You may remember hearing in the 2014 Maine Gubernatorial race that Maine roads stink, something which Mainers know all too well. My candidate for the worst Maine road in recent years has been Route 15 from Orland to Blue Hill, particularly in the spring time when the frost is coming out.
Finding ways to fund highway repairs is politically popular for both “tax and spend liberals” and “fiscal conservatives.” So popular that this session the Legislature passed LD 1415 which authorizes transportation bond issues for both the 2015 and 2016 fall ballots. This even transcended the fractious relations between the Legislature and the Governor who is reported to have signed the bill. (It must not have been introduced by a Democrat.)
The 2015 vote will be for an $85 million bond, $68 million of which is for highway repairs, and the 2016 vote will be for a $90 million bond, $72 million for highways. Transportation bonds are popular with voters as well Legislators and Governors, perhaps because the ballot language always manages to mention all the Federal monies the borrowing will generate. I don’t think I ever voted against one of these on the ballot and I don’t ever remember one failing to pass. Transportation bonds seem like a good deal and we all know the roads need repair. Still, I might just vote no this time. I am starting to think that borrowing money to fix roads is a bad idea.
It would be better if we were to use the tax on gasoline and diesel fuel to fund our highway repairs and to match Federal funds. It would be fairer, cheaper, and more efficient.
Maine weather is obviously a key factor in highway deterioration, but we know we are not going to do anything about that. Wear and tear on highways is also the result of two things we do control – the number of vehicle miles driven over the roads and the weight of the vehicles that make up those miles; heavier vehicles cause more damage. It turns out that the gas and diesel taxes are excellent, if not perfect, ways to reflect those two factors. More miles driven and higher vehicle weights both require more motor fuels, even in today’s more fuel efficient vehicles. So the tax on motor fuels is really not a tax at all, it is a user fee. It asks people to pay for the expenses they exact on the public purse to maintain roads.
That is why the tax is fairer than borrowing to fund highway repairs, even though no one likes higher taxes. Bonding to fund highway repairs asks people who do not drive to pay part of the costs for those who do drive. It also subsidizes tourists and other visitors to the state. We pay so they can drive here.
A higher gas tax to pay for highway maintenance would also save money. We would not need to pay the costs of issuing general obligation bonds or the costs of interest. While interest rates are low now, “making it a good time to borrow,” they are not zero. The mechanism is in place now to collect gas taxes, so the costs of collecting higher gas taxes is obviously lower than borrowing.
The logic might be different if we were borrowing money to invest in new transportation infrastructure that would increase tax revenues in the future. Then the borrowing might pay for itself by generating additional tax revenues beyond the costs of borrowing. But most of the borrowed funds are going to repair existing infrastructure and will do nothing to increase the productivity of the Maine economy. At best it will keep the economy from declining.
For politicians, though, higher gas taxes are more visible to voters than borrowing. Even if we end up paying more in income and sales taxes to pay highway maintenance bond debt, that approach is essentially invisible to voters. The improved highways are tangible benefits delivered by the government with no apparent cost. This political effect is clear in recent legislative changes in the gas tax structure. Maine had a motor fuels tax that was indexed to increase with inflation. It did not generate enough money to fix all the roads, but at least it did not fall further behind every year as happens in the current system. Voter complaints led the Legislature to end the indexing in 2010. Mainers still pay the costs, they are just hidden in other taxes and fees or in poorer roads and bridges.
Maine’s gasoline tax is now 30 cents a gallon and the diesel tax has been 31.2 cents a gallon. According to the Federation of Tax Administrators this places Maine in the top ten of U.S. states for the gas tax rate, but not close to the highest rate, which is in Pennsylvania at 50 cents a gallon. For the past few years, Maine has collected about $240 million a year in motor fuel taxes, according to U.S. Census data. Based on that, it would take a tax rate increase of 5 to 10 cents a gallon to generate the revenues that will come from the upcoming bond issues.
The final benefit of the motor fuel tax is the honest and clear signal that it sends to drivers. It tells us every time we fill our vehicles with fuel that we impose costs. The tax says, you should pay for the costs of those things that generate individual benefits for you. Economists call this a “price signal.” And people respond to price signals, sometimes in rational ways. They drive less, consolidate trips, car pool, or drive more efficient vehicles, all of which are good for society. When we hide the costs of driving through bond issues and ask non-drivers to share in the costs, these positive effects of price signals are lost.
Perhaps it is time to vote no on transportation bonds that are not investments. It is time to be honest with ourselves and ask our Legislators to make the costs of the highway system transparent. It is time for drivers to pay their own way and not ask others to pay those costs for them. Being afraid to do this has turned both tax and spend liberals and fiscal conservatives into borrow and spend Mainers. It is time to pay as we go.