Secretary of Transportation Ray LaHood (dot.gov)

A controversial proposal to shore up federal transportation funds has set off a firestorm in Washington, with a high-profile disagreement between the transportation secretary and the White House leaving the nation’s strategy for combating an impending highway budget shortfall in doubt.

In an interview with the Associated Press last Thursday, Secretary of Transportation Ray LaHood proposed a vehicle miles traveled tax, which would charge motorists for each mile driven rather than fuel consumed, as an alternative to a higher gas tax. He called it a way of “thinking outside the box on how we fund our infrastructure in America.”

Illustration by: Matt Mahurin

The White House quickly shot down the proposal. In his daily press briefing Friday, White House Press Secretary Robert Gibbs said bluntly that the tax “is not and will not be the policy of the Obama administration.” A Transportation Department spokesperson, who asked to remain anonymous, clarified the discrepancy to TWI on Monday: “The Obama administration is not advocating a VMT [vehicle miles traveled] tax. In the interview with the AP, Secretary LaHood was simply stating a spectrum of ideas available for financing transportation infrastructure in the future.”

Still, the mileage tax remains on the table as a potential long-term solution to the revenue shortage, and LaHood’s apparently unilateral proposal triggered a flurry of debate on the merits of the tax. A Washington Post editorial on Monday came out strongly in favor of the plan, while on the same day a piece in the Baltimore Sun criticized it as the “height of stupidity” and other publications called it “impossible to administer” and “far from a ‘green’ policy.” Among industry leaders, the president and CEO of AAA praised the plan, while the CEO of Federal Express called it “ill-advised” and unfair to residents of rural states.

Although most of the media coverage has focused on the administration’s rejection of LaHood’s proposal and the tax’s pitfalls, a number of experts, backed up by a successful pilot program in Oregon, maintain that a mileage tax is a sound policy to reverse the highway budget shortfall without endangering environmental incentives or creating excessive logistical difficulties.

The discussion of alternatives to the gas tax comes at a critical time. On Monday, House Appropriations Transportation Subcommittee Chairman John Olver (D-Mass.) announced that the Highway Trust Fund, which provides for the maintenance of America’s highways and bridges, will run out of money by the end of September. The fund relies mostly on revenue from the gas tax, and according to Olver, it is headed for a deficit as Americans cut back on their fuel usage.

The Treasury Department has projected a $3.2 billion shortfall for the fund in the fiscal year 2009. Congress kept the fund solvent last fall with an $8 billion emergency spending bill, and while a similar cash infusion would help now, other solutions are needed in the long run to prop up what Olver called a “severely underfunded” program.

A mileage tax would be one possible route. Supporters of the mileage tax point to the success of a pilot program in Oregon, which demonstrated the viability of such a tax as a steady and practical long-term source of revenue. According to a November 2007 report by the Oregon Department of Transportation, the program was initiated amid fears that as more people started driving hybrids and cars that run on alternative fuel sources, “Oregon’s road system would be in jeopardy as the gasoline tax revenues necessary to preserve, maintain and modernize the system slowly but steadily drained away.”

The experiment began in April 2006 and included 285 volunteer vehicles and two gas stations. The cars were outfitted with mileage-calculating GPS devices, and the tax was paid automatically at the specified gas pumps, just like a standard gas tax.

The 2007 report declared the trial a success. Despite the limited scope of the program, participants found it fair and convenient, and 91 percent indicated that they would be open to a mileage tax if enacted statewide. Only three participants had privacy concerns, although the report conceded a “trade-off between privacy and information stored for enforcement and dispute resolution.”

Developing, manufacturing and installing each GPS device in the pilot cost $603 per vehicle, but the report estimates that if they are produced on a larger scale, the cost will be under $100 per vehicle. Likewise, the state spent $78,000 to replace some gas pumps, but it will require gas stations to use compatible systems if the mileage tax is enacted statewide. At 1.2 cents per mile, an average driver would currently pay about the same amount as under a gas tax. At first the state would break even as tax revenue recouped costs to initiate the program, but “after the initial start-up period, the mileage fee implemented statewide would begin to generate more revenue than the [standard] gas tax would be expected to generate since the gas tax erodes because of improvements in vehicle fuel efficiency, while the mileage tax does not,” according to the report.

The Oregon Department of Transportation also suggested that in order to avoid the expense of retrofitting all vehicles, the mileage tax could be phased in, with new vehicles paying the mileage tax while older ones continued to pay a gas tax.

After the success of the Oregon pilot, other states have begun to consider a mileage tax. Idaho, North Carolina, Rhode Island and Massachusetts are all debating some form of the tax, although the proposals have faced criticism.

Environmental advocates point out that innovation in green transportation policy tends to happen first on the state level. Nearly a century before experimenting with the mileage tax, Oregon pioneered the first gas tax in 1919, and all other states followed suit in the next decade. After the success on the state taxes, a national gas tax was put in place in 1932. “Traditionally the states have a little more flexibility,” explained Eli Hopson, the Washington representative for the Union of Concerned Scientists’ Clean Vehicles Program.

“The states have been leading the way on environmentally sound transportation approaches,” agreed Daniel Becker, director of the Safe Climate Campaign, an environmental advocacy group. “I think we’ll see more of this kind of [mileage tax] approach in states.”

Still, not all analysts believe that a mileage tax would be environmentally friendly. A chief criticism of the tax is that it would serve as a disincentive to purchase fuel-efficient vehicles. A high gas tax, in place in much of Europe and elsewhere, discourages people from driving gas-guzzling SUVs and pickups, which not only release higher volumes of greenhouse gases into the atmosphere, but also do more damage to roadways than smaller, lighter cars. A tax based purely on mileage, on the other hand, does not distinguish between high- and low-efficiency vehicles. According to Gilbert Metcalf, a Tufts University economist who specializes in energy issues, a mileage tax would “make it more expensive for the fuel-efficient cars, because they have the upfront expense” of a higher price tag at the dealership.

But Deron Lovaas, the federal transportation policy director of the Natural Resouces Defense Council, dismissed the notion that a move away from the gas tax would slow the trend toward hybrids and other energy-savers. “There’s no doubt that the gasoline tax provides an incentive for the purchase of more efficient vehicles, but let’s be honest, it’s a modest incentive at best,” he explained. “Gasoline taxes are in the single digits as far as the percentage of money you pay at the pump.” The gas tax is far outweighed by fluctuations in the price of crude oil, he noted.

To address the issue of incentives, some analysts advocate a mileage tax that takes fuel efficiency and other factors into account. By installing a GPS chip in every vehicle, Lovaas argues that regulators could use a “sliding scale” to charge drivers more for using larger vehicles or traveling on busy roads during peak hours. Monitoring of this sort, however, has raised privacy concerns, since it would allow a driver’s movements to be tracked.

Again, Lovaas is unfazed by this line of criticism. “Anyone who has a cellphone on their person has traded away a lot more privacy than you would lose through a program that had data collection in vehicles,” he said, adding, “By limiting the amount of data collected and encrypting that data, you can trump privacy concerns.”

In spite of the arguments in favor of a mileage tax, it appears that it will not be implemented in the short term, given Gibbs’ strong statement to that effect. It is clear, however, that something must be done to address the coming Highway Trust Fund deficit. The federal gas tax has not been raised since 1993, although inflation has led to higher maintenance costs. Increasing the tax is one possible solution, but President Obama has spoken out against “putting additional burdens on American families” with a higher gas tax.

The administration will continue to explore its options for raising additional infrastructure revenue, including new tolls and public-private partnerships, according to the Department of Transportation spokesperson. In the meantime, if LaHood has another proposal to unveil to the press, he might want to run it by the White House first.

In an interview with The Associated Press yesterday, LaHood rejected the possibility of raising the gas tax in the economic downturn, preferring to “[think] outside the box on how we fund our infrastructure in America.” The VMT tax would likely require the installation of a GPS chip in every vehicle in the country to track mileage.

It’s hard for me to see how this is not worse than a gas tax on every level. First of all, getting the program started will be a logistical nightmare. (Think installing digital converter boxes in 6.5 million households has been hard? Try putting GPS chips in the country’s estimated 250 million passenger vehicles.) It will also be a tremendous expense at a time when LaHood’s former Republican colleagues in Congress haven’t exactly welcomed excessive government spending.

But most importantly, it gets the incentives all wrong. Under LaHood’s plan, the driver of a Rav4 (22/28 MPG) would pay no more than the driver of a Prius (48/45), even though he’s consuming twice as much gas. A shopper at a Toyota dealership will see the Rav4’s lower price tag and spacious interior and feel little motivation to spring for the cosy Prius.

The only possible rationale for a VMT tax is political. A higher gas tax is tangibly painful for drivers who find themselves shelling out much more at the pump. It’s a hard sell. A little GPS chip in their cars and some extra tax forms, on the other hand — well, that just might be sneaky and abstract enough to work.

Still, if a gas tax is politically impossible when gas prices are just about as low as they’ll get, then when will it be feasible?

UPDATE: Transportation Department spokeswoman Lori Irving just shot down everything LaHood said: “The policy of taxing motorists based on how many miles they have traveled is not and will not be Obama administration policy.” Guess our transportation secretary was just speculating when he told the AP, “We should look at the vehicular miles program where people are actually clocked on the number of miles that they traveled.”

LATER UPDATE: Press Secretary Robert Gibbs also dismissed the notion of a VMT tax. “It is not and will not be the policy of the Obama administration,” he said at this afternoon’s press briefing. Again, makes you wonder why LaHood would bring it up without consulting anyone.

Ray LaHood, who represented Illinois in the House for seven terms, sponsored $60 million in earmarks last year, steering at least $9 million in federal money to campaign donors, a Washington Post analysis shows. An opponent of earmark reform efforts in Congress, LaHood ranks roughly among the top 10 percent in the House for sponsoring earmarks in 2008, according to a watchdog group.

LaHood’s record poses an important question as hearings begin today that will explore how he would administer part of a $775 billion stimulus package that will be directed to the Transportation Department. LaHood has defended his use of earmarks as a way to direct federal money to decaying communities in his district and insisted there is no connection between his earmarks and projects benefiting campaign donors.

Among the earmarks:

LaHood’s biggest campaign donor is Peoria’s largest corporation: Caterpillar. The company and its workers have donated more than $190,000 to LaHood since 1998, according to the Center for Responsive Politics. Last year, LaHood secured $7.8 million to help the company and its offshoots develop technologies for potential future military contracts.

Last year, he also pushed for $333,000 to construct the new Lakeview Museum in Peoria, part of a project that will include a Caterpillar-financed museum focused on the company’s history.

LaHood sponsored $1.49 million in earmarks directed to Springfield’s Memorial Medical Center to fund the purchase of computer-based simulation technology and other equipment. Memorial and its lobbyist Cassidy and Associates together have given $60,000 to LaHood.

Local road-building companies also have supported LaHood. United Contractors Midwest, led by president James Bruner, is often ranked as his second or third largest donor, and its officials have donated $24,925 to LaHood. Three leading members of the Illinois Asphalt Pavement Association have given more than $60,000 to LaHood.

President-elect Barack Obama has pledged that there will be no earmarks in the upcoming economic stimulus package (though, as my colleague Dave Weigel recently mused, “One man’s earmark is another man’s shovel-ready project”). Presumably, the new administration will be a bit more concerned with overseeing the disbursement of hundreds of billions of dollars in taxpayer money than the current White House occupants, especially in the wake of the TARP debacle.

But still, with revelations yesterday of Treasury Secretary-nominee Tim Geithner’s little tax problem (Wait, he’s supposed to do a better job than Hank Paulson in keeping track of how federal funds are being spent?), and now this, these are not the questions a new administration promising change wants to be answering during cabinet confirmation hearings.

Solis is considered a strong ally of organized labor, and she supports the Employee Free Choice Act, which would facilitate the formation of unions. Her selection has earned praise from the Service Employees Internation Union. She is the third Hispanic member of Obama’s cabinet, and like Bill Richardson, she gave a substantial portion of her acceptance speech in Spanish.

LaHood, on the other hand, has been criticized by Democrats for his weak environmental record. Some consider him a token Republican, appointed to fulfill Obama’s promise of a bipartisan cabinet — and indeed, Obama said today that “Ray’s appointment reflects that bipartisan spirit.” His primary credential as a transportation progressive appears to be his tempered support for Amtrak. Obama also highlighted his advocacy for aviation and bicycling, and said, “Few understand our infrastructure challenge better than … Ray LaHood.”

As relatively obscure members of Congress, Solis and LaHood stand in contrast to Obama’s previous cabinet appointments, which include two senators (Hillary Clinton for State and Ken Salazar for Interior), a former senator (Tom Daschle for Health and Human Services) and two governors (Richardson for Commerce and Janet Napolitano for Homeland Security). The New Republic argues that their low profile is an indication that labor and transportation may not be top priorities for Obama.

Kirk served as the mayor of Dallas from 1995 to 2002, and he sought to transform the city into the “capital of NAFTA.” Obama called him a “principled proponent of trade.” The New York Times today highlighted Kirk’s policy differences with Solis over free trade.

Mills is the president of MMP Group in Brunswick, Maine. House Small Business Committee Chairwoman Nydia M. Velázquez (D-N.Y.) praised her selection, saying, “This appointment shows that his economic team recognizes the key role that small firms play in job creation and the need to take quick steps to revitalize the agency’s role in spurring growth.”

Obama opened the press conference by applauding President Bush’s $17-billion bailout of the auto industry, arguing that it would contribute to “jobs and wages,” which he called his primary measure of the economy’s success. In the question-and-answer period, he noted that there has been much progress, albeit in “baby steps,” in the negotiations with the auto executives. “We started off with the automakers coming before Congress asking for a blank check,” he said. “And I, like many others, said that’s not gonna fly.”

“My top priority in this administration is going to be to create 2.5 million new jobs,” he continued, “and I want some of those jobs to be in the auto industry.” He added that the concessions made by the auto industry should not be at the expense of the workers and unions.

MSNBC’s Savannah Guthrie asked Obama if there would be a cap to his stimulus spending next year.

“The economic forecasts have deteriorated,” he responded, referencing his conversations with leading economists. “The conclusion has been … that unless you have a bold approach, you could continue to see the economy decline. … That is not acceptable to me, and I don’t think it’s acceptable to the American people.”

Tomorrow, Obama leaves for a family vacation in Hawaii. Conveniently, he will be away when his team releases its report on its interaction with Illinois Gov. Rod Blagojevich next week.

The National Conference of State Legislatures, in conjunction with the University of Maryland and the Center for Integrative Environmental Research, is releasing reports that also show that economic and environmental interests are aligning in other states.

The studies lay out the rising economic costs of global warming on states’ agriculture, water resources, public health, tourism, transportation, forestry and infrastructure. In some states, cutting greenhouse gas emissions has reduced these costs and fostered economic growth.

The conference recommends that all states pursue tougher environmental regulations because a state’s economy is invariably linked to the economies of its neighbors.

Among the states featured in the new reports are North Carolina, Tennessee, North Dakota and Pennsylvania (pdf here). (Cost-analysis reports for Colorado, Georgia, Illinois, Kansas, Michigan, Nevada, New Jersey and Ohio were released in July at the conference’s Legislative Summit in New Orleans.)

As in California, energy-efficiency policies are the most cost-effective options for states seeking to reduce greenhouse gases, according to the reports. Minnesota, for instance, saw a return of $3 in economic gains for every dollar spent on its energy-efficiency programs. Other states are considering legislation that would require new buildings to meet certain efficiency standards, while renovations of existing ones would have to meet green standards. You can read the cost reports for 12 states here.

The policy recommendations of the National Conference of State Legislatures will probably encounter some resistance from industry forces. But if California’s example shows anything, it’s that industry can benefit from tougher environmental protections.