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BITRE | Working paper 74

Board as ‘the capacity of the tax to fund transportation programs at an inflationadjusted

rate comparable with that of the past 20 years’.

Note that during the 40-year period illustrated, revenues were sufficient to fund

growth in highway spending and capacity and some improvements in service but not

sufficient to prevent growing highway congestion (Transportation Research Board

2006, p. 16). 4 8

But the case for pursuing ‘innovative’ finance, such as congestion charging, because

of these financing concerns may be somewhat overstated. There may be undue

anxiety that traditional road funding and budgetary trends will result in a funding

crisis. The reason for reviewing these concerns is, firstly, that fuel economy trends

may not continue. Further, public transport’s share of the transport budget may not be

maintained. Crucially, analysis by the Transportation Research Board concluded that:

… the existing revenue sources will retain the capacity to fund transportation programs

at historical levels (Transportation Research Board 2006, p. S2).

The Board identified three key reasons why improvements in fuel efficiency are

unlikely to continue at the same rate as in the past:

• hybrid and electric vehicles are not expected to make a significant impact over this

time. None of the studies reviewed by Transportation Research Board projected a

significant market share for hydrogen-fuelled cars or electric vehicles;

• during periods of stable fuel prices and rising incomes, consumers have shown a

preference for taking advantage of efficiency improvement technology by buying

larger, higher-performance vehicles rather than by reducing their dollars-per-mile

operating costs; and

• future efficiency gains will be more costly than past ones and hence the rate of

improvement in fuel efficiency will decline (Transportation Research Board 2006,

pp. 4–10).

The Transportation Research Board concluded that, in the absence of large fuel

price increases and new government intervention—such as an increase in corporate

average fuel economy—fuel economy improvement is likely to be no more than a

few per cent by 2025 (Transportation Research Board 2006, pp. 4 –14).

More importantly, in light of the rapid and sustained fuel price increases since the

Transportation Research Board report was completed, even a 15 per cent decrease in

unit fuel consumption, could be offset by an increase in the fuel tax of about US$0.07

per gallon (in 2002 dollars), or increases in other user fees.

Also, while it is commonly argued that raising the fuel tax is not an option, apparently

it can be achieved where there is the political will to do so. For instance, in 2005,

Washington State raised its fuel tax by 9.5 US cents per gallon—albeit to be phased

in over three years. This followed an earlier increase in 2003 (Bremmer 2005, p. 21). In

California, a number of local counties have voted for an increase in sales tax to fund

specific road expenditure projects.

48. However, this is not to suggest that growing highway congestion was an undesirable outcome. The optimal level

of congestion is determined, in part, by the cost of expanding highway capacity and the value of time saved by

the expansion by the network. If expansion costs are high relative to the value of the time savings, then increased

congestion could be in the community interest.

62

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