Fred Thompson: Does Oregon Need a Mileage Tax?

Note: Another dispatch from Fred Thompson:


Oregon’s State Highway Trust Fund is broke. Options addressed by the Oregon Transportation Commission, the Governor's Office, and the Legislature aimed at fixing this state of affairs include raising DMV fees to recover the full cost of the products/services it delivers to Oregonians. By state law most of the division’s services are supposed to recover their costs; the remainder are supposed to make substantial contributions to the Highway Trust Fund. But, because the legislature has repeatedly failed to authorize DMV to increase its user fees, the DMV is instead costing the Highway Trust Fund over $100 million per annum. ODOT has also been looking at alternatives to replace the gas tax, now the main support for the Highway Trust fund, among these are a fee for studded tires, a leading cause of road wear, and a weight-use-per-mile tax for personal vehicles. Cars are becoming more fuel-efficient. Consequently, the gas tax isn’t keeping up our needs for highway construction and maintenance. A car that gets 60 miles-per-gallon is great for the environment, but it contributes substantially fewer tax dollars and as much highway wear-and-tear and congestion as any other car.

Oregon is a leader in the study of mileage-based taxes. It has long relied on a weight-use mile tax for commercial vehicles. And it began to develop a mileage tax for personal vehicles as early as 2001. The pilot programs it has conducted since then have garnered national attention in transportation circles. As Governing Magazine reports: “Many view the state as being on the cutting edge of transportation funding. A Congressional Budget Office report published in 2011 suggested a miles-driven fee as a viable alternative to the gas tax, and many national transportation experts have endorsed the idea too.” These pilot projects have looked at outfitting cars with a special-purpose GPS device that would tell them where they have been. The latest iterations rely on commercial GPS devices (like phones or navigation devices) or more simply a wireless device that would report mileage back to ODOT HQ on a daily or weekly basis.

A lot of folks don’t like mileage-based taxes. Blue Oregon’s Keri Chisholm calls them a “terrible, horrible, no-good, very bad idea that just won't die.” Keri grants that more money is needed to maintain Oregon’s transportation infrastructure, but, like a lot of people (although not a majority of the state legislature), he would prefer to increase the gas tax, 15 to 20 cents per gallon.

I like mileage taxes. Most people do as long as they remember that the tax is a charge for highway use, not primarily a means of deterring driving or harmful emissions. A good mileage tax would reflect axle weight and miles travelled, which, together with vehicle speed, constitute the main determinants of highway wear and tear. Ultimately, it would probably be advantageous to incorporate operating speed into the mileage rate. This would allow the tax to be calibrated to the damage a car causes to the State’s streets and roads, but would require something more than a simple report of miles traveled. Installing a system based on GPS data on highway usage, would also make it easier for ODOT to figure out when and how much maintenance state highways need and to allocate funds to municipalities and counties based upon the actual use of their streets and roads.

Of course, the critical advantage of a GPS-based mileage tax is that: "You can potentially calibrate the level of the tax to the degree of congestion on the particular road at the particular time of day, so the tax better reflects the changing externality associated with driving." In the longer run, congestion pricing would also be useful for planning for future highway needs. In my opinion, its potential use in congestion pricing is the best possible argument for building a GPS system.

Several reasonable objections have been raised against mileage taxes. The first is that vehicles licensed in other states would be exempt from the system. That is not now the case with commercial vehicles and occasional visitors to the state could simply be included in system by which we collect taxes on commercial vehicles. More frequent visitors would undoubtedly find it more convenient to plug into the state’s GPS system.

Second, “removing financial advantages of low carbon impact driving is antithetical to the health of our ecology and the direction our economy needs to go.” I have a lot of sympathy with this argument, but Oregon’s current gas tax is too low to have significant effect on carbon emissions, the state is the wrong entity to impose a carbon tax (although in the absence of national action, better than nothing), and abating greenhouse gases calls for taxing all sources at the same rate, proportional to the harms they produce, not just motor fuels. Moreover, there are substantial federal and state incentives aimed at persuading folks to substitute high mileage vehicles for gas guzzlers.

Third, giving ODOT the means to monitor our cars’ movements throughout the state would infringe upon personal privacy. Putting a GPS device in everyone's car is evidently upsetting to a lot of people. This seems silly to me. Most new cars already have such devices and many of us carry cellphones around on a regular basis. Is it safe for Verizon or GM to have access to the information produced thereby, but not ODOT? OK, I think we are a bit nuts about privacy in any case: that personal and corporate tax returns, information on children and families, and personal heath records are all private makes the formulation of coherent public policy nearly impossible. By my opinion here doesn’t matter. The fact is that it would be a simple matter to allow folks with serious concerns about their privacy to buy their way out of the system. 

There is one objection to this proposal, however, that really doesn’t make sense, that road use is the wrong tax base: “even people who don't drive are road users. Any type of commerce or business depends on our road network; every product we buy is shipped via roads at least partially. The idea that the cost of roads must be paid through a ‘user fee’ is silly. We are all road users.” That we are all road users whether we drive on them or not is absolutely true, but it is equally true that insofar as paying a road tax is a cost of doing business, the tax will be shifted to those of us who ultimately benefit from their use. But, in fact, this argument is irrelevant to the proposal under consideration, which is concerned exclusively with the use of personal vehicles. Oregon already applies a mileage tax to commercial vehicles.

Fred Thompson: Thinking About School Districts and Property Taxes

Note: I have been bust moving my family back from Brazil to Portland and have had not time to blog.  It is back to Brazil in August so my time here in Oregon is tight and I will have difficulty blogging regularly.  Fortunately Fred Thompson rides to the rescue with a couple of blog entries - the first is what follows:

Local school districts, their boards, school superintendents, and district offices have come in for a lot of criticism of late. Dylan Scott, in a recent Governing magazine article (May 2013), reports that advocates, both left and right, increasingly call for the outright elimination of local school districts, which would mean turning educational policy/finance over to state control. This notion is surprisingly attractive to some conservatives, who would make state governments the only higher authority for individual schools, which would be state funded but independently controlled and operated, although a more likely outcome of full state-level funding and control would seem to be machine bureaucracies of even greater scale and scope than at present.

Is the antagonism toward local school districts justified? In Making the Grade: The Economic Evolution of American School Districts, William A. Fischel argues that it is not. Fischel adopts the prevailing economic view of the function of local governments in our unique system of fiscal federalism: local governments, both general-purpose governments and special tax districts are like businesses, property owners are equivalent to shareholders, and local officials create value by maximizing property values within their jurisdictions’ boundaries via the provision of services and amenities that can be more efficiently financed collectively than by individual property owners. This basic logic underlies local reliance on user fees and property taxes, which, where assessments reflect market prices, are the economic equivalents of user fees.

According to Fischel, school districts play a central role in this system, because of the importance of schools to a critical class of property owners: homeowners.

“A significant factor for many people deciding where to live is the quality of the local school district, with superior schools creating a price premium for housing. The result is a ‘race to the top.’ as all school districts attempt to improve their performance in order to attract homeowners.” Fischel also argues that locally funded schools, especially those funded by ad-valorem property taxes, provide homeowners with the motivation to monitor and control local jurisdictions, because amenities and taxes are capitalized in the value of their largest asset, their homes, and local governance gives them an opportunity to do so. Finally, he provides evidence that home prices are more responsive to district boundaries than to the boundaries of school attendance zones, which he attributes to the special role played by local school districts in the accumulation of community-specific social capital, “mainly through the networks parents establish,” which spills over to a wide array of collectively provided services and not just to schools.

 In defending school districts supported in part by local property taxes, Fischel also questions voucher programs, noting that their greatest virtue is also their greatest vice: greater competition among schools erodes location-specific social capital.

The tax-financed, local public school system makes “exit” (to private schools) more costly, which in turn promotes more “voice” within the community. Parents will inevitably seek to make their voices heard in their children’s schools, wherever they are located. Public schools induce those within the same jurisdiction to have a more common voice in self-governance in other community matters.

Critics of Fischel’s argument in favor of linking resources to location typically ground their claims on two priori beliefs. The first has to do with the demand for educational services, the second with democratic governance. The first of these is that education is primarily a public, not a private good, and should, therefore, be supplied equally to all. I am inclined to believe that this argument misconceives the nature of public goods. Public goods are characterized by two characteristics, non-excludability and non-exhaustibility, which means that only one quantity can be supplied to the citizenry within a given jurisdiction, that the citizenry’s enjoyment the good is entirely passive, and that the good must be equally provided to all, whether they like it or not.

Clearly neither of these characteristics nor their implications applies to educational services, at least not for the most part. Consequently, most economists believe that educational services are primarily private goods. For a friend of education, this should generally be seen as a good thing. The single most powerful implication of the theory of public goods is that they tend to be under supplied. The principal exception to this generalization occurs where they are combined with private goods and dominated by the latter.

However, to say that education is not primarily a public good does not mean that this argument is wrong. Repairing it in this case is fairly straightforward. Equity or, more correctly, enjoying the benefits of living in a reasonably fair and equitable community is itself a public good and the delivery of educational services and amenities may be an effective means of promoting its provision. However, the relationship between educational services and a more equitable society is an empirical question, one that that most of those calling for equal student funding neither ask nor answer. My own view of the evidence is that improving access to and the scope of pre-school services and meeting students’ basic needs and, thereby, raising attendance once they have started school will go further toward improving outcomes for students from low-income families than increasing school resources per se, and that those things are appropriately state responsibilities

Opposition to using local property taxes to finance schools also rests upon a peculiar view of democratic governance, which holds that citizens are entitled to certain services simply “by virtue of their membership within a polity,” that governments are obligated to provide these services equally to all, and that this obligation cannot be outweighed by other considerations. Consequently, if education is one of the services to which the citizens of a state are entitled, it must be provided equally to all. Here too, I am inclined to take issue with the argument. I would freely grant that all citizens have certain rights and have been afforded certain entitlements, but what those entitlements are and how far they go is entirely a matter for the members of the polity to decide through its participation in the processes of democratic governance, deliberation, and debate. Folks are well within their rights to argue that education should be a service to which all citizens are equally entitled; that education is a service to which all citizens are equally entitled violates both fact and logic.

Indeed, I would argue that, from the standpoint of democratic governance, the most important criterion by which any institutional arrangement should be judged is the degree to which it promotes citizen engagement and participation in the management of the polity and an understanding of the consequences of collective choices for themselves and their neighbors. And, while this factor does not outweigh all other considerations, it should weigh very heavily in our assessment of alternative institutional arrangements.

From this standpoint, our idiosyncratic system of fiscal federalism appears to work fairly well in general and specifically with respect or the governance of public education. There is evidence that the system promote citizen monitoring of school performance, that higher tax prices and home ownership are associated with higher levels of monitoring, and that greater reliance on property taxes and other measures of decentralized control are associated with greater efficiency on the part of school districts. Further, looking at interstate variations in average student achievement, operating stability, flexibility, and transparency, one consistently finds that they are inversely related to state level financing and control, both in cross-sectional analysis and panel studies. In the face of this evidence, one might conclude that it would be wiser to question the merits of state-level finance/governance than district-level governance.

Oregon College Tuition Plan

Currently most Brasilian schools are on winter break, my kid's included, so we are doing as many Brasilians do and having a short vacation - thus the lack of blogging.

Nevertheless, I have wanted to blog about the proposed college tuition plan for a while but spotty internet has held me back.  The internet is still spotty but fortunately Betsy Hammond in The Oregonian (can I still call it that?) has written a brilliant article that says most of what I was going to write.  Here is a rather large excerpt (so go to the O site and read it all so they don't get mad at me):

Such a plan has legions of problems, however, said Mark Kantrowitz, a widely cited financial aid expert and senior vice president of the Edvisors.com group of financial aid websites. That helps explain why the approach, though studied many times, isn't being used anywhere in the United States.
Among the catches he cited:

• Many students would still end up owing big loans -- plus the promised percentage of their income. Only tuition and fees would be free, and many students need loans to cover the other costs of college. According to Di Saunders, communications director for Oregon's university system, the typical four-year cost for an in-state undergraduate is about $87,000 -- $31,000 for tuition and fees and $56,000 for rent, food and other expenses. "You'll end up with the hit to the income and you still have student loans," he said. "It's not really going to solve anything." 

• Twenty-four years is a long time to burden a student with college costs, even if payments are only about $2,000 a year during the final 12 years of the contract. 

• Asking students to pay 3 percent of their income, even for that long, would be unlikely to cover the state's costs to operate universities for free. Students would likely be asked to pay a higher percentage or the system would go broke, Kantrowitz said. 

• Collecting money from former students who move out of state or out of the country would be tricky at best. Oregon doesn't have the power to compel other states or the Internal Revenue Service to tell it how much individuals outside Oregon earn. And other states would probably try to regulate the repayments as loans, which could run afoul of usury laws. 

Saunders said she sees another, bigger challenge: To keep universities operating, Oregon would have to come up with a lot of money to replace the lost tuition and fees until enough graduates have started making repayments -- perhaps for as long as 10 years. "The state would have to pay a lot more in general fund support until the pool is built up," she said. Given that Oregon struggles to pay 30 percent of the cost now, relying on students to pay 70 percent, "that might be too heavy a lift."

I would also make one larger point. This scheme is not a lot different than the current system of financial aid. We already charge very different prices to students based on financial background through the use of grants, subsidized loans and so on.

 The current system of student loans allows delayed repayment, deferment in times of unemployment and you can even get your loans stretched out over as much as 25 years. yes there is explicit interest but the proposed repayment scheme still has to deal with the time cost of money and will have to collect enough to cover it. To me it is hard to see this anything different than internalizing the student loan market.

The main difference is that the current system means tests based on current income status of the family (or the individual for non-traditional students) this means tests on the ex-post labor market outcome of the individuals.

This creates an interesting moral hazard problem - borrowers (which is what I will call them) will be more apt to choose careers that pay less well. It also creates an adverse selection problem - those that seek such loans will be disproportionately those whose interests are in areas in which the labor market has set the wages lower. This may be good for the spirit of those that choose arts, literature and the like - and society might be better for it - but it will also cost more and the system has to be ready to defray those extra costs.

Finally, I call the folks that would take advantage of this deal borrowers because this is functionally no different than a loan. It is a different kind of loan to be sure, but it is a loan just the same. Now the lender becomes the state of Oregon or the universities themselves - but the fact remains that students are borrowing for school. Which is why I have nothing agains to the plan and am willing to be convinced that it is a better system but I am not yet so convinced. It sounds pretty cool, but the nuts and bolts are less thrilling.