SD26 - Vehicle Cost Responsibility Study (SJR 121)

  • Published: 1991
  • Author: Department of Transportation and Joint Legislative Audit and Review Commission
  • Enabling Authority: Senate Joint Resolution 121 (Regular Session, 1989)

Executive Summary:
INTRODUCTION

The General Assembly, through Senate Joint Resolution 121 (SJR 121) required the Virginia Department of Transportation (VDOT) to "… review the cost responsibility of vehicle classes using the highways, roads and streets of the Commonwealth and make recommendations to the 1991 General Assembly on the need for modifications to the current mix of revenues from the vehicle classes. " In order to meet that requirement, the costs of highway construction and maintenance occasioned by various vehicles was determined and compared with the revenues generated by these same vehicles. This report presents a description of the issues, the methodology employed, and the analyses performed to determine whether vehicles are paying their fair share of the highway costs.

Overall study direction was provided by VDOT's Office of Policy Analysis, Evaluation and Intergovernmental Relations. Individuals from the Policy Office and the Transportation Research Council developed the methodological guidelines which were reviewed and approved by the Joint Legislative Audit and Review Commission (JLARC) staff. Technical assistance on costs to design, construct, and maintain the roads and structures in the Commonwealth was provided by a team of specialists in pavement and bridge design, maintenance, finance, and traffic engineering. Technical assistance was also provided by the Department of Motor Vehicles (DMV), the State Corporation Commission (SCC) , and the Department of Taxation. These agencies were consulted to provide the best approach to estimating revenues and relating them to, vehicles. Public meetings were held to obtain concerns and comments. Periodic meetings were also held with individuals representing the Automobile Association of America, Virginia Trucking Association, Council on the Environment, Virginia Road and Transportation Builders Association, Virginia Municipal League, Virginia Association of Counties, Virginia Railroads, and two-axle/three-axle truck groups.

HISTORY (pp. 1-3)

In 1980, the General Assembly mandated a study by JLARC of whether there had been a "... fair apportionment and allocation of the cost of building and maintaining the roads and bridges of the Commonwealth between motor vehicles of various sizes and weights." The analysis indicated that basic equity was achieved except for medium-sized (two-axle six-tire) trucks, which significantly underpaid user fees relative to their responsibility. There was a slight tendency for cars and pickup trucks (two-axle four-tire trucks) to overpay and heavy vehicles (other trucks and buses) to underpay, although the imbalance was not significant.

Since 1981, changes have occurred in Virginia's transportation system and in the volume and mix of traffic using the roads. In addition, the composition of revenues and sources of funds has been altered through the enactment of landmark legislation in 1986. Recognizing the magnitude of changes in system usage and funding, the General Assembly mandated the updating of the study. The methodology outlined in the 1981 study, "Vehicle Cost Responsibility in Virginia," served as the framework for this analysis, although several methodologies that were introduced in the Federal Cost Allocation Study and by other states were also employed.

PURPOSE AND SCOPE (pp. 3-4)

Following the mandate set forth in SJR 121, the overall purpose of this study is to review the cost responsibility of vehicle classes and to make recommendations to the 1991 General Assembly regarding the need to modify the current revenue mix.

Two general principles guided the design of this vehicle cost responsibility study:

• the highway system should be basically user financed, and

• vehicles should be charged in relation to the costs they occasion.

Thus, the direct costs of the highway system are assigned to vehicle groupings in accordance with the costs occasioned by them. And, the user tax structure is evaluated to determine if the distribution of tax burden among classes of users matches the distribution of costs.

For the purposes of this study, the costs allocated are expenditures on the highway system. These include costs for administration, planning, safety programs, road construction, highway rehabilitation, road maintenance, and costs to construct, rehabilitate, and maintain bridges. Revenues attributed in this study include those user taxes and fees that support funds dedicated to highway maintenance and construction activities.

STUDY APPROACH (pp. 5-10)

The cost responsibility study was conducted during the 1988-1990 biennium. Overall study direction was provided by VDOT's Office of Policy Analysis, Evaluation and Intergovernmental Relations. Individuals from the Policy Office and the Transportation Research Council developed the methodological guidelines which were revised and approved by JLARC staff. Technical assistance on costs to design, construct, and maintain the roads and structures in the Commonwealth was provided by a team of specialists in pavement and bridge design, maintenance, finance, and traffic engineering.

Technical assistance was also provided by the Department of Motor Vehicles (DMV) , the State Corporation Commission (SCC) , and the Department of Taxation. These agencies were consulted to determine the best approach to estimating revenues and relating them to vehicles.

Vehicle Classes

Nine vehicle classes were identified based on differences in vehicle configuration and number of axles. Due to the lack of detailed revenue data, vehicles were combined into five classes to compare cost responsibility and revenue adequacy, as displayed in Table A.

COST ALLOCATION (pp. 10-40)

Overview

Allocable and Nonallocable Expenditures

Consistent with general practice, the costs allocated in this study are expenditures on the highway system. These include costs for administration, planning, safety, road and bridge construction, rehabilitation and maintenance. Excluded from allocation are monies in the Highway Maintenance and Operating Fund (HMOF) and the Transportation Trust Fund (TTF) that are not expended on roads or bridges and funds transferred to localities.

Expenditure data were collected for fiscal years 1987 through 1989, indexed to 1989 dollars, and averaged. The total amount to be allocated to vehicle classes was $1,458,807,490. Of this, $848 million was spent on construction, $210 million on resurfacing, and $401 million was expended for administration and general maintenance.

Cost Allocation Categories

The costs in this study were categorized by allocation method within major program expenditure areas. The program areas included road construction, bridge construction, and an administration and general maintenance category. Within these, costs were further subdivided into groups to which an allocation method could be assigned. This provided both a logical framework for discussing costs and the classification needed for their allocation.

Cost assignment followed a "cost-occasioning" approach in which costs attributed to vehicle types are those necessitated by some size or weight requirement of the vehicle. For example, a heavier vehicle requires greater pavement strength and a wider vehicle requires greater pavement width. The difference in vehicle weight or size thus necessitates or occasions specific costs. Costs not attributable to specific vehicle classes based on size or weight, are non-occasioned or common costs. These are allocated to all vehicle classes based on system use or travel characteristics. Examples of common costs include administration and general maintenance costs.

Road construction costs were subdivided into: preliminary and construction engineering, right-of-way acquisition, grading, drainage, shoulder construction, lane width beyond the minimum needed for the smallest vehicle class, and pavement construction.

Bridge construction costs included preliminary and construction engineering, shoulder and lane width requirements, as well as structural costs.

A variety of allocation methods were used for subprogram costs for bridge and road construction depending on whether the cost was occasioned or non-occasioned.

Ordinary maintenance, administration, and safety programs are costs that are common to all vehicle classes and are included as common costs. In addition, other costs that were shared equally by vehicles in some but not all classes, are called vehicle class shared costs. These refer to ferry administration that is allocable only to personal vehicles and weighing programs that affect trucks.

Travel and Weight Data

Measures of travel by vehicle class and operating weight are needed to calculate and allocate costs. In this study, vehicle miles traveled (VMT) from the Highway Performance Monitoring System (HPMS) provided travel data for the vehicle classes. The Truck weight study and a special study using weigh-in-motion equipment provided operating weight data by vehicle class.

Roadway Cost Allocation

The traditional way of allocating pavement construction costs is based on a design approach. The essential feature of this approach is that pavement costs are allocated to vehicles based on the thickness increment required to accommodate each vehicle type. Because pavement thickness is a function of the axle weight of the vehicle, heavier vehicles require thicker pavements and are, therefore, accorded more of the costs.

A revised version of this design method was employed to calculate the costs for each vehicle class. First the cost of the thinnest possible pavement able to carry the smallest vehicle was identified. This cost was allocated to all vehicles by their miles traveled. Then, the remaining costs were assigned to vehicles based on their axle weights and mileage. The costs associated with building wider lanes were charged to buses and trucks according to their travel. Roadway costs associated with right-of-way acquisition and preliminary and construction engineering were allocated to all vehicles. Grading costs, occasioned by the needs of the heavier vehicles, were assigned to three-axle and larger vehicles differentially, based on weight and class-related parameters. Costs associated with building drainage facilities to accommodate the two-axle, six-tire and larger vehicles were calculated and assigned to these vehicles.

Roadway construction costs were derived at the project level. All projects begun and completed since 1986 were identified, and a random sample for each administrative highway system was selected for analysis. The cost shares derived at the project level were then aggregated across all projects.

Summary of Roadway Costs

The results indicate that 65 percent of the roadway costs were allocable to personal use vehicles, two percent to buses, seven percent to two-axle six-tire trucks, three percent to single units, and 22 percent to combination vehicles. Within the five and more axle semitrailer class, 36 percent of the costs were attributed to vehicles operating over 70,000 pounds. A significant proportion of the costs for multitrailer trucks were also assessed for vehicles operating at that weight.

Bridge Cost Allocation

The cost responsibility of the vehicle classes for structures was also estimated using a design-based approach. Bridge design differs from pavement design, however, in that most of the costs are related to capacity (e.g., the number of lanes) and strength (e.g., the size of the supporting members). The strength is required to support the weight of the bridge itself, commonly called the dead load, and the weight of vehicles crossing the bridge, the live load. In this study, costs were attributed to the various classes and weights of vehicles on the basis of the design strength required to accommodate their portion of both dead and live load. The costs associated with lane width requirements beyond that needed for smallest vehicles were attributed to larger vehicles. Costs for both new and replacement structures were allocated in the same manner.

Bridge costs vary by type of material and by span length. The most common bridge types were identified and the expenditures for each separately determined. Twelve bridge types accounted for 88 percent of the bridges built over the last ten years in the Commonwealth. For each bridge type, the cost associated with the design increment needed for various vehicle classes and weights was calculated. These costs were then allocated to the vehicle class or classes that necessitated the increase. All vehicles shared the minimum structure cost on the basis of VMT. Costs beyond the minimum were distributed on the basis of VMT and incremental cost occasioned by the particular vehicle class/weight group combination. The total of the minimum and incremental cost for each vehicle class/weight group combination determined its cost share factor. The cost shares were used to apportion the expenditures for each bridge type to each vehicle at each weight group.

The required width of an individual traffic lane is a function of the type of traffic expected on the bridge. It is logical that a structure designed to carry only cars and light trucks could be narrower than those designed to common standards. To allocate the costs of the additional width, each of the prototype bridges was designed for narrow lanes using the light loading. The cost of the wider deck width was assigned to buses and three-axle or larger trucks.

Engineering costs were allocated to vehicles in the same manner as they were for pavements.

The results indicate personal use vehicles (passenger cars, cycles, vans, pick-ups) were responsible for 60.0 percent of the costs, single unit trucks for 10.9 percent, and trucks with five or more axles for 23.6 percent of the costs associated with bridge construction. The costs for the nine vehicle classes, for each of the weight groups, provide an indication of the greater responsibility associated with heavy, short-wheelbase vehicles. A disproportionate amount of stress is produced on bridges by single units operating over 70,000 pounds and this is reflected in their cost responsibility.

Common Cost Allocation

Common costs are not caused by particular vehicle attributes and were, therefore, allocated differently than construction costs. It was assumed that facilities and services are made necessary by the need for travel and are consumed regardless of the type of vehicle operating on the roadway. The quantity of such services is assumed to vary based on the amount of travel; accordingly, VMT was used to allocate common costs.

Common costs and vehicle class shared costs accounted for 27.4 percent of the total costs to be allocated, 90.0 percent of which were occasioned by personal use vehicles. Because the allocator was VMT, cars and two-axle, four-tire trucks were responsible for the largest portion of safety, administration, planning, research, and common maintenance costs.

Total Costs

Personal use vehicles account for 71.1 percent of the total cost responsibility. Buses are assessed 2.0 percent of the cost responsibility; light trucks, 5.3 percent; single units 4.0 percent; and, combination trucks, 17.7 percent.

REVENUE ATTRIBUTION (pp. 41-58)

For the purposes of this study, revenues to be attributed to the vehicle classes are limited to those highway user taxes and fees that support the Highway Maintenance and Operating Fund and the portion of the Transportation Trust Fund dedicated to highway construction. Toll facility revenues were excluded, as were federal funds for non-highway purposes, local government contributions, the aviation fuel tax portion of special fuels, the portion of rental tax that reverts to localities, administrative expenses earmarked for the Department of Motor Vehicles, and liquidated damages for overweight trucks. The general sales tax is not considered a user fee because it is not paid exclusively by highway travelers and is therefore not attributed. The tax is used to offset the user fee monies provided to other agencies and thus not available for use on highways. Any remaining amount of the sales tax revenue might be considered a benefit to all vehicle classes.

Fuel Tax and Road Use Taxes

The Commonwealth levies a fixed cents-per-gallon tax on fuel purchased within the state. Currently, the motor fuel tax equals 17.7 cents per gallon and the diesel fuel tax equals 16.2 cents per gallon. Private and for-hire motor carrier owners and operators pay a road use tax of 19.5 cents per gallon for vehicles with more than two axles. The State Corporation commission credits those motor carriers paying road use taxes 16.0 cents per gallon for fuel purchased within the Commonwealth. Motor fuels, special fuels, and road use taxes contributed 45 percent of the total state revenues for highways in fiscal years 1988 and 1989. Taxable gallons of fuel, and therefore fuel and road use taxes, are functions of vehicle miles traveled and fleet fuel efficiency. For this study, fleet fuel efficiency estimates are based on data taken from the Motor Vehicle Manufacturers Association annual reports for 1989 and 1990.

Estimating the taxable fuel base requires dividing VMT by estimated fuel efficiency for each class to derive an estimate of gross gallons consumed. Several adjustments were necessary, however. First, gross taxable gallons were reduced by the amount of fuel used by public agencies. A second adjustment involved using the SCC fuel usage records as a check on taxable gallons attributed to vehicles subject to the road use tax. A third adjustment involved using DMV data to account for fuel tax refunds.

Motor Vehicle Sales and Use Tax

Approximately 20 percent of the total state revenue collections come from the three percent tax imposed on the sale and rental price of motor vehicles. The attribution of these revenues is based on the results of a special study conducted by DMV of actual payments by vehicle class for the study period.

Motor Vehicle License and Registration Fees

All vehicles registered in Virginia are required to pay vehicle registration fees. Personal use vehicle fees are relatively flat in relation to weight whereas truck fees are graduated on gross weight. Vehicles that operate in interstate commerce are registered under the Interstate Registration Plan and pay fees based on their proportion of travel in Virginia.

Data maintained by DMV on actual fees collected were used to attribute revenue to the vehicle classes.

Federal Revenue Attribution

At the time of the study, the federal government levied a 9.1 cents-per-gallon tax on gasoline and a 15.1 cents-per-gallon tax on diesel fuel. One-tenth of one cent per gallon supported the Federal Leaking Underground Petroleum Storage Tank Trust Fund and was excluded from attribution. Also excluded was the one cent per gallon dedicated to the Federal Transit Fund. Calculation of federal fuels tax payments was relatively straightforward and followed the method described above for the attribution of state fuel taxes.

In addition to federal taxes on fuel, three federal excise taxes provide revenue for the federal-aid program:

• a graduated truck tire tax,

• a 12 percent sales tax on the retail price of tractors, trucks greater than 33,000 pounds GVW, and trailers greater than 26,000 pounds GVW, and

• a tax on vehicles registered at gross weights above 55,000 pounds.

The tire excise tax was attributed on the basis of the vehicle miles traveled by each truck class weighted by the number of tires used by each typical truck in the class. A special analysis of actual sales tax collections conducted by DMV provided the information for attribution of the federal tax. The Federal Highway Administration reports the amount of the heavy vehicle use tax attributed to vehicles in Virginia.

Total Revenues

The state and federal revenue attribution by class for the two year average is as follows: 75.5 percent of the revenues are attributed to passenger vehicles, .6 percent to buses, 4.1 percent to light trucks, 3.3 percent to single units and 16.5 percent to combinations.

CONCLUSIONS (pp. 58-65)

Costs Versus Revenues

To determine whether vehicle classes met their cost responsibility, it was necessary to compare the proportion of costs attributable to the vehicle classes with the proportion of revenues paid. Because revenues could only be estimated for five vehicle classes, costs were aggregated to the same classes for comparison purposes.

The revenue-to-cost ratios based on these proportions are as follows:

Revenue-to-Cost Ratios (revenue share/cost share)

Passenger Vehicles: 1.06
Buses: .30
Light Trucks: .77
Single Units: .85
Combinations: .93

The revenue-to-cost ratio represents the proportionate share of revenues received for each percent of cost. A ratio of 1.00 means revenues exactly balance costs. Ratios less than one represent an underpayment of that vehicle class, and ratios greater than one indicate an overpayment.

Comparison of the costs with revenues indicate that only cars and personal use trucks are paying taxes and fees proportionate to their cost responsibility. All other classes are underpaying, although to varying degrees. The revenue-to-cost ratio for personal use vehicles was 1.06. In a $1.5 billion program level, automobile owners would pay $66 million more than they occasion and approximately that same amount would not be collected from the vehicle classes that generate the cost. This example assumes that all revenues and costs are user-based and general sales tax revenues are not included.

Buses pay less than one third of their cost responsibility. While as a class they do not produce large costs, they are exempt from most user fees at both the federal and state level. Therefore, for the same program level example, buses would be underpaying by approximately $21 million.

The revenue-to-cost ratio of two-axle, six-tire vehicles was .77, indicating 23 percent of the share of costs attributable to light trucks is not collected from them. This translates into $18 million in the program example. single unit trucks having three or more axles underpay approximately 15 percent of their cost responsibility, or $10 million given the example, while combination vehicles underpay by seven percent, or $17.5 million.

These results parallel those reported in the 1981 Virginia cost responsibility study. Table B presents the revenue-to-cost differences from both studies. It can be observed that the degree of overpayment by personal use vehicles and the degree of underpayment by combination vehicles have increased in magnitude over time.

The differences in revenue and cost responsibility proportions are exacerbated at higher weights because responsibility increases geometrically with weight. Therefore, vehicles operating at the extreme ends of the weight spectrum produce considerably greater costs. Almost 82 percent of the four-axle, single units' cost responsibility was attributed to those vehicles operating over 70,000 pounds, for example.

As a way of estimating responsibilities of trucks operating overweight, a special study was performed. For single-unit trucks and tractor trailers operating over 80,000 pounds, the cost per mile exceeds the revenue collected. In particular, the fees obtained from overweight vehicles fails to compensate for the costs occasioned. The disparity between costs and revenues is greatest in the highest weight categories because of the fee schedule and the large number of vehicles that are permitted to operate free of charge. Costs escalate well beyond the ten cents a mile fee charged for overweight operations.

While bus and truck classes pay less than the costs they occasion, decisions regarding the appropriateness of the revenue mix need to be considered in light of the contribution of the general sales tax to transportation financing. The Commission on Transportation in the Twenty-First Century determined user fees alone were not enough to fund critical transportation needs and recommended the sales tax as an appropriate funding mechanism because of the essential role of transportation in the economic development of the Commonwealth. Thus, conclusions on the need to modify the tax structure will depend on the extent to which the General Assembly views the sales tax as a mechanism to offset shortages in user fee receipts for particular vehicle classes.

RECOMMENDED STUDIES

Cost responsibility studies focus on the relative vehicle revenue-to-cost shares. They also address a specific funding level and program emphasis which will change over time. It is, therefore, recommended that a cost responsibility study be undertaken on a periodic basis, at least every decade, and that supplemental studies be performed to ensure state-of-the-art developments in pavement and bridge theory can be incorporated in the study design.

If it is the desire of the General Assembly that VDOT undertake periodic cost responsibility studies, it is recommended that the Department conduct research on the relationship among traffic levels, vehicle weights, and pavement performance, and evaluate the potential use of deterioration models as a method to improve cost estimation.

If charged with another study, it would also be necessary for the Department to review its electronic data bases to ensure accessibility of information for that specific purpose.

Furthermore, if there is interest in determining user fee equity for a larger number of vehicle types or within classes, the revenue data must be more universally available by vehicle type and weight. Enhancements are needed in the collection, format, and retrieval capabilities of revenue data. A mandate by the General Assembly would ensure that the revenue agencies collect the information at the appropriate level of detail, but it should be recognized that additional costs would be incurred.