SD30 - Continuation of the Vehicle Cost Responsibility Study

  • Published: 1992
  • Author: Department of Transportation
  • Enabling Authority: Senate Joint Resolution 238 (Regular Session, 1991)

Executive Summary:
The General-Assembly, through Senate Joint Resolution 238 (SJR 238), required the Virginia Department of Transportation (VDOT) to "…continue its study of vehicle cost responsibility and include an analysis of the effect of traffic levels on pavement performance, an evaluation of the use of deterioration models, and a proposal for periodic review of vehicle cost responsibility on a ten-year cycle." In addition, the Department was asked to evaluate the tax increases proposed in Senate Bill 895 (SB 895), introduced during the 1991 Session, with respect to cost allocation equity, and determine the effects of a tax increase on the industry.

SJR 238 is a continuation of the study mandated by Senate Joint Resolution 121 (SJR 121) in 1989. Senate Document 26 of the 1991 Session is the product of the "Vehicle Cost Responsibility Study" and should be considered the source document for SJR 238. As such, it may be helpful to refer to Senate Document 26 for further history and background on cost responsibility, as well as the details from that study.

Overall study direction was provided by the Office of Policy Analysis, Evaluation and Intergovernmental Relations. This study was conducted by a team composed of staff from the Office of Policy Analysis, Transportation Research Council, Maintenance and Traffic Engineering Divisions, the State Corporation Commission (SCC), and the Department of Motor Vehicles (DMV). The methodology was reviewed by the Joint Legislative Audit and Review Commission (JLARC) as mandated by SJR 238.

To obtain continuing input from the public, the study was announced in Virginia newspapers, and meetings with both the general public and various interest groups were held.

Recommendations of Senate Joint Resolution (SJR 121)

In 1989 the General Assembly required VDOT in conjunction with the Joint Legislative Audit and Review Commission 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 on behalf of these same vehicles. The report was presented to JLARC in December 1990 and January 1991. The main finding was that passenger vehicles paid more in taxes and fees than they occasioned in costs; all other classes of vehicles underpaid, although to varying degrees.

The revenue-to-cost ratios are as follows:

• Passenger vehicles: 1.06
• Buses: 0.30
• Light trucks: 0.77
• Single units: 0.85
• Combinations: 0.93

Recommendations based on the SJR 121 study were:

• A full cost responsibility study should be performed at least once every decade, as well as in conjunction with any tax or fee increases,

• Supplemental studies are needed to ensure that state-of-the-art developments in pavement and bridge theory can be incorporated into future cost responsibility studies,

• If it is the desire of the General Assembly that VDOT undertake periodic cost responsibility studies, the Department should perform a study of the effect traffic levels have on pavement performance and evaluate the use of deterioration models,

• If charged with another study, the Department should review its electronic databases to ensure' accessibility of information for cost responsibility determination, and

• If there is interest in determining user fee equity for a larger number of vehicle types or within vehicle classes, revenue agencies would need to collect information at the appropriate level of detail.

Purpose and Scope

The overall purpose of this study is threefold. The first aim is to evaluate the use of deterioration methodology to allocate pavement rehabilitation costs and whether its application would alter the cost responsibilities of the vehicle classes found in SJR 121. The second goal is to propose improvements in data collection and processing to enhance the next cost responsibility study. The third purpose is to examine tax equity proposals and their possible effects on the motor carrier industry.

The major objectives of the study are as follows:

• Examine the use of pavement deterioration models,
• Develop a data collection plan for the next major cost responsibility study, and
• Analyze the effect of any fee increase on the trucking industry.

PAVEMENT DETERIORATION (pp. 4-16)

A major objective of the Cost Responsibility Study follow-up was to analyze information on the effects of traffic on pavement performance and evaluate models relating pavement deterioration and the resulting rehabilitation costs to vehicles.

In the Cost Responsibility Study a designed-based approach was employed for new pavement costs; the same methodology was used for rehabilitation costs. At the time, it was noted that there was an alternative approach to estimation of costs for rehabilitation. It involved a deterioration methodology whereby the costs of major rehabilitation were charged to vehicles on the basis of the amount of damage they cause. For this study, the General Assembly mandated an evaluation of the use of deterioration models for allocating pavement rehabilitation costs.

A Review of the Literature

A thorough review of the literature regarding the relationship between pavement performance and axle loadings was conducted during 1991. The review included models developed through studies by the Federal Highway Administration (FHWA) and American Association of State Highway and Transportation Officials (AASHTO), as well as others reported in the literature.

The conclusion from this literature review was that the state-of-the-art has not progressed to the point where acceptable models are available for testing. Based on the models considered by the SJR 238 study team, it is apparent that the issues of cost responsibility associated with pavement deterioration under traffic are extremely complex and that there is no widely accepted model to analyze those issues. For this reason the team recommends that the Department make no immediate attempts to model pavement deterioration through mechanistic or empirical models available at this time. Rather, the Department should position itself through the identification and development of the proper databases to make use of the nationwide pavement cost model to be released in 1992 by FHWA.

Pavement Deterioration Modeling

One of the objectives of SJR 238 was to develop pavement deterioration models with existing data. The purpose of this task was to more equitably allocate pavement reconstruction costs to vehicle classes based on the amount of damage caused. This objective involved determining the statistical relationship between vehicle loadings and the resulting damage to pavements.

In order to test the feasibility of developing such models, data from VDOT's Pavement Management System were examined. The model estimation process involved testing models for the best statistical fit. The regression equations resulting from this analysis provided fits that were better than those achieved in the 1991 Vehicle Cost Responsibility Study and were a step in the right direction in the modeling of roadway damage. The regression models developed in this study are not statistically robust enough to be a basis for tax policy, however. But, the modeling process does warrant further study.

DATA COLLECTION PLAN (PP. 16-21)

Another mandate of the study was to identify required information to perform future cost responsibility studies and to develop a plan for data collection in order that the data will be available when needed.

Data Used in SJR 121

The data used in SJR 121 fell into four categories: expenditures, vehicle activities, revenues, and highway descriptors. Many, but not all of these data were available at VDOT. Other agencies from which data were obtained were the Department of Motor Vehicles and the State Corporation Commission. The data used in SJR 121 will be needed for the next cost responsibility study either from the same, or new, sources.

Additional Data for the Next Study

In addition to the data used in SJR 121, new data systems will be available in the future. A universal project number is being developed as part of Phase II of the Financial Management System (FMS) at VDOT. This number will be a cross-reference field in many operating systems used by the Department, and will facilitate gathering complete project construction and expense data.

New technologies will alter the data available for the next cost responsibility study, as well. Weigh-in-motion (WIM) studies, which were a new data source for the 1990 study, will have been conducted at a larger number of sites and should be an important data source. The Traffic Monitoring Guide, which presents guidelines for gathering traffic data for federal reports, is currently being redesigned to utilize WIM technology. A library of data from all WIM studies will be maintained at the Department, making such data available for research.

The Strategic Highway Research Program (SHRP), now being implemented, will provide continuous WIM data collection as well as pavement performance indicators for sites in Virginia. By the time the next cost responsibility study is begun, several years of data from these sites will be available. By providing accurate information on vehicle weights, the SHRP data will allow the truck factor used in pavement management to be calculated more precisely.

The Highway and Traffic Record Information System (HTRIS), which is currently being implemented at the Department, will be another database used in the next cost responsibility study. Many types of data that are now kept in various formats will reside on this system and be tied together through a common locator. There may well be other technologies and systems in place by the next study. Those discussed above are either in place or being installed.

Revenue Data in More Classes

The number of classes for which cost responsibility could be analyzed was limited by the fact that revenue data are not collected by many vehicle classes or by weight. For SJR 121, revenue data were spread over five classes; in contrast, cost data were available for 13 vehicle classes. One recommendation of SJR 121 was to determine the type of information that would be required to collect revenue data for a larger number of classes and across weight groups.

If, when the next cost responsibility study is conducted, special studies for revenue data do not collect information on more vehicle classes, the study will still be limited to five classes of vehicles. One of these classes will contain all combination units, singles and doubles, making it impossible to ascertain cost responsibility for different combinations and weights.

In order to analyze cost responsibility for more vehicle classes or within weight groups, it will be necessary to relate operating and registered weight of vehicles. Revenues are collected by registered weights; however, costs are calculated based on operating weights. The operating weight distribution of each vehicle determines the amount a vehicle should be paying. In order to relate this to what is actually paid, the registered weight for the vehicle needs to be determined. A special study would need to be performed using the best technology available at the time of the next cost responsibility study to ascertain the relationship between registered and operating weights.

IMPACT OF FEE INCREASES ON THE INDUSTRY (pp.21-49)

The Department was asked to evaluate the tax increases proposed in Senate Bill 895 (SB 895) with respect to cost allocation equity, and to determine the effects of a tax increase on the industry. This major section of the report considered:

• Senate Bill 895 of the 1991 Session,
• Overweight trucking operations in Virginia,
• Impact of transportation taxes and fees on the trucking industry,
• Taxes and fees as a proportion of operating expenses, and
• Tax competition with surrounding states.

Senate Bill 895 - 1991 Session

Senate Bill 895 of the 1991 Session (SB 895) was introduced to correct inequities with the structure of highway user fees found in SJR 121. The bill was designed to recover some of the costs not currently paid by the various truck classes and thereby make user fees more equitable among the various vehicle classes. There also was a substitute version of SB 895 later during the Session. It did not, however, improve equity and was not reported out of the Senate Transportation Committee.

The key provisions of SB 895 were:

• Temporary registration fees for heavy trucks and equipment were changed from ten cents per mile to $2.50 for each 1,000 pounds of registered weight. This would have made this registration fee more consistent with other registration fees for cars and trucks,

• The flat fee component of truck registration fees were increased and a 50 percent increase in the portion of the fee based on weight was identified. This would have helped recover costs from two- and three-axle trucks, and to a lesser degree from combinations,

• A surcharge of two percent was added to the motor vehicle sales and use tax for all two- and three-axle trucks purchased in Virginia. These truck classes were found to be underpaying by the greatest amount,

• The road tax was increased from 19.5 cents to 21.5 cents. This would recover costs primarily from large combination trucks. This change would have ensured that non-resident trucks using Virginia highways help to contribute more equitably to the costs they occasion,

• Hauling permit fees were modified to include a flat fee, as well as a fee based on the amount of excess weight and distance traveled, and

• Free commodity overweight permits would be discontinued. The fee for containerized freight would have been a flat charge plus an amount based on the weight and distance traveled. Haulers of coal, concrete, solid waste, and farm produce would have paid a flat fee of $350 per year.

Overweight Trucking Operations

One issue addressed by Senate Bill 895 and the Vehicle Cost Responsibility Study was the amount paid by overweight trucks traveling on Virginia's roads. Overweight trucking operations fall into one of three categories: (1) vehicles traveling under a hauling permit, (2) trucks operating with an overload permit, and (3) illegal operations. All of these overweight vehicles are putting extra stress and wear on the pavements of the Commonwealth. To achieve equity in cost responsibility, the fees for permits and fines for illegal operations should capture the costs of pavement damage. Increases in the fees for permits were part of SB 895. This study recommends a review of the fines for liquidated damages; the level of the fine has not changed in 35 years.

Impact of Transportation Taxes and Fees on the Trucking Industry

A literature review, conducted as part of the assessment of the impact of increases on the industry, examined studies from the 1980's and early 1990's. Most of the literature indicates that segments of the trucking industry that are able to do so will, in all likelihood, pass along to shippers and consumers any increases in operating expenses. A number of variables influence the probability that a motor carrier can and will increase rates to recover an increase in operating costs. These include the general economic climate, the elasticity of demand for the commodity, the elasticity of demand for the trucking service, the proportion that transport costs comprise of the commodity's total cost, competitiveness within the carrier industry, and the ability of that carrier to incorporate productivity improvements that offset an expense increase. The ability to pass on increases in operating costs is determined by the type of market in which the carrier operates and its position in that market. If competition is strong and/or demand for the goods carried is relatively elastic, the operator will have a difficult time increasing rates.

Impact Analysis: Taxes and Fees as a Proportion of Operating Expenses

Using information from Virginia carriers, as well as information provided in the literature, of the dollar impact of the tax and fee increases proposed in SB 895 can be examined. Although registration, fuel and vehicle sales taxes would increase at different rates, SB 895 would result in an average increase of 26 percent. The range of this increase would vary from 16 to 46 percent according to the type of truck. Transportation fees are generally three to five percent of operating costs and the analysis suggests the overall impact of the tax increase would not be significant. Several case studies of Virginia carriers are discussed in the text.

Tax Competition with Surrounding States

One issue identified in discussions with the trucking industry in Virginia is the effect of increasing taxes relative to the taxes charged in surrounding states. Some argue this would create incentives for the industry to base-plate elsewhere.

This study found that Virginia falls close to the middle of this group of states on most tax issues. For taxes and fees paid to operate a typical 18-wheeler, Virginia also ranks in the middle of all 50 states and the District of Columbia.

It has been argued that the level of motor carrier taxes and fees in Virginia explain a low level of registration. Our analysis does not support this. Because the motor fuel tax rates and registration fees paid by motor carriers are apportioned based on miles traveled within each state, they do not significantly impact base-registering decisions. The only taxes that are not apportioned by mileage are sales and personal property. Since the vehicle sales tax is a component of the purchase price of a motor vehicle and personal property taxes increase annual operating costs, these taxes may figure into base-registering decisions. However, considering the wide variation in personal property taxes within Virginia, it is clear that if cost were an issue, companies could locate in a low cost county. Sales tax is .amortized over the life of the vehicle and is not enough of an incentive to base-plate elsewhere. The number of vehicles registered in the various states considering their tax rates suggest other factors are of greater significance to the base-plating decision. The literature would indicate the most important variable influencing location decisions is proximity to markets.

Determining Industry Impact

The challenges of the previous decade have yielded a motor carrier industry in transition, moving from an inefficient, regulated industry to a more efficient, more competitive one. Increased market entry in the truckload (TL) market, in particular, has promoted strong competition in that segment of the industry. In the less than truckload segment (LTL), competition coupled with economic downturns have forced many companies out of the marketplace. Operating costs are up but rates have not kept pace. Nevertheless, predictions for the future of this industry are largely positive based on the technological improvements that will permit greater efficiencies.

The proposed tax burden would vary by firm size and attributes. However, information from Virginia carriers indicates that if all the proposed taxes were enacted, the proportion of operating costs attributable to Virginia taxes would increase by a relatively small amount. Although there is concern about the recent economic recession, forecasters predict a better future in which higher freight rates can compensate for the higher operating costs that result from increased taxes. The ability to achieve a more equitable distribution of cost responsibility and to increase the efficient use of Virginia's highways will likely offset any cost impacts from the proposed tax and fee increase on the industry.

STUDY CONCLUSION AND RECOMMENDATIONS (pp.49-53)

The results of this study confirm the conclusions reached in SJR 121. Preliminary modeling using a pavement deterioration methodology to allocate rehabilitation costs indicated results not dissimilar to those found in SJR 121 using a design-based allocation method. Passenger vehicles overpay from a cost occasioning perspective; truck and bus classes underpay. The revenue-to-cost ratios found in SJR 121 continue to represent the relative payments for use of the roads with respect to the costs occasioned by the vehicle classes.

Equity from a cost occasioning perspective can be accomplished with tax increases such as those reflected in SB 895, introduced in the 1991 Session of the General Assembly. The revenue-to-cost ratios for vehicle classes found in SJR 121 and SB 895 are listed in Table A (found on page x of the report).

Whether the General Assembly determines that it is appropriate to obtain such equity depends on how the role of the trucking industry in Virginia is viewed as well as beliefs about the economic consequences of tax increases on the industry.

The Cost Responsibility Study was performed by allocating highway user taxes and fees to vehicle classes. However, user taxes and fees are not the only source of revenue dedicated to transportation. One-half percent of the State retail sales tax is allocated to the Transportation Trust Fund for construction. It was excluded from revenue attribution because consumers, not highway users, pay this tax. The General Assembly may wish to apply the state retail sales tax as a subsidy for truck and bus classes.

The General Assembly may take the perspective that trucking is not to be viewed simply as an economic entity subject to typical market force discipline but as an enhancer of economic development. In this view, the overall contribution of the industry to Virginia's economy would be recognized and addressed through a general tax subsidy.

Others might argue that such subsidies allow carriers to be inefficient and bolster marginal carriers who would otherwise be required to face competitive market forces. It could also be argued that such subsidies unfairly affect the rail mode which would be the competitor for some of the business. If it is assumed that trucking should bear the full costs of the use of the roads, the tax package represented by SB 895 would meet the equity goal. Whether" this is an appropriate time to increase taxes on the industry is another question.

Virginia is now positioned in the middle of surrounding states with respect to taxes on the industry. Analysis of the relative tax burden indicates that SB 895 would not affect base-plating decisions. . Since most of the fees are apportioned to states based on mileage, only the sales tax could make a difference. Analysis indicates it does not. The literature suggests that proximity to markets is the more important variable in location decisions.

It is recommended that, whenever highway financing issues are addressed by the General Assembly, the equity of allocation to vehicle classes also be reviewed. Legislation to increase transportation taxes and fees should provide the opportunity to obtain equity in vehicle class payments. In addition, a review of liquidated damages assessed on illegal overweight trucks is recommended.

Recommendations with respect to cost responsibility methodologies follow.

Pavement Deterioration Modeling

The state-of-the-art has not progressed to the point where acceptable models are available for testing. It is recommended that the Department make no immediate attempts to model pavement deterioration through mechanistic or empirical models at this time. Rather, the Department should position itself through the identification and development of the proper databases to make use of the model to be released in 1992 by FHWA as the nationwide pavement cost model. Among the data elements needed are:

• Pavement condition parameters (roughness, cracking, rutting),
• Threshold values or action levels for the condition parameters,
• Pavement maintenance and rehabilitation costs as they relate to condition parameters,
• The distribution of vehicles by class in the traffic streams corresponding to the pavements defined above,
• The distribution by axle loads of the weights of vehicles, and
• Growth rates for vehicle weight distributions by class.

If the Commonwealth desires to allocate pavement construction and rehabilitation costs equitably among vehicle classes based on the consumption of pavement life by those classes, it is recommended that the following actions be taken:

• Develop a full, system-wide database of weigh-in-motion data which will provide weight data obtained without enforcement and present results on a broader spectrum of vehicle classes and weights than is available today.

• Continue to develop pavement performance information in the Pavement Management System. These data can be analyzed with the equivalent single axle load (ESAL) data to develop load-performance relationships.

• Ensure VDOT's continued involvement in the Strategic Highway Research Program and ability to fund programs that address the interactions of pavement performance, vehicle loadings, and environmental factors.

Revenue Data

This study has identified the information needed to perform future cost responsibility studies. Some improvements in the current data will come from improved technology, particularly with WIM, but an improvement in the number of revenue classes to which costs can be allocated may only be possible with the collection of significant amounts of data. If, when the next cost responsibility study is conducted, special studies do not collect revenue information on more vehicle classes, the study will still be limited to five vehicle classes. It will continue to be impossible to ascertain cost responsibility for different vehicle combinations and weights and to evaluate equity within vehicle classes. The General Assembly may wish to mandate special studies for the first year of a cost responsibility study that would require:

• A special study by the SCC to determine payment of road use taxes by type of truck,
• A special study by DMV of sales and use taxes paid by vehicle class, and
• A special study by DMV of registration fees by vehicle class.

The Cost Responsibility Study (SJR 121) and its Continuation (SJR 238) have investigated the cost responsibility of vehicle classes using the roads of the Commonwealth. This study attempted to apply pavement deterioration models to rehabilitation costs, but found that, while appropriate models are forthcoming, the technique had not progressed to the point where its implementation significantly enhanced the current methodology. The numbers and mix of vehicles using the highways of the Commonwealth will continue to change over time and necessitate periodic review of cost responsibility. The recommendations of this report will enable the next study to more precisely define costs for the various vehicle classes.