Is the AAR serious about a weight-distance fee?

Written by Bill Newman
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The AAR bowed out of competitive equity issues more than two decades ago. The last serious effort to address competitive issues was in ISTEA in 1991, when Congress passed the freeze on longer combination vehicles (LCVs).

The Association of American Railroads (AAR) submitted testimony to the Senate Commerce Committee in mid-February supporting the American Trucking Association’s (ATA) proposal to increase the fuel tax by $0.20 per gallon, noting that “an increase in the fuel tax could be helpful as a short-term bridge to a longer-term future that, we think, should include a vehicle miles traveled fee or a weight-distance fee.”

One has to wonder whether someone at the AAR had been rummaging through old testimony, came across this reference to a weight-distance fee and decided to throw this idea into the testimony. Whatever the reason the testimony included this pitch, it’s safe to say the AAR is giving lip service, with little credibility or serious intent to pursue it. Here’s some of the reasons why.

1) The AAR bowed out of competitive equity issues more than two decades ago. The last serious effort to address competitive issues was in ISTEA in 1991, when Congress passed the freeze on longer combination vehicles (LCVs). Since then, the AAR has defended the freeze, albeit with less than zealous enthusiasm from all AAR members, but has not seriously engaged in any effort to have competing modes of transportation pay for the full cost, or anything approaching full cost, of its infrastructure.

In fact, shortly after the freeze was enacted, the AAR abolished the group dedicated to the pursuit of competitive equity issues. In the late ’70s and ’80s, the AAR was a major player in advocating that barge operators pay for the costs of the Inland Waterway System (the barges still only pay 50% of the capital costs and none of the operating and maintenance costs) and freezing LCVs in ISTEA. These were long, hard-fought campaigns, requiring the commitment of resources, financial and human, as well as research and continuous, laser-like focus.

With AAR support, Congress did enact a heavy-vehicle use fee in 1982, increasing the ceiling for the heavy vehicle use tax from $240 per year to $1,900 per year by 1989. But it didn’t last long. The ATA successfully convinced Congress to reduce that tax in 1984 from $1,900 to $550 per year. To ensure that this action was revenue-neutral, Congress raised the tax on diesel fuel from 9 cents to 15 cents per gallon. It was the enactment of this legislation that in part led the AAR in the late ’80s to conclude that enactment of a federal weight-distance tax was not achievable in the foreseeable future and to instead advocate legislation restricting truck size and weight limitations.

Were the AAR to pursue a weight-distance fee in earnest, it would negotiate with the ATA, with the end result likely being the trucking industry agreeing to pay greater user fees, maybe even a weight-distance fee (a very hard sell), the gross vehicle weight allowed on the interstate highways increasing, another axle required in order to take advantage of the higher gross vehicle weight, and the AAR dropping its support for the LCV freeze. Both the AAR and ATA run the risk that highway safety groups, who have been much more vigorous supporters of the freeze, would support or be neutral on increased user fees while opposing increases in the gross vehicle weight and any thaw in the LCV freeze.

2) The AAR testimony points to states that have weight-distance taxes. There are less a handful of states (Kentucky, New Mexico, New York and Oregon), that have such taxes, fewer states than had weight-distance taxes 50 years ago, with no sign of the number of states increasing. The AAR may support or ride the current wave for a Vehicles Miles Traveled (VMT) tax that has vehicles, both cars and trucks, paying for the distance they travel, but not by their weight, which is the prime driver of infrastructure damage.

3) Perhaps the AAR refers to its proposal as a “fee” in the mistaken belief that committees of Congress other than the tax committees wish to venture into this hornets’ nest. Think again.

Or perhaps the reason that the AAR refers to its proposal as a weight-distance “fee” and not a tax is that if the matter is under the jurisdiction of the tax committees, the railroads would have to confront an open debate about their “diversion” subsidy.

What is the “diversion subsidy?” Recipients of Social Security and Railroad Retirement Tier I benefits pay taxes on that benefit, if their overall income if above a certain threshold. The taxes they pay are not deposited into the general fund as most taxes are. The 1983 National Commission on Social Security Reform recommended returning these tax receipts to the Social Security and Railroad Retirement, respectively, to bolster their account balances.

However, taxes on benefits received from a private pension plan are deposited in the general fund and are not deposited back into the private pension fund from which they were paid. But since 1983, the taxes a Railroad Retirement recipient pays on his or her Tier II benefit, which is effectively a government-administered private pension, are “diverted,” i.e., transferred into Railroad Retirement (plus the taxes paid on that part of Tier I benefits above and beyond a Social Security benefit). According to the Railroad Retirement Board, since 1984, more than $8.5 billion has been transferred to Railroad Retirement; in 2017 alone, $422 million was transferred into Railroad Retirement.

It would be difficult for the railroads to argue that the truckers underpay for the damage they do to highways and should pay a weight-distance fee, in effect arguing that truckers’ operations are being subsidized, while the railroads continue to get the diversion subsidy. The railroads may be hoping that because the diversion subsidy comes through the tax code, calling their proposal a fee would avoid the tax committees’ jurisdiction and discussion of the diversion subsidy, which opponents of a weight-distance tax would inevitably bring attention to.

4) Trucking companies are increasingly becoming a bigger part of railroad revenues. Individual trucking companies that oppose a weight-distance fee will lean on their railroad partners to not support such an effort, much as they did during consideration of the LCV freeze. There will be railroads that are more than uncomfortable seeking to impose greater costs on their trucking competitors/partners. Moreover, industries that propose to impose fees upon their competitors have a high hurdle to cross, as the AAR experience in the ’80s proved.

Advocacy for the fee is complicated by the American Short Line and Regional Railroad Association’s (ASLRRA) pursuit of a permanent extension of the Section 45 tax credit (45G), which the AAR supports. Committee jurisdiction aside, explaining why the AAR supports short lines getting a credit for infrastructure investment while saying truckers underpay for the damage they incur on highways gets confusing and messy at best.

In a similar vein, one of the highest priorities of the railroad industry today is the pursuit of federal grants, be they TIGER, BUILD or INFRA grants. These grants are found money, since they come from the general fund. In the AAR’s testimony where it advocates a weight-distance fee, the very next section of the testimony advocates funding for these grant programs, the real priority of the AAR.

Finally, the railroads lack strong political allies on this issue. The American Automobile Association has been a supporter in years past, and economists support the user-pays principle. Railroad suppliers who do not supply the trucking industry would likely support the initiative, and rail labor would join the AAR in support, albeit after the pursuit of its own agenda. Beyond these groups, there are few fervent supporters. One need look no further than the few states that have weight-distance fees or taxes, and the absence of a federal weight-distance fee or tax, to conclude that—the best efforts of the AAR years ago notwithstanding—there is substantial lack of support for the concept. This is just what the AAR concluded before pursuing the LCV freeze.

A weight-distance fee or tax promotes efficiency and is unquestionably sound public policy. Any serious effort to enact such a policy requires a lot more than lip service, as enactment has some extremely high hurdles to cross.

Bill Newman is a former Vice President and Washington Counsel for Conrail. Prior to joining Conrail, he worked for the House Energy and Commerce Committee, spending much of his last two years on the Staggers Rail Act. Since leaving Conrail, he has been consulting to both public and private organizations on transportation, energy and environmental issues. He has written articles for the Mackinac Center for Public Policy, R Street Institute and Reason Foundation.

Categories: Class I, Freight, Regulatory, Safety, Short Lines & Regionals Tags: , ,