A Gas Tax, Is a Tax, Is a Tax… or Is It?

gas_taxMost certainly the 2013 Iowa legislature will be debating at length the merits, and pitfalls, of an increase in the gas tax.  In fact, the debate has been going on the past couple of years in the legislature and in the world of the social media.  I’ve been involved myself in more than a few of those debates (including as I write this blog) and I can tell you there are more than a few uninformed participants in those debates that often revert to ignoring facts and, when that fails, to outright name calling.  I expect this from liberals, but from among my fellow conservatives?  In fact one participant, implying I was not as conservative as he, accused me of being an emotional, right brained liberal because I disagreed with his position.  Now, I may be right brained and sometimes emotional, but let me assure you I am no liberal.

Since the debate already has resumed at the Statehouse, I thought I’d share some of the information I’ve read on the subject and provide fodder for further debate in the blogosphere.  It is also my intent to dispense with some inaccurate claims and misinformation so that you’ll be better armed with facts when you participate in debates of your own.  And, when you discuss this issue, I encourage you to put away your emotions and rely upon the facts.

Let’s start with some wonderful resources that, when read thoroughly, will help prevent you from making outrageous claims to defend your position, not unlike some claims that I’ve encountered in my discussions on the issue.  Your first stop will be to an Iowa Department of Transportation web page that provides links to annual reports on the Road Use Tax Fund (RUTF) as well as a link to the final report of the Transportation 2020 Citizen Advisory Commission.  So that you don’t have to immediately read the reports (all 59 pages) I’ll provide you with a summary of the highlights, but I’ll limit my observations to the Transportation 2020 report since the RUTF reports are kind of boring albeit useful in their own way:

  • The Governor’s Citizen’s Advisory Commission was created as a bipartisan commission to explain Iowa’s transportation issues.  They produced the Governor’s CAC Transportation 2020 report linked above.  Their recommendations were unanimous.  For the sake of this blog I’m going to assume that the data is sufficiently accurate to rely upon with a concession there may have been some bias by the commission towards increased funding.  But hey, it was unanimous.
  • Properly constructed and maintained roads/bridges reduce transportation costs, improve productivity and reliability and reduce injuries and fatalities.
  • 95% of current road and bridge funds are constitutionally restricted for roads/bridges.  Additional funding as proposed would likewise be protected.
  • The gas tax is a user fee wherein those who use the roads supply the funding for maintaining and building roads/bridges.
  • Iowa is a pay as you go state.  That means they don’t borrow funds for current needs that will then be repaid over many years.
  • A study in 2002 resulted in several actions that increased the efficiency of IDOT operations via legislation in 2003.
  • A 2006 study projected a $27.7 billion funding shortfall over the ensuing 20 years. That’s billions with a “B.”
  • A study in 2008 showed that the funding for critical needs had increased from $200 million in 2006 to $267 million in just two years due to increased construction costs, further damage caused by extreme weather and deteriorating conditions.
  • Over the last ten years counties and IDOT have reduced staffing by a combined 1050 employees and eliminated 39 field locations and reduced the size of their fleet.  Those actions by IDOT alone resulted in $45 million annually in savings that could then be applied to road construction.  Employee cuts going back to 2000 total 1200.
  • In 2012 Governor Branstad advised IDOT that they needed to identify another $50 million in cost reductions.
  • Iowa ranks 5th in the total number of bridges and 13th in the total number of miles of roads, yet ranks only 30th in population and 23rd in land area.
  • An annual study by The Reason Foundation shows Iowa ranks very poorly in most categories for roads and bridges with rankings as low as 46th (Rural Arterial Bridges).  Kind of pathetic don’t you think?
  • Severe weather in Iowa including freeze/thaw cycles from colder winters along with flooding caused $46 million in damage for 2011 alone.  This doesn’t include damage to city and county roads or repairs by IDOT staff.  These events also increased operational costs at IDOT that are unavoidable.
  • From 1990-2010 (most recent data available for this report:
    • Travel increased 36%.
    • Large truck traffic (causes more damage than cars) increased 42%.
    • More oversize/overweight vehicles moved through the state due in part to the renewable energy developments including windmills and grains to biodiesel/ethanol plants.
    • Movement of heavy components is compromised as they often must detour around substandard bridges due to weight limitations.
  • Out of state drivers generate 20% of total travel on Iowa’s roadways but provide only 13% of road revenues.  Iowan’s bear a disproportionate share of the costs compared to their impact on roads/bridges.
  • Inflation has had a devastating impact on a funding stream that is $200 million less today than in 1997 after adjusting for inflation.
  • Federal funding has been unreliable and will likely continue to be questionable going forward given the US’s fiscal condition.
  • High efficiency vehicles pay disproportionately less in gas taxes since they use less gas while causing the same amount of wear and tear as a comparable sized, conventional vehicle.
  • The actual annual funding shortfall for all needed projects as of 2011 was $1.6 billion.  The total needs were segregated with some projects defined as “critical” based upon safety issues and/or critical for economic productivity.
  • The 2011 annual funding shortfall for critical needs was $215 million and will grow annually if not addressed due to increasing construction costs and additional wear and tear on compromised roads/bridges.
  • The Federal Highway Administration documented in 2007 that every $1 billion spent on highway investment:
    • Creates or supports almost 28,000 jobs, with many of those jobs immediate.
    • Creates 30 cents of “cost saving” producer benefits annually (Maybe that’s why Farm Bureau is so supportive of the gas tax)
    • On average 25% of yearly productivity growth rate in the US is due to highway investments.  (It makes great sense to build roads to increase GDP)
  • Iowa currently ranks 34th in the nation for total gas taxes.  Keep in mind that some states rely in part upon general funds and tolls for their transportation funding.
  • You won’t find it in the report, but for the record, no Iowa gas tax money is spent on bike trails, contrary to that claim frequently being made by gas tax increase opponents.  Those projects are funded by Federal tax dollars (I’ll address that fiasco in a moment).

As I mentioned before, I’ve participated in several gas tax discussions on Facebook and with others in the business world.  Now, here are some of the negative responses to a post by an anti-gas tax state Senator here in Iowa who has a strong Facebook following of Tea Party type conservatives (including me).  He asked for opinions about the proposed gas tax increase:

  • “Hell no!  The state needs to budget the money they already get.”  (Help me out here.  Which dollars in IDOT’s funding aren’t being budgeted)???
  • “Everyone has to make cuts because the government won’t.”  (Obviously this guy didn’t read the report I provided).
  • “…enough with all the taxes!!!!”
  • “The DOT budget is bloated…organization is inefficient.”  (I asked for documentation of this assertion and never got it).
  • “Gas tax is the most regressive tax there is.  Looks like they’re trying to kill off rural Iowa.” (I find this one ironic since I’ve seem comments accusing Farm Bureau of pushing for the increase to benefit farmers who, ironically, are all located in rural Iowa).
  • “It is immoral and unjust for some schlub on the east side of Des Moines to pa for improvements in rural roads and bridges.  It is also the height of moral turpitude to attempt to steal from passerby to pay for those improvements.” (This guy thinks it’s wrong for out of state drivers to pay for the wear and tear they cause on Iowa roads via a gas tax for purchases of gas in Iowa.  I guess that means he believes Iowans should be subsidizing out of state drivers).
  • “Last I knew most DOT work was aimed at all the new bike paths around the state.”  (WRONG)!
  • “NO!!!!!”
  • “…put me into the “stop wasting our tax dollars” side of the fence.” (Guess that means that spending money on roads and bridges is a waste)?
  • “When we spend 15 million on a high bridge bike trail instead of repairing roads and bridges we have lost our minds.” (We didn’t so we haven’t.  Well, sort of.  The bridge was built but not with Iowa gas tax dollars).

Now, I’ll admit, these were some of the more “out there” responses, but I’ve participated in several gas tax discussions and this was one of the more civil of them (until I was accused of being defensive when I addressed inaccurate claims by other commenters).  I was just responding with fact, honest.  No name calling on my part, although I’ll admit a few adjectives crossed my mind.  And throughout the discussion there were some quite reasonable observations and suggestions.  Overall though, my sense is that people seem to reject the idea that there are problems with our roads and bridges.  This is due in part to there being 114,000 miles of roads in Iowa and the average gas tax payer travels only a fraction of those roads.  If the roads in their area are fine, there must not be any problems anywhere else in the state.  Also, the average citizen has no idea that the bridge they just crossed could be structurally unsound since the problems are hidden below the bridge.   They have no idea why that sign just before the bridge states the weight limitations for that bridge.  Nothing about cars on that sign.  No problem, right? And there seems to be lots of confusion between the general fund and road funds.  In the general fund there is undoubtedly waste because those funds are spread around hundreds of different programs, and there will always be disagreement about how much should be spent where.  For the road funds though, the funds are guaranteed to be spent on roads/bridges and the source of those funds comes from those who use the roads.   As for the general fund and the road fund, “ne’er the twain shall meet.”  I hope.

That brings us to the recommendation by some folks who maintain that funding should come in part from other than constitutionally protected sources.  On another Facebook discussion on the issue for example, a commenter (an avowed conservative no less) posted that we have a $1 billion budget surplus and that we ought to move some of the general funds to fund road work.  Personally I think that’s a disastrous idea since it’s highly likely that a future legislature will just divert those funds elsewhere, creating an unstable funding stream for IDOT and contractors to plan for future projects.   That will also create yet another funding crisis as a deadline nears.  Sound familiar?  I also believe that, if we have a budget surplus in the general fund that the legislature should be cutting income and/or property taxes once that revenue stream and surplus are assured.  The Des Moines Register’s recent editorial position of endorsing the spending of those revenues on expansion of existing programs or establishing new programs is simply fiscally irresponsible.  If we cut income/property taxes this year or next year, the GOP forces the Democrats to come back to the table in the future to argue for tax increases.  The Des Moines Register plan guarantees continued government largesse.  And remember, the proposed gas tax increase will amount to about $215 million per year when fully implemented, and be spread proportionately among all drivers, as opposed to what could potentially be a $1 billion tax cut.  Seems like a very fair trade given the evidence that tax cuts on income and property can result in economic stimulus just as there is compelling evidence that a gas tax increase can have a similar positive impact on the economy.

As I noted above, bike trails are funded by Federal tax dollars and, if you weren’t aware of it already, our gas prices also include a Federal gas tax.  The State of Iowa sends every one of those tax dollars to D.C. where the bureaucrats work their magic and send us our tax dollars back to us, but with strings attached.  In my mind infrastructure is a state responsibility.  I likewise believe that the Federal gas tax and the Federal government shouldn’t be involved in funding road construction.   So I say repeal the Federal gas tax and let the states adjust their gas taxes accordingly to offset the elimination of Federal funding.

I think my position on the Federal gas tax is import since, in one of my discussions on the gas tax I was accused of having a conflict of interest since I could personally benefit from an increase in the Iowa gas tax.  So in the spirit of full disclosure, I work for a company that would benefit from an increase in the Iowa gas tax, but only to a very small percentage of their total revenues since they operate in all fifty states.  And, since the impact to my employer would be quite nominal, any benefit to me personally would amount, at most, to only a few tanks of gas.   Hardly worth my effort to risk being called a liberal again just for a few bucks in my pocket, and I’m mean very few. Further, I believe cutting the Federal gas tax, which I fully support, would likely have far more negative consequences to my industry than the comparatively small increase in the Iowa gas tax being proposed.

So I’ve given you a plethora of information on roads, bridges and gas taxes in Iowa.  And, if you haven’t figured it out yet yes, I think a $.10/gallon increase in the gas tax, implemented over the next 2 years, is essential to maintaining our roads and bridges.  Such an increase would cost me an additional $160/year based upon 33,000 miles per year.  And I’d gladly pay that in order to make the roads safer for me and my family.  And I’d gladly pay it because the roads I travel sometimes abuse my vehicle to the point that the resulting needed repairs probably cost me more than the $160 increase in taxes.  Heck, on a trip this weekend on Iowa 14, my passenger could hardly play solitaire on their phone it was so bumpy.

Now I know the GOP legislators are particularly concerned about supporting any tax increase, regardless of the merits of that increase, because they’re afraid that the Democrats will use the tax increase against them in the next election.  I get that.  So call me idealistic, but if it’s the right thing to do and it solves a critical funding problem, maybe the GOP legislators need to stand on principal and do the right thing by supporting the gas tax increase and aggressively seeking spending cuts and tax cuts where the general fund is concerned.  I strongly believe that the voters will reward legislators who “do the right thing” even if it’s unpopular.

So have at it and feel free to remind me that I’m no conservative, that I’m right brained, that I’m emotional.  Or, if you really want to stick a knife in my back and twist it, accuse me of being a liberal, simply because I’ve considered the facts and arrived at the conclusion that a gas tax increase is the only viable solution to the problem deteriorating roads and bridges in Iowa.

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Comments

  1. says

    State Rep. Tom Shaw commented over at Facebook, “According to an Iowa Supreme Court ruling, and an Attorney General’s opinion, the Road Use Tax Fund (of which the gas tax is a contributor to), can be spent on anything “Roadway Related.” Iowans are being led to believe that a raise in gas taxes would be spent on concrete and ashphalt ….. not necessarily.”

    He brings up a good point. This is what got us in the mess to begin with. I think we have a spending problem, and can’t support any tax increase until that is dealt with. If and when they have spending under control then we can have this discussion coupled with appropriate tax cuts to compensate.

    • says

      We certainly have a spending problem in the general fund. Do you also think we have a problem with spending on transportation? Do we have inferior roads and bridges that need to be fixed? If someone believes that there are no problems with the roads and bridges then there’s no need for discussion, assuming that there are no room for discussion because that would be to deny the evidence. If there is a transportation problem that needs to be funded, we can’t wait until spending issues are resolved in the general fund, because we all know that a divided legislature is incapable of reigning in spending as we’d like to see. And that’s simply a function of the divide between the GOP and Dems as to government’s roles and responsibilities and government agencies being mismanaged. If we wait for the general fund issues to be resolved then we’ll see further deterioration in our roads with an ever increasing pricetag to fix them, compromising safety and productivity in Iowa in the mean time.
      As to Tom’s comment, isn’t there a way to dedicate funds to their intended purpose? Seems the Feds routinely attach strings to our tax dollars that they send back to us. Can’t the Iowa legislature do the same? And hasn’t the IDOT established some modicum of credibility in terms of being aggressive in managing administrative costs to maximize dollars used for actual road/bridge construction? For starters, IDOT has 1200 fewer employees today than in 2000.

  2. Tim Grover says

    Let’s take a look at Article Seven Section Eight of the Iowa Constitution.

    Motor vehicle fees and fuel taxes. SECTION
    8. All motor vehicle registration fees and licenses and excise taxes
    on motor vehicle fuel, except cost of administration, shall be used
    exclusively for the construction, maintenance and supervision of the
    public highways exclusively within the state or for the payment of bonds
    issued or to be issued for the construction of such public highways
    and the payment of interest on such bonds.

    The way this reads to me. You can actually issue bonds for the short fall in the RUTF Fund. There are only eight states with HIGHER State and Local Taxes than Iowa. I would suggest we start looking at getting more people to move INTO Iowa so that we can increase the number of people who pay the 80%of the fuel tax. How is that for solution?

    • Tim Grover says

      There is nothing in there that says you can’t borrow money from the surplus to fund the shortfall.

    • says

      Tom, you can certainly use bonds to fund road construction but it’s not advisable. Missouri uses bonds to fund their road work and what contractors find there is an irregular flow of money from year to year. Some years will have a lot of work with revenues from subsequent years used to pay down prior work, leaving road work underfunded as bonds are paid off. The additional debt can also negatively impact a state’s credit rating. I’d prefer the pay as you go approach rather than racking up additional debt, a problem that is already createding a fiscal crisis at the Federal level and with many other states.

      The same argument would hold true for borrowing from the general fund surplus. You’d be creating future debt obligations that would need to be funded out of a pool of money that has already been established as being inadequate.

  3. Steenhoek says

    I am always concerned when they legislators say they can’t do this because of X, and so they must tax you more. The fact is they make law, they can do what ever they want to us, include not raising the gas tax and getting the money needed from somewhere else. They also have huge wastes of money within the DOT that could be addressed also. The Bipartisan Group was bipartisan but they all believed we should raise the gas tax from the start, that’s why they were on the commission, in fact Brandstad tipped his hand at one point and said he thought they would come back saying we needed to raise the gas tax, wow the man in charge of appointing the commission thinks they are going to do a gas tax and what do you know they said “hey we think a gas tax is a good idea” In addition the use of a commission by elected officials is a way to place the blame on the commission instead of taking responsibility for it themselves. “It wasn’t my idea I’m just going with what the Commission found” If you would like to do the story about the gas tax do one from the point of view of “Follow the Money” I promise you almost all the people invested in this are getting money from the recipients of the gas tax dollars. Brandstad himself get’s large donation from construction companies.

    • says

      Can you elaborate on the “huge wastes” at the IDOT? Where else would you propose they get the money? How do you know that every member of the commission supported an increase in the gas tax? Have you interveiwed them? How much is the “donation from the construction companies to Branstad?” Or is all this speculation on your part?

  4. Jason Schmidt says

    A nice, informative article. It seems to pretty clearly make the point that the department is actually taking action to manage money, and that there is a need. One thing I don’t see clearly is the benefit to each of the stakeholders. How would the results of paying a higher gas tax benefit trucking companies who send their trucks through Iowa, for example. How would it help gas stations in Iowa? How would it help business owners in iowa, or citizens who would have to pay so much more of their already shrinking income on something that is consumed away? I’m not sure how you can say in the same article that there is insufficient funding to maintain things that already have been built, that there is a need for more tax money to do this, and still say that the department has managed things properly. That pretty much says that something that was built, and needs to be maintained, was not sufficiently funded for long term use, and thus should not have been built. Every road and every bridge should be built only with the understanding of how maintenance will be paid for over time, what will be removed to avoid hazards when the funding dwindles, and how that removal will be paid for. This plan should not be based on expected future tax income, but on what is already in hand, which means some is set aside for future projects too. Far better to admit that things can be managed better, we are now looking to do so, and be very open to ideas on how to do that. Some possible ideas: eliminate controversial new projects. I don’t have a state one in mind at the moment, but a local example is the restriping of Hubbell. Spend the money on the needed repairs. Use the surplus from the fact that the last couple of winters have been unusually mild, for repairs needed due to winter. (The need for which has presumably been greatly reduced as well in comparison to other winters?). Avoid building anything new until the maintenance (including scheduled replacement) of what exists is properly funded, or the decision is made that specific ones are not supportable. The very vague notions of what the value is to the stakeholders other than the deparment (i.e. better roads, but does the value of those better roads to us outweight the value of the increased expenditure on our part?), combined with the claim of not enough money to maintain, and then the desire to build more stuff, leads many of us to think that additional gas tax may be more for the benefit of the department, and less for the benefit of the people or businesses in and travelling through the state. Thanks for a good and thoughtful article!

    • says

      Jason, you make some very valid points about the need to maintain what we have before adding new roads. The challenge is that we have an increasing population, increasing number of miles driven and increased usage by business (heavy trucking), all while vehicles have become more efficient (using less fuel per mile driven) and inflation eating away at the current tax rate. If cars still averaged 15 miles per gallon like in 1989 when the last tax increase occurred, we wouldn’t be facing this issue.
      You ask how businesses would benefit. They benefit by vehicles being able to get to their businesses. Consumers travel farther now for commerce than they did 30 years ago, primarily because of the ease of doing so as our infrastructure has grown to accomodate that growth. As my article points out, infrastructure spending creates jobs, provides cost savings to producers and contributes significantly to GDP.
      There is also the challenge of infrastructure keeping up with growth. In West Des Moines for example, significant infrastructure costs were incurred to accomodate the construction of the Jordan Creek Mall and the surrounding developments. That wouldn’t have happened without improving the single lane gravel roads to multi-lane paved roads. But that growth creates new tax revenues for WDM and surrounding areas. While these are city owned roads and the tax revenues go to the city for maintaining those roads, IDOT doesn’t have that luxury. Economic benefits resulting from IDOT construction work go to local communities, counties and the State’s general fund for the most part. Thus, the road fund doesn’t reap the benefits needed to fund new construction. If we applied your approach, we’d still have a $.02/gallon fuel tax and be driving on dirt roads.

      Trucking companies benefit by increased productivity. Their loads get through Iowa quicker and with less wear and tear on their vehicles.

      You mention milder winters reducing costs, but you ignore the $46 million of flood damage to roads and bridges in 2012 alone. And that’s just at the state level and doesn’t account for costs to cities and counties for flood repair.