One needn’t possess a doctorate in economics to understand that when someone obtains something for nothing, another receives nothing for something—akin to parking in a metered space where there is time left on the previous occupant’s nickel.
Operators of pavement-pummeling heavy trucks and bulk-commodities hauling inland waterways barges have been mooching off the public purse for generations, while railroads themselves build, maintain and even police their 140,000 miles of privately owned rights-of-way on which they also pay property taxes. To turn a phrase on Ronald Reagan, “Here they go again”—the “they” being rail competitors poised to receive bundles of billions of dollars in benefits from the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) bill signed into law this week by President Biden.
As a dining companion conveniently examines a restaurant’s ceiling tiles as the meal check arrives, these rail competitors are proving, yet again, their ability (we can’t resist the pun) to rob St. Petersburg taxpayers to pay St. Paul truck and barge operators. Yet there is no economic, environmental, moral or social rationale that fees paid government by for-profit corporations should not be proportionate to benefits received.
As more than 80% of rail freight is exempt from economic regulation and thus assumed by statute to be competitive, modal equity is of consequence—highway and waterways policy being rail policy and vice versa.
The facts speak loudly. But first, let’s dispose of a fatigued canard that railroads once feasted on federal land grants—endowments to be sold to finance construction of mid-19th century rail lines to connect the Atlantic with Pacific coasts and bridge what map makers then termed the Great American Desert. A 1944 congressionally ordered study concluded that the 130 million acres of federal land earlier granted railroads were paid for in full through an obligation that recipients carry all government freight and passengers at a 50% discount from published tariff rates. Actually, there was overpayment, as even non-land-grant railroads matched those lower rates to remain competitive.
Although a federal fuels tax of one-cent per gallon was imposed by Congress on highway users in 1932, it was used exclusively to reduce the federal deficit. Highways were constructed, maintained and renewed using general tax revenue until 1956, when a Highway Trust Fund was established, with user fees intended to provide federal aid for construction, resurfacing and reconstruction of some 900,000 miles of federally designated highways. Neither revenue from relatively few toll roads nor receipts from highway user fees ever matched the cost responsibility of rail-competitive heavy trucks.
While those heavy trucks currently pay a diesel fuel tax of 24.4 cents per gallon, it has not increased since 1993. Estimates vary, but agree that heavy trucks underpay significantly their cost responsibility.
The Congressional Budget Office estimates that heavy trucks underpay by 20% the damage they cause to pavement and bridges. The Tax Foundation—an independent non-profit—estimates that the current 24.4 cents per gallon diesel fuel tax should be 46.3 cents per gallon simply to match intervening inflation—the American Association of State Highway and Transportation Officials (AASHTO) estimating a 43% shaving of purchasing power since then. (Note that 2.86 cents per gallon of diesel and gasoline taxes are dedicated not to highways, but to publicly owned mass transit on the theory that mass transit reduces highway congestion and is thus beneficial to highway users.)
The Tax Foundation reported that Highway Trust Fund revenue trails highway expenditures by almost $40 billion annually. The Congressional Research Service reported in 2020 that since 2008, Congress transferred $143.6 billion from the general fund to the Highway Trust Fund to maintain its solvency. The new Infrastructure bill directs more than $50 billion annually in general tax revenue for highways without providing an even modest increase in user fees on those 18-wheelers causing most highway and bridge damage.
With most congressional Republicans pledged in writing to oppose any tax increase, an emerging alternative to increasing the fuels tax is a shift to a Vehicle Miles Traveled (VMT) fee. It is nuance only Congress might embrace with a straight face to satisfy ignoring the “no new taxes” pledge.
In fact, the Infrastructure bill provides $125 million for a four-year pilot project to study a VMT. Yet while the proverbial can is kicked down the road, general taxpayers from St. Petersburg and elsewhere will continue subsidizing truckers from St. Paul and elsewhere—all to the detriment also of railroads, highway safety and the environment. The mismatch between heavy truck cost responsibility and user fees artificially shifts even more traffic from rails to the already congested and bruised highways and highway bridges.
VMT advocates calculate that such a fee more accurately matches the wear and tear cost responsibility of heavy trucks, and, as an alternative to a diesel fuel tax, would capture user fees from soon-to-be operating electric trucks. Moreover, the use of transponders would allow for greater accuracy and transparency in fee collection and facilitate congestion pricing.
Actually, a weight-distance fee would be even more equitable, as gross weight is the dominant factor in bridge damage, with the American Society of Civil Engineers finding 61,000 highway bridges already structurally deficient. Ahead of the VMT pilot project is an existing weight-distance pilot project financed by the Federal Highway Administration in six states (California, Colorado, Delaware, Missouri, Oregon and Washington).
Unlike a fuel tax—actually an excise tax that does not charge for the actual costs imposed—a weight-distance fee, as its name implies, more fully captures pavement and bridge damage caused by gross weight over each mile traveled.
The federal government has been subsidizing rail-competitive inland waterways transportation since 1918, when Congress created a Federal Barge Line to operate on the Mississippi River between St. Louis and New Orleans in competition with privately owned railroads. Not until 1953 was it privatized and renamed Federal Barge Lines (note the plural). Until 1978, the federal government subsidized all capital and maintenance costs of the system to the benefit of privately owned barge operators.
Beginning that year, Congress imposed a fuels tax of 4 cents per gallon on commercial barges operating on some 11,000 miles of the most heavily used segments of the domestic inland waterways—the Mississippi River and its tributaries. Although that fuels tax—paid into a Waterways Trust Fund (WTF)—was increased to 29 cents per gallon in 1997, where it remains today, the Congressional Research Service reported in 2018 that the recovery percentage was but 15% of federal outlays. Notably, while the WTF in 2020 provided some $131 million for inland waterways projects, general taxpayers provided a whopping almost 10-times more, or some $1.2 billion, reported the Congressional Research Service. In fact, there is no cost sharing for waterways dredging, lock maintenance or navigation aids.
Notwithstanding this mammoth underpayment of cost responsibility, the Infrastructure bill directs some $2.5 billion toward new inland waterways projects. This free ride for rail-competitive barge operators includes maintaining a nine-foot navigation channel on 750 miles of the Upper Mississippi River (a depth far exceeding what is needed for recreational boating), and the doubling in length of 600-foot locks near St. Louis on the Mississippi River and near Paducah, Ky., on the Ohio River. The result will vastly reduce—to the handicap of competing railroads—the costs of moving lengthy barge tows that currently must be broken in half for passage through the smaller-length locks.
What then-New York Central Railroad President Alfred E. Perlman asked in 1950 remains convincingly on point today: “How would you like to run a business if the government built one alongside you and made it tax free, and then turned it over to a competitor and helped him operate and maintain it?”
For those in Congress—on both sides of the aisle, whether the issue is avoiding socialism, trimming America’s federal budget imbalance or providing even more funding for truly public goods such as fighting climate change, expanding broadband access and removing lead water pipes—a demonstrably appropriate bipartisan starting point is to end corporate welfare, benefiting for-profit operators of rail-competitive heavy trucks and inland barges, and level the modal playing field.
Frank N. Wilner is Railway Age Capitol Hill Contributing Editor. During a two-decade tenure as assistant vice president for policy at the Association of American Railroads, his portfolio included modal equity issues. Among his seven books is a forthcoming “Railroads & Economic Regulation,” to be published by Simmons-Boardman Books.