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Financial Blog

Raising gas tax the conservative thing to do

As is the case in so many states, Alabama's transportation infrastructure (its roads and bridges) is in dire need of new investment and a consistent and dependable program of maintenance and repair. Through inflation and increased fuel efficiency, revenues from federal and state gas taxes - the usual sources of transportation funding - have fallen far below the amount needed. In fact, the purchasing power of Alabama's transportation budget is currently equivalent to what it was in 1983. Consequently, it is sufficient only for upkeep with little or no prospect for much needed new investment.

Past years' efforts to raise the state's gasoline tax rate have met with voter disapproval. This month the Joint Transportation Committee of the Alabama Legislature will conduct a series of five meetings to gauge if public sentiment has shifted toward raising this user fee. In addition, the Association of County Commissioners of Alabama is initiating "Drive Alabama," a campaign supporting an increase of five cents per gallon in the current levy on fuel consumption.

Politicians usually prove their "conservative" credentials by opposing all forms of taxes, arguing that such constraints on revenue are necessary to control the size of government. Unfortunately, this "no new taxes" posture violates another conservative principle: "people should pay for what they use." At present, our transportation budget suffers from the fact that drivers are using these public assets without paying the costs they impose on the system. As we will argue, the increase being sought by the County Commissioners is a very appropriate fiscally conservative step to take. Let us explain.

In a competitive market for private goods and services, consumers consider price when deciding on the quantity to purchase. When it comes to public goods and services, such as the usage of a transportation system, gas taxes play the same role as prices do in private sector markets. Because the total user charge that drivers pay is in proportion to miles driven, it imposes incentives on them to adjust their driving to be more efficient in their use of the roads.

It is a standard fiscally conservative public management principle to "use market solutions whenever possible, and when not possible, to try to mimic market solutions as closely as practicable." This implies a preference for market solutions, and explains the rationale for why economists prefer user charges when applicable to pay for public goods. In the coming years, it will help public discussion if people have a firm grasp of the advantages of user charges and why they should not be included in "no new taxes" pledges.

In the absence of raising the gas tax rate, our roads and bridges will either continue to deteriorate or their maintenance and repair will be funded from revenue sources other than gas taxes, such as borrowing or general taxes. If revenues from other tax sources or from increased state indebtedness are used for this purpose, then general taxpayers will be forced to subsidize drivers. Unfortunately, this subsidy reduces the cost to drivers below the full cost per mile that they impose on the system, encouraging more total driving than would otherwise occur. This increased use of roads results in increased maintenance and repair costs for the state's taxpayers.

With gas prices as low as they are today, motorists can easily adjust to a requirement that they pay for what they use. To avoid a repeat of inadequate funding, a new law should provide for automatic inflation adjustments. The inflation adjuster assures a reliable flow of funding from users, enabling the State to steadily keep the roads in good repair. Because regular maintenance costs less than emergency repairs, the total cost to the system would then be lower. Finally, using the gas tax to pay for repair and maintenance of the transportation infrastructure allows the state to reserve its debt capacity for pro-growth capital investments rather than for road consumption. A competitive advantage awaits those states that get out ahead of the nation on fixing their roads. Raising the gas tax rate would enable Alabama to demonstrate leadership and say: "Alabama is Open for Business."

Charles O. Kroncke is former dean of the College of Business at Auburn University. William L. Holahan is emeritus professor and former chair of the Department of Economics at the University of Wisconsin-Milwaukee. They are co-authors of Economics for Voters.



Who pays for our roads?

Would you agree that the more of something you use, the more you should pay, such as electricity? Would you agree that it should also apply to roads and bridges? Many Americans believe roads pay for themselves through taxes on gasoline and other user fees. Not true.

In the 1960s and early 1970s, gasoline taxes and other user fees paid for more than 70 percent of the cost of highway construction and maintenance. Today, nearly half the cost of building and maintaining highways comes from general taxes, such as income and sales taxes. Going forward, the share of transportation costs covered by gasoline taxes will most likely continue to decline as a result of more fuel-efficient cars and slower growth in the number of miles driven.



Modesto chamber looks for bigger role in public safety discussion

The Modesto Chamber of Commerce wants to have more of a voice in the discussion over how the city solves its public safety challenges, such as cutting into the crime rate and finding the money to hire more police officers and firefighters.

The chamber has formed a public safety committee to do just that and has invited the city's two main public safety unions as well as city, police and fire officials to serve on it. Former Mayor Jim Ridenour will serve as committee chairman.

The city has not had success increasing public safety staffing and funding. It put general sales tax increases on the November ballot in 2013 and 2015 only to have voters reject them. As general taxes, they could have been spent on any general government purpose, but city officials said they intended to spend most of the taxes on public safety.

Mayor Garrad Marsh spearheaded both efforts and supports the chamber's. He said he and other top city officials, such as police Chief Galen Carroll, will be at the committee's first meeting this month.

"I welcome all input to finding a way to improve public safety in the city of Modesto," Marsh said. "I've been saying for years we need more cops, and hopefully we will find a way to do that."

Modesto cut city services during the recession and its aftermath, including public safety. For instance, the Police Department saw its number of allocated officers fall from 287 in 2008 to 219 today.

Chamber Vice Chairman Steve Madison said the committee will let the chamber better educate its roughly 900 members - which range from small businesses to large institutions, such as Memorial Medical Center - and the chamber's leadership on public safety issues. He said crime and vagrancy are among the top concerns for chamber members.

The committee also will explore ideas "to enhance revenue for crucial (public safety) services," according to a news release. Madison said that could include looking at a special public safety tax, which unlike a general sales tax requires two-thirds voter approval but can only be spent on its special purpose. He said the committee could look at whether it makes sense for the city to raise its transient occupancy tax to pay for more public safety services. The tax is paid by motel and hotel guests.

Madison said the chamber wants to be more involved than just having the city ask every couple of years for its support on a sale tax increase. The chamber did not take a position on either proposal. "It isn't going to work if the city keeps running tax measures up the flagpole," Madison said, "and the chamber keeps saying no. We have to figure out something."

The Modesto Police Officers Association and the Modesto City Fire Fighters Association plan on sending representatives to the first meeting. The public safety unions and the chamber have not always seen eye to eye over the years, such as over pay and benefits for employees. But this could be an opportunity to see where they can work together.

"It's a great opportunity for us to tell more of our story," MCFFA Vice President Ruben Esparza said about the committee, and "to see what their views are and what our views are. Without public safety, business does not do well. Without business, public safety does not do well."

MPOA President Tony Arguelles said: "We are in a new environment. It's important that the entire community work together for public safety solutions."

The committee comes as Marsh is in a Feb. 2 runoff election against architect Ted Brandvold. The chamber and the two public safety unions are supporting Brandvold. But Madison said this is independent of the election and he started working on the committee about a year ago.

The two unions worked with the chamber to defeat Measure I on the November ballot. The measure called for putting an urban growth boundary around three-fourths of Modesto.

Madison said the committee is similar to the chamber's other committees on education, economic development, government relations and water. He said committee meetings are not open to the public.



Roads are for all users

As the Land Transport Authority (LTA) clarified in 2013: Public roads are intended to be used by all road users, including cyclists and pedestrians. They are built and maintained using public funds collected from general taxes, including those who do not use motorised vehicles.

Furthermore, it can be clearly seen on the LTAs website that road tax is calculated based on a vehicles engine capacity or power rating. These values are directly or indirectly linked to the amount of emissions produced by each vehicle type. 

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