to restore the Interstate Highway System to a state of good 

repair and to expand and modernize it to meet the challenges of the 21 5t 

century. 

o The fee structure would be set annually, by an independent group of 

experts, at the level necessary to reimburse the states in accordance with 

policies established by Congress for the federal share of these 

improvements. No higher, no lower. The fees would not be designed to 

control the level of traffie or to "price out" drivers from using the 

Interstate. 

o This user fee would restore the Interstate Highway System to being the 

crown jewel of the U.S. surface transportation network and the envy of the 

world. This approach could also be used on other controlled access 

segments on the National Highway System that connect to the Interstate 

Highway System. 

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• Federallvlotor Carrier User Fee 

o This fee would be imposed on commercial trucks' usage of all roads and 

would be collected through GPS-Iike systems currently being used by 

many trucking companies. 

o Importantly, trucks would not be double-charged for miles traveled on the 

Interstate; rather, those miles would be recorded through the Federal 

Interstate User Fee program. 

o All of the revenues generated by this fee would be deposited in a special 

account in the Highway Trust Fund and would be used exclusively for 

freight-related improvements. 

o The same independent entity discussed above would set the fee structure 

at the level necessary to reimburse the states in accordance with policies 

established by Congress for the Federal share of these ireight 

improvements. No higher, no lower. 

o This user fee would play a critical role in improving the movement of 

freight, thereby helping to make U.S. businesses more competitive in 

today's global marketplace. 

All Federal-Aid Highways would benefit by this approach. Federal-aid eligible 

highways-including the Interstate System-constitute about 985,000 miles of road out 

of a U.S. total of 4 million miles. This 25% of our roads carries 85% of all vehicle miles 

traveled. Existing Highway Trust Fund revenues would no longer have to be used on 

Interstate proj ects since the new Federal Interstate User Fee would fund all Interstate 

projects. Similarly, freight projects funded by the Federal Motor Carrier User Fee would 

no longer have to be funded from existing HTF revenues. 

Together, these two programs would take pressure off of the HTF and allow its existing 

revenues to be used to upgrade the remaining Federal-aid highways, including the major 

non-Interstate highways on the National Highway System. To help in meeting these 

needs, Congress should, if possible, index the existing motor fuel taxes for inflation. 

This approach would have a number of economic and policy advantages. For example: 

No Tax Increase. The FIUF and the FMCUF are user fees. They would allow 

Congress to increase transportation investment without raising motor fuel or 

diesel fuel taxes. 

Fair To Users. By dedicating all of the revenues generated by the user fees to 

benefit the users preserving and modernizing the Interstate System or 

financing freight-related projects, these mechanisms would establish a 

strong link between the user and purpose for which the fees are used. 

Moreover, the fees would be set at the minimum level necessary to pay for 

Page 5 of7 
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Insert offset folio 36 here 85021.036

the improvements. No debt service payments. No diversion. No demand 

management fees to "price out" drivers from using the Interstate. And since 

the FIUF and FMCUF revenues would be supporting a pay-as-you-go system, 

users would only pay for work and improvements as they are completed. 

Differs From Tolling. This would be a pay-as-you-go mechanism. No debt 

service payments typically associated with tolling. 

National Policy. The Interstate Highway System is a national system 

governed by national policies and standards. A FIUF is consistent with that 

by establishing a national user fee mechanism for the entire Interstate, 

although it is envisioned that fees would be set at different rates in different 

corridors to account for different costs associated with repair and 

modernization. This will help to ensure that the system does not become 

balkanized by disparate state and local pricing policies. 

Designed to Gain Public Support. By linking the payment of the fee to the use of 

the revenues, people would know what they were getting for their money. This 

should increase public acceptance of the fee. In addition, it would help to 

depoliticize and streamline the investment and improvement process, since an 

independent entity would set the fee schedule in a transparent manner. 

Fair to Rural Areas. Fees could be set at different rates in different 

geographic areas to account for different costs associated with repair and 

modernization. For example, the fee on less-congested portions of the 

Interstate might be less than the fee on highly-congested portions. The fees 

would not, however, be designed to control the level of traffic or to "price out" 

drivers from using the Interstate. 

No Increase In The Deficit Or Debt. Revenues generated by the user fees 

would pay the fuJI cost of the increased federal investment. Therefore, 

increased investment would not increase the federal deficit or the federal 

debt. In fact, over the long term it would help reduce the deficit and debt by 

promoting greater economic growth. 

Modernizes Federal Financing Mechanisms. The FIUF and the FMCUF would 

be a much-needed step towards post-gas tax revenue strategies. 

Improves The Entire Federal-Aid Highway Network. The revenue generated 

by the FIUF would pay for preservation and modernization of the Interstate 

Highway System. The FMCUF-generated revenue would be used to pay for 

major freight improvements. This would free up existing HTF resources to 

pay for improvements to the non-Interstate portion of the National Highway 

System and the remaining Federal-aid highways. The entire national 

network would benefit. 

Improves Competitiveness and Creates lobs. Modernizing our national 

transportation network will make u.S. businesses more competitive. Over 

Page 6 of7 
68 


Insert offset folio 37 here 85021.037

the long term, this will strengthen the U.S. economy and lead to greater 

private sector job growth. Another benefit would accrue in the short-termgreater economic activity and considerable job growth in the construction 

and construction-related industries. 

Conclusion 

The national surface transportation network is a crucial and dangerously neglected driver 

of our economy. To put it bluntly, failure to adequately invest in the preservation and 

modernization of this network is not an option. As a country, we cannot avoid making 

the choice to address this problem-and inaction is the wrong choice. We must find a 

way to raise additional transportation-related revenue. It's time to act. 

Page 701'7 
69 


Insert offset folio 38 here 85021.038

APPENDIX A 

THE NEED FOR INCREASED TRANSPORTATION INVESTMENT 

AND WAYS TO PAY FOR SUCH INVESTMENT 

It's Time To Act 

During the House Floor debate on the Fiscal Year 2012 budget, one member said of the 2008 

financial crisis: "Let me ask you this"-· 

What if your President and your member of Congress saw it coming? What if they knew 

why it was happening, when it was going to happen, and more importantly they knew 

what to do to stop it and they had time to stop it but they didn't, because of politics? ... 

We cannot avoid this choice. To govern is to choose. We arc making a choice even if we 

don't act. And that's the wrong choice. 

These remarks could apply equally, if not more so, to the impending transportation crisis facing 

the United States. 

For decades, the United States has underinvested in the national transportation network. As a 

result, the aging, congested network is in need of repair and does not have adequate capacity to 

accommodate future population and economic gro~th. 

Should this pattern of government inaction continue, our economy, which depends on the 

efficient and safe transportation of goods and people, will sufTer as our transportation network 

becomes less and less efficient. U.S. businesses will become less competitive in the global 

marketplace. U.S. companies will have no choice but to locate plants in other countries where 

transportation services are adequate. U.S. private sector jobs will be lost. And the American 

people will suffer, in terms of lost job opportunities, longer and more stressful commutes, and a 

lower standard of living. 

This transportation crisis is predictable. We can see it coming. We know why it is happening. 

We know when it is going to happen, and we have time to stop it. Most importantly, we know 

what to do to stop it - and, in fact, revenue-raising solutions to maintain and improve our 

national transportation network can be implemented almost immediately. The problem has been 

politics. There has not been the political will to raise the user fees that support federal 

transportation investment, even though study after study, and report after report, has 

recommended doing so. 

To put it bluntly, failnre to adequately fund the maintenance and expansion of our national 

transportation network should not be an option. As a country, we cannot avoid making the 

choice to address this prohlem-and inaction is the wrong choice. It is time to act 
70 


Insert offset folio 39 here 85021.039

Investing in America's Future 

In recent decades, the United States has underinvested in the national surface transportation 

network. As a result, the aging, congested network is in need of repair and does not have 

adequate capacity to accommodate future population and economic growth. 

According to estimates of the Policy and Revenue Study Commission, we need to invest at least 

$225 billion annuallv from al\ sources (federal, state, local, and private sector) for the next 50 

years to upgrade our existing system to a state of good repair and create a more advanced surface 

transportation system to sustain and ensure our international competitiveness and strong 

economic growth for our families. We are spending less than 40 percent of this amount today. 

Even if the Commission's estimates were off by 25 percent, we would nevertheless still need a 

substantial increase in investment from all sources, including the federal government. 

These findings should not come as a surprise. Commission after Commission, study after study, 

and report after report have identified serious deficiencies in the Nation's surface transportation 

network-aging and deteriorating infrastructure and reduced operational efficiency of key assets. 

Action, Inaction, and Economic Growth 

The increased investment required to maintain and improve our highways is not only needed for 

the convenience and the safety of individual drivers-although these are important concerns. A 

deteriorating public highway system also powerfully impacts the well being of the U.S. 

economy. 

Our national highway network is a critical driver of our national economy. It is a rare example 

of a physical government infrastructure that reaches every American if not individual drivers, 

then individuals who consume goods and services that could only be provided thanks to state-tostate transportation. It increases productivity and lowers transaction costs. It has been 

instmmental in enhancing mobility, and thus providing access to jobs, education, and other 

opportunities that have increased the quality of life in the United States. If no action is takenthat is, if no investments are made to maintain and improve the highway system to accolllmodate 

greater demand for access to goods and services-access to these benefits will be limited. 

A recent report by the McKinsey Global Institute shows just how far behind the U.S. has fallen 

in terms ofbnilding a 21st-century infrastructure. Compared to the 139 countries examined by 

the World Economic Forum's Global Competitiveness Report 2010-201 f, the U.S. ranks 23rd on 

overall quality of infrastructure, behind countries such as France, Gennany, Canada, and Japan. 

This represents a precipitous drop over the past decade: in 2000, the U.S. ranked 7th. 

Worse still, our inadequate infrastructure imposes unnecessary additional costs on the U.S. 

economy and American taxpayers. The McKinsey report goes on to estimate that increasing 

road congestion in the United States already costs more $85 billion year. On a per traveler basis, 

this cost ranges from $1,084 in very large urban areas to $384 in suburban and rural locations. 
71 


Insert offset folio 40 here 85021.040

At a time of increasing global competition and uncertain economic growth, the United States 

can't afford to undennine the benefits that a well-functioning transportation system provides or 

allow inaction to impose additional costs on U.S. travelers. U.S. jobs, the U.S. economy, and 

this country's position as a global economic leader are at stake. 

To put it bluntly, failure to adequately fund the maintenance and expansion of this system should 

not be an option. As a country, we can't avoid making the choice to address this problem-and 

inaction is the wrong choice. 

Highway Trust Fund Solvency 

In 1956, the Congress established the Highway Trust Fund ("HTF") to help build the Interstate 

Highway System while continuing to invest in the national surface transportation network. 

Created by the Highway Revenue Act of 1956, the HTF is a financing mechanism that accounts 

for tax receipts dedicated for expenditure on highways and transit needs. Currently, the HTF 

houses two accounts: one for the highway program, and one for public transit. 

Since its inception, the HTF has been funded by taxes on motor fuels and vehicles. By linking 

transportation-related taxes with transportation-related funding, the HTF ensures that the costs of 

the federal highway system are primarily borne by its users. Through the ample revenue they 

provided to the HTF, the Eisenhower generation helped build not only a state-of-the-art highway 

system, but also one that included extra capacity for generations of drivers to come. 

How did we get from having one of the world's preeminent transportation systems to an 

overburdened system that is steadily falling into a state of disrepair? The heart of the problem is 

this: while we have been benefiting from the expenditures of the generation that helped to build 

the Interstate Highway System, we have failed to make adequate federal investments of our own. 

Though national surface transportation expenditures have increased over time, they have not kept 

pace with national growth. Expenditures on highway maintenance and improvements are shared 

by local, state, and tederal governments. When growth in vehicle miles traveled is taken into 

account, real highway spending across all these levels of government has fallen by nearly 50 

percent since the creation of the HTF. The federal contribution to highway spending, in 

particular, has remained fairly constant, falling behind rather than responding to additional 

infrastructure demand. 

Currently. about 90 percent of HTF revenue is derived from excise taxes on motor fuels. These 

taxes are set at 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel, but are not 

indexed for inflation and have not been raised for almost two decades. The tax has lost about 33 

percent of its purchase power since it was last raised. 

Moreover, as a result of the economic downturn, declining real receipts, and more efficient 

vehicles, the HTF is in a solvency crisis. Since, by law, the HTF cannot incur a negative 

balance, Congress has been forced to authorize emergency funding infusions totaling about $54 

billion since 2008. Yet short-tenn and long-term shortfalls still loom - and investment needs 

continue to grow. 
72 


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What the HTF truly needs is a significant and immediate increase in revenues. The current level 

of funding is not adequate to maintain the operational perfonnance and physical condition of the 

highway system. 

According to CBO, the HTF needs additional annual revenues equivalent to a IO-cent gas tax 

increase just to maintain current, inadequate levels of investment. 

The Policy and Revenue Study Commission concluded that the HTF needs additional annual 

revenues equivalent to a 25-to 40-cent gas tax increase (5 to 8 cent increase annually for 5 years) 

to start meeting the future needs of our national surface transportation network. 

The question is: what is the best and fairest way to raise the additional revenues needed? 

Evaluating Appropriate Solutions 

Public policy groups and government commissions have proposed dozens of solutions with 

respect to raising HTF revenue. In evaluating these solutions, three principles should be 

considered. All three of these principles are important for creating revenue-raising mechanisms 

that are efficient, viable, and best reflect the scope of the federal highway system and its role in 

the U.S. economy. 

First, proposed solutions should approximate a true user fee as closely as possible. The HTF's 

major revenue stream - motor fuel taxes - are an example of a revenue-raising solution that 

attempts to place the responsibility for maintaining and improving the highway system on its 

actual users. Revenue options that hew as closely as possible to user fees are fairer and more 

economically efficient, causing the individuals who impose costs on the system (for example, by 

increasing the need for repairs through a high level of use) to pay those costs, rather than 

obligating non-users to shoulder the burden. 

Second, the solutions should be relatively easy to implement. The problem of federal highway 

funding requires an urgent response. Moreover, ease of implementation usually-though not 

always-translates into less costly and more politically viable programs. 

The third and most important principle is the need for a truly national investment policy. 

Highway Account funding can be used on the federal-aid eligible highways that make up about 

25 percent of the nation's 4 million miles of roads but carry more than 85 percent of the vehicle 

miles traveled annually. 

Most of the Highway Account funding is focused on the 233,OOO-mile National Highway System 

(which includes the Interstate Highway System). It ma~es up just 5.7 percent of the Nation's 

road mileage but carries 55 percent of the of the vehicle miles traveled annually. Significant 

investment in the National Highway System (NHS) is needed to: 
73 


Insert offset folio 42 here 85021.042

• Restore the Interstate Highway System, which is reaching 40 to 50 years of age, to a state 

of good repair though an aggressive program of preservation, including projects to--

o Substantially rehabilitate, or in some cases replace, many of its 55,000 bridges; 

and 

o Reconstruct major portions of its 210,000 lane miles. 

• Improve system performance by applying the full range of intelligent transportation 

systems (e.g., navigation systems, traffic signal control systems, real-time parking 

guidance and notification systems, and vehicle detection and notification systems) and 

aggressive systems of operation and management strategies. 

• Replace aging interchanges that have become major bottlenecks with interchanges that 

have wider lanes and geometric designs to allow higher volumes of cars and trucks to exit 

and merge more safely at higher speeds. 

• Reduce congestion by adding additional lane miles to urban and rural Interstates, where 

appropriate. 

• Expand the Interstate Highway System, where appropriate, to provide connections to new 

and emerging centers of population and commerce. 

• Preserve and modernize the non-Interstate National Highway System, including 

important corridors such as the Avenue of the Saints, Transamerica Corridor, Hoosier 

Heartland Industrial Corridor, Great Lakes/Mid-Atlantic Corridor, Heartland 

Expressway, U.S. 395 (CA, NV, OR, WA), CANAMEX, Ports-to-Plains, Wisconsin 

Development Corridor, Capital Gateway Corridor, East-West Corridor, SPIRIT Corridor, 

Theodore Roosevelt Expressway, and Camino Real Corridor, among others. 

• Address urban congestion through operational improvements and, where necessary, 

increased NHS capacity. 

• Improve rural NIlS highways to keep U.S. agriculture competitive, especially lowerclassification Federal-aid roads that link farm and local roads with the National Highway 

System. 

• Upgrade narrow, two-lane, rural NHS roads that cannot safely carry the kind of trucks 

now moving across the United States to support the renewable fuels industry, wind farm 

energy production, and the development of other energy resources. 

• Improve rural NHS highways to handle the grov.,1h in international and domestic trade 

moving through the heartland of America. 

• Preserve and upgrade, where necessary, the Strategic Highway Network (STRAHNET), a 

network of highways that are important to the United States' strategic defense policy and 
74 


Insert offset folio 43 here 85021.043

that provide defense access, continuity, and emergency capabilities for defense purposes. 

STRAHNET Connectors-highways that provide access between major military 

installations and ports-would also be maintained and upgraded where appropriate. 

• Provide NHS connectivity between urban and mral America, and address seasonal 

congestion and bottlenecks associated with interstate tourism, especially at national 

parks. 

• Provide adequate NHS access to new and emerging cities and towns so that our highway 

system will be the unifying network that President Eisenhower envisioned. 

Modernizing federal-aid eligible highways, especially the major highways that make up the 

National Highway System, will require significant, sustained investment over a considerable 

period of time. The HTF is uniquely suited for this type of investment. 

Previous reports on the issne of highway funding often raise solutions such as credit 

enhancement programs, bonding, state-level tolling, national or state infrastmcture banks, and 

private-public partnerships. These options, while worthwhile and clearly part of the overall 

solution, are not the complete solution. Such programs will not generate enough revenue for the 

system-wide, sustained investment that is needed over the long term. Moreover, they tend to 

reside at the local- and even project-level. State and local governments are subject to different 

and more narrowly-focused political pressures than the federal government. If funding fixes 

were aimed only at changes on the state- and local-level, there is a danger that the transportation 

system would become balkanized-to the detriment of the national network. 

The focus in creating the federal-aid highway system was the concept of a country unified by a 

nationwide infrastructure. In today's highly competitive global economy, this vision is more 

important than ever. Only a strong federal role will help realize this unity, allowing for systemic 

improvements in both high-traffic and low-traffic states. There is also the issue of fairness. A 

very costly project in State A may be needed because of traffic destined for other distant states. 

It is not fair to ask the citizens of State A to pay the whole tab for a project that benefits millions 

of people across the network. The costs of modernizing the national network should be borne by 

all of the users of the network. 

This approach is consistent with federal role in transportation throughout our nation's history. 

From President Washington's support for federal constmction, maintenance and repair of 

existing and future lighthouses, buoys and pnblic piers for rendering navigation "easy and safe"; 

to Henry Clay's support for capital improvements; to President Lincoln's support for the 

transcontinental railroad; to President Theodore Roosevelt's support of the Panama Canal; to 

President Franklin Roosevelt's support for a cross-country high level road system; to President 

Eisenhower's support of the Interstate Highway System and the Highway Trust Fund; and to 

President Reagan's support for increased motor fuel user fees to preserve and modernize the 

federal-aid highway network, the federal government has been instrumental in the development 

of our Nation's strong surface transportation network. 
75 


Insert offset folio 44 here 85021.044

Thus, the solutions discussed below focus on increasing the receipts of the HTF for countrywide 

distribution. 

Possible Solutions 

Before discussing a number of possible solutions, I want to bring to your attention the options 

that the Policy and Revenue Study Commission evaluated and the results of the Commission's 

analysis. These are set forth in Appendix B. The color chart can be particularly helpful in 

providing an overview of the merits of each option. 

In my testimony, I want to focus on the following options: 

Future Replacement for Current Motor Fuel Taxes 

It is imperative to find a long-term replacement for motor fuel taxes as soon as possible. There is 

a growing recognition that supplies of conventional petroleum-based fuels will get tighter in the 

future, leading to the possibility of higher fuel prices, greater disparities in vehicle fuel economy, 

increasing use of alternative fuels, and greater concern about energy security. However, many 

technical and institutional questions remain to be answered about replacement fees, especially 

with respect to mileage-bascd fees like VMT. The replacement for the motor fuel tax will not 

likely be available in the near to medium term, so it cannot be relied on to serve as a source of 

HTF revenues for in the near future. It is important, however, to aggressively conduct research 

in this area. Pilot projects should be encouraged. We must make transitioning to a replacement 

fce a priority. 

Increased Motor Fuel and Diesel Fuel Taxes 

One obvious solution that meets the three criteria outlined in the previous section is an increase 

in the motor fuel and diesel fuel excise taxes and indexing them to int1ation. 

As mentioned above, motor fuel taxes on diesel and gas constitute about 90 percent of HTF 

receipts. These taxes are charged at a flat rate per gallon that is set by Congress. The current tax 

rates on motor fuels are 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel 

fuel. An increase in these rates is long overdue; Congress has not changed the rates since 1993, 

and because they are not indexed for inflation, their etlicacy as a revenuc-raising tool has 

diminished substantially over the past 18 years. Had the federal gas tax rate of 18.4 cents per 

gallon been indexed using the Consumer Price Index for all Urban Consumers beginning in 

1993, the tax rate in 200S-the year of the HTF's first emergency infusion-would be 27.5 cents 

per gallon. 

Because the motor fuel tax is already in place as the primary funder of the HTF, implementation 

of a tax increase or an indexing solution is straightforward and could be easily accomplished, at 

least technically. Moreover, the motor fuel tax approximately places the cost of maintaining and 

improving the highway system on users of that system. Although the tax is collected at the fuel 

tenninallevel, it is passed on to drivers at the pump. 
76 


Insert offset folio 45 here 85021.045

If Congress does not increase the current motor and diesel fuel taxes, it should, nevertheless, 

consider indexing them to inflation. This would at least preserve the current purchasing power 

of those taxes and be a part of the solution to the transportation investment crisis. 

[t should be noted that the Policy and Revenue Study Commission recommended a 5- to 8-cent 

per gallon increase in motor fuel and diesel fuel taxes annually for a five-year period. It also 

recommended indexing. This would result in a total increase of 25- to 40-cents per gallon, plus 

indexing. 

Tt should also be noted that the Simpson-Bowles Commission recommended a IS-cent increase 

in the motor fuel and diesel fuel taxes, along with indexing. 

Targeted Federal User Fees 

Another possible solution is based on federal user fees and is derived from a paper written by 

Beth Bell, an associate at Covington, and myself. The paper is attached as Appendix C. 

The paper proposes the following user fees: 

(l) a Federal Interstate User Fee for all vehicles using the Interstate Highway System, 

with its revenues dedicated to modernizing the Interstate to meet the demands of the 21 st 

century; and 

(2) a Federal Motor Carrier User Fee, with its revenues dedicated to freight-related 

transportation improvements benefiting the trucking industry. 

These targeted user fees have three characteristics in common: they appropriately place the costs 

of maintaining and improving the federal-aid highway system on its users, they can be 

implemented relatively easily, and most importantly, they tackle the problem of highway funding 

on a comprehensive, national level. 

Registration Fee Increase 

All states impose an annual vehicle registration fee, and at least half the states raise more than a 

quarter of their dedicated transportation revenues through this mechanism. One possible way to 

raise additional HTF revenues would be to impose a flat federal registration fee in addition to 

any state charges. TIle fee would be set by the Congress and would flow to the HTF. Because 

the fee would be collected through states' existing systems, this option could be implemented 

with little additional cost. Unless fees become particularly high, however, the revenue potential 

of this solution may be limited. And although vehicle-related, the registration fee is not as userbased as some of the other possible solntions being discussed. 

Oil-related solutions 
77 


Insert offset folio 46 here 85021.046

Various oil-related taxes and taritls could be imposed on producers and importers in order to 

raise funds for the HTF. For example, a straightforward taritf on oil, charged as either a fixed 

amount per barrel or as a percentage of the value of imported oil, could be imposed. 

A more complex system, but one which would more directly affect oil consumption, would 

involve imposing a tax on oil consumption plus a tariff on imports of refined petroleum. The oil 

tax would be constructed as a percentage tax on each barrel of oil consumed in the United States. 

The rate of the tax would bc adjusted on an annual or semi-annual basis (primarily to ensure that 

consumers are not penalized during periods when oil prices spike). The tax would be collected 

at the refinery level. To prevent international refiners from obtaining an undue advantage, 

imports of refined petroleum products would incur a tax equivalent to the oil tax. Similarly, 

exporters would receive a tax credit or rcbate equivalent on the oil used to produce exported 

products. 

As other studies have noted, an oil tax or tariff could be set so as to internalize various external 

costs associated with the consumption of petroleum products-including environmental and 

national security costs. An oil tariff alone could also promote U.S. energy independence. While 

these may be desirable policy outcomes, one drawback to a broad oil tax is that it is not userbased; the tax on barrels of oil that are not eventually used as fuels (or as asphalt) would 

nonetheless flow to the HTF. While it may be possible to apportion the revenue raised by the oil 

lax according to use, such a system may be administratively difficult and lead to delays in 

implementation. Additionally, because a tax on oil would necessarily place a greater burden on 

certain households (for example, because of regional weather difIerences) and businesses that 

consume more oil, political opposition to an oil tax may be heavy or insurmountable. 

Use of royalties flowing from existing or new oil production is also a possibility. 

Existing Revenue Streams 

A portion of international customs fees could be dedicated to the HTF to cover the costs of 

improvements related to the movement of goods into and out of ports of entry. It would also be 

possible to dedicate a portion of corporate taxes from industries reliant on truck transportation. 

Increasing these fees and taxes is also an option. 

General Treasury option 

A final option that would offer little by way of user-targeting, but would be fairly simple to 

implement, involves using General Treasury funds to supplement the HTF's existing revenue 

streams. Again, however, a General Treasury option would move away from user-based taxation, 

and would potentially be an unstable source of funding. 
78 


Insert offset folio 47 here 85021.047

APPENDIXB 

FUNDING OPTIONS IDENTIFIED BY THE 

NATIONAL SURFACE TRANSPORTATION POLlCY AND REVENUE STUDY 

COMMJSSION 
79 


Insert offset folio 48 here 85021.048

Exhibit 5-20. Evaluation of potential transportation revenue sources against generalty accepted evaluation criteria. 

A~,~;:(YI~r~~1 :~~: IR",.m"li~1i~~~!pi~~'li:1~;; ;~; 1,~;~lol:YI11f~~: ,:~i:: i~!;:~:, ,E",~pl 

,,'pO 

Fuel Tax ~I~ • ~1.i~I~!~I~ ~I~ .i~ ~ Indexed l~ Fuel Tax .'~f:i:liI.'~I~:~'~:C'J ~ .I~ ~ Motwfuel 

Sa!esTax ~ ~ ~ .I.I.'~'~ ~ ~ '.,~ ~ ~ 

Value ~~ ~~~.~~~,'i~ • Added Tax ~ ",,,Is",,,,, ~ ~ ~ ~ • F" ~ ~ ~ ~ ~'~I<3 ~ ~ ~ 

~':!~T" ~'~ ~ ~ ~ ~ ~I~ ~ ~ ~ <31~ ~ ~ Vetu(:!e 

Sa!esTax ~ ~ ~ ~ ~ ~I~ ~ ~ ~ ~ 'i ~'~ ~ Traditional 

~ ~ ~ ~ • TpHs ~ ~ ~ ~ ~ ~1<3 ~I~ ~ TmlingNew 

~ ~ • ~ • lanes ~ ~ ~ ~ ~ ~ <3'~ ~ ~ 

I~~~lan" ~ ~ • ~ • ~ ~:~1Ii ~i<3 ~ • ~ 

VMT"" ~ ~ • ~ .~~~ ~ • ~ ~ ~ Indexed 

VMTFees .'~I. ~ · '~'~ ~ ~ ~ ~ !.,~ ~ ~ 1=- ~ ~ ~ ~ • ~ ~ ~ ~I. • <3 ~ ~ ~ Looa!Option ~ :a Sales Tax ~ ~ ~ ~ • ~l. ~ 'i ~ ~ ~ 

Impact fees ~ ~ ~ • ~ .li <3 ~l ~ ~ Innovative ~ ~ • Rnilnce* ~ ~ ~i~ ~i~T<3I~ ~ ~ 

~,:;=; ~ ~L~ ~ ~ ~ ~ ~~ ~ ~ <3 ~i~ ~ 

CorrtalrmrFaes ~ ~i~ ~I ~!~ ~ ~I~ ~!~I'i ~I. ~ 

Dulies e,IS'''''' ~ ~ ~ ~ ~I~ ~ ~~ ~ ~!'i ~ . ~ 

* Assumes repayment from tolls 

Legend: • Excellent <;t Very Good ~ Good ~ Not Good Ga Poor • Very Poor 

This chart provides a subjective evaluation of a series of alternative revenue sources against a set of criteria. 

Source: Commission Staff analysis . 

... Volume II, Chapter 5 
80 


Insert offset folio 49 here 85021.049

~~~it,~~~ !t~~es ~ndd~d~?t~~ ,~f ~~r~h(t: tev~u,e io~~,~ 

~iM·,,·gWq •• iiilii.i6 ... 

I 

Yield$ Adequacy and I Historically motor fuel taxes have been attractive because of their high yield (currently 

Stability about $1.9 billion per penny of tax at the Federalleve!), their adequacy to suPPOrt 

highway construction programs, and their stabillty. In recent years the adequacy of the 

fuel tax has come into question because it does not increase with inflation and because 

voters at aU levels of government have been less wi!11ng to approve fuel tax increases 

J Cost~Efficlency and Equity I Motor fuel taxes are inexpensive to administer and have low compliance costs. EvaSion 

I i has been a major issue, especially for diesel fuel, but states and the FHWA have 

I ·1 reduced evasion levels. 

Motor fuel taxeS at rates sufficient to fund all needs would not add enough to fuel prices ! to significantly impact travel volumes. 

·1 i Fuel taxes vary with highway use, but this relationship will become less direct as we I move toward more fuel efficient vehicles and greater use of alternative fuels. 

I I Raising fuel taxes without at the same time raising truck taxes reduces the equity of 

I ~~~~~~~~~~~~:~::;;~~~gi~~~re because trucks would pay a lower share of their 

1 Eeonomic Efficiency 

I 

i Potential Applicability at Motor fuel taxes are applicable to financing programs of improvements, but not 

! Program or ProJeet Level I Individual projects. AU levels of government can and do impose motor fuel taxes, 

1 and by Different Levels of I Recent studies suggest the fuel tax wi!! be a viable revenue source for highway and 

! Government I ~ao~:i~~!?~~~::n~0:e~i~~::~1i~ i~c~~a;~:~~y ~~~:~~:~~i~~~~h~ ~~~rt:t~~e s~~~ :~d 'f-::--:-c:--:-:---c:c--+l c."u_rr_en:-:t=ro-::le_a_s_th:-:e_m.aj~~~.:~ue s~urce for Federal and State highway programs. 

i Potential AcceptabiHty 1 :~~~~O;!:~~~:C:~;~7~~I~~~!~~~;!!:~::~;;e~~~~~~:r~l~r~~:=i~~e~ I I increased since 1993, High fuel prices make it even more difficult to raise fuel taxes, 

~,mplementatlon Issues I ~:;~ though the tax rep,esents a smaller share of the total price of fuel when prices are 

I and Potential Strategies to ~!S~~~~i~~Oc~of~~~~t~~~!Ss!~r~~~~r !~~j~~~~~ t?u~~n~~~O;~~~e~~sf~/~n~f~~ ~:~~ 

I 

Overcome Barriers for state highways, 

Flat rate fees per gaUon have not been adjusted fast enough to keep pace with needs. 

Motor fuel taxes may be higher per gallon in some States than in neighboring 

I states. Opponents of fuel taxes generally raise the issue of diversion of purchases to neighboring states with lower tax rates. 

Transppnatlon Impct)vemenlS? __ 
81 


Insert offset folio 50 here 85021.050

Exhibit s-.~1. Advantage$: and disadvantages ()f alternative revenue sources, ~n~inu~ 

Source and History 

Yield, Adequacy and 

StabiUty 

About 5 States currently Index their fuel tax to some measure of inflation. 

1 The yield and adequacy of motor fuel taxes could be enhanced by indexing to inflation lor, in some cases to fuel prices. They could also be indexed to needs estimates or to 

I construction prices, making it responsive to anticJpated_p_'O-:-9.,.'",-m_C,-os_'_s._:--:--__ -I 

Cost~Efficlency and Equity Motor fuel taxes by themselves are not equitable among vehicle classes, since the 

largest vehicles pay less in fuel taxes relative to the costs imposed on highways 

! Economic Efficiency 

i Potential Applicablllty at I Program or Project level 

I 

and by Different Levels of 

, Government 

I Potential Acceptability 

I 

i Implementation Issues 

I and Potential Strategies to 

I Overcome Barriers 

! Indexing the fuel tax does not make the tax more economically efficient. 

Indexing the fuel tax does not affect its applicability. 

I Many argue that simply indexing the fuel tax to some measure of inflation does not 

, constitute a tax increase and thus is more acceptable than a tax increase. Others 

I disagree and say that changes due to indexing are tax increases. 

A ceiling and floor on the change in the indexed rate may be desirable to prevent large 

changes in tax rates. 

Many see indexing as just a backdoor way of increasing the fuel tax. 

Source and History Several States impose a tax on the sales price of fuel. 

I

t-Y-;e-ld-,-A-deq-u-ac-y-a-nd---+1 A sales tax on fuel is likely to be more volatile, but could be subject to limits in terms o.f 

\ Stability ! the maximum or minimum or the rate of change each year. 

I Cost~Efflclency and Equity ! Motor fuel taxes are mildly regressive among income groups. BaSing the rate on the L----__ J sales price of fuel would make them more r~~~~~~ ___________ --i 

! Economic Efficiency J Basing the fuel tax on the price of fuel rather than on a gallonage basis would not 

j improve the efficiency of the tax. 

Potential Applicability at I Program or Project Level 

! and by Different Levels of 

i Government 

I BaSing the fue! tax on the price of fuel rather than on a gallonage basis would not affect I its applicability. 

Potential Acceptabmty 1 The volatility of fuel prices would adversely affect the public acceptability, especially 

j when fuel prices are rising, 

I Implementation Issues Sales taxes on fue! have recently been 01 greater interest due to the increase in fuel 

and Potential Strategies to prIces 

Overcome Barriers 

_ Volume ii, C'1aoter 5 
82 


Insert offset folio 51 here 85021.051

EXhibit 5~21. Adv31'!tages and disadvantages of alternative reVenue sources, continued 

Yield, Adequacy and 111 Other types of motor fuel taxes couid be utilized, 

-~-:_:'_:~i~~,c-,e-n-CY-.-n-d-E-q-Ui-~-,r: ---

; Economic Efficiency : Other types of petroleum taxes would be no more efficient than the current tax. 

! Potential Applicability at i Fuel taxes by their nature are applicable only at the program level. 

j Program or Project Level I 

i' and by Different Levels of 

; Government 

; Potential Acceptability ! Pennsylvania has an oil company franchise tax to collect fees on petroleum fuels. 

: Implementation Issues Some believe that petroleum taxes have more voter appeal because of a perception that 

I and Potential Strategies to they are imposed on petroleum companies rather than on individual drivers; however, 

i Overcome Barriers : such taxes are normally passed through to drivers the same as other types of motor fue! 

, taxes 

Value A<kfed Tax 

Source and History The U.S. is one of the few countries that does not have a value added tax. The tax is ! 

fmal consumptIOn as the traditIOnal sa!es tax 

"m,lar to a saies tax, but rs lev,ed at every stage rn the product,on process, not JUst on I 

I Yield, Adequacy and I The Yield could be high and would be fairly st;We- fluctuatmg';;;th Changes 10 the 

~blhty i natlOnal economy 

I Cost~Efflciency and Equity I AdministratIVe costs would be higher than for the fuel tax slOce there are many taxpayers I 

~ 

I and considerable documentation Involved ThiS potentiaHy could also make It subject to I !evaslon. 

I Economic Efficiency ! ~~:~~o~e~~~~ ~:~!~ria~~~~~~~~~~:~t;~ra~::. the fuel tax since a VAT would not I , i Potential Applicability at i The VAT could be applicable to genera! transportation purposes. It would be applicable 

i Program or Project Level ! to financing programs of transportation improvements. but not individual projects. It i ~~~:7n~~n~rent Levels of I almost certainly would be limited to the national leveL 

r=~="-------i------------'--'---- ----1 I Potential Acceptability Like any new tax it would face opposition from taxpayers and from businesses. 

jlmPlementation Issues I A general VAT has been discussed for many years, but rejected. Estimating just the 

[ and Potential Strategies to ult 

Overcome Barriers 

Source and History 
83 


Insert offset folio 52 here 85021.052
84 


Insert offset folio 53 here 85021.053

What 
85 


Insert offset folio 54 here 85021.054

.. Volume II, Chapter 5 
86 


Insert offset folio 55 here 85021.055

Potential Applicability at 

Program or Project Level 

and by Different Levels of 

Government 

Potential Acceptability 

tmplementatlon Issues 

and Potential Strategies to 

Overcome Barriers 

Source and History 

I Yield, Adequacy and I Stability 
87 


Insert offset folio 56 here 85021.056

Exhibit 5~21. Adva~ges and disadvantages of alternative'revenue sources, contlnuei:f 

r------ .-----------------------------< ; Congestion Pricing, continued 

: Cost-Efficiency and Equity ! Congestion pricing is more expensive to administer and enforce than motor fuel taxes. 

i I Concerns have been raised about the equity of congestion pricing. Equity is strongly 

i I influenced by the availability of good alternatives to driving on the priced highways. 

I ~~~~: ~~~~~:;s have been suggested as one way to reduce adverse impacts on lower I 

l--.E~~~~~i~Effici;;;-y~·-··-- J Congestion pricing is more economically efficient than fuel taxes or ~ost othe:~~;~~ 1 sources because users directly pay all or part of the costs their driving imposes on 

I others. Congestion pricing CQuid be combined with a weight-distance tax to capture the 

1 costs associated with operations of heavy trucks. 1 

, Potential Applicability at 

I Program or Project Level 

j and by Different Levels of I Government 

Potential AcceptabIlity 

In the long run, VMT fees and congestion pricing could replace aU or a portion of current I user fees. ! 

Congestion priCing is applicable at either the project level or an area-wide level, I but It generally would not be appllcable to financing entire statewide transportation l improvement programs. I I In the U.S. pricing generaHy has been limited to individual bridges and to HOT lanes and 1 

I express lanes The HOT lane and express lane applications have generally been weJl ! 

, accepted smce they provIde dnvers the cho,ce of whether to pay to aVOId congestIOn or I I I not Acceptance of pncmg entire fac1!ltles or entire areas of a CIty 1$ more controvers!al 

I Implementation Issues I The abIlity to apply pncmg on the Interstate System IS IIm!ted by federal law 

I and Potential Strategies to Good transit alternat!ves also must be avarlable for those who cannot afford the I Overcome Barriers congestIOn toll and cannot change theIr tnp destmatlOn or time of day 

1 Source and History 

I 

Have been widely used in many states to support highway and transit investments. Local 

governments in most states have implemented some type of local option tax, which must I be specificaHy allowed by state enabling legislation. 

! Local option taxes for transportation investments include motor fuel, vehicle, property, 

, sales, and income taxes. 

1 Sales taxes tend to have the highest yield compared to other local option taxes. Motor 

i fuel and vehicle taxes tend to generate less revenue compared to other local option 

I ~~::~t for motor fuel and vehicle taxes, C?ther local option taxes tend to be indexed with j inflation. Safes taxes respOnd to economic growth, 

! ~~g~:t:!~~~;o:~~c ~oi~g~~~J~~~;~~ffJ~~~~;~~~J~~~~~St~l~n:ct~~~;~~d 

I Cost~Efficlency and Equity i Collection mechanisms already are in place to levy these taxes at the state or loca! level. j 

: I Most local option taxes are regressive (except for income taxes). However, sales taxes I , I' tend to receive stronger support than other local option taxes. People consider that sales I taxes are more "fair, U since everyone pays, whether they are vehicle or transit users. 

; Economic Efficiency 

Potential Applicability at 

Program or Project Level 

I and by Different Levels of 

I Government 

__ Voluf\1eH.Chapter5 

Most loca! option taxes do not reflect the costs associated with highway use and thus 

are not economically efficient. 

Loca! option taxes may be applicable to a major project, but are more applicabie to a 

program of transportation improvements. By definition these fees are applicable only at 

1 the local leve!. 
88 


Insert offset folio 57 here 85021.057

Implementation Issues Commonly, local option taxes require voters' approval. 

and Potential Strategies to specifies projects and/or programs to be funded with the new 

Overcome Barriers I is not always required, local option taxes have better c~ances I mentation where expenditures and uses are clearly defined. 

i Implementation plans that are weI! designed have resulted in very high success rates for 

ballot measures to enhance transportation revenues. 
89 


Insert offset folio 58 here 85021.058

Source and HIstory Innovative finance is 

Source and History 

and 

the United but 

Economic Efficiency 

! 

_ Volume 11, Chapter 5 
90 


Insert offset folio 59 here 85021.059
91 


Insert offset folio 60 here 85021.060

· Exhibit 5-21. 

i Source and History 

Yield, Adequacy and 

Stability 

Cost~Efficlency and Equity 

The majority of customs duties currently are deposited into the U. S, General Fund, 

although a portion is used to support costs of Customs and Border Patrol operations. 

[n FY 2002 customs dutles amounted to $23.8 billion in gross revenue, three quarters 

of which was collected from marine sources. This would be a very stable source of 

revenues. 

Fees based on the value of cargo are not as equitable as those on the volume because 

they do not reflect the transportation requirements as well. 

: Economic Efficiency I The economIC efficiency of customs duties IS poor SInce the value of cargo has little 

i 1 ~:7~~1~~ :::n~~~Cti~~e:~t~/~a~~:~i~::~~~~ fr~; :~:~:s~f customs duties I' Potential Applicability at Customs duties would be most appropriately used for improvements to waterside or 1 

i Program or Project Level landside port Or airport facilities, to improve the connections between these facilities and ) I and by Different Levels of I the highway and freight rail systems, or to improve freight facilities serving large volumes I ' Government ' of international shipments, They would be applicable to the Federa! level only. i 

I Potential Acceptability ~ed~:~~::a;::~~~~i~~t~ ~':~~~~i~~Yt;~s~~:~ j~~=st;:::~:.agencies to I i Implementation Issues I Some wi!! argue that gateway improvement programs already exist and point to 

I

I and Potential Strategies to ISAFETEA.LU'S Coordinated Border Infrastructure Program (Section 1303), but finding 

Overcome Barriers from that program currently is Inadequate. 

I Source and History 

I ~:fl~dequacy and 

! Cost~Efficiency and Equity 

I 

I Economic EfficIency 

'I Potential Applicability at Program or Project Level 

and by Different Levels of ! Government 

! Potential Acceptability 

1 Like innovative finance, tax credit bonds are a financing mechanism and not a new i ~~~~~~I~~r:~nue. Tax credits would represent reductions of income taxes owed by 

I Tax credit bonds could provide ~ large and stable source of funds to finance transportation 

1 improvements for a fIXed period of time. 

Tax credit bonds would have low administrative and enforcement costs since those 

costs would be small increments of costs associated with processing Federal income tax 

returns, Bonds would be relatlvely progressive with income since bond interest would be 

paid from genera! tax revenues, 

Income tax from which bond interest would be ~paid~ has no relationship to costs of 

transportation system use. 

This financing mechanism would be applicable at the program leve! and would apply to 

the Federal Government 

f !mple~!nting such a financing mechanism would be difficult since it could represent a 

revenues, 

!Imptementatlon Issues Several tax credit bond proposals for surface transportation have been introduced In 

'I and Potential Strategies to recent years (e.g., Build America Bonds, Amtrak, other rail Infrastructure), but none has yet 

Overcome Barriers been enacted. 

__ Volume ll, Chapter 5 
92 


Insert offset folio 61 here 85021.061

~~~5;2~~ A~~,~~es~~ ~~vaf!f:ases:'~~a~a~ re:-:en~esoUr~",~~ 

~MM¥#M;' 

CosM5fffclency and Equity 

Economic Efficiency 

Potential Applicability at 

Program or Project Level 

and by Different Levels of 

Government 

I Potential Acceptability 

[

lOver the years various forms of infrastructure bank have been proposed as mechanisms 

to provide funds for infrastructure investment. These banks afe not necessarily limited to 

transportation investment. Uke other financing mechanisms, funds borrowed from the I infrastructure bank would have to be repaid from some other genera! or project·related 

Administrative costs generally would depend on the revenue source from which borrowed 

funds were repaid. 

The retatiVe economic effiCiency would depend -on the source of revenues from which 

borrowed funds were repaid, ToUs would tend to be more efficient than fuel taxes or other 

genera! revenues. 

This financing mechanism would be applicable to either the program or project level. 

Revenues to repay loans would come from the $late Of locru level of government. 

Borrowed funds would likely come from the Federal General Fund. Getting agreement to 

al!ocate General Funds for this purpose could be difficutt. 

I ~,:I::t~~~~!~O;t:=:S~:s to :n~~~:,i~~:~e a~~v~a~~e~!~v:~~~~TsaIS for Infrastructure banks over the years, but it 

i Overcome Barriers 

i'his table provides details supporting the summary evaluation otaftemative revenue sources' p~ i~"Exhibit 5-~. 

December 2006 NCHAP study, Future Financing Options to Meet Highway and Transit Needs and Commission Staff ana!ysls. 

III 
93 


Insert offset folio 62 here 85021.062

APPENDIX C 

PAPER BY JACK SCHENENDORF AND ELIZABETH BELL 

PUBLISHED IN BNA DA IL Y REPORT FOR EXECUTIVES 
94 


Insert offset folio 63 here 85021.063

Daily Report for 

ExecutivesTM 

Reproduced with permission from Daily Report for Ex- I 

ecutives, 141 DER B-1, 07/22/2011. Copyright@ 201t I 

by The Bureau of National Affairs, Inc. (800-372-1033) 

http://www.bna.com i 

Transportation 

America's national surface transportation network is in crisis, writes Jack L. Schenendorf, of Counsel, Covington & Burling LLP. Without additional transportation investment, 

the United States economy will suffer. While raising motor fuel taxes, which comprise the 

majority of federal transportation receipts, would be one solution, there does not seem to 

be the current political will to do so. Schenendorf proposes two alternative solutions, a Federal Interstate User Fee and a Federal Motor Carrier User Fee, to supplement current federal transportation revenues in order to restore and modernize the transportation network. 

Modernizing U.S. Surface Transportation System: Inaction Must Not Be an Option 

By JACK SCHENENDORF AND ELIZABETH BELL 

Jack L Schenendor[, of Counsel, Covington & 

Burling LLP, concentrates on transportation 

and legislation with a particular focus on legislative strategy, legislative procedure, and 

the federal budget process. For nearly 25 

years, Schcnendorf served on the staff of the 

Committee on Transportation and infra,')tructure of the U,S. House of Representatives. 

Elizabeth Beli, associate, Covington & Burling 

LLP in the firm's Washington, D.C. office, 

practices in the tax and government affairs 

practice groups. 

O nApril15, 2011, Rep. Paul Ryan (R-Wis.) stood on 

the floor of the House to discuss the financial health of the U.S, economy. "Let me ask you this," 

he said of the 2008 financial crisis: 

What if your President and your member of Congress saw 

it coming? What if they knew why it W3..<; happening, when 

it was going to happen, and more importantly they knew 

what to do to stop it and they had time to stop it but they 

dido't, because of politics? .. We cannot avoid this choice. 

To govern is to choose. We are making a choice even if we don't act. And that's the wrong choice. 1 

Ryan asked these questions during the debate on the 

fiscal year 2012 budget. But his remarks could apply 

, 157 Congo Rec. H2900 (Apr. 15, 20ll). 

COPYRIGHT {, 2011 BY THE BURCAU OF NATIONAL AFFAIRS. INC. ISSN 0148-8155 
95 


Insert offset folio 64 here 85021.064

2 

equally, if nol more so, to the impending transportation crisis facing the United States. 

For decades, the United States has underinvested in 

the national surface transportation network. As a result, 

the aging, congested network is in need of repair and 

does not have adequate capacity to accommodate fu w 

ture population and economic growth. Despite the persistent culls of policy groups, as well as independent, 

government-sponsored commissions and studies, for 

increased investment, the Highway Trust Fund (HTfo)-

the primary vehicle for federal surface transportation 

funding-has been perpetually underfunded. 

Should this pattern of government inaction continue, 

our economy, which depends on the efficient and safe 

transportation of goods and people, will suffer as our 

surface transportation network literally grinds to a halt. 

U.S. businesses will become less competitive in the global marketplace. U.S. companies will be forced to locate 

plants to other countries where transportation services 

are adequate. U.S. private-sector jobs will be lost. And the American people will suffer, in terms of lost job opporlunities, longer and more stressful commutes, and a 

lower standard of living. 

In other words, this transportation crisis is predictable. President Obama and members of Congress can 

see it coming. They know why it is happening. They know when it is going to happen, and they have time to 

stop it. Most importantly, they know what to do to stop 

it-and, in fact, revenue-raising solutions to maintain 

and improve our surface transportation network can be 

implemented almost immediately. The problem has 

been politics. There has not been the political will to 

raise the federal motor fuel or diesel fuel taxes that 

comprise the majority of federal surface transportation 

funding. even though study after study, and report after 

report, has recommended doing so. 

To make meaningful improvements to the national 

surface transportation system, Congress must raise additional revenues. Ideally, Congress would do so by 

implementing the independent, bipartisan recommendations regarding motor and diesel fuel taxes. If this 

does not happen and no new revenue is raised, a reduction in spending will result, further exacerbating the 

transportation crisis. Thus, it is imperative that Congress develop alternative mechanisms to supplement 

existing revenues in the Highway Trust Fund. The primary purpose of tills paper is to propose two such alter~ 

native mechanisms. They are: 

1) a Federal Interstate User Fee for all vehicles using 

the Interstate Highway System, with its revenue dedicated to modernizing the interstate to meet the demands of the 21st century; and 

(2) a Federal Motor Carrier User Fee, with its revenue dedicated to freight-related transportation im- provements benefiting the trucking industry. 

These targeted user fees have three characteristics in 

common: they appropriately place the costs of maintaining and improving the federal-aid highway system 

on its users, they can be implemented relatively easily, 

and most importantly, thcy tackle the problem of highway funding on a comprehensive, national levc1.2 

l. Though mechanisms for investing in public transportation 

(such as buses and rail transportation) are beyond the scope of 

this white paper. a user fee or use tax could also be imposed to raise funds for public transit systems. See. e.g., National Sur~ 

The next section of this paper provides background 

information on state of the Highway Trust Fund and its funding challenges. These challenges mandate significant, rather than patchwork, policy changes. After the 

challenges are described, the paper discusses the importance of the national surlace transportation network 

to our economy, and the key principles necessary to 

creating viable funding solutions. Especially important 

is the need for a consistent federal policy that is truly 

national, rather than focused on state- or local-level 

fixes. The two solutions noted above are then discussed, 

including details of design, administration, and policy 

advantages. 3 

The federal surface transportation network is a crucial and dangerously neglected driver of our economy. 

To put it bluntly, failure to adequately fund the maintenance and expansion of this system is not an option, As 

a country, we can't avoid making the choice to address 

this problem~-and inaction is the wrong choice. 

Slate of Highway Trust Fund: Burning Plaifonn In the 

1950s, President Dwight D, Eisenhower had a vision of 

a unified nation. Without a robust, federally-supported 

transportation system, he stated, the United States 

"would be a mere alliance of many separate parts.,,4 In 

1956, the federal government established the Highway 

Trust Fund (HTF) to help realize President Eisenhower's vision. Created by the Highway Revenue Act of 

1956, the HTF is a financing mechanism that accounts 

for tax receipts dedicated for expenditures on highways and transit needs. Currently, the HTF houses two ac~ 

counts: one for the highway program, and one for public transit. 

Since its inception, the HTF has been funded by taxes 

on motor fuels and vehicles. By linking transportationrelated taxes with transportation-related funding, the 

HTF ensures that the costs of the new federal highway 

system are primarily borne by its users. Through the 

ample revenue they provided to the HTF, the Eisenhower generation helped build not only a state-of-theart highway system, but also one that included extra ca~ 

pacity for generations of drivers to come, 

The number of drivers using the highway system 

since the RTF was created has increased drastically, especially over the last 30 years. From 1980-2006, vehicle 

miles traveled increased 97 percent for automobiles and 

106 percent for trucks. In 2007, drivers traveled about 3 

trillion vehicle-miles and 5 trillion passenger~miles on 

public highways, along with 1.3 trillion ton-miles of 

freight (about 30 percent of the total). 

In the past three decades or so, however, the total 

number of highway lane miles grew only 4.4 percent. As 

a result, hours of delay per traveler almost tripled from 

1982-2005, and total hours of delay increased fivefold. 

Tn urban areas alone, congestion resulted in 4.8 billion 

hours of traveler delays and consumption of an additional 3.9 billion gallons of fuel in 2009. Freight movements have been similarly affected: the top 25 truck 

bottlenecks in the U.S. (primarily at interstate interface Transportation Policy and Revenue Study Commission, 

Transportation for Tomorrow 5-18 (Dec. 2007) . 

.1 Should the reader want infonnation on even more poten- tial solutions, Appendix I briefly describes other, short- to 

medium-term revenue-raising possibllities. Appendix II pro- vides a comprehensive list of federal revenue options from re- cent government studies. 4 Remarks of February 22. 1955. 

7-:?2-11 COPYRIGHT ';' 2011 BY THE BUREAU OF NATIONAL AFFAIRS. INC. OFR ISSN 0148-8155 
96 


Insert offset folio 65 here 85021.065

changes) account for about 37 million truck hours of 

delay each year. 

These problems aren't only the result of a steadily 

growing usage, but also of deteriorating conditions. As 

of 2006, more than half of total vehicle miles traveled on 

the federal highway system occurred on roads that 

were not in good condition. More than one-quarter of 

the nation's brid~es are structurally deficient or functionallyobsolete.' 

How did we get from having one of the world's preeminent transportation systems to an overburdened 

system that is steadily falling into a state of disrepair? 

The heart of the problem is this: while we have been 

benefiting from the expenditures of the generation that 

helped to build the Interstate Highway System, we have 

failed to make adequate federal investments of our 

own. 

Though national surface transportation expenditures 

have increased over time, they have not kept pace with 

national growth. Expenditures on highway maintc~ 

nance and improvements are shared by tocal, state, and 

federal governments. When growth in vehicle miles 

traveled is taken into account, real highway spending 

across aU these levels of government has fallen by 

nearly 50 percent since the creation of the HTF.!': The 

federal contribution lo highway spending, in particular, 

has remained fairly constant, falling behind rather than 

responding to additional infrastructure demand. 7 

The vast majority of federal-level highway funding is 

provided through the HTF. Currently, about 90 percent 

of HTF revenue is derived from excise taxes on motor 

fuels.B These taxes are set at 18.4 cents per gal10n of 

gasoline and 24.4 cents per gallon of diesel, but are not 

indexed for inflation and have not been raised for almost two decades. The tax has lost about 33 percent of 

its purchasing power since it was last raised.9 At the 

same time, recent legislation-most notably the Transportation Equity Act for the 21st Century and the Safe, 

Accountable, Flexible, Efficient Transportation Equity 

Act: A Legacy for Users--substantiaUy boosted federal 

highway spending. W 

As a result of the economic downturn, declining real 

receipts, and increasing outlays, the HTF is in a solvency crisis. Since, by law, the HTF cannot incur a 

negative balance, Congress has been forced to autho~ 

rize three emergency funding infusions totaling $34.5 

billion since 2008. II Yet short-term and long-term 

" For these and other statistics, see, for example, National Surface Transportation Infra'itructure Financing Commission, 

Paying Our Way: A New Framework for Transportation Fi- nance 22 (Feb. 2009); Congressional Budget Office, Alterna- tive Approaches to Funding Highways 1-3 (l\.1ar. 2011). 

('\ National Surface Transportation Infrastructure Financing 

Commission, supra n,5, at :H. 

1 Id. 

S The remaining revenue comes from a sales lax on certain trucks and tractors, taxes on truck tires, and a heavy vehicle use tax, See, e.g,. Congressional Budget Office, supra n.5, at 2. 

:< See, e.g" American Association of State Highway and Transportation Officials, The Forum on Funding and Financ~ 

ing Solutions for Surface Transportation in the Coming De~ 

cade: Cortference Report 2 (Jan. 2011). 

!() National Surface Transportation Infrastructure Financ- ing Commission, supra n.5, at 43. 

11 American Association of State Highway and Transporta- tion Officials. supra n.!), at 4. 

DAILY REPORT FOR EXFCUTlVES ISSN 0148-8155 

3 

shortfalls still loom-and investment needs continue to 

grow. 

In both business and government, many managers 

and executives recognize the term "burning platfonn," 

a crisis so severe that it necessitates radical and immediate change. The term's odgins are traced back to the 

stoty of a man working on an on platfonn in the North 

Sea. One night, a fire erupted, forcing the worker to the 

end of the platform. As the fire approached, the worker 

had to make a decision: submit to the fire, or jump into 

the waters of the North Atlantic. Although a dive into 

the sea is a drastic move, the worker simply couldn't 

wait until the fire engulfed the entire platform. 

It is the position of this white paper that, in terms of 

funding our national surface transportation system. we 

are standing on a burning platform. Drastic action is 

necessary. 

The first step is to reform federal surface transporta~ 

tion programs. Existing programs should be thoroughly 

reviewed, consolidated to the maximum degree possible, reoriented toward performance, and refocused on 

the national interest. Project delivery must be streamlined, And at the very least, a multi~year reauthorization 

bill should ensure that receipts afe in line with out- lays.12 

As needed as it is, reform alone wiJl only throw a 

bucket of water on the conflagration. What is really 

feeding the fire is increased transportation demand and 

usage. For example, both passenger and truck travel 

are anticipated to grow at an annual rate of approxi~ 

mu.tely 2 percent through 20:35. 13 Current federal policies will not be able to keep pace with that growth. 

What the HTF truly needs is a significant and immediate increase in revenue. Even if every dollar raised for 

transportation needs by our financial and institutional 

structures is utilized in the most effective manner, the 

current level of funding would not be adequate to maintain the operational performance and physical condition of the highway system. I~I Indeed, revenues generated by current law will only provide enough resources 

to cover less than half of what is needed to maintain our 

highways through 2035. Similarly, those revenues will 

only meet about 35 percent of what is needed to improve our highway system, 15 

We can no longer take advantage of the investments 

of prior generations. Instead of struggling to meet the 

bare minimum requirements for maintenance, we should anticipate the future needs of the highway system and ensure those needs are met. Instead of watching the fire consume the current policy platform, we need to jump off. 

Action, Inaction, and Economic Growth 

The significant changes required to maintain and improve our highways are not only needed for the convenience and the safety of individual drivers-although 

these are important concerns. A deteriorating public 

!Z Of course, without additional revenues, balancing re- ceipts and outlays would require a reduction in funding. which 

would further exacerbate the investment crisis. 13 National Surface Transportation Policy and Revenue Study Commission, supra n.2, at 5~16. 

l4 Id. at 4-3. 1" American Association of State Highway and Transporta- tion Officials, supra n.9, at 6. 
97 


Insert offset folio 66 here 85021.066

4 

highway system also powerfully impacts the wellbeing 

of the U.S. economy. 

The remainder of Rep. Paul Ryan's April 15 remarks, 

cited at the beginning of this white paper, emphasized 

the need for budget reform as a necessary aid to economic growth. Ryan considered budget changes crucial to the preserve Amelica's promise of prosperity to the 

next generation. Without providing [or the future, he 

argued, the United States will slide into decline. 

Again, these remarks apply, and urgent1y, to our 

transportation infrastructure, OUf national highway network is a critical driver of 

our national economy. It is a rare example of a physical 

government infrastructure that reaches every American-if not individual drivers, then individuals 

who consume goods and services that could only be 

provided thanks to state-to-state transportation. It 1nLTeases productivity and lowers transaction costs. It has 

been instrumental in enhancing mobility, and thus providing access to jobs, education, and other opportunities that have increased the quality of life in the United 

States. 

If no action is taken, that is, if no investments are 

made to maintain and improve the highway system to 

accommodate greater demand for access to goods and 

services, access to these benefits will be limited. 

A recent report by the McKinsey Global Institute 

shows just how far behind the U.S. has fallen in terms 

of building a 21st-century infrastructure. Compared 

with the 139 countries examined by the World Economic Forum's Global Competitiveness Report 2010-

2011, the U.S. ranks 23rd on overall quality of infrastructure, behind countries such as Canada, France, 

Gennany. and Japan. This represents a precipitous 

drop over the past decade: In 2000, the U.S. ranked 7th. .6 

Worse still, our inadequate infrastructure imposes 

unnecessary additional costs on the U.S. economy and 

American taxpayers. The McKinsey report goes on to 

estimate that increasing road congestion in the United 

States already costs more than $85 billion a year. On a 

per traveler basis, this annual cost ranges from $1,084 

~~c:~~~:5ge urban areas to $384 in suburban and rural 

At a time of increasing global competition and uncer~ 

tain economic growth, the United States can't afford to 

undermine the benefits that a well-functioning trans- portation system provides or allow inaction to impose 

additional costs on U.S. travelers. U.S. jobs, the U,S. 

economy, and this country's position as a global economic leader are at stake. 

Evaluating Appropriate Solutions 

In response to the pending transportation crisis, doz~ 

ens of solutions have been proposed by public policy 

groups and government commissions with respect to 

raising HTF revenue. 18 Rather than repeat that litany of 

options, this white paper proposes two new solutions, 

based broadly on concepts found in previous studies. 

Hi McKinsey Global Institute, Growth and Renewal in the 

United States: Retooling America's Economic Engine 52 (Feb. 

20ll). 

17 Id. at 53. 

18 For the breadth of options reviewed hy these government 

commissions, please see Appendix II. 

which meet three general prinCiples. All three of these 

principles arc important for creating revenue-raising 

mechanisms that are efficient, viable, and best reflect 

the scope of the federal highway system and its role in 

the u.s. economy. 

pirst, proposed solutions should approximate a true 

user fee as c10sely as possible. The HTF's major revenue stream, motor fuel taxes, is an example of a 

revenue-raising solution that attempts to place the responsibility for maintaining and improving the highway 

system on its actual users. Revenue options that hew as 

closely as possible to user fees are fairer and more economically efficient, causing the individuals who impose 

costs on the system (for example, by increasing the 

need for repairs through a high level of use) to pay 

those costs, rather than obligating non-users to shoulder the burden. 

Second, the solutions should be relatively easy to 

implement. As this white paper suggests, the problem 

of federal highway funding requires an urgent re· 

sponse. Moreover, ease of implementation usuallythough not always-translates into less costly and more 

politically viable programs. 

The third and most important principle is the need 

for a truly national investment policy. Highway Account 

funding is focused on the federal-aid eligible highways 

that make up about 25 percent of the nation's 4 million 

miles of roads but carry more than 85 percent of the vehicle miles traveled annuaUyyl Modernizing these 

highways, especially the major highways that make up 

the National Highway System (which includes the Interstate System) will require significant, sustained investment over a considerable period of time. The HTF 

is uniquely suited for this type of investment. 

Previous reports on the issue of highway funding often raise solutions such as credit enhancement programs, bonding, state-level tolling, national or state infrastructure banks, and private-public partnerships. 

These options, while worthwhile and clearly part of the 

solution, are not the complete solution. Such programs 

will not generate enough revenue for the system-wide, 

sustained investment that is needed over the long term. 

Moreover, they tend to reside at the local- and even 

project*level. State and local governments are subject to 

different and more narrowly-focused political pressures than the federal government. If funding fixes are aimed 

only at changes on the state- and tocal~level, there is a 

danger that the transportation system would become 

balkanized-to the detriment of the national network. 

The focus in creating the fcderal~aid highway system 

was the concept of a country unified by a nationwide infrastructure. In loday's highly competitive global 

economy, this vision is more important than ever. Only 

a strong federal role will help realize this unity, allowing for systemic improvements in both high-traffic and 

low-traffic states. There is also the issue of fairness. A 

very costly project in State A may be needed because of 

traffic destined for other distant states. It is not fair to 

ask the citizens of State A to pay the whole tab for a 

project that benefits millions of people across the network. The costs of modernizing the national network 

should be borne by all of the users of the network. 

19 See, e.g., Congressional Budget Office,supra n.S. at L 

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This approach is consistent with the federal role in 

transportation throughout our nation's history.20 From President George Washington's support for federal con- struction, maintenance, and repair of existing and future lighthouses, buoys and ~ublic piers for rendering 

navigation "easy and safe"; I to presidential hopeful 

Henry Clay's support for capital improvements; to 

President Abraham Lincoln's support for the transcon- tinental railroad; to President Theodore Roosevelt's 

support of the Panama Canal; to President Franklin 

Roosevelt's support for a cross-country, high-level road 

system; to President Dwight Eisenhower's support of 

the Interstate Highway System and tbe Highway Trust Fund; and to President Ronald Reagan's support for increased motor fuel user fees to preserve and modernize 

the federal-aid highway network, the federal government has been instrumental in the development of our 

nation's strong surface transportation network. 

Thus, the solutions recommended below focus on increasing the receipts of the HTF for countrywide distribution. 

Motor Fuel Excise Tax: Missed Opportunity 

One obvious solution that meets the three criteria 

outlined in the previous section is an increase in the 

motor fuel and diesel fuel excise taxes. Political opposi~ 

tion to any such increase, however, would appear to 

make this solution unlikely, at least in the near term. 

As mentioned above, motor fuel taxes on diesel and 

gas constitute about 90 percent of HTF receipts. These taxes are charged at a flat rate per gallon that is set by 

Congress. The current tax rates on motor fuels are 18.4 

cents per gallon for gasoline and 24.4 cents per gallon 

for diesel fuel. An increase in these rates is long overdue; Congress has not changed the rates since 1993, 

and because they are not indexed for inflation, their efficacy as a revenue-raising tool has diminished substantially over the past 18 years. Had the federal gas tax rate 

of 18.4 cents per gallon been indexed using the Consumer Price Index for an Urban Consumers, beginning 

in 199.1, the tax rate in 2008-the year of the HTF's first emergency infusion-would be 27.5 cents per gallon. 22 

Because the motor fuel tax is already in place as the 

primary funder of the HTF, implementation of a tax increase or an indexing solution is straightforward and could be easHy accomplished, at least technically. 

Moreover, the motor fuel tax approximately places the 

cost of maintaining and improving the highway system 

on users of that system. Although the tax is collected at 

the fuel terminal level, it is passed on to drivers at the 

pump. 

Despite enjoying widespread support as the best and most appropriate HTF fix, at least for the short~ and 

medium-term, a motor fuel tax increase is unlikely to 

20 The federal role in transportation policy is rooted in the U.S. Constitution itself. Article I, Section 8, clause 3 provides that Congress has the power to regulate interstate commerce, a power which includes the regulation of interstate transporta- tion. In terms of highways themselves, the Constitution is even more explicit, granting Congress the power to "establish. 

post Roads" in Article 1. Section 8, clause 7. 21 An Act for the establishment and support of Lighthouses. 

Beacons, Buoys, and Public Piers, ch. 9. 1 Stat. 53 (1789). 22 See National Surface Transportation Infrastructure Fi- nancing Commission, supra n.5, at 41. 

----------

DAII Y REPORT FOR FXECUTIVES ISSN 0148-8155 

5 

happen. 23 Historically, motor fuellaxes have received a 

reasonable degree of public and political acceptance. 24 

In the face of the current political opposition to any tax 

increases, however. the viability of this solution seems 

too low at this time. 

If Congress does not increase the current motor and 

diesel fuel taxes, it should, nevertheless, consider in~ 

dexing them to inflation, This would at least preserve 

the current purchasing power of those taxes and be a 

part of the solution to the transportation investment cri~ 

sis. 

Recommended Solutions: Targeted Federal 

User Fees 

If there is not the political will for a motor fuel tax in~ 

crease, other solutions exist that could avoid or miniM 

mize the pushback against raising taxes. This white pa~ 

per suggests two such solutions: (1) a Federal Interstate 

User Fee (FIUF) and (2) a Federal Motor Carrier User 

Fee (FMCUF). Note that in both cases, these targeted user fees are meant to supplement, rather than replace, 

existing motor fuel taxes and other HTF revenue 

sources. If the solutions are adopted, these existing 

HTF revenue sources could be used to repair and modernize other portions of the national surface transporta- tion network. 25 

Federal Interstate User Fee 

The Federal Interstate User Fee (FIUF) would impose a user fee on interstate highway users. 

nUF Design 

The FIUF would impose a use-based fee on all inter~ 

state highway users. This fee would be collected 

through a system like E-ZPass that would detect entry 

onto and exit from interstate highways. No tollbooths 

or other major structures would be constructed in order 

to collect the user fee. Rather, the system would be 

completely electronic. Standardized transponders could 

be included on newly manufactured vehicles and retrofitted to older models. Entry and exit data would be col- lected by electronic readers stationed at highway on~ 

and off-ramps. 

Fees would be set at the level necessary to reimburse 

states for the federal share of the costs of restoring the 

Interstate Highway System to a state of good repair and 

the costs of expanding and modernizing the system, including projects for the improvement of international 

points of entry and exit. Personal and commercial travelers would pay for use of the interstate system in proportion to the costs associated with that use while maintaining the current allocation of highway cost responsibility. In addition, fees could be set a1 rates that differ 

by geographic areas to account for costs associated 

with repair and modernization. For example, the fee on 

2" We recognize that an increase in motor fuel taxes would not be a sustainable, long-term solution. See. e.g" id. at 102- 103, 106 (discussing factor:::; that would make motor fuel taxes 

less effective, such as fuel efficiency improvements and envi~ 

ronmenta! concerns). Our recommended solutions, discussed in the next section, provide long-term revenue-raising options that are not exposed to the weaknesses of the motor fuel taxes. 2'1 See [d. at 106< 

25 Examples of F1UI', FMCUF, and base revenue projects 

can be found in Appendix Ill. 

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6 

less~congesled portions of the interstate might be less 

than the fee on highly~congested portions.26 The fees 

would not be designed to control the level of traffic or 

to "price out" drivers from using the interstate. 

FIUF revenue would be colieeted automatically on a 

periodic basis, for example, monthly. Interstate Highway users would, likewise, receive periodic statements 

detailing their highway use and the resulting charges. 

Fees for commercial vehicles would be collected 

through businesses; individual drivers would receive 

personal statements. All fees would be deposited into a 

newly created subaccount within the existing Highway 

Account of the HTF. 

Administration and use. 

All FIUF fees collected would be used to repair and, 

more importantly, modernize the Interstate Highway 

System. Fees would be used to reimburse states for the 

federal share of funds expended on the interstate. Revenues in the HTF's Highway Account would no longer 

be used on interstate projects but instead would be used 

to upgrade the remaining federal-aid highways, includ~ 

ing the major non-interstate highways on the National 

Highway System. 

Under the FIUF program, no other policy changes 

with respect to interstate highway projects would be 

made. Projects would be developed, planned. approved 

and constructed by states in the same manner as they 

are today.27 In other words, the federal-state partnership would remain unchanged. The only structural difference would be the source of federal funding. FIUF 

revenues, rather than HTF Highway Account revenues, 

would be used to reimburse states for the federal share 

of interstate highway projects. 

?6 Exemptions or credits for low-income drivers could also 

be incorporated into the administration of the FIUF, depending 

on the costs and complexities involved. The cost of the exemptions or credits should, however, be borne by the General Treasury.; ~~t ~~~;~'l!~rlier, it is the position of this white paper 

that, as a crucial first step, the federal surface transportation 

system must be refonned, including by consolidating projects, 

reorienting the federal program towards performance, refocusing on the national interest, and streamlining project delivery. The projects that the FIUF and FMCUF fund, like all other 

federal-aid projects, would be done in accordance with such reforms. 

To ensure that interstate users pay only at the level 

necessary for repair and improvement of the Interstate 

Highway System, user fee rates would be adjusted annually. To facilitate fair and precise fee-setting, Congress would create an independent entity to set or adjust the fees in accordance with the policies established 

by Congress. The entity would be comprised of experts, 

including stakeholders such as representatives from the 

motor carner industry, passenger vehicle groups like 

AAA, and state highway departments, and would be reo 

sponsible for the ministerial task of periodically adjusting the user fee rates to ensure adequate revenue to reimburse the stales. This process would be transparent 

and would include reports to Congress and the executive branch. 

Aside from setting fees, the independent entity described above could also make recommendations to the 

states and the Department of Transportation regarding 

interstate projects of national priority, such as interstate expansion, the improvement of international 

points of entry and exit, and freight improvements of 

national commercial importance. Finally, the entity 

could serve a public affairs and educational role by 

keeping the publlc informed of the goals and accomplishments of FlUF investmenL 

Federal Motor Carrier User Fee The second recommended alternative solution, the 

Federal Motor Carrier User Fee (FMCUF), is similar to 

and meant to the complement the FIUF, Since the FIUF 

program reaches aU drivers, trucks, too, would be responsible for paying the FIUF, Unlike the FIUF, which 

is limited to only interstate highways, the FMCUF 

would be imposed on commercial trucks' usage of all 

roads. 

FMCUF Design. 

The FMCUF would be imposed on the same use~basis 

as the FIUF. Unlike the FIUF, however, the FMCUF pro- gram would take advantage of tracking equipment already installed on most trucks for fleet management 

purposes. Monitoring equipment (usually, though not 

always, GPS-based) allows companies in the freight industry to efficiently monitor vehicle location, direction, 

and speed. This teChnology would be used to calculate 

FMCUF liability. Importantly, trucks would not be 

double-charged for use of the interstate; rather, that use 

would be recorded through the FIUF program. 

FMCUF fees would be collected on a monthly basis. 

fee payers-primarily freight-related businesseswould receive detailed statements on vehicle usage. 

Collected FMCUF fees would flow to a dedicated subaccount within the existing Highway Account of the HTF. 

Administration and use. 

The FMCUF program would be administered by the 

same entity as the FIUF. This entity would set FMCUF 

fees on an annual basis in accordance with the poliCies established by Congress, Ideally, FMCUF fees would 

vary based on geographical location. 

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As with the FIUF program, no other policy changes 

with respect to freight projects would be made,28 Funds 

disbursed from the FMCUF subaccount would be allocated solely to freight improvements, especially freight 

bottlenecks, high-cost freight projects, and freight 

projects of national significance, including intennodal 

facilities. These projects would be over and above the 

freight projects funded under the base program by existing HTF revenues. The FMCUF funds would not be 

geographically restricted, but would be used for freight 

projects throughout the country. The expert body that 

sets the FMCUF fees could also make recommendations regarding projects to which FMCUF receipts 

should be directed. 

Use of Existing Revenue 

As mentioned above, if the FIUF and the FMCUF are 

adopted, existing HTF revenues would be freed for other uses. Specifically, existing HTF revenues would 

no longer be used on interstate projects, since the new 

F1UF program would fund all interstate projects. Likewise, freight projects funded by the FMCUF would no 

longer be funded from that revenue. 

Using the F1UF and FMCUF programs as a supplement, rather than a replacement, is a crucial part of the 

transportation funding solutions described above. 

Vihile the interstate is the backbone of the U.S, highway system, carrying about a quarter of all vehicle 

miles traveled annually, all federal-aid eligible highways combined carry approximately 85 percent. These 

non-interstate highways will need to be repaired and 

upgraded to meet current and future transportation 

needs. By guiding existing HTF revenues from the motor fuel excise tax and other sources towards these non- interstate roads, the FIUF and FMCUF programs will 

aid the improvement of the entire National Highway 

System. 

Advantages of FIUF, FMCUF Solutions 

The F1UF and FMCUF, if designed and implemented 

as described, clearly meet the three principles that this 

white paper considers important to successful HTF 

funding solutions and would have a number of other 

economic and policy advantages. Specifically, an HTF revenue-raising framework that incorporates the FH]F 

and FMCUF, 

• Is based all a true user fee principle. The FIUF and 

FMCUF are true user fees. While the motor fuel tax and 

the other current revenue sources of the HTF reach users indirectly-they tax vehicles and transportationrelated goods, not highway use-the FlUF and FMCUF 

place the burden of funding interslate highway improvements squarely on individual drivers, based on 

their highway traveL 29 

28 As with the FIUF program, FMCUF projects would be 

implemented in accordance with the federal transportation program refonns mentioned in the previou!i footnote and ear- lier in this white paper. 79 The concept of implementing targeted user fees to pay for certain transportation costs if> not new, For example, Presi- dent George W. Bush's administration opposed an increase in the gas tax, but proposed to raise billions through transporta- tion user fees such as an aviation security fee, a rail safety fee, and an aviation cost-based fee. 

DAILY REPORT FOR EXECUTIVES ISSN 0148-8155 

• Is based on (1 Lrue user fee principle. The FlUF and FMCUF are true user fees. While the motor fuel tax and 

the other current revenue sources of the HTF reach users indirectly-they tax vehicles and transportationrelated goods, not highway use-the FIUF and FMCUF 

place the burden of funding interstate highway improvements squarely on individual drivers, based on 

their highway travel. 

• Is relatively easy to implement. The FIUF and FMCUF could be implemented in the medium-term. if not 

the short-term. [mplementation of the FIUF and FMClJF would require a non-negligible amount of investment, but the technology and even some infrastructure 

(existing structures at highway entry and exit points in 

the case of the FIUF, for instance) are already present. 

• Represents a truly national investment policy_ 

FIUF and FMCUF revenues would be distributed to 

projects across the Interstate Highway System and 

would not be restricted to certain states or localities. By 

design, the FMCUF would be dedicated to national 

freight projects, and the FIUF program would generate 

sufficient revenue to upgrade the Interstate Highway 

System to once again be the crown jewel of the U.s. 

transportation system. The interstate is the backbone of 

this system: even though it makes up a little more than 

1 percent of our road mileage, it carries more than 24 

percent of the vehicle miles traveled annually.3o 

• Modernizes our national transportation network. The revenue from the FIUF and FMCUF programs 

would be specifically tailored and dedicated to meet interstate and freight improvement needs. The additional 

revenue would not only allow the U.S. to modernize 

these parts of its surface transportation system, but 

would also free up existing HTF resources for the rest 

of the national network-aU owing for improvement of 

the entire federal-aid highway system. 

• Modernizes federal financing mechanisms. Aside from helping to modernize our highway system, the 

FIUF and FMCUF programs would also modernize the 

way our government collects revenue: namely, through 

automated, electronic means. This collection system 

could provide an important policy model for future programs. In addition, given increased concerns about fuel 

prices and oil dependence, a move to targeted highway 

user fees represents a much-needed step towards postgas tax revenue strategies, And, by setting a national policy regarding Interstate Highway usage, the programs will prevent the balkanization that could occur as 

a result of state and local tolling policies, 

• Minimizes individual driver privacy concerns. Unlike revenue-raising proposals based on tracking all ve~ 

hide miles traveled, the FIUF minimizes individual privacy concerns by only recording entry and exit points 

onto the interstate system. Similar systems, such as 

E-ZPatis, I-Pass, and FasTrak. are already used by and 

have gained widespread acceptance in many states. 

• Represents a politically feasible and fair solution. 

As explained above, the FIUF and FMCUF are user fees, 

not taxes. Moreover, the FIUF and FMCUF are strongly 

linked to increased expenditures-the fees are set only 

to meet freight and interstate modernization needs. 

There is no demand-pricing component to the fees, 

:W See National Surface Transportation Policy and Revenue Study Commission, supra n.2, at 4-8. 
101 


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8 

which are geared towards current investment, not paying debt The link between fee payment and use of revenues not only makes economic sense, but also allows 

users to know what they are getting for their fee payments, which should increase public acceptance of the 

fees. 

• De-politicizes the fee adjustment process. The technical fee-adjustment authority under the FMCUF 

and FIUF programs would reside in the expert body described above, not in Congress. Unlike the motor fuel 

tax, then, the FIUF and FMCUF would not be held hostage to political inertia, and could be more easily ad- justed to meet the needs of the surface transportation 

system. 

• Will lead to increased revenues without increasing the federal debt. The FIUF and FMCUF would not 

require an increase in existing taxes, the deficit, Of 

debt. The FIUF and FMCUF programs are based on a 

pay-as-you-go principle: Because current user fees 

would pay directly for any increased investment, after 

implementation costs are covered, no new taxes or gen~ 

eral fund appropriations would be necessary to support 

the modernization of the highway system. In fact, increased infrastructure investment will in the long~term 

lead to robust economic growth, which will generate 

greater revenue-a result recognized by deficit~ 

reducing plans like the Bowles~Simpson Commission.31 

• Helps solve the short- and long-term HTF crisis. 

Without further action, looming HTF spending cuts will 

likely be enacted in the near future. These cuts will fur~ 

ther exacerbate the HTF crisis without making a single 

step towards a long-tenn solution. The FIUF/FMCUF 

framework. on the other hand, will not only help solve 

this short-term fiscal problem, but lead to increased investment in the longer (erm. The FIUF and FMCUF programs would restore the mission and the vision of the 

federal surface transportation program, with its focus 

on interstate and freight projects of broad national importance. 

Conclusion 

At a time when the financial well-being of this coun- try is in the political spotlight, one crucial piece of u.s. economic health has been consistently ignored--the 

quality of our federal highway system. Once one of the 

preeminent transportatjon systems in the world. these 

roads have fallen into disrepair, and the federal account 

through which they are funded has faced years of solvency crises. By continuing to neglect our highways, we 

are essentially neglecting the functioning-and the 

future-·of our economy. 

Solutions exist, however, that can reverse the decline 

of the highway infrastructure. Given the political resistance to proposals to raise the motor fuel excise tax, 

this paper recommends two new, alternative 

solutions-in particular, user fees to improve the interstate and that are dedicated to national freight 

projects-that are available to be implemented in the 

short tenn or medium term. 

;\1 The National Commission on Fiscal Responsibility and Reform, The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform 12 (Dec. 1, 2010). 

In terms of investment in the U.S. tmnspoltation system, the 

Commission recommended a 15-cent per gallon increase in the gas tax dedicated solely to transportation funding. Id< at 24. 

Given the urgency of the transportation crisis, inaction is no longer an option. Rather than wait for this 

wholly predictable crisis to descend on our country, enacting solutions now to balance the Highway Trust 

Fund and expand the highway system will restore our 

transportation infrastructure to its rightful and necessary place as the world-class, unifying network that its builders envisioned. 

Appendix I 

In addition to the recommendations in the primary 

text of this white paper, the following four options are also viable solutions. These options, however, fail to 

fully meet the principles outlined ahove. Nonetheless, 

due to their potential as revenue-raising mechanisms, 

they warrant brief discussion below. 

Registration Fee Increase 

All states impose an annual vehicle registration fee, 

and at least half the states raise more than a quarter of 

their dedicated transportation revenues through this 

mechanism.:l2 One possible way to raise additional HTF 

revenues would be to impose a flat federal registration 

fee in addition to any state charges. The fee wou1d be 

set by the Congress and would flow to the Highway Ac· 

count of the HTF. Because the fee would be collected 

through states' existing systems, this option could be 

implemented with liule additional cost. Unless fees be~ 

come particularly high, however, the revenue potential 

of this solution may be limited. And although vehicle~ 

related, the registration fee is not as user-based as the 

FIUF and FMCUF programs detailed in the main body 

of (his paper. 

Infrastructure Bonds 

Debt-financing. particularly via the use of tax-exempt 

bonds offered by state and local governments, is a traditional source of funds for transportation infrastruc~ 

ture. This solution would expand the state and local 

bond concept to the national level by attracting inves~ 

tors through an issuance of federal infrastructure 

bonds. Federal infrastructure bonds would essentially 

function as war-bond-like debt instruments that would 

allow the public to invest in the federal highway system. 

While a targeted infrastructure bond issuance is a viable revenue-raiser, this solution lacks a direct link to 

highway users. 

Oil-related solutions 

Various oil-related taxes and tariffs could be imposed 

on producers and importers in order to raise funds for 

the HTF. For example, a straightfonvard tariff on oil, 

charged as either a fixed amount per barrel or as a percentage of the value of imported oil, could be im- posed_~~3 

A more complex system, but one which would more 

directly affect oil consumption, would involve imposing 

a tax on oil consumption plus a tariff on imports of refined petroleum.:''';' The oil tax would be constructed as 

a percentage tax on each barrel of oil consumed in the 

:\2 National Surface Transportation Infrastructure Financ~ 

ing Commission, supra n.5, at 75. ;>3 Id. at 81. 

~i·1 RAND Corporation, The Option of an Oil Tax to Fund 

Transportation and Infrastructure 5~6 (2011). 

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Insert offset folio 71 here 85021.071

United States, The rate of the tax would be adjusted on 

an annual or semi~annual basis (primarily to ensure 

that consumers are not penalized during periods when 

oil prices spike). The tax would be collected at the re~ 

finery level. To prevent international refiners from obtaining an undue advantage, imports of refined petroleum products would incur a tax equivalent to the oil 

tax. Similarly, exporters would receive a tax credit or 

rebate equivalent on the oil used to produce exported 

products. 

As other studies have noted, an oil tax or tariff could be set so as to internalize various external costs associated with the consumption of petroleum products, induding environmental and national security costS.:l5 An 

oil tariff alone could also promote U.S. energy independence. While these may be desirable policy outcomes, 

one drawback to a broad oil lax is that it is not userbased; the tax on barrels of oil that are not eventually 

used as fuels (or as asphalt) would nonetheless flow to 

the HTF. While it may be possible to apportion the revenue raised by the oil tax according to use, such a sys-

:~5 See, e.g., id. at 10·14. 

DAILY REPORT FOR EXECUTIVES ISSN 0148·81.55 

9 

tern may be administratively difficult and lead to delays 

in implementation. Additionally, because a tax on oil 

would necessalily place a greater burden on certain 

households (for example, because of regional weather 

differences) and businesses that consume more oil, political opposition to an oil tax may be heavy or insurmountable. 

Existing Revenue Streams. A portion of international customs fees could be dedicated to the HTF to cover the costs of improvements related to the movement of goods into and out of ports of 

entry. It would also be possible to dedicate a portion of 

corporate taxes from industries reliant on truck transportation. 

General Treasury Option. A final option that would offer little by way of usertargeting. but would be fairly simple to implement, involves using General Treasury funds to supplement the 

HTF's existing revenue streams, Again, however, a 

General Treasury option would move away from userbased taxation, and would potentially be an unstable source of funding. 
103 


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10 

Appendix II 

Summary Chart: Highway Trust Fund Revenue Sources 

POTENTIAL FEDERAL REVENUE OPTIONS 

Calegories based on evaluations by the National Surface Transportation Policy Commission and Financing 

Commission.fl] 

Strong to Moderate 

Automobile tire tax 

Carbon tax/cap and trade 

Container fee 

Customs duties 

Freight waybill tax 

General fund transfer 

Harbor maintenance tax 

Heavy vehicle use tax 

Motor fuel excise tax 

Sales tax on motor fuels 

Tariff on imported oil 

Truck tire tax 

Truck/trailer sales tax 

Vehicle miles traveled fee 

Vehicle registration fee 

Vehicle sales tax 

Weak 

Auto-related sales tax 

Bicycle tire lax 

Congestion pricing 

Dedicated income tax 

Driver's license surcharge 

Freight ton-mile tax 

Gencmi sales tax 

Innovative /inanee 

Not recommended 

Federal tax on local parking fees 

Federal tax on local transit fares 

Minerals severance lax 

Petroleum franchise tax 

Value-added tax 

Vehicle inspection and traffic citation surcharge 

Vehicle personal property tax 

Windfall profits. tax 

I Il ~atlonal Suriace TransportatlOll Policy and Revenue Stutly comrmS~lon, 11'()Il~purtafwnjor Tomorrow5-38 (December 2007); 

Nationnl Surface Transportation Financing Commission, PayillR Our WCIY: A Nevil Frame\vork for TrampOI'Iation Finance 96(Fchruary 

2009). Note that the solutions above are federal, rather than state or local, options. 

Appendix III 

Examples of FIUF, FMCUF, and HTF Projects 

Federal Interstate User Fee IFIUFJ. The FlUF would be used on projects to modernize the 

Interstate Highway System and make it, once again, the 

crown jewel of our national surface transportation network and the envy of the world. For example, FlUF revenues would be used to: 

• Restore the Interstate Ilighway System, which is reaching 40-50 years of age, to a state of good repair 

though an aggressive program of preservation, including projects to substantially rehabilitate, or in some 

cases replace, many of its 55,000 bridges; and reconstruct major portions of its 210,000 lane miles. 

• Improve system perfonnance by applying the full range of intelligent transportation systems (e.g., naviga- tion systems, traffic signal control systems, real-time 

parking guidance and notification systems, and vehicle 

detection and notification systems) and aggressive systems of operation and management strategies. 

• Replace aging interchanges that have become major bottlenecks with interchanges that have wider lanes 

and geometric designs to allow higher volumes of cars 

and trucks to exit and merge mOre safely at higher 

speeds. 

• Reduce congestion by adding additional lane 

miles to urban and rural interstates, where appropriate. 

• Expand the Interstate Highway System, where appropriate, lo provide connections to new and emerging centers of population and commerce. 

Federal Motor Carrier User Fee IFMCUFJ. 

The FMCUF would be used exclusively on freight 

projects that benefit the trucking industry_ For example, 

FMCUF revenues would be used to: 

• develop a national strategic freight plan; 

• create and fund a national freight program; 

• reduce congestion on national and regional noninterstate freight corridors; and 

• invest in intennodal connectors (access roads and other systems that efficiently connect the shipment of goods involving more than one mode of transportation) 

to the nation's ports, rail terminals, and air cargo hubs. 

Base Highway Trust Fund IHTF) Program. 

Since the FIUF would be used to fund aU interstate 

projects, existing HTF revenues would be freed to invest in the non-Interstate portion of the federal-aid 

highway system, which is no less important to the national transportation network. These base HTF revenues would be used to: 

• Preserve and modernize the 115,000 miles of the 

non-Interstate Nalional Highway System, including important corridors such as the Avenue of the Saints, 

'fransamerica Corridor, Hoosier Heartland Industrial 

Corridor, Great Lakes/Mid-Atlantic Corridor, Heartland 

Expressway, U.S. 395 (Calif., Nev., Ore., Wash.), 

COPYRIGHT ''i' ?011 BY THE BUREAU OF NAT!ONAl AFFAIRS. INC. OE"R ISSN 0148·8155 
104 


Insert offset folio 73 here 85021.073

CANAMEX, Ports-to-Plains, Wisconsin Developmenl 

Corridor, Capital Gateway Corridor, East-West Corridor, SPIRIT Corridor, Theodore Roosevelt Expressway, 

and Camino Real Corridor, among others, 

• Address urban congestion through operational 

improvements and, where necessary, increased capac- ity. 

• Improve rural highways to keep U.S. agriculture 

competitive, especially lower-classification federal-aid roads that link farm and local roads -with the National Highway System. 

• Upgrade narrow, two-lane, rural roads that cannot safely carry the kind of trucks now moving across the 

United States to support the renewable fuels industry. 

wind farm energy production, and the development of 

other energy resources. 

• Improve fural highways to handle the growth in international and domestic trade moving through the 

heartland of America. 

DAllY REPORT FOR EXECUTiVES ISSN 014&8155 

11 

• Preserve and upgrade, where necessary, the Stra~ 

tegic Highway Network (STRAHNET), a network of 

highways that are important to the United States' stra- tegic defense policy and that provide defense access, 

continuity, and emergency capabilities for defense pur~ 

poses. STRAHNET Connectors-highways that provide 

access betv.reen major military installations and portswould also be maintained and upgraded where appro· 

priate. 

• Provide connectivity between urban and rural 

America, and address seasonal congestion and bottlenecks associated with interstate tourism, especially at 

national parks. 

• Provide adequate access to new and emerging cit~ 

ies and towns so that our highway system will be the 

unifying network that President Eisenhower envi- sioned. 

BNA 7-22-11 
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Insert offset folio 74 here 85021.074

Written Statement by David Seltzer, Principal 

Mercator Advisors LLC 

before the 

House Panel on 21st Century Freight Transportation 

Hearing on Funding the Nation's Freight System 

"The Role of Innovative Finance Tools" 

October 10, 2013 

167..'} Locust Srreet Philadelphia, Pennsylvania 19103 
106 


Insert offset folio 75 here 85021.075

Written Statement by David Seltzer, Principal 

Mercator Advisors LLC 

before the 

House Panel on 21st Century Freight Transportation 

Hearing on Funding the Nation's Freight System 

The Role of Innovative Finance Tools 

October 10, 2013 

Chairman Duncan and Ranking Member Nadler, thank you for inviting me to testify this 

afternoon on "The Role of Innovative Finance Tools" in freight transportation. My name is 

David Seltzer, and I am a Principal at Mercator Advisors, a Philadelphia-based financial 

consulting firm that works with governmental, private and nonprofit entities seeking to finance 

major transportation projects and programs. We also advise transportation industry groups on 

Federal policy initiatives that could stimulate infrastructure investment. 

My personal background includes over 35 years in arranging financing for infrastructure 

projects, including 20 years in public finance investment banking, three years at the Federal 

Highway Administration as special advisor to the Administrator on innovative finance, and the 

last dozen years as a co-founder and principal at Mercator Advisors. Aside from my current 

"day job", I also serve as chairman of the Philadelphia Gas Works-the nation's largest 

municipally-owned gas utility-which is in the midst of a privatization process, giving me a 

special appreciation of the opportunities and challenges in seeking to deliver essential 

infrastructure services. 

You have heard expert testimony today from the other witnesses concerning the funding issues 

confronting America's freight transportation system. I would like to briefly share with you an 

overview of some financing tools that are being used-and indicate what types of Federal 

policy initiatives, in my view, could be most effective in helping advance major freight capital 

investments. 

1 
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Although the terms "funding" and "financing" are often used interchangeably, it is important to 

recognize the distinction between the two concepts: Funding refers to the underlying cash 

flows derived from user charges, fees or taxes associated with a project or program, whereas 

financing refers to the instruments or techniques used to "monetize" (obtain upfront resources 

from) the revenue streams needed to construct the project. Financing tools include debt 

obligations such as long-term taxable, tax-exempt or tax credit bonds, as well as equity 

investments and contributed public (and private) capital. 

Capital Investment in Freight Infrastructure 

Freight transportation encompasses a wide array of services, facilities and operating entities 

supporting goods movement by land, air and sea. While we think of freight shipments as being 

primarily a private sector responsibility, the capital investment in infrastructure in many cases 

involves both governmenta({Federal, state and local) resources as well as business-generated 

resources, as shown in Table 1 below: 

Rail Railways'-- Railyards- Private 

Private Private 

MarIne ;. Watllrways/Harbors-:'- , Marihe.Terminals- Private 

Public Public and Private 

Aviation Airways- Airports- Private 

Public Generally Public" 

* A small percentage of rail right-of-way and terminals are under public ownership. 

** A small percentage of airports are privately owned. 

Of course, many freight terminal facilities are intermodal in nature, with goods transfers from 

ship-to-rail, rail-to-truck or truck-to-ship. These hubs and the local surface connectors 

accessing them ("last mile," or "first mile", depending on your perspective) are critical junctures 

in the goods movement network, and frequently are the source of congestion and delays that 

affect shippers, carriers and the general public. Accordingly, I would like to focus my remarks 

on these intermodal facilities. Large intermodal projects often have high capital costs, can 

involve multiple jurisdictions, and generate substantial non-market effects (spillover 

costs/benefits or externalities). As a result, they are among the most challenging types of 

projects to finance. 

2 
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In connection with some research we undertook for the Eno Center for Transportation, we 

surveyed a list of 35 freight projects identified as intermodal freight or cargo access 

investments in studies by the Federal Highway Administration and National Cooperative 

Highway Research Program. 1 The wide range of project types is summarized below: 

Port Surface Access 11 4,414 

Air Car~o TefR\lriaf 3 142 

Air Cargo Surface Access 2 31 

Rail Trucl< Terminal 6 1014 

Rail-Truck Access 5 77 

Rail Capacity Ellpansion ·S. 768 . T(iT~-~"--~=~35~'--""'""-$ ~7:ioo'k'~ 

As might be expected, various financing strategies were used to advance this diverse group of 

projects. One of the key findings was that, unlike other types of infrastructure, there did not 

appear to be any consistent template in designing the financial plan for the projects; each one 

was custom-crafted, based on the nature of the project, its economics and its specific 

stakeholders. There are, however, several general findings that the data reveal. For example, 

for freight terminal projects, where the benefits of the investment are more squarely centered 

on the private business operators, the private sector generally assumed responsibility for the 

majority of the project costs. Less than 10 percent of the funding was derived from tax-based 

sources. In contrast, for the surface access projects, where there was a higher degree of public 

benefit (in terms of congestion relief, public safety, pollution reduction, etc.) on average only 37 

percent of project costs were borne by the private sector; the majority of costs (63%) were 

publicly-supported, primarily from taxes. In addition, the majority of the projects relied on payas-you-go funding, using government grants, corporate contributions and current revenues. 

Hoel, Lester A., Giuliano, Genevieve, and Meyer, Michael D., eds. Intermodal Transportation: Moving Freight in 

a Global Economy. Washington, DC: Eno Transportation Foundation, 2011. ISBN 978-0-9718175-5-5) 

3 
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"Innovative Project Finance" in Context 

The current Federal funding support for freight is diffuse and under-capitalized. Only a small 

portion of USDOT's grant funding significantly targets projects that facilitate goods movement. 

The existing grant support is supplemented by credit support and tax incentives that may be 

accessed through the TIFIA, RRIF and Private Activity Bond (PAS) programs. In addition, 

Congress over the last decade has authorized a Railroad Track Maintenance Tax Credit program 

(section 45g of the tax code) that currently extends through year-end. It allows short-line (Class 

2 and 3) rail carriers to claim annual tax credits for up to $3,500 per mile for 50% of the cost of 

maintaining track owned or leased by them. The scored cost has been approximately $165 

million per year. 

There are a number of reasons why Federal grant funding to date for freight projects has been 

limited: 

• Most state/local planning historically has been oriented to traditional public works, 

which have a broad political constituency compared with freight projects, whose direct 

beneficiaries may be much narrower. 

• Much of the freight infrastructure (particularly freight rail) is privately-owned, and many 

states have legal and policy restrictions limiting the contribution of public funds to 

private beneficiaries. 

• Projects are often intermodal in nature, and do not easily fit into existing Federal 

program structures that are modally-oriented. 

• Many of the projects span multiple jurisdictions, hindering the formation of institutional 

entities to serve as comprehensive project sponsors and champions. 

• The direct private benefits can be hard to monetize, and the non-market effects 

(spillover benefits) are difficult to quantify. 

Using the lens of Federal policy tools, there are essentially four broad policy approaches the 

government can use to stimulate infrastructure investment: grants, regulatory streamlining, 

credit assistance and tax code incentives. Grantfunding has been the traditional Federal tool 

for surface transportation, but as we are all acutely aware, fiscal limitations on both the Federal 

General Fund and the dedicated transportation trust funds make prospects for major increases 

in grant funds highly problematic in the near term. 

Regulatory reforms, unlike grants, generally have little if any adverse fiscal impact, and can be 

very helpful in streamlining project delivery. Congress (most recently in reauthorizing Federal 

policies and programs in MAP-21) and the current and previous Administrations (through 

issuing Executive Orders) have directed Federal agencies to streamline the permitting and 

environmental review process. By way of example, the environmental clearance for the final 

4 
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design of the $3.9 billion Tappan Zee Bridge replacement was completed in less than a year. 

While accelerating projects can avoid cost inflation and bring transportation improvements 

online sooner, regulatory reforms may not provide a deep enough subsidy in and of themselves 

to stimulate major capital investment. 

The last two Federal policy categories-credit assistance and tax code incentives-are 

financing approaches that may offer more investment promise in the current fiscal 

environment because they can: 

Induce state and local governments to identify new revenue streams to repay loans; 

Bring the market discipline of private co-investment to improve project selection; and 

Avoid the high scored budgetary cost associated with traditional grant funding. 

In order to be successful, any Federal financing proposal must address the requirements of 

three principal stakeholder groups. First, from the perspective of the project sponsor (which 

could be a state or local entity, a private corporation in the freight sector, or a public-private 

partnership), the new tool has to represent a cast-effective source of capital, compared to other 

existing approaches. Second, from the perspective of the investors or lenders (which could be 

public entities, like state infrastructure banks and public pension funds, or private entities, such 

as individual investors and financial institutions), the financing tool must offer a competitive 

risk-adjusted rate of return. And finally, from the perspective of the Federal government, the 

tool has to be bothfisca/ly affordable and consistent with public policy objectives. The most 

effective innovative finance tools therefore will be those that are able to successfully address 

the respective requirements of these three classes of stakeholders, as illustrated in the chart 

below: 

[See next page] 

5 
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Ideal of Federal "innovative Finance" Policy Tools 

• Competitive risk-adjusted 

rate of return 

• Suffjdent volume to 

be liquid, and justify 

front-end diligencing 

• Reasonably easy to 

• Consistent with public policy objectives 

• Manageable scored budgetary cost 

Summarized below are several Federal e finance tools that have been used to advance freight 

projects to date, including a brief description of their impact from the perspectives of the 

project sponsor, investor and Federal policymaker. I also suggest some other new innovative 

finance tools that could play an important role in the future_ 

Private for lntermoda! Projects 

The Internal Revenue Code generally prohibits tax-exempt financing of facilities benefiting 

private businesses, necessitating more costly taxable rate financing_ However, Congress has 

identified approximately a dozen categories of private activity purposes that, may be financed 

on a tax-exempt basis (airports, docks and wharves, multi-family housing, redevelopment 

projects, etc.). These are called Private Activity Bonds (PABs). 

SAFETEA-LU established a new class of "exempt facility" PABS under the tax code for "qualified 

highway or surface freight transfer facilities". To be eligible, the project must be for either a 

title 23 purpose, an international bridge or tunnel, or an intermodal rail-truck transfer facility. 

A national limit of $lS billion is currently authorized under the program, which is allocated by 

the Secretary of Transportation on a discretionary basis.2 The PABs are Federally tax-exempt 

2 This volume ceiling is in addition to each state's annual private activity bond limitation under current law--the 

greater of $95 per capita or $295 million per year 

6 
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but generally are subject to the alternative minimum tax (AMT), which currently adds about 

0.35% to the required market yield compared to other governmental tax-exempt bonds. 

To date, U5DOT reports that $3.8 billion of PABs and have been issued for nine separate 

projects, and allocations have been made for another eight projects totaling $4.4 billion. 

However, only four of the 17 authorized or financed projects are specifically for intermodal 

freight projects-ali part of CenterPoint Intermodal's Midwest real estate portfolio. (These 

intermodal freight terminals have received PAB allocations totaling nearly $1.8 billion, or 22 

percent of the total commitments to date.) The remaining 11 allocations are for toll roads 

(seven of which are passenger car express toll lanes) and one passenger rail facility. 

Project Sponsor Perspective: Up until the Great Recession, there had been a significant cost 

savings in being able to borrow on a tax-exempt basis. However, today, due to limited demand 

for long-term tax-exempt bonds, and the effect of AMT liability on PAB investors, the net 

benefit vs. taxable financing is estimated to be only about 0.25% per year, or 2.5% of the 

amount borrowed, in present value terms. If the AMT yield penalty were eliminated, the rate 

savings would be closer to 0.60% per year. 

Investor Perspective: The lender/bondholder receives a risk-adjusted tax-free rate of return of 

perhaps 5.25% for a 30-year bond with a mid-investment grade bond rating. This return 

compares to fully taxable yields of 3.75% on long-term Treasury bonds and approximately 

5.40% on Similarly-rated long-term taxable municipal bonds 

Federal Perspective: The program subsidizes investment in intermodal connections that will 

expedite goods movement and stimulate economic development. The scored cost of the 

program represents the "tax expenditures" (foregone income tax to the Treasury) associated 

with a private corporation borrowing on a tax-exempt basis. The Treasury scored the cost of 

the Administration's proposed expansion of this program by $4 billion in its FY2014 Revenue 

Proposal at $515 million over the ten-year budget window (representing about 13 percent of 

the face amount of new PABs authorized). 

Transportation Infrastructure Finance and Innovation Act (TiFlA) Federal Credit Program 

The TIFIA program was enacted in 1998 as part of TEA-21, extended in 5AFETEA-LU, and 

expanded significantly in MAP-21. It provides credit assistance to major surface transportation 

investments ($50 million and more) in the form of direct loans, loan guarantees, and lines of 

credit. 3 TIFIA assistance is available for projects eligible for Federal assistance under title 23 

Virtually all TIFIA participants have opted for direct loans because of the lower borrowing rates and greater 

payment flexibility. 

7 
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(highways) or chapter 53 of title 49 (transit), international bridges or tunnels, intercity 

passenger bus or rail facilities and vehicles, public freight rail facilities, intermodal freight 

transfer facilities, and surface access projects to freight facilities. If the project is located within 

the boundaries of a port terminal, TIFIA eligibility is limited to surface transportation 

infrastructure modifications that are necessary to facilitate intermodal transfers and access into 

and out of the port. 

TIFIA assistance legally may cover up to 49 percent of eligible project costs, but in practice 

USDOT continues to adhere to a 33 percent limit4 The TIFIA loan may be subordinated to other 

debt obligations, except in the case of a bankruptcy-related event, and the payment schedule 

may be deferred. The "subsidy cost" (loss reserve) associated with each loan is funded through 

contract authority from the Highway Trust Fund. The scored cost is essentially the same for a 

direct loan from the Federal government at the Treasury rate or a Federal loan guarantee on a 

loan funded by a third-party lender, since both tools measure budgetary cost based on 

expected losses from borrower defaults. 

There currently are outstanding 29 TIFIA loans with an initial principal amount of $10.2 billion. 

Another seven loans totaling $1.6 billion have been fully repaid. Only two of the loans under 

TIFIA-Reno Transportation Rail Access Corridor and Port of Miami Tunnel-are for principally 

freight transportation purposes. That means that just over three percent of the TIFIA program's 

total loan commitments to date (about $390 million out of $11.8 billion) have supported 

projects that are primarily freight-oriented. 

Project Sponsor Perspective: Obtaining long-term loans at the Treasury's own cost of capitaltoday, approximately 3.75%-represents a substantial reduction in borrowing rates for most 

state/local issuers compared to tax-exempt borrowing through the municipal bond market. For 

example, a project with a Single A rating could save at least 1% in interest expense-the 

equivalent of 12+ percent savings for the amount borrowed, in present value terms. For a P3 

borrower lacking access to the tax-exempt bond market, the savings are even greater-nearly 

20 percent in present value terms. In addition, the TIFIA program offers other advantages, such 

as the ability to lock in the interest rate well in advance of drawing down funds, the right to 

prepay the loan at any time without penalty, and the potential willingness of USDOT to accept 

more flexible terms, such as back-loaded debt service schedules and a junior claim on project 

revenues. 

Investor Perspective: From the viewpoint of other lenders to the project, having TIFIA financing 

that may be structured on a functionally subordinate basis and that is conditioned upon the 

4 While MAP-21 increased the legally-permissible TIFIA share of eligible project costs from 33% to 49%, USDOT 

has stated as a practical matter that applicants should not assume a share greater than 33%, due to demand for 

the program and other policy considerations. 

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senior debt receiving an investment grade bond rating strengthens the overall plan of financeespecially for lower-rated borrowers that otherwise might not have ready access to the capital 

markets. 

Federal Perspective: TIFIA credit assistance is extended pursuant to the Federal Credit Reform 

Act, where the scored budgetary cost is based on a risk assessment of the estimated losses to 

the Federal government resulting from any unrecovered payment defaults or interest rate 

subsidies. The average risk-score to date under the TIFIA program has been approximately 10 

percent of the face or par amount of loans made; in some cases the project-specific loan 

subsidy cost has been under 1 percent. This makes it a highly effective leveraging tool from a 

Federal budgetary perspective. Under an assumed 10 percent risk-score, the implied volume of 

the TIFIA program as authorized for FFY 2013 and 2014 by MAP-21 is approximately $17 billion. 

Railroad Rehabilitation and Improvement Financing (RRIF) Federal Credit Program 

The RRIF program was enacted in 1998 as part ofTEA-21 as a $3.5 billion program, and subsequently 

reauthorized and expanded to $35 billion under SAFETEA-LU in 2005. RRIF provides credit 

assistance to state and local governments, railroads, government-sponsored authorities and 

joint ventures that include a railroad partner. The direct loans (and potentially loan 

guarantees) may be used to acquire, improve, or rehabilitate intermodal or rail equipment or 

facilities.s 

RRIF also can be used to refinance debt previously incurred for these purposes (such as a recent 

loan to Alameda Corridor Transportation Authority) and to establish new intermodal or railroad 

facilities. Unlike TIFIA, which is limited to 49 percent of eligible costs, RRIF can provide loans for 

up to 100 percent of a railroad project with repayment terms of up to 35 years and interest 

rates equal to the cost of borrowing to the Federal Government. 

Project Sponsor Perspective: The RRIF program is similar to TIFIA in its ability to offer long-term 

loans at the U.S. Treasury rate (~3.75% today) for rail-related projects. Because many of the 

projects for freight railroads may not otherwise be eligible for tax-exempt financing, borrowing 

at the Treasury rate represents a reduction of 2.5% or more compared to conventional taxable 

financing (20 percent in present value terms). However, in contrast to TIFIA, RRIF has not 

received any appropriations from Congress to pay the "subsidy cost" (loss reserve), and the 

borrower is required to make an upfront cash contribution at financial close. The amount of 

the risk premium payment depends on the credit-worthiness of the loan, and has reportedly 

ranged between one and five percent of the face amount of the loan, based on substantial 

5 As with TIFIA, RRIF borrowers prefer the lower rates and more flexible payment structure of direct loans versus 

loan guarantees. 

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over-collateralization of the loans in most cases. The payment of the upfront premium is a 

direct reduction to the present-value benefit that otherwise would be provided by the 

subsidized (Treasury-rate) loan. Therefore, in cases where a project (such as a freight rail 

transfer facility) is eligible for both the RRIF and TIFIA programs, the TIFIA program may provide 

a slightly lower effective borrowing rate. 

Investor Perspective: To the extent that RRIF provides a majority or even all of the financing for 

a rail project, the investor perspective is not relevant. Otherwise, Federal financing through 

RRIF provides the same credit enhancement to the project's plan of finance as is conferred 

through TIFIA. 

Federal Perspective: There is no scored budgetary cost for the loan activity, since the borrower 

pays a risk premium to cover the cost of the credit subsidy to obtain financing. As of 

September, 2013, RRIF loan agreements had been executed for 33 projects with an aggregate 

loan amount of $1.7 billion. Approximately $827 million (48 percent of the volume) was for 27 

different freight rail projects, with the balance for passenger rail projects. The total freight and 

passenger loan volume thus far represents about five percent of the total authorized volume 

under the RRIF program. 

State Infrastructure Banks 

State Infrastructure Banks (SIBs) were first authorized by the NHS Designation Act of 1995 as a 

pilot program authorizing ten states to establish loan revolving funds for highway and transit 

projects. Congress in 1996 broadened the program to allow additional states to participate, 

and provided $150 million of General Fund resources as seed capital. SAFETEA-LU further 

expanded the program, authorizing all states and U.S. territories to establish revolving funds 

eligible to be capitalized with Federal transportation funds apportioned in fiscal years 2005-

2009. 

SIBs are authorized to provide direct loans, loan guarantees, interest rate subsidies and other 

forms of financial assistance to state and local transportation projects. In most cases, SIB 

assistance takes the form of low-interest (1%-3%) loans. SIBs capitalized with Federal grants 

are required to establish separate accounts for highway, transit and rail purposes. To date, only 

Colorado and Pennsylvania have reportedly made loans for freight rail purposes; the volume 

has been small. For example, Pennsylvania's SIB annual report indicates that it has made 

$107 million in total loans to 159 separate projects, but only five loans (totaling $2.3 million) 

were for freight rail purposes. 

Borrower Perspective: A SIB loan at 2% would be at least 1.5% lower than TIFIA or RRIF 

financing. However, SIBs are constrained in the amount of lendable funds they have. 

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Nationwide, it is believed that the 32 states (plus Puerto Rico) with Federally-authorized SIBS 

have capitalized their banks with approximately $950 million of Federal and matching funds. 

Moreover, many of the loans are for shorter terms (e.g. 10 years) which may not be attractive 

for larger, longer-lived freight capital investments. Federal law does not authorize states to use 

their current Federal funds to continue capitalizing their SIBs. But even when they could do so, 

states historically have opted not to deposit limited Federal-aid grants into their SIBs, when 

they have so many other projects facing immediate funding needs. There were no reported 

state deposits of Federal-aid to any SIBS during the term of SAFETEA-LU (FFY 2005-2009) 

Lender Perspective: If a SIB were willing to lend on a subordinate basis to senior lenders, it 

would help strengthen the creditworthiness of the senior loan, much in the same way a junior 

TIFIA loan could help attract senior lenders/debt investors. 

Federal Perspective. Aside from the initial round of $150 million of Federal capitalization grants 

initially made available in 1996, SIBs have not received any specific Federal funding. Rather, 

states must decide if they wish to direct a portion of their available Federal funds to deposit 

into the SIB. SIBs therefore entail no incremental scored budgetary cost beyond the general 

cost of Federal spending from the Highway Trust Fund. 

Looking Ahead 

Because of continuing constraints on government spending, it will be challenging to establish a 

large dedicated Federal grant program to assist freight infrastructure projects. Instead, I 

believe that finance subsidies through credit and tax code incentives may offer a more viable 

means of providing significant levels of assistance to major projects. 

Credit program such as TIFIA and RRIF dearly can playa valuable role in facilitating financing for 

freight projects and programs. But many observers believe that Federal credit assistance could 

be provided more effectively if there were a stronger institutional platform, such as an 

independent government corporation. This special purpose entity would have an expert board 

of directors and staff drawn from industry whose sole purpose would be to evaluate, extendand manage-credit assistance to those projects of national and regional significance providing 

the highest economic return to the nation. 

The entity could operate under the Federal Credit Reform Act (FCRAl, providing loans and loan 

guarantees similar to the current TIFIA and RRIF programs. It would have the staff resources, 

expertise and institutional focus to prudently yet expeditiously extend credit to major projects 

with public benefits. Because many goods movement projects span state lines, a national-level 

corporation would be much more effective than trying to establish bi-state or multi-state 

compacts to assist each freight initiative. 

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An additional way to expand incentives for infrastructure investment would be to provide 

subsidies through the tax code. Tax incentives avoid having the government assume contingent 

liability for loan performance (as is the case for Federal credit programs). In addition, the tax 

code can provide a deeper Federal subsidy if desired for those types of projects deemed 

particularly important from a public policy perspective. The budgetary cost of tax measures 

takes the form of foregone revenues ("tax expenditures") and effectively is supported by the 

General Fund. Given that many major freight investments confer substantial benefits to the 

general public that can't be "captured" as project revenues, indirect General Fund support may 

be appropriate. Moreover, the scored cost of tax code measures does not affect the Federal 

discretionary budget, where grant and credit assistance programs are funded. Rather, the tax 

expenditures are accounted for in the scoring of the Federal mandatory budget. 

As noted above, the Administration's FY2014 Revenue Proposal seeks to expand the PAB 

volume cap for highway and intermodal freight facilities from $15 billion to $19 billion. But 

given the narrow spread between tax-exempt PAB rates and taxable rates today (0.25%), and 

the view held by some Federal policymakers that expanding tax-exemption is an inefficient 

form of Federal subsidy, it might be worth exploring whether the Administration's subsidized 

taxable bond option proposal could be broadened to include any freight facilities conferring 

public benefits-not just facilities currently eligible for tax-exempt financing, as is proposed. 

Under the Administration's proposal, project sponsors would issue taxable rate bonds but 

receive an interest subsidy of 28 percent. This would effectively allow private project sponsors 

to borrow at rates similar to non-AMT governmental tax-exempt issuers, while attracting a 

broader range of investors, including pension funds, endowments and foreign investors, none 

of whom generally purchase tax-exempt bonds because of their own tax status. 

An even more effective way to induce capital investment in infrastructure would be to establish 

a new class of qualified tax credit bonds for surface transportation. Qualified tax credit bonds 

are taxable-yield state and local debt obligations that receive a Federal subsidy designed to 

cover up to 100 percent of interest expense. Congress has authorized approximately $32 billion 

of such bonds in recent years for schools, conservation and clean renewable energy purposes. 

For a project sponsor issuing long-term debt, a full Federal subsidy of interest is tantamount to 

receiving a 60 t070 percent outright grant, in present value terms. Two companion bills were 

introduced with bipartisan sponsorship in June to establish a $50 billion transportation tax 

credit bond program-H.R. 2534 and S. 1250-The Transportation and Regional Infrastructure 

Project (TRIP) Bonds Act. Either of these bills could serve as a vehicle for a freight infrastructure 

program. 

Providing a volume cap on the amount of private activity bonds and tax credit bonds would give 

Federal policymakers greater certainty as to the fiscal cost to the government of offering the 

tax incentives. Because freight projects tend to be "lumpy" investments and have varying 

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degrees of public vs. private benefits, a formula-based allocation of issuance authority among 

the states is likely to prove inefficient. It would be more effective if a merit-based discretionary 

allocation approach could be used. The special purpose entity could perform the role of 

allocating volume cap to qualified projects that meet certain size and "significance" thresholds, 

with the bonds being issued at the state or local level. 

Conclusion 

In an era of constrained Federal budgetary resources, "innovative project finance" tools that 

draw upon a combination of credit and tax incentives can play an important role in advancing 

major freight transportation investments. Existing Federal credit programs such as TIFIA and 

RRIF might more effectively be offered through a stronger institutional platform, such as a new 

special purpose government corporation. The current PABs program perhaps could be made 

more cost-effective to borrowers as a taxable rate bond program with a 28 percent Federal 

interest subsidy. This program could be complemented by tax code measures such as TRIP 

Bonds or other similar proposals for qualified tax credit bonds, where the government provides 

tax credits to investors that cover most or all of the interest expense associated with long-term 

borrowing. 

Collectively, these credit and tax enhancements could stimulate major new freight 

infrastructure investments with a relatively small Federal budgetary impact. At the same time, 

these new tools could remove pressure from existing Federal grant programs, which would 

continue to be focused on traditional and smaller transportation projects. 

Thank you for the opportunity to appear before you. I would be happy to respond to any 

specific questions you may have. 

13 
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"Funding the Nations Freight System" 

Statement Presented to the Panel on 215t Century Freight Transportation 

Committee on Transportation and Infrastructure 

United States House of Representatives 

October 10, 2013 

American Road and Transportation Builders Association 

Chairman Duncan, Representative Nadler, and all members of the panel, the more than 5,000 

members of the American Road and Transportation Builders Association (ARTBA) applaud your 

continued work to seek out potential solutions to improve the efficiency and reliability of the 

nation's multi-modal freight infrastructure network. While the jurisdiction of the House 

Transportation & Infrastructure (T&I) Committee covers nearly all critical transportation-related 

issues, few are as directly linked to the strengthening of the nation's economy and the core 

federal responsibility in the transportation arena as goods movement. 

The U.s. surface transportation network, anchored by the 46,000 miles of Interstate Highways, 

is the lifeblood that helps fuel U.S. economic growth. Interstate highways, however, are just 

one component of a multimodal network that delivers products from U.S. firms to domestic 

and international markets and brings imported goods to u.s. consumers. 

The U.s. freight system is a clear success story, marked by significant milestones intertwined 

throughout the nation's history. Major initiatives like the Erie Canal, Transcontinental Railroad 

and the Interstate Highway system are all crowning transportation achievements that have 

supported economic strength and prosperity for decades. However, we must ensure this 

success story continues to evolve, especially given the current challenges facing American firms 

in the global marketplace. Many developing nations, including China and India, continue to 

improve their freight networks dramatically while the u.s. freight transport system as a whole 

gets older, more-worn and in dire need of upgrade throughout. 

Nowhere is this contrast more clear than on the U.S. Interstate Highway System where the 

costs of traffic congestion and inadequate physical conditions impose increasing costs on the 

U.S. economy and the daily lives of American citizens. In 2010, according to the Federal 

Highway Administration, more than $16.0 trillion dollars of freight was shipped in the u.s. 

including $13.0 trillion of domestic shipments and $3.0 trillion of exports and imports. Twothirds of the total, or $10.8 trillion, was shipped by truck on the nation's highways. Another 17 

percent, or $2.7 trillion, involved mUltiple modes including trucks, which means trucks were 
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involved in 82 percent of all freight shipped in the U.S. in 2010. Rail, air, water and pipelines 

accounted for the remaining 18 percent of freight shipments. 

The Federal Highway Administration estimates that the volume of freight shipments will more 

than double between 2010 and 2040 to almost $39.5 trillion in constant dollars, with $21.8 

trillion of that carried by truck and $10.3 trillion by intermodal combinations that include 

trucks. This growth will put enormous pressure on every element of the nation's transportation 

infrastructure, but the nation's highway system will take the major brunt. 

The transportation construction industry can and will playa key role in meeting this critical 

challenge in the years to come. Not only will they be directly responsible for the planning, 

design and construction of this future multi-modal freight system, but the construction industry 

will continue to be a major user of the network to move the materials necessary to carry out 

these improvements. With that in mind, over the past several years, ARTBA members have 

repeatedly collaborated on various ideas on how to potentially address the coming freight 

network needs and improvements. 

• Following the enactment of the 2005 SAFETEA-LU law, ARTBA members developed a 

proposal for the creation of a new federal program dedicated to improving U.s. goods 

movement, entitled "The Critical Commerce Corridors (3C) Program." The 3C proposal 

calls on the u.s. Department of Transportation (DOT)' with input from Congress and 

stakeholder groups, to develop a strategic plan to identify and fund needed roadway 

infrastructure improvements to facilitate the flow of goods among the states and across 

U.S. borders. The investments made possible by this program would be supported 

through the establishment of a new freight-based user fee. 

• ARTBA engaged Pricewaterhouse Coopers (PwC) to help develop a proposed "Highway 

Services Tax" that could generate $5 to $10 billion annually from roadway freight 

shipments to fund the 3C Program. This proposal for a new surface transportation 

freight user fee would build on the precedent already established by the existing Air 

Cargo Tax that generate revenues for the Airport and Airways Trust Fund to support 

needed aviation infrastructure improvements. A copy of the PwC report is attached. 

• Subsequent to the enactment of the Moving Ahead for Progress in the 21't Century 

{MAP-21} surface transportation law in 2012, ARTBA members developed a 

comprehensive set of recommendations for the implementation of the new law and 

particularly its freight policy provisions. Among ARTBA's recommendations to the U.S. 

DOT are: 

Utilize Regional Approach to Freight Planning. The u.s. DOT should organize the 

development ofthe National Strategic Freight Plan along regional boundaries to 

ensure the distinct freight challenges facing all parts of the country are uniquely 

addressed. 

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Alleviate Roadway Bottlenecks. The National Strategic Freight Plan should 

encourage the development of specific projects and programs, such as dedicated 

truck lanes and identification of weight-limited bridges, to alleviate truck-related 

highway bottlenecks and improve overall system efficiency. 

Upgrade Intermodal Connectors. The National Strategic Freight plan should include 

an appropriate focus on intermodal connectors (particularly those that are eligible 

for federal highway funds) to ensure a seamless goods movement network. 

Emphasize Access for Energy Production and National Security. Energy production 

and national defense are two clear federal priorities. As such, a national freight 

strategy must assure adequate mobility and access for activities related to these 

national priorities. 

Flexibility for System Users. Freight policy should not be utilized to pick modal 

winners and losers in the goods movement area or achieve non-transportation 

objectives. The role of the federal government is to ensure an adequate goods 

movement infrastructure network exists and to let system users decide which 

modes to utilize for their freight needs based on their unique economic 

circumstances. 

Ensure Accountability and Outcomes. Federal policy in the goods movement area 

should primarily focus on providing American businesses and communities with a 

comprehensive freight infrastructure network that provides them the opportunity 

and flexibility to achieve their economic goals. 

MAP-21 includes a number of very positive freight policy provisions, but it does not provide 

states with explicit resources to fund freight improvement projects. A dedicated revenue 

stream to accompany a federal goods movement program would provide the tangible ability to 

implement MAP-21's National Strategic Freight Plan. As ARTBA suggested with its 3C proposal, 

improving the nation's highway freight network requires a comprehensive strategy, sufficient 

revenues, and a long-term federal commitment to support investments in infrastructure 

improvements. 

The first step in the process of institutionalizing goods movement as a federal priority is the 

development of sufficient revenues that are dedicated to achieving this goal. Unfortunately, 

neither providing recipients of federal highway funds with the ability to use their 

apportionments for freight improvements nor creating a federal program without resources will 

deliver the infrastructure improvements necessary for an efficient and reliable national freight 

network. 

While ARTBA, the National Surface Transportation Policy and Revenue Study Commission, the 

National Surface Transportation Infrastructure Financing Commission and others have 

identified a host of potential freight-related user fees that are viable options to support freight 

3 
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improvement projects, such as the Highway Services Tax reference earlier, such a new revenue 

stream must be complemented with protections to ensure the generated resources are used 

for their intended purposes. Prior to 2011, separate budgetary firewalls existed for the 

Highway Trust Fund's Highway and Mass Transit Accounts to guarantee resources credited to 

these accounts were used solely for federal-aid highway and public transportation 

improvements. Reinstating these assurances and applying them to any freight revenue stream 

would provide needed certainty for project owners and assure those paying the fees that they 

will be direct beneficiaries of future federal investments in freight improvement projects. 

In addition to a dedicated source of freight-related user fee revenues, a serious effort to 

improving U.s. goods movement demands the creation of a specific freight program. While 

MAP-21's National Freight Strategic Plan and incentives for freight-related projects are positive 

first steps, advancing multi-year freight projects and plans requires a long-term federal 

commitment. Such a commitment can only be achieved through a permanent surface 

transportation freight program. A separate federal goods movement program, as with the 

ARTBA 3C proposal, could both support investments in nationally and regionally significant 

freight improving capital projects and serve as a catalyst to integrate operational and technical 

advances that also ease the flow of goods in and out of the u.s. 

In summary, we urge the members of the special panel to recommend to the full committee 

that it endorse a two-part strategy to improve the flow of goods throughout the u.s. The first 

component of this approach would be the dedication of new revenues to support the freightrelated infrastructure improvements identified in the National Strategic Freight Plan. To 

provide the necessary structure, prioritization and oversight of these new investments, a new 

federal goods movement program should be created. The combination of new resources with a 

new freight-specific program would yield goods movement efficiencies that substantially 

enhance U.S. economic competitiveness in the global marketplace. 

Again, ARTBA commends members of the panel for the leadership you have shown in 

addressing this critical issue and we look forward to continuing to work with you to improve the 

effectiveness and reliability of the nation's surface transportation freight network. 

Thank you for your consideration of ARTBA's recommendations in this area. 

4 
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Budgetary Impact of 

Highway Transportation Services Tax 

Prepared for: 

American Road and Transportation Builders 

Association 

June 2009 

National Economics & Statistics 
124 


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Budgetary Impact of Highway Transportation Services Tax 

Table of Contents 

Executive Summary ......................................................................... E-1 

I. Introduction ............................................................................... 1 

II. Description of Highway Transportation Services Tax ................ 2 

III. Baseline Projection of Industry Revenues ................................. 5 

IV. Budgetary Impact of Highway Transportation Services Tax ..... 7 

Appendix A. Detailed Specifications of Highway Transportation 

Services Tax ................................................................................... 10 

Appendix B. Comparison of Air Cargo Tax and Highway 

Transportation Services Tax ............................................................. 12 

PricewaterhouseCoopers has exercised reasonable professional care and diligence in the collection, 

processing, and reporting of this information, However, the data used is from third party sources and 

PricewaterhouseCoopers has not independently verified, validated, or audited the data, 

PricewaterhouseCoopers makes no representations or warranties with respect to the accuracy of the 

information, nor whether it is suitable for the purposes to which it is put by users, 

PricewaterhouseCoopers shall not be liable to any user of this report or to any other person or entity for any 

inaccuracy of this information or any errors or omissions in its content, regardless of the cause of such 

inaccuracy, error or omission, Furthermore, in no event shall PricewaterhouseCoopers be liable for 

consequential, incidental or punitive damages to any person or entity for any matter relating to this 

information, 
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Executive Summary 

The American Road and Transportation Builders Association ("ARTBA") has called for the 

development of a surface transportation system for freight --the Critical Commerce Corridors, or 

3C, system-- that would add new capacity for commercial users of the nation's highways. The 

system would be funded through a dedicated revenue source. 

One revenue source under consideration would be a new federal excise tax on the value of 

transportation services provided by trucks with gross vehicle weight ratings (GVWRs) of more 

than 26,000 pounds (DOT Class 7 or Class 8 vehicles). The highway transportation services tax 

would be in addition to federal Highway Trust Fund taxes currently paid by these commercial 

vehicles. ARTBA has engaged PricewaterhouseCoopers LLP ("PwC") to describe the structure 

for such a tax and analyze its budgetary impact. 

ARTBA requested that we measure the impact of a one-percent and two-percent highway 

transportation services tax on the federal budget. Assuming such a new tax would be effective 

beginning October 1, 2010, PwC estimates that imposing the tax at a one-percent rate would 

generate gross excise tax receipts of $65 billion over the fiscal year 2010-2019 period. Net 

federal revenues are estimated to increase by $48.8 billion over the budget period after 

accounting for an offsetting reduction in federal income tax receipts. A two percent tax would 

increase net revenues by $94.1 billion over the 2010 to 2019 period. 

Estimated Revenue Effect of Proposed Federal Highway Transportation Services Tax 

(Fiscal years; billions of dollars) 

Item 12010 12011 12012120131201412010-12010- 2014 2019 

One-Percent Tax 

Gross Excise Tax Collections 0 $5.8 $6.3 $6.6 $6.9 $25.6 $65.0 

Net Federal Revenues 0 $4.3 $4.7 $4.9 $5.2 $19.2 $48.8 

Two-Percent Tax 

Gross Excise Tax Collections 0 $11.2 $12.1 $12.7 $13.4 $49.3 $125.5 

Net Federal Revenues 0 $8.4 $9.0 $9.5 $10.0 $37.0 $94.1 

Source. PncewaterhouseCoopers calculations. 

In preparing our estimates, PwC has been asked by ARTBA to assume that the proposed 

highway transportation services tax would be structured similarly to the current excise tax on air 

cargo services (see Internal Revenue Code Sec. 4271). Under such a structure, purchasers of 

taxable transportation services would be liable for the tax, and providers of the services would 

collect and remit it on quarterly excise tax returns. The Internal Revenue Service ("IRS") would 

administer the tax similarly to the manner in which it administers other excise taxes. 

The tax would apply to the value of transportation services provided by truck operators, and 

would not apply to any accessorial charges for nontransportation services such as packing, 

unpacking, and crating. Fees charged by brokers or other parties not in the business of ground 

transportation would not be subject to tax. If an operator charges a flat rate for moving cargo 

using several different modes of transportation (air, water, ground), the tax would apply to the 

portion of the fee attributable to the truck segment of the trip. 

As specified by ARTBA, the highway transportation services tax would differ from the air cargo 

tax in certain ways. Companies owning or leasing trucks used to transport their own products 

E-1 
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would be subject to the tax based on the fair market value of such transportation services. The 

tax also would apply to the domestic portion of truck transportation costs for exported goods. 

The estimates provided in the table above assume that truck transportation costs remain 

relatively stable over the projection period, e.g., that there will not be any sharp spikes in fuel 

costs that significantly reduce the demand for trucking services. The estimates also incorporate 

certain behavioral responses. 

E-2 
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I. Introduction 

The American Road and Transportation Builders Association ("ARTBA") has called for the 

development of a surface transportation system for freight--the Critical Commerce Corridors, or 

3C, system--that would add new capacity and support other initiatives that improve the flow of 

goods for commercial users of the nation's highways. The system would be funded through a 

dedicated revenue source from a new freight-related user fee/tax. 

ARTBA has engaged PricewaterhouseCoopers LLP ("PWC") to delineate the structure for such a 

tax and analyze its budgetary impact. The proposed new federal excise tax would be assessed 

on the value of transportation services provided by trucks with gross vehicle weight ratings 

(GVWRs) of more than 26,000 pounds (DOT Class 7 or Class 8 vehicles). 

This analysis provides a description of the proposed tax and a summary of its potential budgetary 

impact. The next section describes the proposed tax, the third section provides our baseline 

projection of commercial trucking activity, and the final section provides our revenue estimates for 

the tax. 
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II. Description of Highway Transportation Services Tax 

ARTBA has called for the development of a dedicated surface transportation system for freight--

the Critical Commerce Corridors, or 3C, system to establish federal leadership to address the 

growing national challenge of freight shipments.' The system would be funded through a 

dedicated revenue source. One revenue source under consideration by ARTBA would be a new 

federal excise tax on freight transportation services. 

This tax would be imposed on the value of transportation services provided by trucks with gross 

vehicle weight ratings over 26,000 pounds (Class 7 and Class 8 vehicles). These vehicles are 

predominantly involved in the transportation of interstate commerce and would benefit from 

alleviating highway congestion. Purchasers of the transportation services would be liable for the 

tax, which would be collected and remitted to the U.S. Treasury by truck operators. Companies 

owning or leasing trucks used to transport their own products also would be subject to tax based 

on the fair market value of the transportation services. 

These vehicles currently are subject to excise taxes dedicated to the Highway Trust Fund, 

including motor fuels taxes and heavy vehicle use taxes. The highway transportation services tax 

would be in addition to those taxes. 

The proposed highway transportation services tax is similar to the existing air cargo tax, which is 

imposed on air freight shipments to generate revenues to support the federal aviation system. 

Specifications 

The table below summarizes specifications of the tax (see Appendix A for a more detailed 

description). 

, Details of this proposal are available at http://www.artba.org/advocacy/government-affairs/safetea-Iu-andcritical-commerce-corridors. 

2 
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Administration 

Application of Tax 

Liability for tax 

Collection and Remittance 

Responsibility 

Taxable highway 

transportation services 

Self-provided and relatedparty transportation services 

Accessorial services 

Freight forwarders and 

shipping agents 

Multimodal transportation 

services 

Exemption 

Requirement 

The tax would be enacted as part of the Internal Revenue Code arid 

administered by the IRS under Code provisions relaling to federal 

excise taxes, 

The tax would apply to the value of highway transportation services, 

of the highway transportation services would be liable 

The tax would be collected and remitted to lhe U.s, Treasury by the 

provider of taxable highway transportation services, 

In general, taxable highway transportation services would be defined as 

the movement of property within the United States in a truck with gross 

vehicle weight rating over 26,000 pounds (Class 7 and Class. S trucks), 

Transportation that occurs outside of the United States (the 50 States 

and the District of Columbia) is not subject to tax. An amount would be 

treated as paid lor taxable highway transportation services is 

directly related and integral to the cost of providing 

including separately stated charges for fuel and other ilems. 

If taxable highway transportation services are self-provided or provided 

to a related party, the tax would be imposed on the value of the 

services, 

In general, accessorial services, such as warehousing and 

packing and unpacking, sale of insurance coverage, and rental 

containers, would not be subject to tax jf separately stlaled, unless the 

services can only be provided by the carrier, either directly or 

subcontracted, and all who use the service are directly or indirectly 

charged for it 

Amounts received by freight forwarders and shipping agents that 

arrange but do not provide taxable highway transportations services are 

not subject to tax, Amounts such persons pay for taxable highway 

transportation services are subject to tax under the general rules, 

If an amount paid for transportation services includes both taxable 

highway transportation services and other modes of transportation, the 

tax would be imposed only on the value of the taxable highway 

transportation services, 

Transportation services provided by federal, state, and local 

governments and instrumentalities thereof would be exempt from the 

tax unless the transportation services are provided for hire, such as by 

the United States Postal Service, 

IRS Form 720, 

to include the new 

Federal Excise Tax Return, would be revised 

tral1somtaticIn services tax, 

Comparison to current tax on air cargo services 

The federal government currently imposes an excise tax on air cargo services, The structure of 

this tax would serve as a model for the proposed highway transportation services tax, 

The air cargo tax is imposed at a rate of 6.25 percent on amounts paid for the transportation of 

property by air, with proceeds deposited in the Airport and Airway Trust Fund, The tax is part of 

the Internal Revenue Code and is administered by the IRS. 

3 
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The air cargo tax applies to transportation services provided by operators that are directly related 

and integral to the transportation of the property. It does not apply to any accessorial charges for 

tasks such as packing, unpacking, and crating. Fees charged by brokers, or other parties not in 

the business of air transportation, are not subject to tax. If an operator charges a flat rate for 

moving cargo using several different modes of transportation (air, water, ground), the tax only 

applies to the portion of the fee attributable to the air segment of the trip. 

Certain elements of the proposed highway transportation services tax would differ from the 

existing air cargo tax. For example, transportation of property that begins or ends outside the 

United States is not taxable under the air cargo tax. The highway transportation services tax 

would apply to all services provided within the United States. For international ground shipments 

(such as to or from Mexico or Canada), the tax would apply with respect to the portion of the trip 

in the United States. Truckers currently track interstate mileage as part of the International Fuel 

Tax Agreement, which is used to allocate state fuels taxes. Such information could be used to 

allocate shipping costs between the United States and foreign countries. 

The air cargo tax does not apply to services provided by private (not-for-hire) airplanes. The 

highway transportation tax would apply to services provided by both for-hire and private fleets. 

Companies with private fleets would be taxable on the value of the shipping activities of Class 7 

and Class 8 trucks. We have assumed that the Secretary of the Treasury would issue regulations 

under which companies would determine the value of shipping. The Secretary of the Treasury 

currently has authority to issue regulations on valuing related-party transactions for purposes of 

the income tax under Section 482 and for purposes of the air cargo tax under Section 4261 of the 

Internal Revenue Code. 

Air cargo carriers pay a separate tax on aviation gasoline or jet fuel usage. Similarly, vehicles 

subject to the highway transportation services tax would continue to pay current motor fuel taxes 

and heavy vehicle use taxes. 

Appendix B has a more detailed comparison of the highway transportation services tax and the 

air cargo tax. 

4 
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III. Baseline Projection of Industry Revenues 

We projected trucking industry revenues (Le., amounts paid for trucking services) based on the 

most recent data available from U.S. government sources and private sector projections. The 

Census Bureau conducts several surveys that provide information on the trucking industry: the 

Vehicle Inventory and Use Survey ('VI US"), the Economic Census, the Services Annual Survey, 

and the Commodity Flow Survey. The American Trucking Association ("ATA") publishes a 

projection of trucking industry revenues for both the for-hire and private trucking fleets through 

2020. 

Vehicle Inventory and Use Survey: Discontinued in 2002, this survey collected 

information on the private and commercial trucking fleet. The Census Bureau makes a 

detailed data set available that we used to tabulate characteristics of the trucking fleet. 

Based on these tabulations, we estimate that Class 7 and Class 8 trucks were 

responsible for 93 percent of the value of transportation services provided by trucks in the 

U.S. economy. We used this ratio to determine the share of total industry revenues' that 

would be subject to tax. We also found that less than 0.3 percent of ton-miles for U.S. 

trucks was attributable to travel in Mexico and Canada. Because only domestic services 

would be taxable, we reduced the industry revenues by 0.3 percent to exclude the value 

of services for U.S. truck transportation in Mexico and Canada. 

Economic Census: The Census Bureau collects information on the characteristics of 

U.S. businesses. Because much of the 2007 data are not available yet, we relied on 

2002 data, the most recent detail available. The Product Line report of the Economic 

Census provides a breakdown of the different types of revenues collected by industry. 

Based on this information, we estimated that accessorial services, which would not be 

subject to tax under the proposal, represented five percent of total industry revenues. 

Other Government Data Sources: We used the Commodity Flow Survey and the 

Services Annual Survey to confirm data from other sources. The Commodity Flow 

Survey, conducted every five years, provides information on the size of the private 

trucking fleet compared to the for-hire fleet. The Services Annual Survey, conducted 

every year, provided additional information on the value of trucking services crossing the 

borders with Mexico and Canada. 

American Trucking Association Projections: The ATA works with IHS Global Insight 

to project trucking industry revenues through 2020 by segment, including private trucks, 

less-than-truckload for-hire trucks, and truckload for-hire trucks. The projections are 

derived from a broader economic model based on independent economic projections. 

The ATA projections reflect certain augmentations to Census data, such as the amount of 

trucking activity that occurs in separate industry codes. We used the ATA data to inform 

our projection of overall trucking revenues, which includes both for-hire and private 

trucks. 

We developed a projection of trucking industry revenues based on the most recent Congressional 

Budget Office macroeconomic forecast. Consistent with the ATA forecast, we assume that 

trucking revenues grow slightly faster than gross domestic product ("GOP") over the 2010-2016 

period and matches GOP growth in 2017 and beyond. The for-hire share of the industry 

increases over the 2010-2014 period and retains the 2014 split in 2015 and later. 

Table 2 below presents our estimates of trucking revenues over the projection period for all truck 

classes. These revenues include the value of accessorial services and the value of services 

attributable to truck transportation in Canada and Mexico. 

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Table 2. 

Item 

Billions of Dollars 

Truck Revenues $677 $713 $753 $794 $835 $873 $912 $949 $986 $1,023 

For-Hire 388 412 439 466 494 517 540 562 583 606 

Private 289 301 314 328 341 356 372 387 402 418 

Annual Growth Rate 

Truck Revenues 4.5% 5.3% 5.5% 5.4% 5.2% 4.5% 4.5% 4.0% 3.9% 3.8% 

GDP 3.8% 4.5% 4.7% 4.6% 4.4% 4.1% 4.1% 40% 3.9% 3.8% 

Source: PricewaterhouseCoopers calculations. 

6 
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IV. Budgetary Impact of Highway Transportation Services 

Tax 

We estimated the potential impact of the proposed highway transportation services tax based on 

projection of industry revenues, adjusted for behavioral responses to the new tax. Our 

methodologies are generally consistent with those used by the revenue estimating staffs of the 

Joint Committee on Taxation and the Congressional Budget Office. Our results reflect three 

behavioral responses to the new tax. 

First, we assume that an increase in the cost of truck transportation services would lead to a 

lower tax base due to a reduction in demand and substitution effects, including the use of 

alternative forms of transportation, such as air, rail, or water. For our estimates, we assume that 

a one-percent increase in the cost of truck transportation would cause a one-percent decline in 

trucking volume, or a price elasticity of _1.0 2 Therefore, a one-percent tax would lower taxable 

revenues by the same one percent. 

Second, we have assumed that approximately one-third of shipments currently moved in Class 7 

trucks would shift to trucks in lower weight classes to avoid the tax. This response decreases the 

tax base by slightly more than one percent. 

Third, we have assumed that, as is true for all taxes, there would be some intentional 

noncompliance with the new tax. By separating liability for the tax (which is imposed on the 

purchaser of the transportation services) from the collection and remittance of the tax (which is 

the responsibility of the shipper), the tax design should discourage evasion, because both the 

shipper and operator would risk penalties. 

We have assumed that tax evasion would be concentrated among smaller-scale operators that 

likely would not be subject to the same level of IRS examination as larger operators. It is 

assumed that some smaller-scale operators would collect the tax from customers but not remit it 

to the IRS. In some cases, there also could be collusion between the operator and the customer 

in tax evasion. Overall, we assume that noncompliance will lower tax revenues by 2.5 percent. 3 

We have made three other adjustments to the estimate to be consistent with Congressional 

scoring conventions. 

First, we have assumed that GOP would be unaffected by enactment of the proposed tax. As a 

result, the overall level of economic activity is unchanged, even though some of our behavioral 

assumptions reflect changes in the composition of economic activity. 

2 The price elasticity of demand measures the response of quantity to changes in price. We reviewed a 

variety of published articles and found that the elasticity ranged from as low as -0.25 to as high as -2. We 

have adopted an elasticity of -1.0 as a central estimate. 

3 We prepared our estimates under the assumption that IRS income tax noncompliance data is 

representative of excise tax noncompliance. Smaller-scale operators (with 5 or fewer trucks) represent 

approximately half of the trucking fleet. If it were not borne by customers, a one-percent highway 

transportation services tax would be equivalent to a 13-percent levy on the pretax net income of small 

operators. Using IRS noncompliance data, we derived an implied elasticity of tax evasion of -0.4, meaning 

that for each 1 O-percent increase in a tax relative to pretax net income, the taxpayer would fail to report four 

percent of pretax net income. This estimate is based on an estimated 9 percent underreporting of income 

subject to substantial reporting (see U.S. Department of the Treasury, Reducing the Federal Tax Gap, 

August 2, 2007) and the average tax rate on such returns of 22 percent. For smaller-scale operators. we 

estimate that the new tax would cause a five percent avoidance in reporting, meaning the tax would not be 

collected on five percent of the tax base. Because smaller-scale operators make up slightly less than half of 

the total tax base, we estimate that overall noncompliance would reach 2.5 percent each year. 

7 
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Second, we have applied a 25-percent income tax offset to the gross excise tax collections. With 

a fixed GOP, an increase in indirect business taxes would reduce national income and thus 

federal income tax receipts 4 

Third, we have converted calendar-year liability estimates to fiscal-year receipts because the 

federal government's accounting year starts on October 1 and revenues are accounted for in the 

budget on a cash receipts basis. 

The specifications for the new tax provide that the tax will begin 12 months from the date of 

enactment to allow time to establish the required regulatory and administrative structures. We 

assume that the legislation will be enacted on October 1 , 2009 so the government would begin 

collecting the new tax on October 1, 2010 (the beginning of federal fiscal year 2011). 

Table 3 below shows the estimated federal revenue effect of a one-percent and two-percent 

highway transportation services tax, Assuming it would be effective on October 1, 2010, the onepercent tax would increase federal excise taxes by $25.6 billion over the fiscal year 2010-2014 

period and by $65 billion over the 2010 to 2019 period, After offsetting income tax reductions, net 

federal revenues would increase by $19,2 billion and $48.8 billion over the 2010-2014 and 2010-

2019 periods, respectively, A two-percent tax would increase federal revenues by $94,1 billion 

over the 2010 to 2019 period, 

Item 2010-

2019 

One-Percent Tax 

Gross Excise Tax Collections 0 $5.8 $6.3 $6,6 $6,9 $25.6 $65,0 

Net Federal Revenues 0 $4,3 $4,7 $4,9 $5.2 $19.2 $48,8 

Two-Percent Tax 

Gross Excise Tax Collections 0 $11.2 $12,1 $12.7 $13.4 $49,3 $125,5 

Net Federal Revenues 0 $8.4 $9,0 $9.5 $10,0 $37,0 $94,1 

Source: PricewaterhouseCoopers calculations. 

Thus, over the 10-year period, assuming that gross excise tax collections are fully dedicated to 

road construction, the one-percent tax could fund up to $65 billion of goods movement 

improvements, The two-percent tax could fund up to $125.5 billion of these projects, 

Caveats 

The revenue estimates in this report reflect the following additional assumptions: 

The trucking sector grows faster than GOP over the 2010-16 period, based on the 

relative stability in oil prices over the period. If oil prices increase significantly, 

whether through instability in the market or the impact of carbon emission control 

legislation, the trucking sector could see less growth, and the proceeds from the tax 

would be lower,5 

4 For additional discussion, see "The Role of the 25 Percent Revenue Offset in Estimatin9 the Budgetary 

Effects of Legislation," Congressional Budget Office, January 13, 2009, 

5 The Energy Information Administration projects that oil prices will increase approximately 1.4 percent per 

year through 2030. The American Trucking Association estimated a similar growth rate in its projection. 

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• The costs of other forms of transportation also remain stable. If air, rail, or water 

transportation costs change significantly over the projection period, the 

competitiveness of truck transportation could change, affecting tax collections. 

Some of the data on which we have relied for our estimates are from 2002, which are 

the most current data available. If certain industry characteristics have changed, 

some of the relationships we used in our model could be outdated. 

The value of services provided by private trucking fleets is estimated to comprise 

approximately half of the market. This estimate is consistent with government and 

private sector estimates of the total revenues attributable to private fleets. 

Behavioral responses are based on limited information, including estimates from 

other sectors. 

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Insert offset folio 105 here 85021.105

Appendix A. Detailed Specifications of Highway 

Transportation Services Tax 

In general. A federal excise tax would be imposed on amounts paid for taxable highway 

transportation services equal to L-J percent of the amount paid. The tax would be enacted as 

part of the Internal Revenue Code and administered by the Internal Revenue Service, pursuant to 

the administrative rules generally applicable to facilities and services excise taxes provided in 

Chapter 33 of the Code. 

Tax liability and collection. The tax would be imposed on the purchaser of taxable highway 

transportation services, but collected and remitted to the U.S. Treasury by the provider of the 

services. 

Taxable highway transportation services. In general, taxable highway transportation services 

would be defined as the movement of property within the United States in a truck with gross 

vehicle weight rating over 26,000 pounds. Taxable highway transportation services include 

layover or waiting time and back haul services. As under the air cargo excise tax, transportation 

that occurs outside the United States (the 50 states and the District of Columbia) is not subject to 

the tax. An amount would be treated as paid for taxable highway transportation services if it is 

directly related and integral to the cost of providing such services, including separately stated 

charges for fuel and other items. 

Self-provided and related-party transportation services. In the case of highway 

transportation services that are self-provided or provided to a related party, the tax would be 

imposed on an amount that is not less than the value of taxable highway transportation services, 

as determined pursuant to regulations issued by the Secretary of the Treasury. Related parties 

are two or more persons, organizations, [governmental entities], trades or businesses (whether or 

not incorporated, organized in the United States, or affiliated) owned or controlled directly or 

indirectly by the same interests. The Secretary is granted similar authority under Internal 

Revenue Code sec. 482 with respect to income tax administration and under section Internal 

Revenue Code sec. 4261 (e)(3)(C) with respect to the air ticket tax. 

Accessorial services. The tax is intended to apply only to services directly related and integral 

to the highway transportation of property and not to other ancillary services that may be provided 

by a carrier. In general, accessorial services, such as warehousing and storage, packing and 

unpacking, sale of insurance coverage, and rental of containers, are not subject to tax if 

separately stated, unless the services can only be provided by the carrier, either directly or 

subcontracted, and all who use the service are directly or indirectly charged for it. 

Freight forwarders and shipping agents. Amounts received by entities that arrange but do not 

provide taxable highway transportations services would not be subject to tax. Amounts paid by 

these entities for taxable highway transportations services would be subject to tax under the 

general rules. Similar rules apply in the administration of the air cargo excise tax are intended to 

limit the tax to amounts paid for actual transportation of property as distinguished from services 

provided by an agent that arranges transportation services for a shipper but does not itself 

transport cargo. In these instances, the payment and collection of the transportation services tax 

would be a component of the transaction organized by a third party, but the purchaser and 

provider responsibilities would remain the same as if no external party were involved. 

Multimodal transportation services. If the amount paid for transportation services includes 

both taxable highway transportation services and other modes of transportation, the tax would be 

imposed on the value of the taxable highway transportation services, as determined pursuant to 

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Insert offset folio 106 here 85021.106

regulations issued by the Secretary, The IRS has developed administrative procedures for 

apportioning amounts received for multimodal transportation services for purposes of 

administering the air cargo excise tax, 

Exemption. Transportation services provided by federal, state, and local government and 

instrumentalities thereof would be exempt from the highway transportation services tax unless the 

transportation services are provided for hire, such as by the United States Postal Service. 

Regulations. The Secretary would issue regulations as may be needed to carry out the 

purposes of this tax, including procedures for determining the value of taxable highway 

transportation services and the time when payment for transportation is deemed to occur in cases 

where payment is for less than full value or where payment covers both taxable and nontaxable 

services (e.g., multi modal transportation or transportation that crosses intemational boundaries). 

Such procedures for determining the value of taxable highway transportation services could 

include the promulgation of standard mileage rates and cost-based allocation. The Secretary 

would issue guidance regarding the valuation of taxable highway transportation services within 12 

months of the date of enactment. 

Transfer of funds. Amounts equivalent to the revenues received by the Treasury from the tax 

on highway transportation services shall be appropriated to the Commerce Corridors Account of 

the Highway Trust Fund during the same time periods and under the same conditions as the 

section 4081 tax (on gasoline, diesel fuel and kerosene) is appropriated to the Highway Trust 

Fund. 

Filing Requirement. IRS Form 720, Quarterly Federal Excise Tax Return, would be revised to 

include the new highway transportation services tax. Current excise tax regulations generally 

require taxpayers to remit payments on a semimonthly basis. However, if quarterly tax liability is 

under $2,500, taxes are payable with the quarterly return. Additional information could be 

collected through annual filings for the federal Heavy Highway Vehicle Use Tax Return (on Form 

2290) for Class 8 trucks weighing more than 55,000 pounds. Information from current filings 

made to State governments on travel by State under the International Fuel Tax Agreement (IFTA) 

could also be used, These filings typically are made on a quarterly basis. 

Effective date. The tax would be effective for transportation services provided in or after the first 

month that begins on or after the date that is 12 months after the date of enactment. 

11 
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Insert offset folio 107 here 85021.107

B. l-linhlA/::i\/ Tr::inc::nnrt""tinn Services 

Option Air Cargo Tax (Sec. 4271) Highway Transportation Services Ta

Administration of tax 

Modes coverell by tax 

Vehicles covered by tax 

Private {not-far-hirer 

transpOrtation services 

Treatment of international 

shipments 

Treatment of accessorial 

charges 

Treatment of contracts and 

subcontracts 

Fees and commissions 

charged by.shipping agents 

and freight f9rwarders 

Bundled transportation 

services, such as multi· 

modal transportation 

Liability for tax and collection 

responsibility 

Exemptions 

Internal Revenue Service (IRS) Same as air cargo tax 

Commercial air cargo Commercial road freight 

Ali airplanes utilized in the business of providing air cargo service Commercial heavy trucks (GVWR of Class 7 an

Exempt from air cargo tax (private operators must pay separate 

excise tal( on fuel) 

Air transportation of property that begins or ends outside of the 

United States is not taxable. Transportation of property in the 

process of exportation is not taxable. 

Services are taxable if t!iey only can be provided by the carrier. 

All amounts are laxable unless separately stated on invoice. See: 

S. Rep. No. 91-706 91st Cong., 2d Ses$.,1970-1 CJ3.. 386 at 395; 

Rev. Rut. 71-398. 1971-2 C:B. 373. 

Operator is responsible for coliecting tax on the value of services, 

unless it is under a contract to another operator who is 

compensated by a third party. See Facilities and Services Excise 

Tax Regulation § 49.4261-7(h). 

Fees and commissions not subject to taX. See facilities and 

Services Excise Taxes Regulation § 49.4271-1(b)(3j. 

Tax imposed on portion of trip Secretary has the authority to 

establish rules on aliocation. 

Payer is liable for tax and operator is responsible for coifeetion and 

remittance. IRC §,4271. 

The value of services on small aircraft (6,000 pounds or less) with 

nonestablished routes and payments to affiliated groups are 

exempt from the tax. See IRC § 4281. 

Tax applies to the portion of travel within the US 

operators, regardless of nationality. Non-US tra

operators would be exempt from tax. 

Same.as air cargo tax Same as air cargo tax 

Same as air cargo tax 

Same as air cargo tax 

Same as air cargo tax 

Commercial trucks with gross vehicle weight ra

26,000 or less, and government-provided transp

unless it is for-hire (e.g., Post Office shipments 

taxable) are exempt from tax.