When Iowa's motor-fuel tax increased by 10 cents a gallon on March 1, it represented a road that was both brave and opportunistic.
It was also stupid, for two key reasons: Raising the gas tax doesn't fully address the funding need for critical road improvements, and over time it will provide less and less money while road-construction costs continue to increase.
Despite that, the hike was still brave, because raising taxes is never popular among voters - especially when they feel the pain every time they visit the gas pump. The Des Moines Register has polled Iowans about a gas-tax hike for the past five years. While the amount of the hike in the question has varied over the years, opposition to an increase was 70 percent in 2011. Opposition has eroded since then, but it was still 58 percent in February 2014.
Which leads us to opportunistic. Mirroring national trends, from July 2014 to early 2015 gas prices dropped from more than $3.50 per gallon in the Quad Cities and Des Moines to under $2, according to GasBuddy.com.
Prices have risen since then but are still more than a dollar cheaper than in mid-2014, so legislators saw a window of opportunity. The February 2015 Des Moines Register poll found 48 percent support for a 10-cent gas-tax hike and only 50 percent opposition - and the cost of fuel was certainly a factor in that shift.
The timing was great in political terms, too, just after a statewide-election cycle. The problem of deteriorating roads and bridges - and the choice for a solution - had been on the table since late 2011, but there's nothing like the longest period of time before an election to spur legislators into unpopular action.
So the 10-cent increase in the gas tax was pushed quickly through the legislature last month and was signed by Governor Terry Branstad. The hike was introduced in the House and Senate as study bills on February 10 and was signed into law 15 days later. (See the accompanying sidebar on how local legislators voted.)
"The sooner you can do this, the more the pain will subside by the time you have to get out and start talking to voters and campaign again," said Drew Klein, Iowa state director of Americans for Prosperity - which opposed the tax increase.
Making the tax hike a reality still required some political maneuvering. Iowa House Speaker Kraig Paulsen swapped out two Republican members of the Ways & Means committee on the day the committee was scheduled to vote on the increase - a move to ensure the legislation moved forward on the schedule preferred by legislative leaders. (Paulsen claimed he merely wanted the full House to have an opportunity to debate and vote on the bill.)
"Certainly, there's a need for us to prioritize roads and bridges," Klein said. But the process in the Iowa legislature, he said, was truncated for a pocketbook bill that also had elements beyond the fuel-tax increase. While it's true that the core concept of the legislation has been discussed for years, "that has taken several different forms. ... We didn't have very long to ... examine the bill itself." Paulsen, he noted, "artificially shorten[ed] the time that we had ... to examine that bill ... by rearranging committees," with the effect of "ram[ming] it down our throat. ...
"If we are going to do this, let's have an open discussion about it rather than using procedural maneuvers to just get where we want to go."
Americans for Prosperity had an alternative proposal (which I'll discuss later), but Klein said there was little opportunity to present it. "We didn't realize the time line was so short," he said. "Three weeks is a pretty short time to try to raise the awareness of an issue that big statewide when the ball is already rolling in a different direction. ... There was a failure on our part as well to start having that discussion and to amplify that discussion of other options sooner."
That's politics. Let's instead focus on the stupidity.
"It was simply finding a Band-Aid they could slap on the problem," Klein said.
First, legislators swallowed a bitter pill that all but ensures more bitter pills to come. The Iowa Department of Transportation calculated in 2011 that critical surface-transportation-infrastructure needs will cost $215 million annually for 20 years beyond projections for current revenue sources. The gas-tax hike will raise $204 million next fiscal year, and the number goes downhill from there.
"At the end of year number one, it does not cover the $215 million that they need," said state Senator Roby Smith, a Republican from Davenport who voted against the tax hike. "It's a plan that doesn't even sustain itself for one year by raising it a dime."
Even if gas-tax revenues stabilize at $195 million after Fiscal Year 2020 - the last year calculated in the legislation's fiscal-impact estimation - the tax hike leaves a 20-year shortfall of $371 million.
And if revenues from the gas-tax hike drop 1 percent a year - and projections have them falling more than that in the second, third, and fourth full fiscal years - the two-decade funding gap would be more than $540 million.
In that diminishing-returns scenario, fully eliminating the shortfall for critical infrastructure over 20 years would have necessitated raising the gas tax roughly 12 cents per gallon instead of 10 cents. (And that's before inflation is factored into the equation.)
Second, the shrinking revenues projected for the gas-tax hike hint at the fundamental problem with fuel taxes as a major revenue stream for infrastructure improvements.
Simply put, motor-fuel taxes are the old way of funding infrastructure, eroded and made less fair by increasing fuel efficiency in vehicles.
Iowa's gas-tax hike is understandable as a quick fix. But because it's a quick fix, the legislature should now begin evaluating longer-term solutions - funding mechanisms that would be fairer and more sustainable, and that would likely need to be revisited less often.
Illinois lawmakers should begin a similar process, because the state is facing a similar infrastructure-funding shortfall - made worse by the fact that motor-fuel-tax revenues in the state aren't required to be used for road construction and repairs. Iowa's gas-tax revenues are constitutionally required to be used on roads.
The Cost of Fuel Taxes
According to the Tax Foundation, 2011 road spending by local and state governments totaled $2.1 billion in Iowa and $7.1 billion in Illinois.
State motor-fuel excise taxes are one funding source used to fund road construction and maintenance. In 2011, state fuel excise taxes generated $448 million in Iowa and nearly $1.5 billion in Illinois, the Tax Foundation found. State license fees in both states provided a roughly comparable amount of road funding, and the State of Illinois also collected nearly $700 million in tolls and other fees from drivers. Combined, those are the state "user fees" that fund a large portion of road projects.
In Iowa, the excise tax on gasoline is now 31 cents per gallon, up from 21 cents. The excise tax on gasoline blended with at least 10 percent ethanol is now 29 cents per gallon, up from 19 cents. And the excise tax on diesel fuel is now 32.5 cents per gallon, up from 22.5 cents.
Illinois has a 19-cent excise tax on gas and 21.5-cent tax on diesel.
"Dyed" diesel fuel used for off-road purposes - such as farming and construction - is exempt from the fuel tax in both Iowa and Illinois.
Beyond the state fuel tax, the federal government levies an 18.4-cent-per-gallon excise tax on gasoline and a 24.4-cent-per-gallon tax on diesel.
Illinois also subjects fuel to its sales tax, although a portion of that is exempted for ethanol blends and biodiesel.
With all federal and state taxes and fees combined, the American Petroleum Institute found a January 2015 taxation rate for gasoline of 40.4 cents per gallon in Iowa and 49.1 cents per gallon in Illinois - with a national average of 48.2 cents per gallon. (Because it applies sales tax to gasoline, Illinois' taxation rate will be higher than that figure with prices above the January 2015 lows.)
With its gas-tax hike, then, Iowa has gone from well under the average in its taxation rate to slightly higher than average.
In both Iowa and Illinois, a car that gets 25 miles per gallon of fuel will cost its driver roughly two cents in total fuel taxes and fees per mile driven. If you drive 15,000 miles per year, fuel taxes cost you roughly $300 each year.
The gas-tax hike in Iowa for a car that gets 25 miles per gallon and drives 15,000 miles per year represents increased costs of $60 per year.
The Need for More Funding
The urgency with which the gas-tax legislation moved through the Iowa General Assembly this year is ironic considering that the idea had languished for more than three years. The Governor's Transportation 2020 Citizen Advisory Commission (CAC) in November 2011 recommended raising the state's gasoline tax by 8 to 10 cents per gallon.
Its final report summarized that "it is ... a tremendous challenge for the state, cities, and counties to maintain and improve this [public roadway] system given flattening revenue [in road funds], lost buying power, changing demands on the system, severe weather, and an aging system."
The core of the problem is that "the public roadway system is deteriorating at a rapid rate due to the age of the system. Much of Iowa's public roadway system was built or modernized in the 1940s, 1950s, and 1960s, which means there is a wave of infrastructure needs that require significant reinvestment due to their life cycle."
Conditions have been made worse, the report said, by weather: "Exceptional winter seasons have produced heavy snowfall and many freeze-thaw cycles. This has greatly accelerated pavement and supporting roadbed damage to all roadways."
According to the Reason Foundation's September 2014 Report on the Performance of State Highway Systems, Iowa in 2012 was in or near the bottom third of states on rural arterial pavement condition (40th), urban interstate pavement condition (37th), deficient bridges (35th), and urban interstate/freeway congestion (32nd). The state ranked 18th overall by the foundation's measures, buoyed largely by above-average scores in disbursements.
(Illinois basically has the opposite problem of Iowa. The state ranked 27th overall, but it scored better in road condition and poorer in disbursements. In other words, Iowa has a larger condition problem, and Illinois has a larger funding problem.)
So Iowa has real needs for infrastructure improvements. According to a 2011 assessment by the Iowa Department of Transportation, total 20-year road needs beyond existing state funding were $32.5 billion - or more than $1.6 billion a year. The $215-million annual additional-funding figure discussed in conjunction with the gas-tax hike represents money only for "critical" needs - totaling $4.3 billion over 20 years.
Inflation has been a major factor in the shortfall. The 2011 CAC report states that "from 2004 to 2008, the construction-cost index in Iowa grew by 67 percent, the largest five-year increase in construction costs since the measure has been tracked." This is mirrored in national trends, as the U.S. Department of Transportation's National Highway Construction Cost Index reflected costs between 20 and 37 percent higher compared to March 2003 for the period from September 2005 to December 2008. Costs in September 2014 were 13 percent higher than in March 2003.
The money pot has certainly grown in Iowa. From 1997 to 2010, road-fund revenues grew from $856 million to $1.2 billion - 40-percent growth over 13 years.
However, adjusted for inflation in construction costs, the 2010 revenues were the 1997 equivalent of $648 million - a buying-power drop of more than 24 percent over those 13 years, nearly entirely since 2003. (Cumulatively, the road funds over that period were $888 million less in 1997 dollars than if the state had $856 million each year, again in 1997 dollars.)
So how do you close the gap between needs and funding? The Iowa legislature opted for the easiest path - increasing the established tax on fuel.
Why Increasing the Gas Tax Makes Sense
If you drive, you cause wear on the roads. And if you drive any conventionally powered automobile, you buy fuel. Taxes on that fuel fund road improvements. So fuel taxes are, in many ways, perfectly sensible.
"It's one of the better taxes in that is tied to use," said Paul F. Hanley, an associate professor in the University of Iowa's Civil & Environmental Engineering and Urban & Regional Planning departments. "You can either opt in or opt out of paying that tax."
If there's a funding shortfall for road improvements, it's logical to increase taxes on users of those roads to generate more money. And the gas tax - unlike license fees, for instance - is a reasonable way to raise funds based on actual use.
Furthermore, fuel taxes give states a mechanism to capture money from nonresidents who use their roads.
And increasing the motor-fuel tax increases the incentive to drive a more fuel-efficient vehicle.
Representative Linda Miller, a Republican from Bettendorf, used several of those arguments to justify her vote in favor of increasing the gas tax. In an e-mail, she wrote: "I felt it was the best solution for long-term sustainability for our roads and bridge issues. The current mechanism may not be perfect in some people's eyes, but it is one of the most fair in terms of distribution, collection, and constitutional protection. Iowa is a crossroads state (I-80,I-35, Avenue of the Saints), and we should have those who use it pay for it. That includes Iowans and out-of-state drivers. Iowa is a net exporter of goods, and we need to have a solid infrastructure to move those products."
Why Increasing the Gas Tax Makes Less Sense
Yet gas taxes are imperfect for several reasons.
Hanley notes that "if you look at the amount of damage or lack of damage that a passenger vehicle does to the roads, [the difference of] an SUV compared to a small compact is negligible."
But SUVs, being less fuel-efficient, pay more per mile in fuel taxes than compacts or hybrids. At 50 cents per gallon in total taxes, an SUV that gets 20 miles per gallon will pay 2.5 cents per mile in taxes. By comparison, a compact that gets 30 miles per gallon will pay less than 1.7 cents per mile. Over 15,000 annual miles, that SUV's driver would pay $375 in fuel taxes, while the compact's would pay $250 - even though they're causing the same damage to roads. The gap grows with cars that get 35 or 40 miles per gallon.
Beyond fuel-efficiency, automobiles powered by alternative means - such as electric cars - pay no motor-fuel tax at all.
So there's a bit of a fairness problem.
Gas taxes are also, Hanely said, "income regressive, so people who have less income pay a higher percentage of their income toward these taxes."
More problematic on a road-funding level for state and federal governments is the trend toward more fuel-efficiency while the costs of road construction increase.
"As our vehicles get more and more fuel-efficient, we're pulling in less revenue for the road system," Hanley said.
"We know that the fuel tax itself is a tax of diminishing returns, and that this [raising the gas tax] is not a long-term solution to solve the problem," said Americans for Prosperity's Klein. Along with better fuel-efficiency, "labor and materials are getting more expensive, as well. You kind of have this gap widening in both directions at the same time."
Andrea Henry, director of strategic communications for the Iowa Department of Transportation, wrote in an e-mail that revenue projections for the gas-tax increase have been revised since the legislation's fiscal-impact estimation - which used numbers that were nearly a year old - and are slightly more optimistic.
However, she acknowledged that the $4.3-billion figure for 20-year critical needs reflects 2011 dollars/costs, and she agreed with my assessment that "the actual revenues needed over 20 years will be far greater than $4.3 billion."
And it's important to stress that under no scenario will the gas-tax increase generate even $4.3 billion in funding over two decades.
So while Henry wrote that the legislature has "substantially addressed the critical-need shortfall" with the tax hike, there will still be a persistent funding gap.
It's bad public policy - in the context of increasing fuel efficiency, increasing road costs, and a lack of fairness inherent in the gas tax - to continue relying so heavily on the fuel excise tax, which would have to be increased regularly to keep up with road needs and costs.
Continually raising the motor-fuel tax, of course, is also terrible politics.
Long-Term Alternatives to the Gas Tax
There are different ways.
Perhaps the most intriguing is the idea of mileage-based charges. "You pay for the miles that you drive, versus the amount of fuel that burn," explained Hanley, who with another University of Iowa faculty member conducted a two-year nationwide study on mileage-based charges. "So it equates all vehicles to be charged similarly. The concept there is a mile's a mile, and the vehicles themselves should pay for that use."
This eliminates the disproportionate share of road costs paid by less-fuel-efficient vehicles, and it eliminates the fairness problem created by vehicles that don't need conventional fuel. In other words, it's both fairer based on vehicle damage to roads and forward-looking as alternative-power cars become more prevalent.
Crucially for state government and road funding, this method wouldn't result in decreasing revenues over time - a core problem with the motor-fuel tax. Even as cars become more fuel-efficient or are powered by alternative fuels, all driven miles are taxed.
Oregon and Colorado have begun experimenting with mileage-based charges, and Hanley admitted that it's more logistically challenging than motor-fuel taxes - and it raises privacy concerns.
Hanley said Oregon's system addresses the privacy issue - at a cost. Taxpayers can pay a flat annual fee, or they can pay by the mile based either on a mileage diary or electronic tracking. But for average-annual-mile drivers, the per-mile charge is lowest at the electronic-tracking level and highest at the flat fee. "There's a strong trade-off between people's privacy and the amount of money that they're willing to pay," he explained. In other words, if you want more privacy, you'll pay more per mile.
Increased use of electronic tolling is another idea that's getting nationwide traction, Hanley said: "The advantage of tolling is that you know where the money is being collected ... and then that could be funneled back to where the use is actually being done."
Working with What You Have
Given the immediacy of Iowa's road-funding problem, it was probably unrealistic for the state to explore those avenues this year - but alone or in some combination they're in many ways superior to increasing the motor-fuel tax.
In the short run, though, Iowa could have easily taken a different approach to road funding.
"I think there's a better way," said Davenport-based Senator Smith. "Time and time again, government takes more and more money from the taxpayers, and I want to limit that."
Smith said he has a three-point plan to address road needs using state general funds, although he didn't file a bill this year.
First, he said, "we need to find out what states that have the lower gas taxes ... are doing to allow them to keep their gas tax low."
I asked whether some of the states he mentioned have better roads, and Smith said that was more an issue for the Department of Transportation: "They're the experts on roads and doing the research on that. ... I think that's more of a micro thing where they can look at that. ... If they have the same roads, better roads, what are they doing that we need to be adopting?"
Second, Smith said, the state should push Congress to ease restrictions on how federal road money can be spent - removing, for example, requirements related to green spaces, artwork, and rest stops.
Third, he said, the state should devote a portion of its increased general-fund revenues in one year to road projects, and then maintain that level of increased funding. He said that if the state budget grows by 5 percent, more than half of that - 2.75 percent - should go to roads. That would raise something close to the amount expected to be generated by the gas-tax increase. (Under Smith's plan, the old gas-tax rates would still be in effect.) "We would not have to cut anything," he said. "You just slow the rate of growth in the other areas to pay for these roads."
Depending more heavily on general funds to pay for roads goes against the long-standing practice of user fees.
It also means that all Iowans - no matter how little they drive - are paying for infrastructure they might not use. One can argue that even housebound people benefit from goods and services delivered to them - which is of course facilitated by surface-transportation infrastructure - but the fuel tax is already built into the cost of deliveries.
And greater reliance on general funds means that drivers from out of state aren't shouldering as much of the burden for road funding in Iowa.
But general funding for roads has the advantage of not amplifying the cost disparity between different types of vehicles, and it doesn't have the implementation/cost/technology barriers inherent in mileage-based charges or new tolling. It's also less regressive than any use-based tax.
But there's an additional problem with using general funds: Unless constitutionally protected, that money can be raided by the legislature - as Illinois has regularly done.
And that's one of the appeals of a plan put forth by Americans for Prosperity's Iowa office.
Like Smith's plan, it would use existing revenue sources and wouldn't raise any taxes.
"Raising taxes to solve any problem should really be a final resort," the organization's Klein said. State revenues have risen dramatically in recent years, and "it was very troubling for us to see the legislature, while that was happening, say that they also need to raise taxes."
Americans for Prosperity supports using 3.5 percent of the general fund for road projects, and protecting that percentage via constitutional amendment. (This would also leave the old gas-tax rates in place.) The revenue generated would be "fairly comparable" to the early years of the gas-tax increase, Klein said, but there's a crucial difference: Unlike projections for the fuel-tax hike, "that amount ... would actually be growing over 10 years" because of rising general revenues. "That to us seemed like a much better long-term proposal ... ."
Several other similarly themed proposals were introduced in the legislature, Klein said, and his organization would be okay with anything that increased road funding via general revenues that were then constitutionally protected.
He cited several specific ways the money could be taken from existing programs that are scheduled to sunset or wind down, and he also suggested zero-based budgeting (in which every department justifies its expenses each year, rather than working from previous budgets) as a way to free up revenue.
But the steady growth of state general funds, he said, means you don't really have to cut anything: "The only thing you'd really have to ask the legislature to do is ... constrain the growth of existing programs."
Klein also said it makes sense to use general funds to finance road projects if we see surface-transportation infrastructure not merely as a way to get from Point A to Point B, but also as essential to economic development: "Everybody that lives in Iowa benefits from sound infrastructure, even if they never leave their house."
Sidebar: How Quad Cities Legislators Voted on the Gas Tax
On February 24, the Iowa Senate approved Senate File 257 by a 28-21 margin. The Iowa House then approved the measure 53-46 the same day. Governor Terry Branstad signed the bill on February 25.
Here's how Scott County legislators voted.
Yes: Senator Rita Hart (D-Wheatland), Representative Cindy Winckler (D-Davenport), Representative Jim Lykam (D-Davenport), Representative Linda Miller (R-Bettendorf), Representative Norlin Mommsen (R-DeWitt).
No: Senator Roby Smith (R-Davenport), Senator Joe Seng (D-Davenport), Senator Chris Brase (D-Muscatine), Representative Phyllis Thede (D-Bettendorf), Representative Ross Paustian (R-Walcott).