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Garrett Introduces Taxpayer-Friendly Solution for Infrastructure Funding

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Location: Washington, DC

Garrett Introduces Taxpayer-Friendly Solution for Infrastructure Funding

Rep. Scott Garrett (R-NJ) re-introduced the STATE (Surface Transportation and Taxation Equity) Act today, H.R. 3595, which returns primary responsibility for transportation and infrastructure projects back to the states without increasing taxes. Under this legislation, states would have the ability to prioritize projects based on safety, traffic needs, and improved commerce instead of being subject to federal mandates and earmarks.

"My proposal, the Surface Transportation And Taxation Equity Act (STATE Act), will allow any state that raises their state fuel tax, to have their federal fuel tax offset by the same amount," Garrett said in an address to the CATO Institute regarding the STATE Act. "This will allow states to return primary transportation program responsibility and taxing authority to the States, free states' transportation dollars from federal micromanagement and budgetary pressures, let persons at the state level, who are best able, make decisions regarding which infrastructure projects will be built, how they will be financed, and how they will be regulated, eliminate the current system in which a federal fuel tax is sent to Washington and through a cumbersome Department of Transportation bureaucracy, and prohibit the federal government from forcing unwanted mandates on states by threatening to withhold transportation money."

Garrett originally introduced the STATE Act in 2005, a bill with the intent of providing states the ability to opt-out of the federal surface transportation system by allowing them to raise their own transportation revenue and make all of their own spending decisions. The past two highway bills have accelerated the process whereby highway and transit funds have largely devolved into mechanisms to give states back the money their residents pay in. The federal fuel tax is collected by the IRS, sent to Washington and put into the Highway Trust Fund. Then, a formula is used to determine how much money goes back to each state and in what ways that money can be spent.

This method allows certain states to benefit at the expense of other states. Some states such as Massachusetts and Pennsylvania get well over a dollar back for every dollar they contribute; while other states like Texas, Georgia, and Florida only get back around .90 cents on every dollar they contribute to the federal tax.

In explaining the benefits of the STATE Act to individual states, Garrett used his home state of New Jersey as an example. "My home state of New Jersey has a state fuel tax of roughly 14 cents per gallon," Garrett said. "New Jersey residents also have to pay the federal fuel tax of 18 cents for a total tax of 32 cents per gallon. If the New Jersey State Legislature elected to raise the state fuel tax to 32 cents -- equal to the total tax now being paid - New Jersey could entirely opt-out of the federal fuel tax program and keep all 32 cents to use within the state. New Jersey would no longer get any federal transportation dollars because the state would not pay any federal fuel taxes, but all of the fuel tax revenue would stay in the state. The benefits of this would be that New Jersey would get an equitable return on what its residents pay in fuel taxes, and the net increase on taxes for the consumer would be zero because the federal tax would decrease by an amount equal to the increase in state taxes."

Garrett's prepared remarks for his address to CATO on the STATE Act are included below:

I would also like to thank the CATO Institute for hosting this forum today, and I would like to thank you all for taking time out of your busy schedules to learn more about possible reforms to improve our nation's transportation system.

As you all are probably aware, the National Interstate Highway System began in the early 1950's under President Eisenhower. The original purpose of the National Interstate Highway System was "to connect by routes, as direct as practicable, the principal metropolitan areas, cities, and industrial centers, to serve the national defense, and to connect at suitable border points with routes of continental importance…"

The interstate highway system was completed almost 20 years ago, and it is widely considered to be a monumental success. Although interstates make up only 6 percent of state rural highway networks, they provide more than 20 percent of all intercity auto traffic and more than half of all intercity truck traffic.

But since the system was completed in 1991, Congress has become increasingly unfocused on what to do with the money it collects from the 18.4 cents per gallon gas tax that it collects from motorists nationwide. For example, since the interstate's completion, the number of licensed drivers has increased 21% , registered vehicles are up 31% , and the number of miles driven by motorists has risen by 39% . However, in that same time period, our nation's road capacity has increased by a paltry 6%.

Today, our transportation network is more congested than ever, and it is in need of repair and reinvestment. According to the American Society of Civil Engineers, Americans spend 4.2 billion hours a year stuck in traffic at a cost of $78.2 billion a year--$710 per motorist. Roadway conditions are a significant factor in about one-third of traffic fatalities. Poor road conditions cost U.S. motorists $67 billion a year in repairs and operating costs--$333 per motorist; 33% of America's major roads are in poor or mediocre condition and 36% of the nation's major urban highways are congested.

I think, or at least I hope, that our nation is coming to grips with the fact that the current state of affairs is unacceptable. It is also my hope that because of this frustration, policy makers in Washington (perhaps at the urging of their constituencies) will finally begin to listen to some innovative ideas about reforming the system to make it more efficient and accountable. Unfortunately, I have seen nothing in any of the proposals put forth by the Congressional committees that gives me hope. But with Secretary LaHood requesting an 18-month delay before reauthorizing the highway bill, I believe there is still time!

When considering reauthorization proposals it is important to understand the politics of transportation. One group of planners, activists, and environmentalists, would like nothing more than to see a re-birth of high-density American cities; heavy reliance on mass transit, biking, and hiking; fewer cars; smaller suburbs; and less vehicular travel in general. Another group of Chambers of Commerce, trucking associations, civil engineers, and construction companies look at the transportation funding "shortfall" and would like to see massive new federal investment in infrastructure combined with increased federal user-fees. Local constituencies sometimes oppose infrastructure expansion based on NIMBY-ism or fears about its environmental impact. And yet another group looks at the problems that the federal government has had in making appropriate infrastructure investment decisions over the past 20 years, and are skeptical of Congress's ability to invest in transportation projects that are worthy of taxpayer support. They see the federal role in transportation planning as much of a hindrance to solving the problem as a solution.

To be sure, I probably share some of the concerns voiced by all of these groups. I worry about our nation's degrading infrastructure; I am an advocate of open spaces and private property rights; and I am profoundly skeptical about Congress's ability to invest in a 21st Century infrastructure system. But, it is imperative that we recognize that these competing interests are incompatible with each other.

In my opinion, with one exception, the current proposals in Congress are trying to please all of these interest groups at once and the result will be a tremendous waste. The one exception, as you may guess, is the group that would like to see lesser reliance on the federal government for transportation funding.

It is not hard to see why. Without the interstate highway system to construct anymore, the highway bill has increasingly become a vehicle for pork barrel spending. As has been well-documented, this is a bi-partisan phenomenon. Members of Congress who would otherwise deplore the amount of wasteful spending contained in the highway bill nonetheless end up voting for it because of local projects funded through transportation earmarks. The most notorious of these earmarks, such as the infamous $398 million "Bridge to Nowhere" in Ketchikan, Alaska, remain stains on the credibility of Congress. But it is important to remember however, that while today, many criticize the 2005 highway bill (SAFETEA:LU), with its 6,373 earmarks, it passed the House by a vote of 412 - 8, and the Senate by a vote of 91 - 4.

This time around, rather than funding State and local projects through the federal highway bill, with its history of funding wasteful projects, I am proposing legislation that I originally introduced in 2005, but just reintroduced this week. My proposal, the Surface Transportation And Taxation Equity Act (STATE Act), will allow any state that raises their state fuel tax, to have their federal fuel tax offset by the same amount. This will allow states to:

• Return primary transportation program responsibility and taxing authority to the States

• Free States' transportation dollars from Federal micromanagement and budgetary pressures

• Let persons at the state level, who are best able, make decisions regarding which infrastructure projects will be built, how they will be financed, and how they will be regulated

• Eliminate the current system in which a federal fuel tax is sent to Washington and through a cumbersome Department of Transportation bureaucracy, and,

• Prohibit the federal government from forcing unwanted mandates on states by threatening to withhold transportation money.

Let me describe in more detail exactly how the legislation will work. Currently, every state has a state "fuel tax" that differs from state to state. Also, there is a standardized federal "fuel tax" that is 18.4 cents a gallon.

The past two highway bills have accelerated the process whereby highway and transit funds have largely devolved into mechanisms to give states back the money their residents pay in. The federal fuel tax is collected by the IRS, sent to Washington and put into the Highway Trust Fund. Then, a complicated formula is used to determine how much money goes back to each state and in what ways that money can be spent.

This method allows certain states to benefit at the expense of other states. Some states such as Massachusetts and Pennsylvania get well over a dollar back for every dollar they contribute; while other states like Texas, Georgia, and Florida only get back around .90 cents on every dollar they contribute to the federal tax.

The STATE Act will allow states' to opt-out of the federal fuel tax either partly or entirely by raising their state fuel tax.

For example, my home state of New Jersey has a state fuel tax of roughly 14 cents per gallon. New Jersey residents also have to pay the federal fuel tax of 18 cents for a total tax of 32 cents per gallon. If the New Jersey State Legislature elected to raise the state fuel tax to 32 cents -- equal to the total tax now being paid - New Jersey could entirely opt-out of the federal fuel tax program and keep all 32 cents to use within the state. New Jersey would no longer get any federal transportation dollars because the state would not pay any federal fuel taxes, but all of the fuel tax revenue would stay in the state.

The benefits of this would be that New Jersey would get an equitable return on what its residents pay in fuel taxes, and the net increase on taxes for the consumer would be zero because the federal tax would decrease by an amount equal to the increase in state taxes.

Fuel tax revenues collected from all of the states that remain in the current program will then be redistributed among them in accordance with existing, and unchanged, formulas.

Another benefit of my plan is that states will have more control and discretion over how their transportation dollars are spent. Local and State transportation planners have a much better understanding of their area's needs than federal bureaucrats here in Washington. States that opt-out will be free to pursue the transportation investments they believe to be in the best interests of their citizens. States with significant urbanized populations could continue to invest in transit, although with more flexibility now that the cumbersome regulations that deter competition and limit private-sector involvement would no longer be in force.

Also, the STATE Act will keep the states free of unwanted federal mandates and budgetary pressures. How many times have you seen the federal government force it's will upon states by threatening to withhold transportation funds? If my legislation passes, more states will control their own transportation dollars and the budgetary pressures on Congress will lessen.

The Legislation also mandates that Opt-out states will be required to maintain their segments of the interstate system up to an engineering standard through an agreement with the Secretary of Transportation. This will prevent any states that opt-out from neglecting their responsibility to the national road system.

By allowing states to opt-out of the current federal fuel tax system, states would also be opting out of onerous and over-burdensome federal government regulations and red tape that needlessly drive the price of transportation projects up by millions of dollars. Antiquated contract and labor laws such as Davis-Bacon could be avoided leaving untold millions of extra funds that could go towards increasing current capacity and helping workers get to their jobs on time.

Federal law also mandates that 10% ($3.9 billion) of the Surface Transportation Program goes towards transportation "Enhancement" programs. Examples of projects included under the Transportation Enhancements Program are landscaping, flower plantings, historic preservation, hiking trails, river walks, and museums.

While each of these programs has their own unique benefits, they do not help alleviate congestion and maintain roads. States should have the discretion of whether they want to continue to use 10% of their limited Surface Transportation funds on these enhancements or on improving road conditions and increasing capacity.

The National Interstate Highway System has been completed. There needs to be a new system set in place that allows the states more discretion over their transportation programs and maximizes the resources available for our transportation system. I believe the STATE Act will accomplish these goals.


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