July 2017

Tax Hikes vs Public Private Partnerships Heat Up in Summer Driving Season

 By Ryan Ellis
       Contributor, Forbes

All across America, people are paying more at the pump. A cursory search of "gas tax hike" on Google News revealed higher state gas taxes passed in such varied places as West Virginia, Tennessee, New Jersey, South Carolina, California, and Indiana. I've no doubt missed a bunch more, but you get the idea. Gas tax hikes are all the rage in statehouses across America, in blue and red states, in the heartland and on the coasts.

The non-partisan Tax Foundation, as usual, has a lot of great data here. As of the beginning of 2017, state gas taxes ranged from a high of $0.58 per gallon in Pennsylvania to a low of $0.12 per gallon in Alaska. State taxes are layered on top of the federal gas tax of $0.18 (all numbers rounded).

Assuming a federal-state gas tax of $0.50 per gallon, and that a family buys the average amount of gasoline annually (about 1000 gallons, according to Automotive News), these gas taxes are a per-family hit of $500 per year. That's a regressive tax on households, hitting those who can afford it least the hardest. When you go to the pump, the display panel doesn't ask for a copy of your tax return--it's charging you the same gas tax whether you're Warren Buffett or Warren who works at the buffet.

There's got to be a better way to fund roads and basic transportation infrastructure.

There is--public private partnerships for roads, which often take the form of toll roads administered by private companies. Private sector investment in infrastructure is desirable because it takes taxpayers off the hook for construction, operation and maintenance of transportation assets and ensures that those who don’t use them aren’t paying for them.

Companies that administer these roads have shareholders and investors to answer to, and must run a tight ship that customers like and which generate a profit. Contrast this to unaccountable government bureaucrats, often bloated down by tenure and other labor union rules, and the comparison is self evident. It isn't that the government transportation bureaucracy is filled with bad people--rather, it's got the incentives all wrong and people can't flourish.

As a small example of how this can work well, the Beach Express Bridge in Alabama operates as a privately run toll system. They recently announced a toll cut of 70 percent for residents and 20 percent for visitors. Further discounts are available for those who take advantage of electronic tolling options, like the EZ-Pass most on the east coast I-95 corridor are familiar with. Starting after Labor Day, the company that runs the bridge (American Roads) will build new lanes to make getting across both sides even easier.

All that shows responsiveness to customer concerns, flexibility (price differences for residents vs. non-residents, and toll cash payers vs. toll electronic payers), investment in the asset (the new lanes), and trying to move customers in the direction of a lower overhead toll experience with the electronic pass option.

None of these things are typical with government-only systems. They tend to drag on, year after year, and get paid higher and higher gas taxes to maintain a bloated and depressed bureaucracy.

Alabama has a direct comparison to the public-private model because of the I-59 bridge which serves the same area. When lawmakers wanted to create a third option modeled after the government-only I-59, they instead found that working to expand the more market oriented and successful private toll bridge was a better use of public resources. Everyone wins.

U.S. Transportation Secretary Elaine Chao also is a fan of public private partnerships (PPPs), and sees toll roads and bridges as a great way to make President Trump's vision of $1 trillion in infrastructure spending a reality.

From a taxpayer perspective, that's a much better prospect than another round of gas tax hikes to prop up a failed bureaucracy.

Reprinted from Forbes online, July 7 edition.

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