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Alternative Financing Methods and Roles of Different Levels of Government

Presentation to the National Surface Transportation Infrastructure Financing Commission

Jack WellsChief Economist, U.S. Dept. of Transportation

April 25, 2007

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Four Key Issues in Adopting a Financing Method

• Public or private?

• If public, what source and structure for charge?

• What level of government?

• How much?

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Public User Charges

• Fuel taxes

• Flat tolls

• Congestion charges

• Weight-distance charges

• Miscellaneous taxes and fees, such as:

– Tire taxes,

– License fees

– Gas guzzler taxes

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Public Non-User Charges

• Property taxes

• Sales taxes

• Income taxes

• General Fund

• Non-user charges have grown nearly 80% since 1995

– Faster than user charges

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Private Financing

• User charges

• Availability fees

– Performance-based availability fees

• Shadow tolls

• Taxable v. tax-exempt

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Characteristics of a Good Revenue Source

• Administrative simplicity

• Enforceability

• Ability to keep up with spending needs

• Desirable incentive effects

• Fairness among users

• Public acceptability

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Roles of Different Levels of Government

• Expenditures should be at lowest practical level of govt.

• But the level of government should be high enough to capture the benefits of the expenditure

– Avoiding incentives to under-spend

– Freight v. passenger

– Maintain connectivity

• Lower levels of govt. may lack fiscal capacity to meet needs

• Higher levels may subsidize fiscally weak lower governments

– Geographically balance economic development

• Leverage for national safety standards

• Issues of control