Real story on transportation subsidies

Funding America’s Transportation System

The real story on subsidies.

America’s huge investment in her transportation system over the past 200
years is in part responsible for her rise to greatness as a world power.

Our unity as a nation is sustained by free
communication of thought and by easy
transportation of people and goods...Together, the
uniting forces of our communication and
transportation systems are dynamic elements in
the very name we bear-United States. Without
them, we would be a mere alliance of many
separate parts.

President Dwight Eisenhower

Maintaining that system, renewing it, and employing useful technology to
solve its problems is essential to our global competitiveness.

Transportation Infrastructure and Ownership

Of our three main transportation systems, rail is unique in that 99% of U.S.
route-miles are owned, managed, financed, and maintained by private
sector railroads.   By contrast, 99% of the nation’s roads and most bridges
are financed, owned, and usually maintained by the public sector.
Likewise airports are government owned, financed, and maintained while
air traffic control systems and weather information services are
provided by government agencies.

The Public/Private Partnership

Operators of private sector highway vehicles and aircraft have developed
market-driven transportation services that move people and goods
as the infrastructure has been provided by the public sector. These
largely profitable, tax paying enterprises enjoy popular support at all levels
of government and have seen investment in their modes’ infrastructure
system continually increase.

An implicit public/private partnership has developed between our
government and private sector. This healthy system has been crucial to
the creation of some of the world’s most advanced and
extensive air and road facilities.

The advent of the American rail system came about in a different time
when the central government was much less interested in providing
internal improvements and instead left the task to states and the private
sector.

Since 1916 when the states and federal government made building a
modern air and highway transport a national priority, our railroads have
been at a competitive disadvantage. Each successfully invested dollar in
private sector railway infrastructure must produce a competitive timely
return in the capital markets. But railroad managers must compete with
other modes where investments in asphalt, concrete, and traffic control
systems do not have to pass the same investor test. They must
only pass a political and administrative one. Low margin bulk freight
shippers may accept that 15 mph train dragging across town but the
traveling public, accustomed to 65 mph urban expressway, won’t.

Subsidy or Investment?

Rail advocates are constantly frustrated by the media which brands
proposed spending on passenger rail a “subsidy,” while spending for
aviation and roads is considered an “investment.”

The implicit public/private partnership works well for aviation and roads
because private sector operators and users make a contribution towards
construction and maintenance of public owned infrastructure in the form of
user taxes. Depending on what costs are assigned, as a group highway
users are generally accepted to be paying their own way. But start
examining different routes and use patterns and you would
have a hard time seeing how private industry alone, answerable to
stockholders like the railroads, could have made the system of roads we
enjoy today possible. Cross subsidies are what make it work for the
government.   Most fuel taxes are generated from travel on a relative few
miles of the national system of roads, usually in urban areas. In fact 30% of
vehicle travel occurs on city streets whose costs are borne by all taxpayers
whether they are users or not. Travel on most segments of intercity
highway is simply too light for them to pay their way. Even in situations
where tolls are collected, using Oklahoma’s turnpike system for example,
some must rely on cross-pledged revenues. An explicit subsidy.

For the commercial aviation industry to continue to operate profitably,
general tax revenues are essential. Airlines passengers were not assessed
ticket taxes until 1971 nor did they pay airport facility charges until 1991.
Significantly, virtually all commercial airfields in use today had been
built before the institution of passenger use fees. Today ticket and
aviation fuel tax revenues are used to build new airports, runways, air traffic
control systems, and navigation aids. However, an additional three billion
dollars per year is required to operate and administer these facilities and it
is paid by all taxpayers whether they fly or not.

Prior to 1962, rail passengers also paid ticket taxes and today railroads
pay a 4.3 cent per gallon diesel fuel tax. These funds however have been
deposited to general revenue and not invested in rail infrastructure. The
federal government has acted twice on rail’s behalf to create new quasi-
government corporations to sustain critical rail operations in the face of
private sector failure. Government named CEOs used public general
revenue funds to partially support vertically integrated infrastructure,
maintenance, and operations. This all-public scheme differs again
from the successful public/private partnership model. It is a primary reason
why spending on rail is held to a different standard than that used
for aviation and roads.

Recalling again that the implicit public/private partnership has helped make
our air and road system the best in the world, we don’t propose
changing the institutional paragon.    The problem though is that this
system favors air travel and highways to the detriment of rail and its
potential users. Its time that we rethink how our passenger
rail system is organized and the share of transportation resources it
deserves.