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Gas Tax Losers

Tuesday, March 30, 2004

Gas Tax Losers

Metropolitan Areas Get Short End of Federal Gas Tax Funds

Summary. As Congress prepares to reauthorize a six-year transportation bill worth close to $300 billion, a first ever investigation of metro area transportation spending by the Environmental Working Group found that commuters in 176 metropolitan areas paid a total of $20 billion more in federal gas taxes than they received in federal highway trust fund money for both transit and highways from 1998 through 2003. Taxpayers in fifty-four metropolitan areas lost an estimated 100 million dollars or more during the 6-year period analyzed.

These disparities at the local level have received relatively little consideration on Capitol Hill although many members of Congress are fighting to ensure that states receive federal transportation funds equivalent to what the states contribute in gas taxes. Local transportation spending, however, has a far greater impact on congestion, air pollution, and sprawl.

The top money losers were drivers in Los Angeles/Riverside, where there was an estimated $1.16 billion shortfall in federal highway trust fund expenditures compared to gas taxes paid during the six years examined. Commuters in Dallas/Fort Worth were the second biggest losers with an estimated six year shortfall of about $1.1 billion, followed by Phoenix at an estimated $904 million, Atlanta at $787 million, and Detroit/Ann Arbor with an estimated $639 million disparity between gas taxes paid and federal highway trust fund money spent in the metro area.  


Gas Tax Losers: Metro areas with the biggest gap between gas tax payments and transportation project spending

 

Rank Metropolitan Statistical Area Pennies
Returned
on the Dollar
Gas Tax Dollars Lost
1998-2003
1 Los Angeles-Riverside-Orange County, CA 87¢ $ -1,162,422,000
2 Dallas-Fort Worth, TX 75¢ $ -1,099,163,000
3 Phoenix-Mesa, AZ 62¢ $ -904,079,000
4 Atlanta, GA 80¢ $ -787,552,000
5 Detroit-Ann Arbor-Flint, MI 83¢ $ -639,428,000
6 New Orleans, LA 53¢ $ -468,159,000
7 Tampa-St. Petersburg-Clearwater, FL 72¢ $ -461,958,000
8 Orlando, FL 58¢ $ -432,986,000
9 Kansas City, MO-KS 74¢ $ -386,689,000
10 San Diego, CA 80¢ $ -346,174,000
11 Cleveland-Akron, OH 83¢ $ -327,347,000
12 San Antonio, TX 75¢ $ -312,445,000
13 Sacramento-Yolo, CA 74¢ $ -308,448,000
14 Houston-Galveston-Brazoria, TX 92¢ $ -292,032,000
15 Tulsa, OK 63¢ $ -287,455,000
16 Tucson, AZ 57¢ $ -275,790,000
17 Richmond-Petersburg, VA 66¢ $ -271,763,000
18 Oklahoma City, OK 75¢ $ -265,624,000
19 Austin-San Marcos, TX 76¢ $ -262,915,000
20 Greenville-Spartanburg-Anderson, SC 72¢ $ -247,168,000
21 Cincinnati-Hamilton, OH-KY-IN 82¢ $ -244,874,000
22 Indianapolis, IN 83¢ $ -231,176,000
23 Denver-Boulder-Greeley, CO 86¢ $ -219,581,000
24 Fort Myers-Cape Coral, FL 32¢ $ -213,901,000
25 Sarasota-Bradenton, FL 53¢ $ -204,433,000

 

Source: Environmental Working Group. Compiled from U.S. DOT data and U.S. Census 2000 data.


Taxpayers in an estimated 158 metropolitan areas received 90 cents or less for each dollar they paid in gas taxes. Some 104 metro areas, including Dallas, Orlando, Tucson and New Orleans, received 75 cents or less; sixty-nine metro areas got back less than two thirds of what their drivers paid in gas taxes.

The result of this funding shortfall is increased traffic congestion, fewer transit options, and more sprawl in outlying areas that is paid for by the suburban drivers who are increasingly stuck in traffic in and around our nation's cities.

A 2003 study by the Texas Transportation Institute found that overall congestion and commuter time stuck in traffic has increased, often substantially, in virtually all of the metro areas identified in this study that were net losers in gas tax funds. Large metropolitan areas that were net winners in gas tax expenditures were able to limit increases in congestion far more effectively. In particular, metropolitan areas with diversified transportation options that include significant rail systems such as Washington DC, San Francisco, Chicago, and New York experienced only marginal increases in the percent of the overall transportation grid congested during peak travel times.

Very few metropolitan areas with large diversified transit systems (including rail) were substantial losers of gas tax funds. In contrast, some of the biggest losers are sprawling southern and western cities with transportation systems largely designed to move cars, not people. Examples include: Phoenix, Dallas/Fort Worth, Atlanta, Tampa/ St Petersburg, Orlando, San Diego, San Antonio, and Oklahoma City.

In 1998, the Congress amended federal transportation law to ensure that for major highway programs, every state would receive at least a 90.5 percent return on its share of highway trust fund contributions (Brookings 2003). No similar provision, however, applies to how states spend this money once they receive it.

The spending patterns outlined in this study are an outmoded legacy of a bygone era—the Interstate highway-building phase of the last century. This legacy is perpetuated by the entrenched political preference of many state 'transportation' departments to remain 'highway departments' attuned to the priorities of state legislatures that are dominated by rural interests. This politically powerful system places a premium on building new highways—principally in rural areas where new road building remains possible, of course—as job-creating, public works projects.

Of the 256 metropolitan statistical areas analyzed, 176 were losers, meaning they received less back in highway trust expenditures than they paid in gas taxes, and only 89 were winners.

In many states, including Texas, Florida, Colorado, Arizona, California, and Louisiana, virtually every large metropolitan area is a major money loser, while rural areas, in total, are significant winners. Of the 43 states where non-metro analyses were possible, rural areas were winners in 29, for a total of 10.8 billion dollars. In 14 states, rural regions were slight losers, paying $2.9 billion more in gas taxes than they received over the six years analyzed.

Recommendations. Gas tax revenues should go to diversify transportation options in sprawling metro areas. Money to support this diversification should not come at the expense of areas with the greatest need, such as New York City, Chicago, and San Francisco. This strategy would solve the most pressing transportation problems facing those who pay the vast majority of that tax: people living in developed metropolitan areas where most of the driving is done, where most of the gas tax is collected, and where most of the transportation investment is needed to cope with overcrowded roads and polluted air.

To ensure that gas taxes are fairly spent and not used to subsidize new highway expansion at the expense of areas with the greatest need, Congress should adopt a provision in the current federal transportation law requiring that metropolitan statistical areas receive at least 95 percent of the gas tax revenues that they pay to the federal highway trust fund.

Equity for states but not localities. The disparities in federal funding for metro areas are inconsistent with federal transportation policy, which has focused on ensuring that states receive roughly the same amount of money for highway projects that they pay into the system. This policy has been driven by members of Congress and others from so-called "donor states' who have argued that their states are not receiving their fair share of federal transportation dollars. Specifically, these advocates have argued that their states were paying more gas taxes into the Highway Trust Fund than they were receiving in return. The Highway Trust Fund provides money for roads and transit.

In 1998, when Congress reauthorized the Intermodal Surface Transportation Efficiency Act (ISTEA) as the Transportation Equity Act for the 21st Century (TEA-21), donor states were rewarded with a minimum guarantee that for major highway programs, every state would receive at least a 90.5 percent return on its share of highway trust fund contributions (Brookings 2003). This guarantee helped to achieve greater equity.

In the current debate, several members of the House of Representatives, including majority leader, Tom Delay (R-TX), have called for increasing the minimum guarantee to 95 percent per state (Transportation Weekly 2004). According to the Federal Highway Administration (FHWA), there were 17 states that received less in highway funds than they paid into the highway account between fiscal years 1998 and 2003 (the FHWA did not analyze transit revenues or expenditures) (FHWA 2004).

However, once the federal money gets to the states, that funding is much less evenly distributed, as EWG's analysis shows.

Other Research Shows Similar Disparities. EWG's study builds on several recent reports that have shown that state transportation funding (composed of both state and federal dollars) favors outlying areas at the expense of metropolitan areas with the greatest transportation needs.

  • Colorado — The Denver Regional Council of Governments (DRCOG) recently reported that for every dollar Denver metro residents contribute in gas taxes and car-related taxes, the Colorado Transportation Commission provides only 54 cents in return to address transportation needs (DRCOG 2004). The DRCOG's board of directors recently passed a resolution in support of a state transportation plan in which each of the state's metropolitan planning regions would receive at least 90 percent of the funds contributed by the regions for transportation spending (DRCOG 2003).
  • Georgia — The Atlanta Journal-Constitution has reported that "since July 1999, [Georgia] has spent roughly $620 for every resident in the 13 metro Atlanta counties, where commuters endure the state's worst congestion and breathe the dirtiest air. The rest of the state reaped about $1,000 per resident for road widenings and maintenance, transit operations and other transportation improvements' (Atlanta Journal-Constitution 2003).
  • Ohio — A report by the Brookings Institution showed that compared to rural areas, metropolitan areas in Ohio receive less transportation funding (Brookings 2003).
  • Pennsylvania — Another study by Brookings reported that of $8.5 billion in Pennsylvania's highway and bridge funding that could be classified by location, 58 percent was spent in outer or rural townships while 42 percent flowed to cities, towns, and more established townships (Brookings 2004).
  • Surface Transportation Policy Project — In 1996, STPP's pioneering report Getting a Fair Share found that expenditures of federal highway funds in fiscal year 1995 averaged just over $72 per person nationwide. However, in urban areas with populations of more than 50,000, spending was only $54 per person. Spending in rural areas was $98 per person and spending in "non-urbanized areas" — cities and towns with between 5,000 and 50,000 people that are primarily suburbs on the urban fringe — averaged $115 per person (STPP 1998).

What's at Stake. As the Brookings Institution wrote, "in economic terms, resources generated in large part in older Pennsylvania are hastening the established communities' own economic decline, to the extent they subsidize roads that decentralize job and population growth. As an investment strategy, the state's road spending makes even less sense, as it pours money into new capacity in rural areas even as the conditions of existing roads deteriorate in urban areas. In sum, Pennsylvania's road spending makes sense neither fiscally nor strategically—and is likely harming established communities'" (Brookings 2004).

The same could be said of other metropolitan areas where scarce transportation dollars leave town never to return.

Methodology. Commuters have a right to know exactly how much of their gas tax revenues are spent on transportation projects in their communities. Unfortunately, this hard data is not available to the public. Thus, EWG completed its investigation by examining millions of project reports from the U.S. Department of Transportation's Financial Management Information System (FMIS) — a listing of federal financial obligations to county — and state-level transportation projects. We then compared the estimated federal highway spending in each Metropolitan Statistical Area (MSA) with the estimated revenues that each MSA pays into the federal highway trust fund. Our estimates are consistent with more detailed studies of transportation spending in Georgia, Ohio, Pennsylvania, Colorado, and STPP's 1996 report.

EWG completed its analysis by examining millions of project reports from the U.S. Department of Transportation's Financial Management Information System (FMIS) — a listing of federal financial obligations to county- and state-level transportation projects. We then compared the estimated federal highway spending in each Metropolitan Statistical Area (MSA) with the estimated revenues that each MSA pays into the federal highway trust fund.

An MSA is defined by the Census Bureau as "a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.' Each MSA must have at least one community of 50,000 people (U.S. Census 2003).

We estimated federal highway spending per MSA by examining FMIS obligations to county- and state-level projects from 1998-2003 — the years during which the last transportation bill, TEA-21, was in effect. In most cases, FMIS reported in which county federal dollars were spent or obligated to be spent. When FMIS reported that funds were spent on statewide projects, we allocated these funds to counties based on the percentage of county-level spending reported in FMIS. In other words, if the counties comprising an MSA received 50 percent of federal spending on county-level projects within a state, we allocated 50 percent of the statewide project funds to that MSA. The statewide projects represented about 10 percent of federal transportation highway expenditures.

We estimated federal transit spending per MSA by allocating to MSAs the Federal Transit Authority funds spent by local transit authorities from 1998-2001. We obtained the average local transit spending per year from 1998-2001 and multiplied the product by six to determine the estimated total MSA transit spending for 1998-2003.

We estimated highway trust fund revenues from 256 MSAs by first determining the number of drivers in each state. We obtained this data from the U.S. Department of Transportation's National Household Transportation Survey (NHTS). We then estimated the number of drivers in each county based on the number of households that reported owning a car in the 2000 Census. If a particular county contained 5 percent of the households statewide that reported owning a car, we estimated that the county contained 5 percent of the state's drivers. Next, we estimated the number of urban drivers and the number of rural drivers in each county based on the population of each county classified as urban or rural in the 2000 Census. Then, we multiplied the number of urban drivers by the average number of miles driven per urban driver as reported in the NHTS. We did the same for rural drivers. Combined, these results gave us the number of miles driven in each county. We then apportioned the state's estimated gas tax revenues per state by the miles driven per county. Thus, if a particular county accounted for 5 percent of the miles driven per state, we estimated that the county generated 5 percent of the state's estimated gas tax revenues from that state. We then added the county-level revenue for each county within each MSA to obtain the total gas tax revenues for each MSA.

We assume that gas mileage will be similar throughout the U.S. so that drivers in each MSA will use about the same amount of gas per mile driven, and will pay about the same amount of federal gas taxes, per mile driven.

The Highway Trust Fund. The Highway Trust Fund (HTF) is the main source of money through which the federal government pays for highway and transit projects. The HTF is composed of the Highway Account and the Mass Transit Account.

The majority of the HTF is funded by the federal gas tax, which is 18.4 cents per gallon. Of the 18.4 cents, 15.44 cents is dedicated to the Highway Account and 2.86 cents is dedicated to the Mass Transit Account. The Leaky Underground Storage Tank Trust Fund receives .10 cents. In 2001, the gas tax generated $20.1 billion for the Highway Trust Fund, or 61.5 percent of all trust fund receipts. The HTF is also funded by taxes on gasohol, diesel, and special fuels as well as truck-related taxes on truck tires, sales of trucks and trailers, and the use of heavy vehicles (Brookings Gas Tax 2003, GAO 2002, FHWA 1996).

The gas tax is not assessed at the pump. Rather it is usually assessed on oil companies where their fuel is loaded into tanker trucks or rail cars at a terminal. The tax is paid by consumers in the form of gasoline prices that include the cost of the tax (GAO 2002, FHWA 1996).

References

The Atlanta Journal-Constitution. Duane D. Stanford. Metro roads shortchanged; funding formula steers cash to rural highways at the expense of gridlocked Atlanta motorists. September 28, 2003, A1.

The Brookings Institution (Brookings Gas Tax). 2003. Fueling Transportation Finance: A Primer on the Gas Tax. Robert Puentes and Ryan Prince. Accessed online March 29, 2004 at
http://www.brookings.edu/es/urban/publications/gastax.htm.

The Brookings Institution (Brookings). 2003. Slanted Pavement: How Ohio's Highway Spending Shortchanges Cities and Suburbs. March 2003. The report found that "urban counties consistently took home a smaller share of state highway funds than suburban and rural counties relative to their amount of vehicle traffic (vehicle miles traveled), car ownership (vehicle registrations), and demand for driving (gasoline sales).' While the study did not specifically examine how much money urban counties paid into the federal highway trust fund, the indicators such as vehicle miles traveled and gasoline sales suggest that such counties paid more than their rural counterparts. Accessed online March 24, 2004 at
http://www.brook.edu/es/urban/publications/Ohiogastax.htm.

The Brookings Institution (Brookings). 2004. Back to Prosperity: A Competitive Agenda for Renewing Pennsylvania. The report cited forthcoming research by the Surface Transportation Policy Project and 1,000 Friends of Pennsylvania which shows that of $8.5 billion in highway and bridge funding that could be classified by location, 58 percent was spent in outer or rural townships while 42 percent flowed to cities, towns, and more established townships. These percentages of spending are exactly the reverse of the percentages of population. In Pennsylvania, 58 percent of the people live in cities, towns and more established townships while only 42 percent of people live in outer or rural townships. Accessed online March 26, 2004 at:
www.brook.edu/es/urban/publications/pa.htm.

Denver Regional Council of Governments (DRCOG). 2004. Support grows for fairer allocation of transportation funds to Denver region. Denver Regional Council of Governments. 2003. A Resolution in support of an equitable allocation of state and federal transportation dollars in the metropolitan Denver region. Accessed online March 24 and 25, 2004 at
www.drcog.org/pub_news/Board_Resolution_23.htm.

Federal Highway Administration (FHWA). 1996. Federal-Aid Highway Act of 1956: Creating the Interstate System, sidebars, The Highway Trust Fund. Accessed online March 29, 2004 at
www.tfhrc.gov/pubrds/summer96/p96su10c.htm.

Surface Transportation Policy Project (STPP). 1998. TEA-21 User's Guide: Making the Most of the New Transportation Bill. STPP Website

Transportation Weekly. 2004. House Committee Approves Six-Year Highway Bill Containing $279.5 Billion in Guaranteed Spending. March 25, 2004.

U.S. Census Bureau (U.S. Census Bureau). 2003. About Metropolitan and Micropolitan Statistical Areas. Accessed online March 29, 2004 at
www.census.gov/population/www/estimates/aboutmetro.html.

U.S. General Accounting Office. 2002. Overview of Highway Trust Fund Financing. Testimony Before the Subcommittee on Transportation, Infrastructure, and Nuclear Safety, Committee on Environment and Public Works, U.S. Senate, February 11, 2002. Accessed online March 29, 2004 at
www.gao.gov/new.items/d02435t.pdf.

U.S. Department of Transportation. Federal Highway Administration (FHWA). 2004. TEA-21 Federal Highway Trust Fund Account Receipts Attributable to the States and Federal-aid Apportionments and Allocations from the Highway Account, Fiscal Years 1998-2003. Accessed online March 29, 2004 at www.fhwa.dot.gov/policy/ohim/hs02/fe221b.htm#foot1.

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