Time to Exit Rendell's Road to Higher Taxes

AUGUST 17, 2010 | Commentary by NATALIE ROGOL

Rendell's high tax road

Governor Rendell has proposed a series of tax increases to fill a $415 million transportation funding deficit created when the federal government rejected his plan to toll I-80 for a third time. The state's highway system is in sorry condition, but not because taxpayers pay too little.

Pennsylvania spends more on transportation than nearly every other state, and since the Governor took office, transportation spending increased 53%. The biggest problems with the state's infrastructure are misguided spending and inefficiency, which can be resolved without new taxes.

Governor Rendell has suggested a 3.25-cents-per-gallon increase in the state's gasoline tax, increasing vehicle registration and license fees, and adding cameras at red lights and Turnpike entrances to catch -- and fine -- uninsured drivers and those who run a red light. The Governor's favorite proposal is to tax oil companies' "excess profits" (and supposedly prevent the tax from being passed on to consumers through higher gas prices).

This is a regurgitation of the Governor's 2007 proposal. Rendell will still find little evidence for his claim that the state can dictate low prices for gas. Even if the tax isn't felt through higher prices at the pump, employees and shareholders will absorb the burden through lower wages and dividends (note that shareholders in oil companies include Pennsylvania's pension plans for state workers and school employees and the mutual funds of many retirees). Furthermore, to claim oil companies pay little in taxes is misleading. Most oil companies, like Exxon Mobile, pay more in taxes than they make in profits. When the federal government enacted a windfall tax on oil companies in the late 1970s, America saw both production and tax revenue decrease, while gas prices skyrocketed.

The governor's tax-and-spend plan ignores the fact that Pennsylvania's transportation system is already well funded. The Federal Highway Administration ranks PA 4th in overall state highway and road spending and 9th in both spending per mile and spending per capita. Taxpayers spent an extra $700 million on bridges and $400 million on roadways in 2009 compared to 2002. Pennsylvania has the 13th highest gas tax in the nation, a rate more than double New Jersey's, and gets back more than it pays into the Federal Transportation Trust Fund.

Despite all this spending, Overdrive Magazine's annual report card of U.S. roads graded Pennsylvania as having the worst roads in the nation. The state also ranks 38th on a list of cost-effective, state-owned highway systems, according to the Reason Foundation. Instead of pouring more money into a broken system, Pennsylvania legislators should first seek to reduce infrastructure costs without compromising quality.

There are solutions that can improve Pennsylvania's infrastructure without increasing the burden on taxpayers and motorists. Privatizing the Turnpike, as proposed by Rendell in 2007, would save taxpayers money and improve services. The Pennsylvania Turnpike Commission has shown itself to be inefficient and corrupt. Though the Commission has made minor improvements in the past two years to "more resemble a private company," drivers would be better served through a lease to a private operator that is held accountable through a strong contract.

Public-private partnerships (P3s) for new construction are also needed. Such partnerships generate revenue for the state and increase the capacity of our transportation infrastructure. States like Florida, Texas, and Virginia have relied on P3s to finance and manage their highways. Lawmakers should also look to competitive contracting in mass transit, offering cost-savings and better service in these expensive and inefficient systems, particularly those in Philadelphia and Pittsburgh. In contrast, Gov. Rendell has increased state funding for patronage jobs in transit agencies, even "flexing" highway and bridge dollars for this purpose.

Additionally, lawmakers should consider repealing prevailing wage laws, which set construction prices for government projects. Prevailing wages drive up the labor costs of construction by nearly 40%. Finally, highway and bridge funds should be used to repair decaying infrastructure, rather than being redirected to other purposes, such as bike trails, beautification projects, and new administration buildings. And our "capital budget" -- i.e., borrowed funds -- should only be used for infrastructure, not pork projects like the Specter Library, Jack Murtha Center, and baseball stadium renovations for the Yankees' farm team.

Rendell's lobbying for more taxpayer funds will continue throughout the remainder of his tenure as governor. But Pennsylvania drivers should demand a more efficient and honest use of Pennsylvania's substantial transportation funding before letting him drive us down the tax road again.

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Natalie Rogol is a research fellow with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.



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