March 2008, TruckingInfo.com - Cover Story
'Failure to act would be catastrophic to this nation," said Jack Schenendorf as he introduced the long-awaited report of the National Surface Transportation Policy and Revenue Study Commission. "We saw what happens with (Hurricane) Katrina, when you under-invest for a series of years in your infrastructure. We don't want the surface transportation system to suffer the same fate as the New Orleans levees."
Schenendorf is vice chairman of the commission, a bipartisan group of 12 officials from industry, academia and government that spent almost two years analyzing the nation's surface transportation system. Congress asked for the report in preparation for the 2009 reauthorization of the law that controls how we govern and pay for the system.
Several themes emerge from the report.
First, the social contract that has shaped our governance of the system has outlived its usefulness and needs to be changed. The bargain that was struck 50 years ago to build the Interstate System was simple: pay a user fee and get a highway system. Now that system is complete, and support for the user fee has been diluted by practices such as earmarking. The public - and the trucking industry - are no longer sure they are getting their money's worth, and as a consequence have been generally unwilling put more money in. Despite repeated efforts, Congress has not been able to raise the federal fuel tax, which is the principal source of funding for federal-aid highways, since 1993.
Second, the country has fallen behind on transportation system maintenance and improvement - with potentially disastrous consequences if the situation is not remedied. The infrastructure is aging and needs more investment just to keep pace, much less improve. Safety goals need to be more aggressively pursued - almost 43,000 people a year are killed in highway accidents. Congestion is wasting billions of dollars and will only get worse, with the consequence of weakening the competitive stance of the U.S. in the world.
Third, the pending fight over how to solve these problems will revolve not just around the details of how to raise money and fix the system but around deeply held philosophical differences over the role of the federal government. A split among the members of the commission - three of the 12 issued a minority report - reflects the political divide between those who believe the government is in fact there to help, and those who believe that the private sector is better suited to the task (see related story).
To address these issues, the majority of the commission is recommending reforms to restore public trust in the governing and funding processes, as well as massive increases in investments from a variety of sources, including fuel taxes. These reforms amount to radical change.
"Current federal surface transportation programs should not be reauthorized in their current form," the commission said. "We must begin anew."
Beginning anew starts with a new statement of purpose: "We propose the new compact with the American people be fulfilled through a performance-based approach that identifies and establishes priorities, and avoids parochial and wasteful spending."
The commission proposes to reorganize the Department of Transportation to emphasize goals and performance standards rather than modes of transportation. Under this vision, more than 100 programs now administered by the highway, transit and railroad administrations, and the auto and commercial vehicle safety administrations, would be refocused into 10 programs. Among these would be, for the first time, a national program dedicated to improving freight movement (see sidebar).
This task alone would be Herculean, but the commission has even greater ambitions. It wants to limit the scope of federally supported programs to those with a true national interest, hold state and local agencies that receive federal money accountable for performance and require major projects to meet cost-benefit standards. And, a particular point of emphasis, it wants to speed up the process of taking a project from concept to completion.
That cycle now can take 14 years or longer, during which time costs go through the roof. The commission cites an example of a $500 million, four-year project turning into a $616 million project in eight years or more than doubling in 14 years. The inflation rate for highway construction costs is 7.2 percent a year. Part of the solution, the commission said, is to speed up environmental reviews, which typically take from 4.5 to 6.5 years.
In order to put these reforms into effect, the commission is recommending that an independent National Surface Transportation Commission be formed to oversee development of a national strategic plan for transportation investment and recommend funding levels.
The idea for NASTRAC is taken from the Base Realignment and Closure process, in which an independent commission acts as a referee between Congress, the president and regional interests when it comes time to consider shutting down a military base.
The idea, Schenendorf said, is to depoliticize the process. The NASTRAC would have 10 members appointed by the president and confirmed by the Senate, with no more than six members from one political party.
DOT would take the lead on setting national performance standards for transportation programs, such as congestion reduction or safety improvement, but the NASTRAC would have approval authority over that process. NASTRAC also would have authority to adjust the level of federal funds to a particular project, as a performance incentive.
The kicker is that the NASTRAC would make revenue recommendations to Congress, which would have 60 days to veto the recommendations - a two-thirds recorded vote of both houses would be required. If Congress didn't act, the recommendations would become law. And - earmarkers take note! - no amendments would be allowed.
The commission views these reforms as a necessary prelude to the other essential requirement of substantially increasing funding for surface transportation.
"Simply raising the federal fuel tax and putting more money into the same programs will not be acceptable. The commission strongly believes that, before federal financial support for surface transportation is increased, the nation's surface transportation programs must be fundamentally reformed."
That said, it was the commission's specific recommendation that the federal fuel tax be steeply raised that captured headlines when the report was released.
"There is no free lunch," said Schenendorf. "There is no way to accomplish what we are talking about without spending money. Therefore you have to raise money."
The immediate concern is the Highway Trust Fund, whose balances are on a downward slope. By October 2009 the fund's Highway Account will be between $4 and $5 billion in the red unless something changes, the commission said. It recommended legislation this year to increase one or more of the taxes that feed the fund, as well as other changes.
But the commission found that the funding shortfall over the longer term is a much bigger problem.
The total surface transportation investment available now from federal, state, local and private sources is $86 billion a year, $68 billion of which goes to highways. This is woefully inadequate, the commission found. It estimates that the nation needs to invest about three times that amount through 2020 - between $241 and $286 billion. The commission also provided estimates for longer-term needs: between $220 and $301 billion through 2035, and between $225 and $338 billion through 2055.
To fill the 2020 gap of $155 to $200 billion with the federal fuel tax would require a per-gallon levy of $0.79 to $1.02. Right now the federal gas tax is $0.184 per gallon, and the diesel tax is $0.244. Of course the total fuel tax burden is considerably higher, taking state taxes into account.
The average state gas tax is $0.286, and the average state diesel tax is $0.292.
To begin addressing the shortfall, the commission called for increases of 5 to 8 cents per gallon per year over the next five years, and then indexing the tax to inflation. The aim, the commission said, is to sustain the federal government's contribution at about 40 percent of the necessary capital outlay.
All of these increases should include proportional hikes in truck levies, the commission said. "Increasing the fuel tax without commensurate changes in truck taxes could exacerbate the current situation where heavy trucks pay less than their fair share of highway costs."
As this call for fuel tax increases demonstrates, the majority of the commission is adamant that the federal government continue to collect user fees as the core mechanism for transportation funding.
But federal fuel taxes should be supplemented by state taxes, tolls, congestion pricing and public-private partnerships, the commission added.
It suggested that restrictions be eased so tolling can be used to fund new capacity on the Interstate System. Also, congestion pricing should be available for new and existing Interstate System segments in metropolitan areas with populations of more than one million. Congestion pricing could show up as high-occupancy or express toll lanes, with tolls varying by time of day, for example.
Use of these mechanisms should be controlled, however, the commission said. Revenues should go only to transportation, and tolling and congestion pricing should take transportation priorities such as freight movement into account.
"It should be recognized that commercial trucks usually do not have the discretion to change either their routes or the times when they must travel in response to tolls or congestion fees," the commission said.
These facilities should provide adequate fuel and rest areas for trucking operations, and the hours of service rules should be adjusted so drivers can take rest breaks in congested areas, the commission said.
The commission also called on Congress to promote a uniform national system of electronic toll collection.
These methods of raising money will be adequate for the time being, but by 2025, the commission would like to see a different mechanism: a vehicle mile tax.
"Increasing disparities in vehicle fuel efficiency will gradually erode the equity of the fuel tax, and in the long run many vehicles may be operating on fuels such as electricity that are difficult to tax."
The VMT is the logical next step, the commission said, and asked Congress to gear up a major national study of how to put such a system in place.
Of particular interest to the trucking industry is the commission's recommendation that some sort of special fee be put in place to pay for freight-related improvements to the transportation system. For example, a container charge or a freight waybill surcharge could be used to pay for projects to ease port congestion, the commission said. Other possible revenue sources include tapping a share of Customs duties on imports, or a federal investment tax credit to transportation facility owners to promote capacity expansion.
Battle Lines Are Being Set
The commission's report opens with a stirring "Call to Action."
"The surface transportation system of the United States is at a crossroads. The future of our nation's well-being, vitality, and global economic leadership is at stake. We must take significant, decisive action now to create and sustain the pre-eminent surface transportation system in the world."
Response on Capitol Hill has been acknowledgement that much is at stake, but heated disagreement over the solution. So far the discussion has revolved around competing theories of government, but as the debate progresses it will inevitably run into the plain old-fashioned politics of who has the authority and controls the money.
Opposition to the commission's call for steep fuel tax increases began inside the commission itself, with a minority report that opposes the majority's recommendation as a "tax and spend" approach.
"The central problem is not how much we pay for transportation but how we pay," Transportation Secretary Mary Peters, the chairman of the commission, told Sen. Barbara Boxer, D-Calif.
Boxer, who chairs the Senate Environment and Public Works Committee, replied that the minority's solution of no new taxes and more private investment is not going to happen. "I find your testimony a tremendous letdown," she said.
Rep. Peter DeFazio, D-Ore., chairman of the Highway Subcommittee of the House Transportation and Infrastructure Committee, said the minority's approach will cause massive dislocation.
"Using congestion pricing to manage demand I would call rationing," he said. "And rationing doesn't work real well because it distorts the market."
Here is a measure of the difficulty of the debate: The anti-tax views of the minority are being challenged by commission member Paul Weyrich, chairman and CEO of the Free Congress Foundation and an icon of the conservative movement.
"I am a conservative Republican," Weyrich said. "It has become an absolute orthodoxy within the conservative movement that you can't raise any kind of tax. I am not in favor, by and large of raising other taxes, but in this particular instance, I don't see any other alternative. If we don't get out there and campaign for this, we're going to regret it."
Weyrich went on to predict that the minority's view will not play much of a role in the reauthorization of the highway program. "In my view, regardless of the outcome of the 2008 elections, we are going to have a very different view of transportation in the (Department of Transportation). I don't think the current policies are going to be relevant.
"I say that regardless of who wins. If they are serious, they are going to take a look at this report and they are going to want to change their methodology. So I'm not worried about it."
Still, there was plenty of anti-tax sentiment in evidence on Capitol Hill after the report was made public.
"A dramatic increase in the gas tax does not stand a snowball's chance in hell of passing Congress," said Rep. John Mica of Florida, the ranking Republican on the House Transportation and Infrastructure Committee.
"Raising the gas tax would put us in the fast lane to a recession," said Sen. Charles Grassley, R-Iowa, ranking member on the Senate Finance Committee.
For trucking, the fuel tax increase will be a tough sell, said Timothy Lynch, senior vice president of the American Trucking Associations. "Our members view this as an investment, and they want to see a return on their investment. We're not giving these guys a blank check."
The key to whether or not taxes are increased will be reform of the system of governance, and that will be no easy task.
For example, the idea of creating a National Surface Transportation Commission to depoliticize the distribution of federal transportation money has the attraction of being innovative, but it will have to overcome congressional reluctance to delegate its authority to an outside body.
But some way or another, Congress is going to have to show the public that its money is being wisely spent. Lynch's counsel is to first focus on the problems.
"Some of the numbers are just absolutely staggering," the ATA exec said. "Go to Los Angeles or Memphis and see the volume of freight that is moving today and is going to move in the future. I think there has to be first an understanding, maybe even a national dialogue on that, and then focus on the solutions."
"I don't have words to describe how daunting the task was, and how serious it is," says commission member Pat Quinn, co-chairman and president of U.S. Xpress Enterprises.
For close to two years Quinn and his fellow commissioners held hearings, pored over documents and debated among themselves - a workload that amounted to a second job - to produce their "Call to Action."
Quinn, a former chairman of the American Trucking Associations, found it a once-in-a-lifetime experience.
"We had to put aside our personal interests and look at the greater good," he said, referring specifically to the fuel tax increases that the commission is recommending.
"We have to have the roads to move the goods on, and we've got to pay for those roads. It's not easy to support an increase of that size but the cost of delays that we are experiencing in delivering freight outweighs the cost of building proper highways."
He believes the public will accept the increases if the question is put to them in the right way. "There really is no viable alternative. The cost of not doing anything is just not acceptable."
Quinn, 61, has a career's worth of experience in trucking, but said the process taught him a lot about the nation's transportation system.
For example, he has become an advocate of building a robust intercity passenger rail system - not a traditional position for trucking interests that have in the past stressed the primacy of highways when it comes to divvying up transportation dollars.
"We know that we are going to have 120 to 150 million more people in the United States (by 2050) - almost half again as big a population as we have today. We certainly have got to address how we are going to move people more efficiently, and it obviously can't be all in an automobile. We're probably going to have some passenger rail transportation that really doesn't exist today, because you can't build enough roads between (major metropolitan areas) to accommodate the people. "
Rail transport would free up some of the roads for freight, he said. "It's something I never thought about until I got on the commission."
Quinn's expectation is that Congress will take a close look at the commission's recommendations, pick some and discard others. He's not ready to give odds on the outcome - there's a lot of debating and position-jockeying yet to be done. But he does say that it's hard to separate any one piece of the commission's report and call it non-negotiable.
"I think at some point it's all got to be done. Maybe not at the same time but they all need to be addressed."
About half of the money the commission is recommending is needed to simply get the system into good repair, he said. "That's not warm, fuzzy stuff, quite frankly. To replace or rebuild what we already have is not very flashy, but if you don't invest in the fundamentals the deterioration is going to be tragic - like the Minnesota bridge collapse last year."
Quinn does not believe the commission's minority is realistic when it argues for no new fuel taxes and alternative financing methods. "You're not going to get tolling money and public private partnerships to put the system into good repair," he said.
"You can't do every single thing through tolls or public private funding. I think that's pretty clear."
Federal fuel taxes have not been increased since 1993. If there had been some increases, or if the levies were indexed to inflation, then there probably would not be a need for the commission, Quinn said.
The Commission Members
The commission was chaired by Mary Peters, U.S. Secretary of Transportation.
The vice chairman was Jack Schenendorf, an attorney in Washington, D.C., with the firm Covington and Burling who formerly served for 25 years as a top staff member of the House Transportation and Infrastructure Committee. Schenendorf was appointed to the commission by former House Speaker Dennis Hastert, R-Ill.
- The other members:
- Frank Busalacchi, secretary of the Wisconsin Department of Transportation and a former Teamster.
- Maria Cino, former deputy secretary of the U.S. Department of Transportation and former deputy chairman of the Republican National Committee.
- Rick Geddes, associate professor, Department of Policy Analysis and Management, Cornell University. He was a senior economist on the President's Council of Economic Advisors in 2004-2005.
- Steve Heminger, executive director, Metropolitan Transportation Commission, San Francisco Bay Area. He was appointed to the commission by House Speaker Nancy Pelosi.
- Frank McArdle, senior adviser, General Contractors Association of New York. He was named to the commission at the suggestion of Sen. Hillary Clinton, D-N.Y.
- Steve Odland, chairman and CEO, Office Depot. He is a member of the Business Roundtable and the Committee on Capital Markets Regulation.
- Patrick Quinn, co-chairman and president, U.S. Xpress Enterprises. He is former chairman of the American Trucking Associations.
- Matt Rose, chairman and CEO, Burlington Northern Santa Fe Railway. He worked at Schneider National and Norfolk Southern before joining BN in 1994.
- Tom Skancke, CEO, The Skancke Co., a public affairs firm based in Las Vegas. The Skancke Co.'s focus is primarily transportation infrastructure funding and construction. Skancke was appointed to the commission by Sen. Harry Reid, D-Nev.
- Paul Weyrich, chairman and CEO, Free Congress Foundation. He is the founding president of the Heritage Foundation, a conservative think tank, and has been described by The Economist magazine as "one of the conservative movement's more vigorous thinkers."
But simply jacking up the tax is not the answer. "Raising the fuel tax to do more of the same is not acceptable."
It must be accompanied by reform of the government's management system, as the commission is proposing, he said. "There has to be that kind of fundamental reform. We should evaluate where the money goes and what the returns are. The question should be, how is this money going to improve congestion, not how much money is it going to put into my district."
From trucking's perspective one of the strongest ideas in the commission's report is its recognition of freight as an entity that needs attention and money. The commission is recommending creation of a national program to eliminate freight chokepoints and increase throughput, and is proposing to fund that program with a fee of some sort, perhaps on containers or taken from Customs duties.
Quinn said this was one of the least troublesome issues the commission faced.
"We didn't spend very much time on movement of freight because there was quick unanimity on its fundamental importance to our nation's economy. We have to assure that these systems are effective, efficient and competitive with the world economy. What more can you say about it? That was very clear from the outset."
Congressional reaction is key to what happens with the commission's recommendations.
"Congress responds to political pressure. The public has to say, we don't have to accept this (gridlock). There are alternate ways and we as a public have to tell our local, state and federal officials that it's time for you all to do something."
Freight carriers and shippers have to get involved in the debate, as well, he said. "I would just ask that people read (the report), study it and think about it before giving a quick response that may not reflect what the alternatives are."
This article can only gloss the contents of the report, which is almost 200 pages long and densely packed with complex details. These details will provide the grist for the 18-month debate that is now getting under way on Capitol Hill over reauthorization of the federal surface transportation program, due by October 2009. The House and Senate already have held hearings on the report, and more are scheduled.
The trucking and shipping communities have an enormous stake in this debate.
"It's about what our country needs to be competitive in a world market," says Quinn. "We hope it gives [Congress] a jumping-off point [and] presents the need for more funding for infrastructure in a responsible manner. "