Shippers urged to join infrastructure-funding free-for-all

John D. Schulz, Contributing Editor -- Logistics Management, 4/10/2008

WASHINGTON—Shippers are being invited to join the national debate on how best to cope with congestion and infrastructure issues, and how best to pay for sorely needed transport improvements. They might be advised to wear football helmets as the debate promises to be a free-for-all.

They also may be advised to watch their wallets. Whatever is likely to come out of the next highway bill is probably going to raise shippers’ freight rates, experts are saying.

The debate over the current Surface Transportation Reauthorization Bill, which is set to expire Sept. 30, 2009, already has begun with three major questions:

How much money is needed to bring the U.S. surface transportation infrastructure up to par?
What is the best mechanism for paying for those improvements?
What is the proper role of the federal government and states in divvying up this money?

The recent bipartisan National Surface Transportation Policy and Revenue Study Commission recently joined the debate with a lengthy policy review that called for major funding improvements in the U.S. infrastructure.

The commission estimated that the U.S. needs to invest as between $225 billion and $341 billion per year over the next 50 years. Today, at all levels of government, the country spends $87 billion per year in the U.S. transportation system.

Just to bring the current system up to par would take about $110 billion. The remainder would be used to pay for additional capacity in the system.

With the Highway Trust Fund projected to run out of money sometime next year, the word from Washington is that raising all types of revenue sources are on the table.

That would be an increase in the federal fuel tax, an increase in highway tolls, higher freight and Customs fees, congestion pricing and more public-private partnerships. What the political will is to raise these taxes and fees is debatable.

“It is very important for you to get engaged,” Jack Schenendorf, a member of the recent blue-ribbon commission on highway funding, told members at the NIT League spring policy forum on April 8 outside Washington. This is a national problem that needs a national solution. The solution needs to be comparable with what happened in the 1950s with the advent of the Interstate Highway System. We all have to work together to make this happen.”

Jeff Shane, former under secretary for the Department of Transportation, said the U.S. runs the risk of becoming “a second-rate economy” unless it makes improvements to its infrastructure.

Congress is notorious for delays in funding infrastructure improvements.

The last highway bill was passed with more than 6,000 “earmarks”—or pet projects funded by members of Congress for their own districts. In the past, these have included many non-transportation projects, such as museums, trails and other non-essential needs.

“It was an exercise in serial procrastination,” Shane said.

That’s the bad news. The good news is that freight needs are being emphasized as never before in Washington. The old adage that “freight doesn’t vote” may not apply any longer.

“Freight policy, at long last, is in the mainstream of federal transportation planning,” Shane said.

The big debate is whether to raise the federal tax on fuel (currently 18.4 cents on gasoline, 23.4 cents on diesel). The National Surface Transportation Policy and Revenue Study Commission recommended raising that tax by 25 to 40 cents over the next five years to help fund the next highway bill, which is expected to cost about $500 billion.

“Revenue is not keeping pace with demands on the system,” said Kathy Ruffalo, a government affairs consultant and member of another commission, the National Surface Transportation Infrastructure Financing Commission, which is scheduled to release its report by November.

She is predicting a shortfall in highway funding starting with the 2010 fiscal year.

Schenendorf was a Democratic co-chairman of the National Surface Transportation Policy and Revenue Study Commission. The commission split over how to pay for a new highway bill. Nine members voted to fund it through an increase in the federal fuel tax.

Transportation Secretary Mary Peters was part of a three-person minority that continued its opposition to an increase in the fuel tax, which has been unchanged since 1993. That minority is backing a major reduction in the federal role, favoring instead more input from the states.

“Every national government around the world is making major investments in its transportation systems,” Schenendorf said. “We need a major investment in our transportation system. Now is not the time to reduce the federal role.”

But with a change in administrations coming in November, such opposition to a fuel tax increase may change as well.

“Regardless where you come from on the political agenda…you cannot have a first-class economy with a second- or third-class transportation system,” Schenendorf said. “It’s essential. Without that, you’re not going to have a first-class economy.”

Schenendorf said the nation has become “complacent” when it comes to transportation. “We are at a crossroads today. We are looking at an aging system that does not have excess capacity in many key areas and we are facing enormous challenges in the future.”

Freight levels are expected to double by 2020 and today’s infrastructure cannot handle tomorrow’s capacity demands, he said.

“We really cannot do business as usual,” he said. “We have to do something different—and it has to be dramatic if we are to compete in the 21^st century.”

Chris Koch, president of the World Shipping Council, which represents the international ocean liner shipping industry, said shippers have to decide what they really want from a transport system. “It’s easy to be against something,” he said. “Part of the problem is us. We haven’t communicated what the real needs of the system are.”

Experts say there is no magic bullet in solving this issue. While there is a historic opportunity to revolutionize how federal transportation programs are funded, there is a risk that the debate may devolve into parochial fights from predictable camps. No one wins, in that case.

“If it turns into a food fight a bill will not get done,” Ruffalo predicted. “Disagreement will only allow opponents of transportation funding to divide and conquer.”