Final version of bipartisan commission report includes proposal to raise gasoline tax

In November, a draft of a report issued by President Obama’s bipartisan commission charged with reducing the national deficit proposed to gradually increase the gasoline tax by $0.15 to fund transportation spending beginning in 2013.

The draft report noted that raising the gasoline tax, which has been at 18.4 cents for gasoline and 23.4 cents for diesel and has not been increased since 1993, would “dedicate funds toward fully funding the transportation trust fund and therefore eliminating the need for further general fund bailouts.”

The final version, which was released this week, did not change course on this proposal, with the commission, led by Alan K. Simpson, former Republican Senate leader, and Erskine B. Bowles, White House Chief of Staff under President William Clinton, making the same proposal to “fully fund the transportation fund instead of relying on deficit spending.

This proposal comes at a time when the prospect of raising the federal gasoline tax has been described as a “non-starter” multiple times as a way of increasing revenues for the Highway Trust Fund, which has been on the brink of solvency since SAFETEA-LU expired on September 30, 2009, and other sources of transportation funding.

Since SAFETEA-LU expired, it has been kept afloat by a series of continuing resolutions. It is currently being funded at current levels through the end of 2010. But with Congress focused on reducing the deficit, it appears unlikely that a new bill, such as the wide-ranging, six-year, $500 billion one proposed by outgoing House Transportation and Infrastructure Committee Chairman James L. Oberstar, is likely to gain any meaningful traction in the short-term and possibly not until after the next Presidential election in 2012.

“If the money is going to be applied to the Highway Trust Fund and to the users prescribed by it, I think that is absolutely we would support,” said Leslie Blakey, executive director of the Coalition of America’s Gateways and Trade Corridors. “Most people in transportation would agree that gasoline taxes need to be increased sooner than 2013 in order to avoid the Highway Trust Fund being bankrupt by then. The schedule needs to be accelerated. The long-term stimulus effect of this would more than offset the relatively minimal economic drag that an increased fuel tax would have.”

Blakey added that for the relatively small increase being discussed, the return on that investment would be the buying power that the Highway Trust Fund had in the 1990s. This, she said, highlights the fact that the proposed increased likely does not go far enough, although it would be a step in the right direction. And she said revenues from other new sources dedicated to freight transportation are also needed

The Commission added that Congress must limit spending from trust funds to the level of dedicated revenues from the previous year, stating that before asking taxpayers to pay more for roads, rail bridges and infrastructure, it is imperative that existing funds are not wasted. What’s more, the Commission said that it recommends significant reforms to control federal highway spending, with Congress limiting trust fund spending to the most pressing infrastructure needs rather than forcing states to fund low-priority projects.

Along with raising the gasoline tax, the final report also proposed to limit spending if necessary to match the revenues the trust fund collects every year. It added that under current law the Transportation Trust Fund has hybrid budget treatment in which contract authority is mandatory, while outlays are discretionary.

“This hybrid treatment results in less accountability and discipline for transportation spending and allows for budget gimmicks to circumvent budget limits to increase spending,” read the report. “The Commission plan reclassifies spending from the Transportation Trust Fund to make both contract authority and outlays mandatory, and then limits spending to actual revenues collected by the trust fund in the prior year once the gas tax is fully phased in. Shortfalls up until that point would be financed by the general fund.”

A report from Ken Orski, editor of Innovation News Briefs, cited a comment from a congressional aide who said this proposal has a solid chance of being embraced by the fiscally conservative lawmakers taking office in January. The aide was quoted by Orski as saying “predictable revenue rather than undocumented ‘needs’ will dictate the level of the transportation budget in the next Congres, with Orksi commenting that the practical implications of this policy being a significant reduction in the scope and reach of the federal surface transportation program.

If spending is to be limited to existing revenue collection, Orksi said the highway program cam expect to be reduced by $7-8 billion and the transit program by $3 billion from the current Fiscal Year 2010 level, assuming future Highway Trust Fund income, including tax revenues and interest, of approximately $35 billion/year in the highway account and $5.5 billion/year in the transit account, as projected by the Congressional Budget Office.

All proposals in the report will be voted on by the 18-member panel of the bipartisan commission, with 14 votes needed to issue a formal recommendation to Congress. Media reports indicate the vote is likely to received approval by the required amount at this time.