Getting to Yes on Mileage-Based User Fees

Posted on August 9, 2017 by matt ohern
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Here are two recent headlines about efforts to begin the transition to paying for highways based on miles driven rather than gallons of fuel:
“Senate Votes to Prohibit Mileage Tax,” Connecticut Post, May 25, 2017
“States Considering Taxing Drivers by the Mile Despite Privacy Concerns,” Politico, June 8, 2017
Both articles suggest serious problems with public and political perceptions of what this transition is all about.
The difficulty is also reflected in a June 2017 report from the Mineta Transportation Institute (at San Jose State University), summarizing eight years of an ongoing national survey on federal tax options to support highways, transit and local roads. Given a choice among 10 tax increase options—eight versions of a federal gas tax increase, a new federal transportation sales tax, or a national mileage tax of one cent per mile—the last-place finisher was the per-mile tax, with only 23% support.
A common element in all three cases is presenting a per-mile charge (1) as a tax rather than a user fee, and (2) as a net tax increase (rather than as an initially revenue-neutral change that would not lose purchasing power in coming years, as fuel taxes will do).
A sometimes-insightful report last year from the Congressional Research Service, “Mileage-Based Road User Charges,” does use better terminology, but begins with the premise that the way forward is a single national MBUF that would replenish the Highway Trust Fund and also deliver revenue directly to the states. That’s exactly backwards from what most transportation researchers and state DOTs envision. Almost everyone sees the transition as being led by states that reach consensus on replacing their fuel tax with MBUFs, thereby working out ways of gaining political acceptance that other states—and perhaps eventually Congress—can learn from.
I suggest that one problem in gaining public acceptance is the confusion between a tax and a fee. As the CRS report points out, “A road user charge that funded both highways and public transportation might arguably be seen more as a tax than a user fee.” It goes on to cite legal cases on the differences between the two. Over many decades, at both federal and state levels, gas taxes that began as pure user fees—paid only by highway users and spent only to benefit highway users—were gradually converted into all-purpose transportation taxes. The original idea of a highway trust fund was basically a promise to highway users that all the money they paid in highway use taxes would be spent for their direct benefit—users-pay/users-benefit. What we have ended up with is a very different model: highway users pay/everybody benefits. And that, I believe, is one reason why a large fraction of the population is so resistant to gas-tax increases.
Instead of replicating that built-in flaw as we design the gas tax’s replacement, we should consider a different way forward. What if people’s monthly highway bill was as transparent and straightforward as their mobile-phone bill, electric bill, water bill, and cable or broadband bill? With all those utilities, you are charged based on the services you use; the funds go directly to the provider of the service; and the money is used solely for the capital and operating costs of the infrastructure used. We don’t have major political battles over a mobile-phone rate increase because the system needs to add more cell towers or upgrade to 4G or 5G. Or the need to increase water rates because the pipes have to be replaced.
Changing the way we pay for our highways and bridges (by shifting from per-gallon to per-mile) offers a once-in-a-century opportunity to rethink how this vital infrastructure is managed, as well as how it is paid for. Unlike the predominant U.S. model of investor-owned utilities, what the 20th century gave us in highways is a set of state-owned enterprises, funded by taxes and governed politically. Most of Europe’s utilities were also state-owned enterprises prior to the 1980s, when Margaret Thatcher privatized electricity, natural gas, telecoms, water and wastewater, airports, and seaports—and much of the rest of Europe then followed suit (including the tolled motorways of France, Italy, Portugal, and Spain). De-politicization of those sectors led to increased and better-justified investment, better customer service, and in some cases, competition where there had only been monopoly.
Yes, I know—that would be a massive paradigm shift, probably far too much to be done all at once. So let me suggest a possible first step. We already have well-accepted technology and procedures in place to do per-mile charging on one portion of our highway system: limited-access Interstates and urban expressways. Converting those highways, state by state, from fuel taxes to state-of-the-art all-electronic tolling (AET) would be comparatively simple, since we already have two working organizational models in operation: public-sector toll agencies and long-term P3 toll concessions. We already do variable pricing using AET, without raising Big Brother privacy concerns. The capital markets know how to invest equity and debt (toll revenue bonds) to finance major improvement projects, such as replacing obsolete bridges or adding dedicated truck lanes We are also close to having 50-state electronic tolling interoperability—and this already exists for trucking, via Bestpass and PrePass.
The Interstates alone handle 25% of all vehicle miles of travel; including non-Interstate expressways and other limited-access facilities might bring the total to 30%. That would be a serious start on the transition from per-gallon to per-mile—and the user fees would be paid directly to the roadway providers, thereby de-politicizing the process, making it more like all the other utilities we use.
States could then work to develop simple, low-tech ways of replacing the fuel taxes used for other roadways, while being relieved of having to support the ongoing capital and operating expenses of the limited-access highways, now supported instead by per-mile tolling.
I’ve left out a lot of details in this brief sketch, but I’m happy to tell you that I’ve recently completed a book-length treatment on this new paradigm for highways. 21st Century Highways will be out next spring from the University of Chicago Press. I will keep you posted as we get closer to the publication date.
(This article first ran in July’s issue of Surface Transportation Innovations)
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U.S. Appeals Court supports EPA and Farmers

Posted on August 9, 2017 by matt ohern
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The U.S. Court of Appeals for the 9th Circuit handed farmers another win on July 18, 2017. The Natural Resources Defense Council (NRDC) and the Pesticide Action Network North America (PANNA) challenged EPA’s decision not to restrict or eliminate the use of the pesticide chlorpyrifos, used to kill a number of pests, including insects and worms.
NRDC and PANNA had attempted to revoke pesticide tolerances and cancel the pesticide registrations for chlorpyrifos.
By pounds of active ingredient, chlorpyrifos is the most widely used insecticide in the country. Environmental groups were hoping to destroy a crop protection product used by hundreds of thousands of farmers. Chlorpyrifos is used on tree fruits, nuts, small fruits and vegetables, grain/oilseed crops, cotton, ornamental and agricultural seed production, non-residential turf, industrial sites/rights of way, greenhouse and nursery production, sod farms, plywood production, pulpwood production, wood protection, and public health.
Cost-effective choice
“For some of these crops, chlorpyrifos is currently the only cost-effective choice for control of certain insect pests,” said EPA in its decision denying the environmental groups’ petition to destroy all uses of the pesticide.
EPA Administrator Scott Pruitt signed the Order on March 29, 2017 (Chlorpyrifos: Order Denying PANNA and NRDC’s Petition to Revoke Tolerances). He issued a 45-page decision which lays out EPA’s reasons for denying PANNA and NRDC’s petition to eliminate the use of chlorpyrifos.

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Framing Net Neutrality Standards We Can Agree Upon

Posted on July 26, 2017 by matt ohern
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By now, you’ve probably heard about net neutrality, the principle that Internet Service Providers (ISPs) should not favor some online traffic and data over others.
It shouldn’t really be a controversial matter because virtually everyone agrees on the basics, and it is fundamentally just common sense—there should be a level playing field online. So, if you are a small-business owner, your customers ought to be able to access your site as easily as a larger corporate retailer; likewise, a user should be able to load content from their favorite independent blogger just as quickly as content from a major media outlet.  It makes good business sense for providers to practice net neutrality with or without federal regulations.
But from a public policy standpoint, the question is how do we best ensure that net neutrality is adhered to? There are at least two possible paths forward.
The first is to treat the internet as if it were a public utility like electric or telephone service; but this is highly problematic. In 2015, the Federal Communications Commission (FCC) under President Obama chose this approach even though the decision flew in the face of decades of the internet flourishing under cautious federal regulation. And although it managed to apply utility regulations to the internet, the measures have little to do with net neutrality as the regulations were, of course, never intended to address internet networks when they were conceived some 80 years ago.
The second path is for Congress to pass legislation that would establish how much oversight the government has on the internet once and for all. This is preferable from my perspective as it would incorporate many bipartisan voices and would finally provide certainty for the business community by preventing successive administrations from constantly changing the rules. The legislative route would also be ideal because it could be written with the internet specifically in mind in order to ensure it includes net neutrality principles that are reasonable and enforceable.  
Any such legislation should provide minimal government oversight, somehow limit the ability of the FCC or other government entity from formulating regulations that don’t represent the will of Congress and the American people, establish a level playing field for all involved, and assure transparency so that the consumer understands what he/she is experiencing and why.  And any legislation should be fully debated in Congress and in all media venues so that the pros and cons of what is being suggested is understood by the majority of our citizens.
In the meantime, the FCC, led by its new chairman tapped by the Trump Administration, can review and reverse the most detrimental aspects of the utility regulations imposed in 2015. But without lasting legislation in place, the back and forth policymaking is causing upheaval in the marketplace and deterring investment in new broadband infrastructure.
There is data and anecdotal proof that this is more than just speculation: the public utility model is costing us real opportunities for innovation, economic growth and job creation. In Southwest Virginia, for example, a rural internet provider argued it was forced to stop investing in its rural broadband service in 2015 due to the FCC’s decision and the new legal fees associated with it.
A study by the Phoenix Center for Advanced Legal and Economic Public Policy Studies found that the sheer threat of utility regulation decreased investment over a five year period by an average of $35 billion a year. This is money kept away from internet expansion and development.  This shows how just the suggestion of government regulation can depress business investment.
The majority of Americans just want the issue settled so lawmakers can focus on the real work of strengthening the economy. The bottom line is Congress seems to have clear constitutional authority to enact permanent, strong net neutrality protections—and now is the time to do it. The right legislative vehicle could secure an open Internet, spur more technological advances, and create jobs through the virtuous cycle that follows.
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Autonomy and Accountability in Higher Education – Part 2

Posted on July 26, 2017 by matt ohern
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In 2005, when leaders of Virginia’s most prestigious universities were angling for more autonomy from state control, they complained about the bureaucratic hoops they had to jump through. State regulators made the College of William & Mary install an exit sign in a picnic shelter. Whenever outdoor events were rained out, the University of Virginia had to apply for permission to erect a tent. The $300 fees were bad enough. But approval often didn’t come until the events were over.
Such nit-picking dictates were mere irritants, though, compared to other grievances. Procurement rules led to lengthy delays in capital outlay projects. Human Resources policies designed for government bureaucracies were ill suited for an academic setting. In theory, boards of visitors were free to set their institutions’ tuition and fees, but in practice lawmakers meddled frequently: capping, freezing or even rolling back tuition increases.
University presidents felt whipsawed by state cuts to higher ed. Governor Mark Warner had balanced a recession-battered budget by cutting FY 2003 higher-ed expenditures 22%, and then in 2004 had pushed through a tax increase that allowed him to restore $278 million. While the replenishment of funds was welcome, universities wearied of the “feast or famine” pattern that made a mockery of strategic planning.
While the three elite institutions — UVa, W&M and Virginia Tech — abandoned their quest for “charter” university status, which would have treated them like independent political subdivisions of the Commonwealth, they did get much of what they wanted. In the 2005 Restructuring Act, a compromise hammered out with Warner and the General Assembly, higher-ed institutions were assigned one of three levels of autonomy, depending upon their financial and administrative competence. In exchange, the state would hold them accountable to performance metrics for 12 policy goals.
“The name of the game on this thing all along was tuition, as well as regulatory relief,” David Breneman, an expert on restructuring activities and dean of the Curry School of Education at UVa, told Lara K. Couturier, whose 2006 essay, “Checks and Balances at Work: The Restructuring of Virginia’s Public Higher Education System,” remains the definitive study of the restructuring act.
Colette Sheehy vice president for management and budget at UVa, and a key player in negotiating the legislation, seconded the view. “We felt we had to get control over one of our key revenue sources: tuition.”
Virginia law already gave boards of visitors the power to set tuition and fees — but governors and legislators ignored it, arguing that they had never given up the power of oversight. The restructuring act reaffirmed the law in the hope that lawmakers would stop trying to set tuition policy… at least for a while.
“In law, in code, it’s probably no stronger than it was before,” then-Secretary of Education Peter Blake told Couturier. “[It] will last as long as the Legislature doesn’t want to override it. … In the minds of the decision makers, the balance probably shifted a little bit to give institutions a little more autonomy over their tuition.”
Twelve years later, how well has the restructuring act worked out for Virginia’s public colleges and universities?
The answer: pretty well from an operational perspective. Higher-ed institutions say they appreciate the increased flexibility and reduced red tape that comes with autonomy. The law also has worked out very well from a revenue perspective. The 2005 deal provided cover for years of relentless increases in tuition and fees.
But memories fade with time, and Warner’s grand bargain is threatening to unravel. Legislators are rebelling against a cost of college attendance that has outstripped the increase in Virginians’ household incomes and put an increasing strain on middle-class families. A bipartisan coalition of delegates and senators submitted a bevy of bills in the 2017 session that would restrict the freedom of universities and their boards to set tuition. Senior legislators fended off the bills this year, but not the resentment.
Three levels of autonomy. The 2005 Restructuring Act created three tiers of autonomy. Only institutions with advanced managerial capabilities and a minimum of AA- bond ratings qualified for Level III. UVa, Tech and W&M qualified immediately, and Virginia Commonwealth University has since made the cut. Each institution negotiated a management agreement that defined its prerogatives relating to capital outlays, leases, information technology, procurement, human resources and financing/accounting.
The law bestowed Level I autonomy, which granted colleges more flexibility in administrative matters, upon all other institutions. By 2008, George Mason University, Old Dominion University, James Madison University, Radford University, Virginia Military Institute and the Virginia Community College System graduated to Level II, which provided heightened control over IT, procurement and capital outlays.
As an incentive to meet the statewide goals enumerated in the 2005 Restructuring Act, the state dangled incentives in FY 2007 worth $53 million. These benefits included:

  • Automatic re-appropriation of unexpended year-end balances (accounting for four-fifths of the total).
  • Interest on tuition, fees and other nongeneral fund revenues deposited in the state treasury.
  • A pro-rated share of the rebate on small credit card purchases.
  • A rebate on transaction fees paid for sole-source procurement.

For institutions to get their share of the money, the State Council of Higher Education for Virginia (SCHEV) would have to certify that they met the state goals. SCHEV would devise metrics for each goal, publish periodic reports and rate each institution’s performance.
How has increased autonomy worked out?
Bacon’s Rebellion asked to interview officials at the four covered institutions — UVa, Tech, W&M, and VCU — to see how they evaluated their experience with the 2005 Restructuring Act. Virginia Tech did not respond to the request. The other three institutions submitted email answers to my questions. I summarize the highlights here.
University of Virginia. The Act provides a framework for better long-term planning, says UVa spokesman Anthony de Bruyn. Speaking generally, higher-ed institutions have more flexibility to streamline processes, implement best practices and policies, and improve recruitment, retention, and compensation of faculty and staff.
UVa is now implementing a new Human Resources initiative. UFirst, designed to eliminate “systemic inefficiencies and redundancies,” including “70+ disjointed systems that collect HR data and five different learning management systems across three entities.” So far, the university has downsized its HR staff from 270 to 240 employees, and anticipates slimming down by 40 more as it merges the HR departments of its academic and medical divisions.
“Overall the Restructuring Act has lived up to our expectations,” de Bruyn said. “We now enjoy a greater degree of autonomy, flexibility, and accountability for our business processes which has improved the way we work.”
But de Bruyn offered two caveats:

  • “We continually have to guard against retrenchment of the authority granted in our management agreement from both the executive and legislative branches of government. Often these attempts are unintentional because individuals are not aware of how we operate under the provisions of the management agreement.
  • “Despite successful outcomes on the performance standards set for us, the Commonwealth often holds back the financial incentives provided for in the Restructuring Act (i.e. interest on tuition balances, credit card rebates, and procurement fees for sole source purchases).”

College of William & Mary. “For W&M, the Act has provided us with the ability to manage our financial operations, capital outlay, personnel, procurement and information technology more efficiently while still adhering to state policies and expectations,” says W&M spokesperson Suzanne Seurattan. “The university continues to work with state leaders to look for opportunities to expand its authority under the Restructuring Act and continue to ensure that the principles and operational flexibility provided under the Act remain in place.”
Virginia Commonwealth University. “VCU has used [Level III] status to enhance opportunities in procurement, capital projects, leasing and information technology areas,” says university spokesman Michael R. Porter.
Like UVa, VCU has used its autonomy to redesign its human resources system. The Great Place H Redesign includes:

  • Visible career paths;
  • Professional development and networking opportunities;
  • Merit-based pay for outstanding service to students and faculty, and for achievements that advance university priorities;
  • Performance evaluations, with goals linked to strategic priorities; and
  • Transparency and accountability.

How much is autonomy worth? Two years after enactment of the 2005 Restructuring Act, the Joint Legislative Audit and Review Commission (JLARC) conducted a review of the law’s implementation. State agencies’ satisfaction with the Level III agreements was “mixed,” concluded the 2008 report, but none of the issues were deemed deal breakers. For their part, Level III universities were beginning to identify tangible benefits.
In addition to the nearly $53 million worth of financial incentives enumerated in the act, JLARC counted $6.9 million in capital savings and $2.5 million in administrative savings for the Level III institutions.
But the financial incentives have dwindled over the years. Since FY 2014, the state clawed back the earnings on interest and credit-card rebates. In FY 2015, according to SCHEV spokesman Greg Weatherford, the grab-bag of incentives amounted to only $12 million, 98% of which was comprised of carry-forward funds.
It is harder to estimate the benefits universities have gained from greater freedom from state regulation. A consolidation of UVa’s HR programs, for instance, will cut 70 administrative employees. The university has not put a dollar figure on the initiative, but if we assume an average savings per employee of $70,000 (salary plus benefits), the cuts could save nearly $5 million a year.
There is no basis for calculating savings, if any, from IT, procurement, capital spending, or finance.
Tuition increases. Most visibly, the restructuring act has given public higher-ed institutions a freer hand with tuition. Even the institution showing the greatest restraint, the University of Virginia-Wise campus, raised tuition & fee increases three times faster than the 18.4% rise in the Consumer Price Index between 2006-07 and 2016-27. At William & Mary, the most aggressive institution, tuition increases outpaced the CPI by a factor of more than 10.

Increase in in-state, undergraduate tuition & fees. Source: State Council of Higher Education for Virginia.
Experts disagree whether rising tuition should be blamed upon eroding state support for higher education or the institutions’ own runaway costs. The matter is not easily settled. 
In a 2014 study, “Addressing the Cost of Public Higher Education in Virginia, “the Joint Legislative Audit and Review Commission (JLARC) found that for every dollar the state had cut in support between 1998 and 2012, Virginia’s public colleges and universities had increased tuition by about $1.50. But those numbers are somewhat dated now.
In a November 2016, House Appropriations Committee fiscal analyst Tony Maggio estimated that state support per in-state student shrank by $1,634 inflation-adjusted dollars between 1996 and 2015. Over the same period, average inflation-adjusted tuition & fees increased by $3,186, almost twice as much. In effect, for every dollar the state cut, colleges and universities boosted tuition by $2. Defenders of the higher-ed system countered that Maggio had cherry-picked the starting date for his comparison, and that starting the analysis in 2001 would have shown tuition increases matching state budget support almost dollar for dollar.
Whomever’s explanation is correct, there is no escaping the fact that universities have enjoyed a long run of freedom to increase tuition and fees with little political interference. And there is no denying that, other than the 2014 JLARC report, no state entity has conducted a thorough, ongoing analysis of university costs.
The state has generated a lot of data but nothing that would allow citizens to get a definitive answer to a seemingly basic question.
(This article first ran in Bacon’s Rebellion on July 11, 2017)
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Understanding the Federal Budget: Part II

Posted on July 26, 2017 by matt ohern
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In response to the president’s budget submission in May, the House Budget Committee has produced the 2018 Budget Resolution and reported it to the full U.S. House of Representatives.  This is the second step in producing the annual budget for the federal government and it reveals not only the spending priorities of the majority party but also lays out key tax policy.
What the president submitted to Congress in May was not “the budget” but a series of recommendations and ideas that Congress is free to use or ignore, and most often Congress ignores large swaths of what the president seeks in that budget plan.  Under the Budget Act of 1974 the president is required to provide his ideas for where he would like the budget to go.  It is the start of a conversation about spending priorities for the federal government for the fiscal year ahead.  Congress produces the actual budget.  Of critical importance to the president’s agenda, the House Budget Committee’s plan includes reconciliation instructions for the tax-writing Committee on Ways and Means to change the tax laws to reduce the tax rates on individuals and businesses.  The Constitution requires all tax legislation to originate in the House of Representatives.
In most years the budget is produced under the timeline set forth in the 1974 Budget Act.  According to the law, the president is supposed to provide his submission in February.  The House then begins reviewing the president’s submission and begins holding hearings on the various provisions.  The Senate follows suit and the House usually passes its version of the Budget Resolution in mid-March.  The Senate normally follows shortly thereafter and a conference committee between the House and the Senate works out any differences. The whole process is supposed to be completed by April 15 so that the Appropriations Committees of the House and Senate, which actually produce the annual spending bills that fund a significant portion of the government, can proceed with their work within the adopted budgetary framework.
The Budget Resolution actually only covers about one-third of federal spending.  The annual budget does not set funding levels for Social Security, Medicare, Medicaid, Obamacare, or the growing interest payments on our massive federal debt, which together make up a bit more than two-thirds of federal spending.  These programs are not subject to the budget.  They are referred to as “entitlements” because the law says if one meets certain criteria, he is entitled to the benefit regardless of the annual cost.  
As is often the case of the first presidential budget submission in a new administration, this one was quite late and the Congress is far behind where the Budget Act says the work should be completed.  However, the timing of adopting the Budget Resolution is critical this year in a way it often is not.   The current Fiscal Year 2017 Budget Resolution contained reconciliation instructions dealing with the repealing and replacing of the Affordable Care Act (ACA), also known as Obamacare.  There has been some speculation about the effect it would have on those instructions if a new budget with a new and different set of reconciliation instructions was passed before Congress completes action on the old instructions.  Many voices in the media have questioned why Congress has not taken up tax reform but at least part of the answer lies in the unfinished work on the ACA-related reconciliation instructions.
In the case of tax reductions or health care reform, the reconciliation instructions are crucial to the passage of the legislation.  Under the terms of the Budget Act, legislation considered as part of budget reconciliation is not subject to filibuster and therefore can pass in the Senate with a bare majority of fifty-one votes rather than the sixty needed if the filibuster is exercised.  The timing of the 2018 Budget Resolution has been handled judiciously, at least in part, to make sure the repeal and replacement instructions under the 2017 Budget Resolution are not called into question.
This story is just beginning to unfold with action pending on the ACA, the need for Senate action on the 2018 Budget Resolution, and the end of the fiscal year, September 30, rapidly approaching, which means the need for fresh appropriations to keep the government operating.  Federal spending is also approaching the legal debt ceiling and action will have to be taken to prevent exceeding that limit.  Stay tuned, the action is just starting.
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