[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
 STRUCTURE OF THE FEDERAL FUEL TAX AND THE LONG-TERM VIABILITY OF THE 
                           HIGHWAY TRUST FUND

=======================================================================

                                (110-22)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                          HIGHWAYS AND TRANSIT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 27, 2007

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure


                    U.S. GOVERNMENT PRINTING OFFICE
34-793                      WASHINGTON : 2007
_____________________________________________________________________________
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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia    JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon             DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois          THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of   HOWARD COBLE, North Carolina
Columbia                             JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida               VERNON J. EHLERS, Michigan
BOB FILNER, California               STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas         RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi             FRANK A. LoBIONDO, New Jersey
JUANITA MILLENDER-McDONALD,          JERRY MORAN, Kansas
California                           GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland         ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California        HENRY E. BROWN, Jr., South 
LEONARD L. BOSWELL, Iowa             Carolina
TIM HOLDEN, Pennsylvania             TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington              TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington              SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts    BILL SHUSTER, Pennsylvania
JULIA CARSON, Indiana                JOHN BOOZMAN, Arkansas
TIMOTHY H. BISHOP, New York          SHELLEY MOORE CAPITO, West 
MICHAEL H. MICHAUD, Maine            Virginia
BRIAN HIGGINS, New York              JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
JOHN T. SALAZAR, Colorado            CHARLES W. DENT, Pennsylvania
GRACE F. NAPOLITANO, California      TED POE, Texas
DANIEL LIPINSKI, Illinois            DAVID G. REICHERT, Washington
DORIS O. MATSUI, California          CONNIE MACK, Florida
NICK LAMPSON, Texas                  JOHN R. `RANDY' KUHL, Jr., New 
ZACHARY T. SPACE, Ohio               York
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                CHARLES W. BOUSTANY, Jr., 
JASON ALTMIRE, Pennsylvania          Louisiana
TIMOTHY J. WALZ, Minnesota           JEAN SCHMIDT, Ohio
HEATH SHULER, North Carolina         CANDICE S. MILLER, Michigan
MICHAEL A. ACURI, New York           THELMA D. DRAKE, Virginia
HARRY E. MITCHELL, Arizona           MARY FALLIN, Oklahoma
CHRISTOPHER P. CARNEY, Pennsylvania  VERN BUCHANAN, Florida
JOHN J. HALL, New York
STEVE KAGEN, Wisconsin
STEVE COHEN, Tennessee
JERRY McNERNEY, California

                                  (ii)

?

            SUBCOMMITTEE ON HIGHWAYS, TRANSIT AND PIPELINES

                        PETER A. DeFAZIO, Oregon

NICK J. RAHALL II, West Virginia     JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             DON YOUNG, Alaska
JUANITA MILLENDER-McDONALD,          THOMAS E. PETRI, Wisconsin
California                           HOWARD COBLE, North Carolina
ELLEN O. TAUSCHER, California        RICHARD H. BAKER, Louisiana
TIM HOLDEN, Pennsylvania             GARY G. MILLER, California
MICHAEL E. CAPUANO, Massachusetts    ROBIN HAYES, North Carolina
JULIA CARSON, Indiana                HENRY E. BROWN, Jr., South 
TIMOTHY H. BISHOP, New York          Carolina
MICHAEL H. MICHAUD, Maine            TIMOTHY V. JOHNSON, Illinois
BRIAN HIGGINS, New York              TODD RUSSELL PLATTS, Pennsylvania
GRACE F. NAPOLITANO, California      JOHN BOOZMAN, Arkansas
MAZIE K. HIRONO, Hawaii              SHELLEY MOORE CAPITO, West 
JASON ALTMIRE, Pennsylvania          Virginia
TIMOTHY J. WALZ, Minnesota           JIM GERLACH, Pennsylvania
HEATH SHULER, North Carolina         MARIO DIAZ-BALART, Florida
MICHAEL A ARCURI, New York           CHARLES W. DENT, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania  TED POE, Texas
JERRY MCNERNEY, California           DAVID G. REICHERT, Washington
BOB FILNER, California               CHARLES W. BOUSTANY, Jr., 
ELIJAH E. CUMMINGS, Maryland         Louisiana
BRIAN BAIRD, Washington              JEAN SCHMIDT, Ohio
DANIEL LIPINSKI, Illinois            CANDICE S. MILLER, Michigan
DORIS O. MATSUI, California          THELMA D. DRAKE, Virginia
STEVE COHEN, Tennessee               MARY FALLIN, Oklahoma
ZACHARY T. SPACE, Ohio               VERN BUCHANAN, Florida
BRUCE L. BRALEY, Iowa                JOHN L. MICA, Florida
HARRY E. MITCHELL, Arizona             (Ex Officio)
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Buechner, William, Vice President for Economics and Research, 
  American Road and Transportation Builders Association..........     3
Marron, Donald B., Deputy Director, Congressional Budget Office..     3
Pisarski, Alan, Private Consultant...............................     3
Sperling, Daniel, Professor and Director, University of 
  California-Davis, Institute of Transportation Studies..........     3

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Altmire, Hon. Jason, of Pennsylvania.............................    21
Mitchell, Harry E., of Arizona...................................    22

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Buechner, William R..............................................    25
Marron, Donald B.................................................    37
Pisarski, Alan E.................................................    53
Sperling, Daniel.................................................    64
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    HEARING ON STRUCTURE OF THE FEDERAL FUEL TAX AND THE LONG-TERM 
                  VIABILITY OF THE HIGHWAY TRUST FUND

                              ----------                              


                        Tuesday, March 27, 2007,

                  House of Representatives,
    Committee on Transportation and Infrastructure,
                      Subcommittee on Highways and Transit,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 2167, Rayburn House Office Building, the Honorable Peter 
DeFazio [chairman of the subcommittee] presiding.
    Mr. DeFazio. Okay, let's get started. I want to thank my 
Ranking Member, Jimmy Duncan, for being here today and the 
witnesses for being here. Perhaps the state of the Highway 
Trust Fund and the income into the Trust Fund is not to a lot 
of people an earthshaking topic. But it is one of two key 
components, as we move forward and look at the reauthorization 
of the next highway and transit legislation in 2009.
    Obviously we are also investigating the other component, 
that is, what is it we have to maintain and what is it we have 
to build to enhance the system. But the other side is, how are 
we going to pay for it. If we look back to SAFETEA-LU and just 
before SAFETEA-LU, the estimates of the Bush Administration's 
Department of Transportation were, we basically needed $375 
billion investment over the term of the bill to tread water. 
Obviously our resources were short of that. We did as good as 
we could, coming up just under $300 billion.
    So we need to understand how the gas tax is going to fare 
in the future, the Trust Fund, the other associated taxes that 
contribute to the Trust Fund, and hopefully look toward a way 
to make more robust investments in the future. Obviously other 
things have happened since the last time the gas tax was 
updated, the extraordinary run-up of construction costs. And 
obviously, increased traffic. So we need to take a very hard 
look at all these issues, and I appreciate your all being here 
today.
    I now recognize my Ranking Member, Mr. Duncan from 
Tennessee.
    Mr. Duncan. Thank you, Mr. Chairman. I am pleased that we 
are holding this hearing today on the structure of the Federal 
fuel tax and the long-term viability of the Highway Trust Fund.
    When the SAFETEA-LU bill was signed into law two and a half 
years ago, I think many people realized that we would at some 
point have to reevaluate how we fund the surface transportation 
projects, and probably need to do that before the next 
reauthorization bill is considered. This hearing begins that 
very important process.
    Ever since the HIgwhay Trust Fund was created in 1956, the 
Federal fuel tax has been the primary source of revenue for the 
Trust Fund. The Highway Trust Fund, as most people know, most 
of the people who are here today, also receives revenue from 
taxes on tires and truck and trailer sales and annual sales on 
heavy trucks. However, the vast majority of the revenue 
deposited in the Highway Trust Fund is derived from Federal 
taxes on gasoline, diesel fuel and other special fuels.
    We are now reaching a point in history where we need to 
evaluate whether or not the current revenue structure of the 
Highway Trust Fund can stand the test of time. For 50 years it 
has served us well. However the vehicles we drive are rapidly 
changing. Fuel efficiency is increasing. Electric hybrid 
vehicles are gaining in popularity and major auto manufacturers 
are talking about mass-producing plug-in electric vehicles.
    I have seen some of the research being done in this area 
first-hand at the National Transportation Research Center in my 
district in Knoxville. Researchers at the NTRC are some of the 
leading experts in developing advanced power electronic 
devices. As transportation shifts from combustion-driven 
vehicles to hybrid electric, plug-in, hybrid and fuel cell 
vehicles, the research being done at this facility I think will 
be very critical, very important.
    This shift in how we fuel our vehicles will reduce our 
dependence on foreign oil and may have positive environmental 
impacts. However, it may also force us to change how we fund 
the Highway Trust Fund. A tax on fuel is our primary source of 
revenue, as I have mentioned, for the fund. As we incorporate 
technologies that reduce the amount of fuel we use, we will see 
a reduction in revenue into the trust fund that is attributed 
to the fuel tax. While this is not an immediate concern, it is 
something we need to think about as we begin to write the next 
reauthorization bill.
    I look forward to hearing from the experts that we have 
assembled here today and hope that they will provide us some 
real insight on the current status of the Highway Trust Fund 
and how long into the future the current financing structure of 
the Trust Fund can sustain our Nation's surface transportation 
needs.
    Thank you, Mr. Chairman. I yield back.
    Mr. DeFazio. I thank the Ranking Member for that statement, 
helping put this hearing in context.
    If there are no other opening statements, we will move to 
the witnesses. In terms of the order prescribed, whatever it 
says there, I guess it's the order up there. Mr. Marron, Deputy 
Director of CBO, go right ahead.

 TESTIMONY OF DONALD B. MARRON, DEPUTY DIRECTOR, CONGRESSIONAL 
 BUDGET OFFICE; WILLIAM BUECHNER, VICE PRESIDENT FOR ECONOMICS 
    AND RESEARCH, AMERICAN ROAD AND TRANSPORTATION BUILDERS 
     ASSOCIATION; DANIEL SPERLING, PROFESSOR AND DIRECTOR, 
  UNIVERSITY OF CALIFORNIA-DAVIS, INSTITUTE OF TRANSPORTATION 
           STUDIES; ALAN PISARSKI, PRIVATE CONSULTANT

    Mr. Marron. Thank you, Mr. Chairman, Mr. Ranking Member, 
and members of the Committee, it is a pleasure to be here today 
to discuss the status of the Highway Trust Fund.
    In my opening remarks, I would like to make four points. 
First, CBO projects that under current law, revenues to the 
highway account of the Highway Trust Fund will fall short of 
outlays over the next few years. As a result, the account will 
become exhausted by the end of 2009.
    If obligation limitations and RABA adjustments are set at 
the levels authorized in SAFETEA-LU, CBO estimates that outlays 
during 2007 through 2009 will total about $117 billion. 
Revenues over that period are projected to be about $108 
billion, $9 billion lower than outlays. Transfers from the 
highway account to the transit account would total about $2 
billion over that period. Putting those figures together, CBO 
projects that the highway account balance would decline by 
almost $11 billion by the end of 2009. More specifically, the 
balance would fall from about $8.9 billion at the start of 2007 
to negative $1.7 billion at the end of 2009. CBO similarly 
projects that the mass transit account will become exhausted in 
2012.
    Second, about 90 percent of the revenues for the Highway 
Trust Fund come from fuel taxes that are fixed in nominal 
terms: the 18.3 cents per gallon tax on gasoline and gasohol 
and the 24.3 cents per gallon tax on diesel. Because the tax 
rates are fixed in nominal terms, tax revenues are ultimately 
determined by fuel use. Fuel use in turn is driven by real 
economic growth, fuel prices, fuel economy and the types of 
fuel that are used. Economic growth increases fuel purchases 
and tax revenues. Higher fuel prices and higher fuel efficiency 
both reduce fuel purchases and revenues, and changes in the 
types of fuel can either raise or lower revenues, depending on 
the particular tax rates and the energy content of the fuel.
    Third, because revenues are driven by fuel use, they tend 
to grow more slowly than the nominal size of the economy. For 
example, CBO projects that fuel tax revenues will grow about 
1.5 percent per year over the next 10 years, compared to 
nominal economic growth of 4.6 percent per year.
    I should note, however, that the fuel tax revenues did grow 
faster than fuel use over the last 10 years. That happened 
because of several law changes that shifted resources into the 
Trust Fund from the general fund. In 1998, for example, 
revenues from the 4.3 cents per gallon tax that was originally 
enacted in 1993 were shifted into the Trust Fund from general 
revenue. In 2005, tax credits for ethanol were restructured so 
that they reduced general revenues rather than Trust Fund 
revenues.
    Fourth and finally, I should emphasize that these 
projections, and really any projections of revenues and outlays 
for the Highway Trust Fund, are subject to significant 
uncertainty. There is uncertainty about spending, for example, 
because it will depend on decisions made by the Congress and 
the Administration regarding basic annual funding levels for 
the program and the adoption of RABA adjustments. Spending 
rates will also be influenced by the decisions of State and 
local governments.
    There is uncertainty about revenues because of uncertainty 
about future economic conditions. The economy could grow faster 
or slower than expected, oil prices could rise or fall above 
projected levels, and alternative fuels could develop faster or 
slower than expected. Such economic changes would result in 
different revenue levels.
    There are also uncertainties about the key technical 
assumptions that relate economic activity to revenues. 
Consumers might adjust to changes in fuel prices more or less 
than we expect. Fuel and truck purchases might be more or less 
responsive to increases in economic activity. Any of those 
changes could affect revenues. Given these uncertainties, the 
highway account could become exhausted either earlier or later 
than our current estimates indicate.
    Thank you, and I would be happy to answer any questions.
    Mr. DeFazio. Thank you, Mr. Marron.
    Mr. Buechner.
    Mr. Buechner. Mr. Chairman and members of the Subcommittee, 
thank you very much for inviting the American Road and 
Transportation Builders Association to testify on the viability 
of the motor fuels excise tax.
    Let me start with the most immediate concern, the balance 
in the Highway Trust Fund. The Highway Trust Fund balance will 
be exhausted by the end of fiscal year 2009. The Federal 
Highway Administration estimates a $200 million deficit, the 
Congressional Budget Office $1.7 billion. The figures are 
somewhat variable, depending on what assumptions you make.
    The fear is that the way we are going to deal with that is 
to cut highway funding, either by foregoing the RABA adjustment 
in fiscal year 2008 or cutting the program in 2009. But there 
is a better alternative, which is to repeal or restructure most 
of the remaining Federal motor fuel excise tax exemptions.
    As you know, the Federal Highway program is user-fee 
financed through revenues, primarily from taxes on gasoline and 
diesel fuels. But there are some highway users that are exempt 
from the tax for reasons that have nothing to do with 
transportation policy. Repealing or funding these exemptions 
from the general fund, as was done with the ethanol incentive 
in 2004, would add about $1 billion per year to highway account 
revenues. This approach was endorsed by the Administration in 
its fiscal year 2006 budget submission and was included in the 
version of SAFETEA-LU passed by the Senate. It would pretty 
much rectify any of the deficit projections that are on the 
table.
    Beyond 2009, there are two concerns affecting the viability 
of the Federal Motor Fuel Tax_the impact of higher CAFE 
standards and rising construction costs. Very briefly, CAFE 
standards for cars and light trucks have very laudable goals. 
They reduce our dependence on foreign fuel and they improve air 
quality. But they also reduce tax revenues for the Highway 
Trust Fund.
    NHTSA has recently announced a 10 percent increase in CAFE 
standards for light trucks that would be effective with the 
2011 model year. This will have an impact on Highway Trust Fund 
revenues, as Don pointed out, in the long term. But it won't be 
significant until well after the years covered by the next 
reauthorization legislation.
    We currently replace about 7 percent of the 230 million 
cars and light trucks registered in the U.S. each year. So it 
takes more than 14 years to completely replace the entire 
fleet. If you go through the math on the trucks that will be 
affected by this, you find that the new CAFE standards for 
light trucks would reduce Highway Trust Fund revenues by about 
$100 million in fiscal year 2012 and maybe as much as $300 
million or $400 million by 2015, which is about 1 percent of 
projected revenues for that year.
    If you look at hybrid vehicles, which are the only other 
kind of cars on the road right now that are of serious concern 
here, they only comprise like 2 or 3 percent of automobile 
sales each year. The average revenue foregone would be in the 
range of $30 million a year. So that is an issue for the long 
term.
    Far more important for the short term is the erosion of the 
purchasing power of the fuel tax. Since 1993, when Congress 
enacted the current tax rate, the purchasing power of the 
Federal Motor Fuels Tax has fallen by more than 35 percent. The 
big issue in 2004 was rising steel prices, which I have shown 
in the first chart. You see the big increase in 2004. In 2005 
and 2006, these rapid increases started spreading to core 
highway construction materials. These charts show what happened 
to the price of aggregates, crushed stone, which is the major 
material for highways, ready-mix concrete went way up, asphalt 
paving mixtures and diesel fuel all rose rapidly. Diesel fuel 
more than doubled in three years.
    So in these three years, the cost of highway construction 
materials has risen more than 35 percent. When you factor in 
wages and overhead, which have risen much less, the cost 
increase is still at least 20 percent in three years and in 
some parts of the country it is much higher.
    This next figure shows the erosion of the purchasing power 
of the Federal gas tax due to these higher construction costs. 
In 2007, for example, the 18.3 cent per gallon gas tax 
purchases about what 11.6 cents would have bought in 1993. Here 
is a chart showing what the gas tax would have to be to 
maintain that 18.3 cent purchasing power.
    In summary, the Federal Motor Fuels Excise Tax is not a 
broken model. It can continue to serve as the foundation for 
financing the highway and mass transit programs for SAFETEA-LU 
reauthorization and probably for some years beyond that. None 
of the potential threats to the tax base will have a 
significant impact for some years to come. The purchasing power 
of the tax, though, is the problem and has been significantly 
eroded by higher construction costs. It certainly can't support 
the level of Federal highway investment needed today to 
maintain mobility and support economic growth.
    That is where I would like to stop and I thank you very 
much for the opportunity to testify.
    Mr. DeFazio. Thank you. That was, particularly the 
graphics, very compelling.
    We will now move to our next panelist, Mr. Sperling.
    Mr. Sperling. Thank you, Mr. Chairman and members of the 
Subcommittee. Thank you for the opportunity to speak to you 
regarding the fuel excise tax.
    My statement addresses the effect of alternative fuels and 
vehicle fuel economy on fuel tax revenues. I note that I have 
devoted most of my professional career to studying energy use 
and transportation. This includes working closely with all of 
the major car and oil companies in the world. And I note that I 
also served on the 2005 National Academies TRB committee that 
drafted the report, the Fuel Tax and Alternatives for 
Transportation Funding.
    My remarks are based in part on the findings of that study, 
but the conclusions and recommendations I will offer are my 
own. So my testimony addresses two concerns. One is addressing, 
ensuring adequate funding for transportation and secondly, 
reducing greenhouse gas emissions from transportation. So I 
have three points. The first point responds to a fear that we 
have just been hearing about in the transportation community 
that the use of alternative fuels, hybrid cars, other fuel 
efficient vehicles will reduce gas tax revenues. My assessment 
and the assessment of the 2005 National Academies report is 
that the gas tax is structurally sound for the near future. And 
this agrees with the previous speaker.
    Improved fuel economy and the introduction of alternative 
fuels are unlikely to be great enough to threaten the viability 
of the gas tax for at least the next 10 years and probably 
longer. The 2005 National Academies report concluded ``The 
existing revenue sources will retain the capacity to fund 
transportation programs at historical levels.'' Now, the simple 
explanation for this conclusion is as follows. First, 
population continues to increase, vehicle use continues to 
increase. Second, plans to tighten CAFE standards that we are 
hearing about a lot in the news that the President is proposing 
and others, will have a large effect eventually. But probably 
not for quite a few years, for a number of reasons, including a 
slow turnover of vehicles.
    Thirdly, the rapid increase in alternative fuel use will be 
mostly with ethanol, which is fully taxed and thus its use does 
not affect gas tax revenues. The alternative fuels that are not 
currently taxed, natural gas, hydrogen, electricity for plug-in 
hybrids, are unlikely to be used in large volumes for at least 
15 years and probably longer.
    A reasonable projection is that gasoline and ethanol, the 
taxed fuels, will continue increasing, peaking in about eight 
to ten years and then start to slowly dip. For energy security 
and climate change reasons, I personally hope that this down-
turn in gasoline use happens faster. But it is unlikely. I have 
a different point of view than some of the others on the panel 
on that.
    My second point is that if we agree that more funding is 
needed for highways and transit, and I do believe that very 
strongly, then this funding need can be generated by simply 
raising the gas tax a few cents per gallon. Adding five cents 
per gallon costs a vehicle owner an extra $30 a year per 
vehicle. This would solve any transportation funding problems 
for many years.
    The third point is a longer term solution, looking ahead in 
terms of restructuring the financing. It is to restructure the 
gasoline and diesel taxes to reward low carbon fuels in such a 
way as to assure continued increases in the transportation 
funding stream. Since alternative fuels will slowly become an 
increasing share of the fuel supply pool, why not tax them in 
accordance to their effect on climate change.
    Keep in mind that some fuels already generate much higher 
greenhouse gas emissions than others. For instance, gasoline 
produced from tar sands in Canada generates about 20 to 50 
percent more greenhouse gases per gallon than gasoline produced 
from conventional oil. At the other extreme, the production of 
biofuels made from crop residues, switchgrass. other cellulosic 
material, dramatically reduces greenhouse gases, in some cases 
to zero. Why not charge a higher tax for high carbon fuels and 
a lower tax for low carbon fuels? The rates can be adjusted 
periodically to sustain revenue flows into the Transportation 
Trust Fund. This new carbon-based tax solves the long-term 
structural problems of the gas tax and provides incentives for 
low carbon fuels.
    Thank you.
    Mr. DeFazio. Thank you.
    And then to our final panelist, Mr. Pisarski.
    Mr. Pisarski. Thank you very much, Mr. Chairman, Mr. 
Ranking Member and distinguished members. It is always a 
pleasure to come back to talk to the Committee.
    Last year, we celebrated the anniversary of the financing 
plan that created the Highway Trust Fund in 1956 and the pay-
as-you-go system that made the interstate possible. The pay-as-
you-go system was a Congressional decision, after a toll-based 
system was found too limiting and a bonding system too 
expensive. The fundamental understanding is that of a user 
compact between Government and road users in which users pay 
according to the costs they exert on the road system and 
Government expends those funds in ways that are responsive to 
user needs. The responsibilities are mutual and reciprocal.
    To be effective, a charging system for road use must to be 
fair to users as well as adequate in generating resources. To 
be fair, it is best for the fee system to be a surrogate for 
the miles traveled by vehicles and proportionate to the effects 
on the road system. The fuel use charge system does it about as 
well as one could imagine.
    The system's effectiveness can go wrong in two ways, either 
in the fundamentals or in the effects of time. In the 
fundamentals, it can simply be the original user charges are 
inappropriate or the expenditures may not be focused properly 
on user needs. Over time, the relationship of the elements 
changes with fuel economy, inflation costs, construction costs, 
new technology and the new demands that the society makes on 
the system. All of these problems are directly addressable, 
analytically, legislative, by policy, by indexing systems or 
other means. We expect more of our systems today. Trying to 
accomplish more has placed great strains on the investment 
system.
    Some analysts would foresee a system that could charge not 
just for miles driven, but for miles driven at certain times 
and at certain places with certain congestion levels. I think 
few taxing systems are really capable of that kind of 
precision.
    The early years of the system I think is really very 
important to recognize. The relatively coarse mechanism 
employed to generate revenues were compensated for by massive 
growth both in the fuel rates that were charged and growth in 
auto use, the ownership of the automobile and the dramatic 
growth in vehicle miles of travel. You see that in the slide 
presented here.
    One of the key factors for the future is in many respects 
the saturation of many of these trends. The white, non-Hispanic 
population has reached effective saturation in automobiles and 
driver's licenses. Increases in per capita VMT have stabilized. 
Current estimates of 20 year VMT growth out into the future 
range below 2 percent, contrasted to the 3 and 4 percent annual 
rates that we saw in past decades.
    While all of these factors are significant, to me the 
greatest impact on the user charge system and its adequacy have 
not been demographic or technological. They have been the 
result of fiscal and policy decisions that have distorted the 
pay-as-you-go system with expanded targets for funding, transit 
and others, fiscal constraints on the process, impounding, CAFE 
and obligation limits, and the erosion over time of the value 
of the funds as we fail to make timely adjustments. The fear of 
future erosion of the system's revenues from new alternative 
fuels and new vehicle technologies are relatively distant in 
terms of serious impact and can be addressed as long as we keep 
in mind the relationship between road use and the user fee. It 
is the other challenges that will be a more serious threat to 
the viability of the system.
    Much has been made of the public's resistance to fuel tax 
increases. It is more to the point that the public may have 
lost faith in the validity of our vision and our ability to 
execute our plans that leads to a real distaste for increases. 
When a sound menu was put before the public by agencies that 
are trusted, the success has been substantial around the 
Country.
    Overall, the pay-as-you-go system, tied to the trust fund 
mechanism, has been immensely effective. Other nations have 
used the gas tax as a cash cow, seeking consciously to separate 
road program costs from road taxes in order to tap into the 
immense benefits the public receives from road use. Other 
funding approaches are not immune from that same problem. In 
effect, then, one of the great benefits of the present system 
is that it establishes an upper limit on what can be charged to 
road users. In my mind, the integrity of dedication to highways 
of the user charge is the most fundamental aspect of the user 
compact. If that connection to transportation is lost, the 
injury to America's high mobility society will be massive.
    Than you so much, and I would be happy to answer any 
questions.
    Mr. DeFazio. Thank you, and thanks to the other panelists 
for your testimony.
    There does seem to be a little bit of variance in opinion 
on the panel, which I would like to invoke some discussion 
over. As I read through your testimony and listened to you 
today, at the moment, construction increases and costs of 
construction are obviously a very major factor in our 
capability of using the current funds and gas tax to meet our 
needs.
    But then in the out years, the question of course, it is 
kind of a crystal ball what might happen there, but it is also 
a crystal ball how quickly the new technologies are going to 
evolve and what impact that will have. We have a bit of 
testimony on both sides. I would like you to discuss that. Is 
the gas tax viable for a 10 year window, 20 year window, your 
best guess? Perhaps with some adjustment for either inflation 
or construction costs inflation, and if each one of you could 
address that.
    Mr. Marron?
    Mr. Marron. Sure, I am happy to go first. Playing the 
standard CBO card, I am not sure I am in a position to use the 
word viable. What I can say is in our baseline, in the 
projections that we prepared here and in our baseline, we do 
have revenues from the gas tax rising over the ten year 
projection window. So they are viable in the sense that 
revenues are on an upward trajectory as fuel use rises.
    In constructing those estimates, we look at these issues 
about alternative fuels and whether they will cause revenues to 
go down. We have a little bit of that in the baseline, but as 
several of the other panelists say, we don't expect a lot of 
that over the next 10 years. And thus far, we always look 10 
years in the future, we haven't actually looked out beyond 
that.
    Mr. DeFazio. Okay.
    Mr. Buechner. I think even with new technologies being 
developed, it just takes a long time to implement them and get 
them into the fleet. So I think 10 years, 15 years, and 
certainly for the next reauthorization, I don't see any threat 
other than minor erosion from hybrid cars and a little bit from 
the increase in the CAFE standard.
    But it is more a question of, when you are looking to the 
next reauthorization, what do you want to accomplish with the 
Federal highway program? What is the vision for the program? 
What is the structure? And what revenues are needed to meet 
those goals?
    At that point, Congress would have to make a decision about 
what the gas tax rate should be. But I think the base will be 
there.
    Mr. DeFazio. Well, given the run-up in construction costs, 
given what you just said, if we didn't make any adjustment in 
the gas tax in the next transportation bill, and given the fact 
we are looking at potential exhaustion of the trust fund, 
although there will be ongoing revenue in 2009 to 2010, I mean, 
it would seem to me that you would be looking at a larger 
deficit between need and capability.
    Mr. Buechner. Oh, much larger, yes.
    Mr. DeFazio. Does anybody disagree with that?
    Mr. Buechner. To emphasize what you are saying, the current 
level of the gas tax is insufficient to meet our highway and 
transit investment needs.
    Mr. DeFazio. All right. And we will be. As you pointed out, 
you do need to know what you are looking to do. We are going to 
be holding other hearings on the needs of the system. We are 
sort of on two tracks here. One is examining our current 
funding and its prospects and alternatives for funding, and the 
other track is, what is our vision, what are our base needs, 
what are the enhancements that we want to look to add to the 
system.
    Does anybody else want to comment? Yes, Mr. Pisarski.
    Mr. Pisarski. Again, I agree that probably out 20 years the 
system will still be very effective. And we need to support it 
even beyond that to make sure it is dedicated to 
transportation. But the concern is that we are, as you 
mentioned earlier, facing the $375 billion backlog number, and 
that number is now higher with the new Condition and 
Performance report. We are not close to being able to respond 
to that. So we must recognize that we need to expand the 
funding that can be made available.
    One of the focus points in my view, because we have 
declining VMT into the future, is we have an immense backlog of 
investment that is identified in the FHWA report documents. 
Once we get past that backlog, I would like to argue that there 
is a more steady state and that we will have a more reasonable 
problem to address into the future. But that backlog is about 
one reauthorization's worth of funding. That is the level of 
the backlog.
    Mr. DeFazio. So what do you quantify the backlog at?
    Mr. Pisarski. One reauthorization----
    Mr. DeFazio. The last one, $300 billion?
    Mr. Pisarski. 1.0 reauthorization; yes, something on that 
scale. I don't know that they have developed a new number. I 
would have to ask them. But I would guess it has to be $375 
billion to $400 billion.
     [After the hearing, Mr. Pisarski stated the following for 
the record: the 2006 Condition and Performance report cites a 
value of $430 billion as the highway backlog, excluding rural 
and urban local streets; and $65.2 billion in the bridge 
backlog.]
    Mr. DeFazio. All right. I think we have exhausted that 
topic.
    Does anybody have any thoughts on the last question? Then 
we will turn to other members of the panel. But if we add an 
index, if we wanted to index it, what would you use, to avoid 
some of the deficit in the future? What would be the most 
reasonable sort of--yes, Mr. Sperling?
    Mr. Sperling. Well, as I suggested, there are basically two 
ways. You can just index it up at some rate. Of course, many 
people are suggesting refashioning the whole tax system into a 
VMT type system, even a more pure user-based system. Having 
participated in that gas tax committee for two years and 
listened to all the proposals, in principle I thought it was a 
great concept. But the more you dig into it, the more 
complicated and difficult it becomes to actually implement. I 
still think we need to be experimenting and exploring and 
developing that, and maybe at the State level it would be more 
fruitful as kind of an experiment, as Oregon is doing, for 
instance.
    But the other is to rethink the gas tax, as I suggested and 
make it more tied to the environmental goals as well. I know 
the transportation community hates that idea, because they like 
a pure revenue stream, unadulterated by these other 
considerations. But in fact, the transportation community has 
been lagging behind other sectors of our society in addressing 
some of these environmental and especially energy and climate 
considerations. This seems to me a very effective way, a 
mechanism, this idea of a higher tax on high carbon fuels, 
lower tax on low carbon fuels, in a way that will generate 
perhaps even more public support than just saying, oh, well, 
we're just raising the gas tax another nickel or dime and 
hopefully you see the benefits from it.
    Mr. DeFazio. Should we be looking at producer level or 
consumer level taxes? Right now we have consumer level taxes. 
Should we be looking at, given your position with a focus on 
carbon production, should that be at the producer level or 
would you continue it at the consumer level?
    Mr. Sperling. In California what we are doing is 
introducing something called a low carbon fuel standard. And 
that is imposed at the producer level, but in such a way that 
producers can trade credits, buy and sell credits. One 
possibility is that they can buy and sell those credits with 
the auto makers as well, based upon their CAFE performance.
    So it would be easier to manage at the producer level, from 
the vehicle producer and fuel producer. I would be very 
reluctant to bring it more downstream toward the consumer, 
because it would get very complicated.
    But on the other hand, what is really important, I think 
that Congress and political leaders need, that I would suggest 
need to do is, get people to engage in a way that they feel 
some responsibility. I think that is the only way that we are 
going to deal with our energy and climate problems.
    Mr. DeFazio. Okay. Mr. Pisarski will be the last one, then 
I have to move on to other members.
    Mr. Pisarski. Thank you, sir. I would suggest that it 
should be a series of indexes that would make the most sense. 
One would be an inflation index, one would be a cost of 
construction index, and one would be an index that related to 
changes in vehicle fuel economy. Even if you didn't employ 
every one of them, if you knew what those numbers were and how 
each was working, and you understood the relationship to the 
total program, I think that would be a very effective goal.
    I will add one small point. In Texas, we just finished a 
study for the Governor's Business Council. They are talking 
about an inflation index of the Federal tax, that they are 
going to compensate for the losses in their revenue from their 
State gasoline tax and also from the Federal gas tax. It is an 
interesting concept.
    Mr. DeFazio. Thank you.
    Mr. Duncan.
    Mr. Duncan. Mr. Chairman, since I am going to be here until 
the end, I want to go first to our members in the order in 
which staff tells me they came in. So Ms. Drake would be, I 
would like you to recognize Ms. Drake first.
    Ms. Drake. Thank you, Mr. Chairman.
    Dr. Buechner, I thought it was very interesting that you 
were talking about exceptions. We talked about exceptions when 
I was in the State legislature in Virginia, in the tax code, 
got a lot of pushback. But could you expand on that? Could you 
tell us what exceptions you think are valid or are not valid or 
how we could do that?
    Mr. Buechner. Of the current exemptions that result in a 
loss of revenue to the Highway Trust Fund, there are five major 
ones: first, vehicles used on the road by State and local 
governments; vehicles used by non-profit educational 
institutions; school buses; intra-city municipal bus systems; 
and over-the-road intra-city buses are exempt from paying the 
motor fuel tax. The tax is collected when they purchase fuel 
and then refunded to them, which they must apply for.
    When we had this problem with the ethanol incentive in 
2004, the way it was addressed was to credit the Highway Trust 
Fund with the full 18.3 cents per gallon and then provide the 
refund from the general fund. And in this case, when you think 
about reasons for these exemptions, these are all vehicles that 
use the roads. And they all should be paying their share. But 
if there is a reason to relieve these users of that tax, it 
shouldn't come out of the Highway Trust Fund. There is a better 
way of doing it, which would be to reimburse them from the 
general fund.
    Ms. Drake. Next question, Mr. Chairman, is, do you have any 
other suggestions other than gas tax or these exemptions of 
getting additional money in this fund. You are probably aware 
in Virginia that the Governor and the general assembly have 
just agreed on a pretty comprehensive plan State-wide and in 
various regions and have a lot of different mechanisms. So I 
just wondered if your industry has looked at, are there other 
things that should be proposed?
    Mr. Buechner. Our industry has, and this will be the 
subject of another hearing, a proposal that we have for 
addressing our highway investment needs with a separate sub-
fund in the Highway Trust Fund that would involve user fees 
levied on shippers. It is something that we have fleshed out 
and we can provide it to you. And we will do that.
    Ms. Drake. Thank you. I also wonder if your industry, how 
involved they are in alternative fuels, and just wanted to 
point out to you that Old Dominion University in Norfolk, 
Virginia is working on a bio-diesel that is created from algae. 
Higher carbon content than corn or soy, but very interesting 
work that maybe they would like to take a look at.
    I wanted to ask Mr. Pisarski, you mentioned in your 
testimony about transit and other modes receiving money from 
the Highway Trust Fund. I am wondering if you think that maybe 
that should be changed and the money in the Highway Trust Fund 
should be for highways and if we should look at other 
alternatives for transit and other modes?
    Mr. Pisarski. I think we certainly should be looking for 
other alternatives. The pressure that has been put on the 
Highway Trust Fund, trying to meet these new goals, has, I 
think, exhausted it. And to open it up to general revenue and 
other alternative sources, just as Dr. Buechner was saying, it 
is not that you don't think those things are valuable, 
attractive or useful, it is just that as they use the road they 
should be paying for it. You want to look for other 
alternatives to support them, general revenue or other 
mechanisms.
    Ms. Drake. Thank you. Thank you, Mr. Chairman. I will yield 
back.
    Mr. DeFazio. Thank you.
    Mr. Mitchell? No? Okay. We are back now to Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. Thank you for having 
this hearing.
    What I would like to explore, if I could hear from all of 
you is what your thoughts are on resolving the dilemma. Clearly 
one policy imperative that we have on the national level is to 
drive down fuel consumption and increase fuel efficiency. If we 
do that, we depress revenue going into the Highway Trust Fund. 
Mr. Sperling, you talked about perhaps finding some way of 
taxing vehicles, or is it feasible to tax vehicles that receive 
poor emissions ratings or poor environmental ratings.
    I would just be interested in hearing from all of you on 
what is the most constructive way to resolve that dilemma. 
Because obviously, both ends are desirable. We want to make 
sure the Highway Trust Fund is adequately funded. We want to 
drive down consumption. How do we reconcile two mutually 
attractive goals that are at odds with one another?
    Mr. Marron. I guess I will go first, so we will be in 
order. Again, not making any recommendations but just looking 
at the playing field, clearly increasing the gasoline tax would 
have both of those effects, would have the effect of 
discouraging driving, encouraging more fuel-efficient cars. But 
we are in a range where the consumer reactions are such that 
you would nonetheless raise significantly more revenue. So that 
would accomplish the twin goals that you laid out.
    In addition, various proposals for having tolling and then 
having the revenues from tolls go into the Trust Fund would 
again have the effect of discouraging some driving and being a 
revenue source.
    Mr. Buechner. I frankly can't add much to that. The notion 
of raising the gas tax is certainly going to be helpful to the 
Highway Trust Fund. To the extent that it does resolve some of 
these other issues, that would be very helpful as well.
    Mr. Bishop. Thank you. Mr. Sperling?
    Mr. Sperling. Yes, I think it will not be difficult to 
adjust the taxes based upon the quality of the fuels. I say 
that because in the next few years, it s going to be done, 
there is going to be a system put in place, in California we 
are doing it, as I mentioned, the low carbon fuel standards, 
where we are developing, this is getting kind of sophisticated, 
where we are taking from the academic world this concept of 
life cycle analysis, life cycle emissions, and we are codifying 
it. We are putting it into law in California. The U.S., at the 
Federal level, is probably going to be doing the same thing 
because of the renewable fuels program, renewable fuels 
standard that is floating around in Congress and the Executive 
Branch right now. The EU is doing that, the U.K. is doing that.
    So this idea of being able to label the fuels and track 
them is something that is going to be done anyway. So to attach 
taxes to it, fuel taxes, will not require any major new 
institutional apparatus.
    Mr. Bishop. Okay, thank you. I yield back, Mr. Chairman.
    Mr. DeFazio. I thank the gentleman. Mr. Boozman?
    Mr. Boozman. Thank you, Mr. Chairman.
    Have any studies been done on exactly what the effect of 
increasing the fuel cost is in the sense that, you know, you go 
to Europe and it looks to me like they have the same problem 
that we do. If Americans can get there in a reasonable length 
of time and there is parking, it looks to me like they are 
going to drive their cars, unless we get dramatically higher, 
and if we get dramatically higher, none of use are going to 
vote for that, because the American people won't tolerate it 
and I think rightfully so. So it really is just a complex 
thing.
    But is there a study like that that indicates at what point 
you really do affect, because it does seem that especially in 
America, that people again, to me the thing that really 
mitigates whether or not they are going to do it is the parking 
problem. Yes, sir?
    Mr. Sperling. Yes, there has been some good research, 
including with some of my colleagues, over the last few years. 
We have found just what you are saying, that the idea, we use 
this concept of elasticity of demand. And it used to be, back 
in the 1970s, that for every 10 percent increase in fuel price, 
you would get about a 3 percent reduction in fuel consumption, 
gasoline consumption. Now for every 10 percent, we are getting 
about a half percent reduction. In other words, consumers are 
very inelastic, compared to almost any other product. We have 
seen that, all you have to do is look at the statistics the 
lats few years. Prices doubled and there was very little effect 
on gasoline consumption.
    So certainly some people were hurt by those high fuel 
prices. But the overall effect is that people are not 
responsive to high prices. So when we talked about gas taxes, 
we should be thinking about why do we want high gas taxes. It 
probably won't change behavior very much. It will have two 
effects, of course, it generates more revenue and it does raise 
the threshold for investors in alternative fuels. That is a 
very important concept to keep in mind.
    Mr. Boozman. I think you can impact the size of cars, the 
fuel efficiency and people will buy smaller cars and gravitate 
that way, that have a higher fuel economy. But it is just an 
interesting phenomenon. Mr. Marron?
    Mr. Marron. Yes, sir, I just wanted to say that in our 
estimates, I think it is important to distinguish between the 
short run effect and the longer run effect. What we have seen 
from recent price increases is that over the short run, people 
are quite inelastic in their demand for gasoline. There is some 
effect, but it is quite small, as the other witness mentioned.
    Over long time periods, as you were just hinting, there are 
more margins along which people can respond in terms of 
choosing their car, choosing their transportation patterns. So 
there is some noticeable effect. In the elasticity terms, as 
you mentioned, over the longer run, we have an estimate of 
about 30 percent in those terms. So if you increase gas prices 
10 percent, you would see about a 3 percent reduction in use, 
which is not enormous, but is something.
    Mr. Boozman. So do you think we will wind up with some 
hybrid? Certainly the problem of taxing a battery-powered car, 
and we do have battery-powered cars now that will run 150 miles 
an hour, go 200 miles and things. They are working hard to 
shrink the size of the battery. That problem, compared to a 
gasoline engine that gets 50 miles to the gallon is a different 
animal.
    So do you think we will ultimately wind up with some 
hybrid, taxing those two differently?
    Mr. Buechner. I would think, the one fuel that does cause a 
problem is electric cars. Because that is a fuel that can be 
delivered without requiring a separate delivery system. But 
fuels like gasoline, hydrogen, natural gas, can't be delivered 
directly to the consumer except going through a system where 
you could find a place to tax them. So electric cars will pose 
a problem.
    But I think any of the other alternative fuels, so long as 
there is a separate delivery system and you can impose a tax at 
some point that can be collected, you just have to set your 
base and set what the rate will be. In fact, even natural gas 
used in automobiles is taxed at the same rate today as 
gasoline. So there is just that one problem with electric cars 
that I see as a long-term problem.
    Mr. Boozman. But you have to fix that one, or you will 
drive people into, they will gravitate to the other to escape 
the tax if it is not done.
    My time is up. Thank you, Mr. Chairman, and thank you all 
very much.
    Mr. DeFazio. Thank you. Mrs. Capito?
    Mrs. Capito. Thank you, Mr. Chairman, and I thank the 
gentlemen, too.
    We have talked along and around the question that I am 
getting ready to ask. So if you have already answered it 
specifically, I apologize. In West Virginia, we tag part of 
our, a portion of our State gasoline tax is pegged to the price 
of gasoline, it is recalibrated every year. The past year, the 
Governor suspended that growth in the tax as a measure to try 
to keep the price of gasoline down. It ended up costing $53 
million to the State, and now he is scrambling to try to make 
that up to match.
    Have you all ever looked at tagging a portion of the 
Federal gas tax so that every year, I guess either it would be 
indexed or indexed to a portion of the price of gas? Is this a 
concept that you have taken from, say, our State and tried to 
extrapolate in the Federal system?
    Mr. Buechner. There are two alternative ways of doing that. 
The one that you use in West Virginia, which is a sales tax 
levied as a percent of the sales price, will fluctuate up and 
down as the price of gasoline changes. But an alternative is to 
link the tax rate to an index that is somewhat related to the 
cost of highway construction. One possible index is the 
consumer price index. There are other indexes that partially, 
at least, track the cost of highway construction. Either way, 
year after year, the tax rate is adjusted so that you can 
actually maintain the same amount of highway investment.
    There are other States that use the sales tax approach. 
They find that it is a little bit disruptive to their planning, 
because it does go up and down with the price of gasoline.
    Mrs. Capito. I had another question on public-private 
partnerships. In a State like West Virginia, even though we are 
a small State, the cost of building our highways is extremely 
high, because of our terrain. The cost of building per mile is 
so much more than what you would normally think in a State the 
size of ours.
    So we are trying to look at public-private partnerships for 
financing road construction. What do you see the future of 
that? I just had some folks in my office earlier this morning 
who are not in favor of that because they want to know, does 
the public money become private or does the private money 
become public, and how does that work? And then it also raises 
the issue, I think, of toll roads, which is a little bit 
separate. Do you all have an opinion on that public-private 
financing aspect of road construction?
    Mr. Pisarski. I guess I will start the trouble by 
responding. I think there are many opportunities that we are 
all looking at because of the lack of funds both at the State 
and at the Federal level, and we should be open to them. In 
many instances, in the State of Virginia, for instance, and 
other States, it has been an effective tool. But I have a 
feeling that we are moving very fast into some of these things 
and not very carefully in some cases. I think we are going to 
find out that there are problems that begin to arise that we 
weren't prepared for.
    So I guess my concern would be, I am very open to it, I am 
very positive about it, but I would really want to be very 
careful as we proceed.
    Mrs. Capito. One of the questions that came up today in our 
discussion was if the construction becomes more of a private 
emphasis than a public emphasis, are there safety issues 
involved, what standards are these construction dollars going 
toward? I think that is a legitimate question and one, I would 
agree with you that we would need to go into if we are going to 
go that direction or look at it seriously, we ought to look at 
some pilot studies or something to see that we don't all of a 
sudden think this is a panacea, this is the greatest thing and 
it ends up unsafe conditions and less checks and balances.
    I yield back. Thank you.
    Mr. DeFazio. Mr. Boustany?
    Mr. Boustany. Thank you, Mr. Chairman.
    Mr. Pisarski, the backlog figure you gave as an estimate, 
$375 billion to $400 billion, is that just a Federal backlog or 
does that include State?
    Mr. Pisarski. That is the national backlog that comes out 
of the Condition and Performance report and analysis of the 
conditional performance report.
    Mr. Boustany. Okay. Because many States have backlogs, too. 
I know for instance my State of Louisiana has about a $13 
billion backlog, and we are struggling with how to deal with 
that back home. Most of you or all of you talked to some extent 
about increasing the gasoline tax. What about the States? 
States are looking to increase gasoline tax, so it seems to me 
that we are heading for a brick wall on this. So that becomes a 
problem.
    I know you partially answered my question, when Mr. Bishop 
asked about whether or not assuring adequate funding and 
reducing greenhouse gases, are they mutually exclusive goals 
and how do we go about it. You brought up the issue of 
adjusting tax based on fuel quality. How complicated is that? 
And how would we pay for that? And would paying for it come out 
of the Highway Trust Fund?
    Mr. Sperling. As I said earlier, I think institutionally it 
can be done, and it will be actually in five or six years, I 
think it will be easier to do, because we are putting all the 
systems in place to do it for other reasons for these carbon 
standards, using life cycle models and metrics and so on. So I 
think that is all going to be codified and fairly routine. Then 
in terms of the revenue stream, you can make it revenue neutral 
in the sense that you can make sure that trajectory goes up at 
whatever slope you want by the mix. Because we can forecast, 
five years out we can forecast very well. Fifteen years, the 
crystal ball gets a little hazy. But five years, eight years, 
we can do pretty reliably. So we can project ahead, I think, 
without too much trouble.
    Mr. Boustany. Do you have a sense of what the cost will be 
to make that transition?
    Mr. Sperling. The cost to, in a sense, society?
    Mr. Boustany. Just the actual cost to be able to set up a 
system whereby you can create these adjustments on the fuel tax 
based on fuel qualities? There is obviously some cost involved 
in making a transition to that type of model. Do you have a 
sense of what the cost would be?
    Mr. Sperling. I think because we are doing it anyway, the 
additional cost in a sense to the this gas tax system would be 
minor, very, very minor, almost negligible, because we would be 
doing it, we will be doing it anyway.
    Mr. Pisarski. Going back to your first question about State 
taxes, historically what has happened is when you see a Federal 
gas increase, then a lot of the States recognize that in order 
to match the Federal funds they are going to need an increase 
in funds. You will frequently see State taxes follow along. It 
is always a very effective tool at the State level to, in 
effect, justify a tax increase as it is needed to be able to 
match the Federal response.
    Another item I wanted to add, going back in history, this 
is during the last energy crisis. The big bump-up in 1979 where 
I was in the Department of Transportation and the price was 
very high by those standards. One of the arguments that we used 
on the gas tax increase was that for every ten cents a gallon 
that the price of gasoline dropped we added one cent in Federal 
tax. So that as the gas prices dropped 30 or 40 or 50 cents, 
you would pick up one penny, you would pick up a penny Federal 
gas tax for every 10 cents the price dropped. Obviously it 
would effectively disappear.
    I think that kind of notion was very clear. We also offered 
the States an arrangement where you would take a penny off the 
Federal tax for every penny that the State tax rose. And we had 
no takers.
    Mr. Boustany. Have we become conditioned with regard to the 
elasticity now? Because earlier, when there were oil shocks, 
clearly there was a major decrease in utilization. It seems to 
me that as a society, we have become much more conditioned. So 
that has created this inelasticity.
    Mr. Pisarski. Yes. I follow the consumer expenditure survey 
very closely. What people tend to do is they take it out of 
other transportation expenditures. They are less likely to buy 
a new car because they are going to wait and hold it longer, 
because their transportation costs are high this year. Unless 
they are trying to find something that is really fuel 
efficient. They tend to hold their share of total income 
roughly constant going for transportation.
    Mr. Boustany. Thank you . My time is up and I yield back.
    Mr. DeFazio. I thank the gentleman.
    Mr. Duncan? Ms. Fallin?
    Ms. Fallin. Thank you, Mr. Chairman. I actually do not have 
a question, but as I was listening to the debate something came 
across my mind. In my State of Oklahoma, I remember we put a 
proposal to the vote of the people about whether to raise their 
gasoline taxes. So I was sitting here trying to remember what 
all was the percentage of the vote. I think it went down by 
like 75, 80 percent, people that voted against a gasoline tax 
increase. So that was kind of the mood of our State back, I 
think it was about three or four years ago.
    One of the biggest concerns we have in our State is just 
getting back a good share of the money we send into the Federal 
Government. Of course, Oklahoma has always been a donor State. 
So I guess if anything ever came about that the taxes were 
changed, my State would certainly want to get back its fair 
share. That is probably not a question, but just a statement 
about our State.
    Thank you, Mr. Chairman.
    Mr. DeFazio. It is good representation. We thank you for 
being a donor. My State was until very recently a donor State. 
So I know how it goes, that is always a big debate.
    For perspective, my State repeatedly turned down a gas tax 
increase until it was linked to, it was instead of just raising 
the tax, it was a specific problem, which was failing bridges, 
was identified. And the tax increase was dedicated to a very 
large bond issuance to retire the bonds. So people saw 
immediately quite a substantial investment. At that point they 
were willing to vote for it, because they said, okay, we see 
what we are going to get now, and it is quite substantial. And 
they were willing to vote for it. But if it was just sort of, 
well, we are going to raise the gas tax, they were--so.
    Mr. Duncan?
    Mr. Pisarski. May I comment on that, sir?
    Mr. DeFazio. Sure.
    Mr. Pisarski. I think that is absolutely right. At the 
State level, it is very frequently tied to a menu. ``This is 
what we will do if you give us this money.'' And at the Federal 
level, I think it is the same thing, rather than simply talking 
about more money. You need to have a vision, as I made the 
point in my testimony. If we were talking about the 
preservation, protection, expansion and effective utilization 
of the interstate system, I think the public would understand 
that kind of a concept.
    Mr. DeFazio. Or if we were talking about Mr. Sperling's 
infrastructure deficit and we were issuing infrastructure 
deficit bonds, which were retired by a small increment on the 
gas tax.
    Mr. Pisarski. Yes.
    Mr. DeFazio. Just an idea. I didn't make a formal proposal, 
in case there is any press here.
    Mr. Duncan?
    Mr. Duncan. Thank you, Mr. Chairman.
    Mr. Marron, you mentioned in your testimony that Trust Fund 
spending has exceeded Trust Fund revenues by about $16 billion 
since 2001. Was there any time where Trust Fund spending 
exceeded revenues prior to that?
    Mr. Marron. Which way do you want it, a period during which 
outlays were previously higher than revenues?
    Mr. Duncan. Right.
    Mr. Marron. My crack folks are looking at their tables 
here. Actually, I think I have a graph in the testimony that 
addresses that. So Figure 1, you can see outlays exceeding 
revenues kind of in the 1994 time period, and then a few years 
occasionally prior to that.
    Mr. Duncan. Mr. Sperling, you say in your testimony, large 
drop-offs in fuel tax revenue are unlikely for the next 10 
years. Funding gaps can easily be solved over the next 20 years 
or so with very small increases in the fuel taxes. Yet we are 
already off from the projections that we got last year. I am 
wondering, I guess what I am wondering about, some people are 
already saying that troubles in Iran are going to lead to 
really big increases in the cost of oil. What would happen if 
that, if the price of oil doubled here in the next year or two? 
You said that with each 10 percent increase in the cost of gas 
that there was a 3 percent decrease? What was it you said about 
that?
    Mr. Sperling. I said that is what it used to be. Now it is 
like half of a percent to 1 percent. Mr. Marron said that in 
the long term, it would be back to 30 percent. I would disagree 
with that, or I would suggest that is likely not true, because 
while theoretically correct, I am the professor, but I am going 
to argue against the theory, in practice what we have seen is 
oil prices fluctuating up and down. What has happened is people 
have been conditioned to believe that oil prices are not going 
to stay high.
    So in fact this so-called long term response or long term 
elasticity never happens, or hasn't happened the last 25 years. 
From what I understand about oil markets, it is probably not 
going to happen in the future either, because the fundamental 
cost of production of oil is maybe $25, $30 a barrel. There are 
a lot of countries making an awful lot of profit. It is 
actually much less than $25 in almost all cases.
    So the price of oil, if you talk to any expert, the price 
of oil can be anywhere, including the CEO of Exxon, the price 
of oil can be anywhere from $30 to $70 to $80 and they really 
can't predict that. So your scenario is very possible. But the 
question is, what is the consumer response. It is not at all 
clear that there ever will be this, it is not clear that the 
price is going to stay very high for a long time. And it is not 
clear that consumers are going to have any kind of fundamental, 
durable, lasting response to high prices whenever they do 
happen.
    Mr. Duncan. Well, you know, none of these things are easy. 
You said it can easily be solved with a very small increase in 
the fuel taxes, yet Dr. Buechner mentioned removing the 
exemptions. Yet the main exemptions are for the State and local 
governments and transit agencies and I can tell you that every 
one of us is being bombarded every day by people from State and 
local governments who are up here trying to get more money. If 
we start removing those exemptions, boy, they will scream to 
high heaven. Then you talk about tolls, I can tell you, in my 
State there are no tolls. If we start putting those in, if 
people thought I was responsible for a toll, I would be voted 
out in the next election with no question about it.
    [Laughter.]
    Mr. Duncan. The fuel tax, the Chairman noted in almost 
every State they vote those down every single time. Maybe it 
would be possible to do a tiny little increase if you tie it 
into some project that is very popular. But it just looks like 
you have a very difficult situation there. What do you say, Mr. 
Pisarski?
    Mr. Pisarski. Yes, it is difficult. If you look at where 
there have been successes and where there have been failures, 
success is always tied to a program where the people trust the 
State government, the State DOT, to do a good job and where 
they have laid out a menu or laid out a program. In most of the 
cases that I have seen, I am thinking of Ohio as one of the 
best examples, where they were very sorry that they had not 
asked for more after they succeeded. There are a number of 
States that have succeeded in creating indexes.
    So there is, I think, more concern than there needs to be. 
I think the public recognizes these needs and we just need to 
make that case to them better. I look at the European system, 
going to your question about the price of oil. If you count the 
taxation, the value of a barrel of oil in Europe coming out of 
the ground is like $300 a barrel. And it doesn't come out of 
the ground with tax on it. So I guess my point is that there is 
an immense benefit to the society, to every society, from the 
automobile and from the use of petroleum fuels. People are 
willing to pay immense sums for that benefit and the Europeans 
have discovered that. That is why their tax system is so high.
    Mr. Duncan. Well, you talk about trusting the State DOTs, I 
am not sure, actually through, pretty much through no fault of 
their own, most of the State DOTs are not that popular. I 
remember in Knoxville, we used to have a mayor and I didn't get 
in any public dispute with him, but he used to attack the State 
DOT all the time because they were doing all this highway 
construction there in Knoxville. And it was very unpopular 
while it was going on.
    But what I told people, I said, well, if the interstate in 
West Knoxville, just think if it was still two lanes instead of 
five like it is now. My gosh, we would have been in a horrible 
situation. So you have to put up with it. Now I think it is 
popular, but it sure wasn't for those several years while we 
were going through it.
    All right, well, thank you very much for your testimony. 
You have been a very helpful and informative panel. Thank you, 
Mr. Chairman.
    Mr. DeFazio. Thank you. Any other questions?
    Okay. With that, I thank you for your testimony and this 
committee is now adjourned.
    [Whereupon, at 3:37 p.m., the committee was adjourned.]

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