Colorado Panel Seeks Transportation Tax Hikes

Published February 1, 2009

A Blue Ribbon Commission determined to find ways to raise new revenue for Colorado’s roads and bridges seems to be taking seriously the old adage: If at first you don’t succeed, try, try again.

The panel says the state needs about $1.5 billion in new money annually for transportation expenditures to meet the needs of a population expected to increase by 1.2 million in the next dozen years.

After an earlier panel met in 2007 and could not push through five new tax increases for transportation during Colorado’s 2008 legislative session—only three of the state’s 100 lawmakers supported such hikes—Gov. Bill Ritter (D) convened another commission.

Taxes Changed to ‘Fees’

The new body made essentially the same recommendations but changed three of the five new tax hike proposals to “fees” to avoid being subject to voter approval, which the state constitution requires for tax increases. The constitutional provision limiting tax-and-spending increases is known as the Taxpayer Bill of Rights (TABOR).

“Fees aren’t subject to TABOR, so they believed they could sidestep the constitution and just go through the legislature,” said Dennis Polhill, a senior fellow with Colorado’s Independence Institute. “The governor basically reinstated the same commission, using the ‘more study’ code, to come back with the same recommendations but come up with more propaganda. The purpose of the second exercise was propaganda more than a search for truth.”

The panel changed the language of some recommendations the second time around, suggesting lawmakers impose “fees” instead of “taxes” on rental car transactions and vehicle registrations to make up for what it calls a lack of a “sustainable revenue stream” for the state’s transportation needs.

Taxes Turned to Pork

While Polhill agrees Colorado faces transportation-funding challenges, he says the panel should address market solutions that politicians or bureaucrats don’t generally favor.

For instance, he says Colorado should get all of the federal gas-tax revenue collected at state gas pumps. The federal gas tax collects about $40 billion annually, turning it into “the nation’s most outrageous pork system,” Polhill said, as money is diverted from some states to others.

Doug Aden, a retired banker who just finished serving as the panel’s co-chairman, said the panel did discuss making such a proposal but didn’t think the state would be able to keep the additional revenue because of TABOR.

“Unless we could modify TABOR in some fashion to exempt those revenues, we would have to refund a significant portion to the citizens,” Aden said.

Users, Costs Don’t Connect

Analysts note devolution of the gas tax to states alone won’t solve the problem, especially as more fuel-efficient, high-mileage vehicles hit the roads and with increasing use of alternative fuels. Polhill says the current disconnect between users and the cost of their transportation must be bridged in the form of user fees.

Colorado’s panel considered tying fees to usage with its proposal of a Vehicle Miles Traveled (VMT) fee, which would use a GPS-type system to charge drivers for their highway use. Unlike gas taxes, a GPS-based system could allow adjustment of fees for driving in congested areas at peak travel periods.

Wave Dreher, spokesperson for AAA Colorado, says it’s a viable alternative for which more research is required. “It could provide an equitable system of collecting fees and taxes based on miles driven, which is needed,” he said.

Such a fee could produce nearly a half-billion dollars a year. Coloradoans drove 49 billion vehicle miles in 2007, which would have produced $490 million in additional revenue under a 1 cent a mile VMT fee.

Vigilance Required

Randal O’Toole, a senior fellow at the Cato Institute in Washington, DC, says technology exists to collect such fees without violating users’ privacy, but he warns vigilance will be required to ensure revenues don’t get diverted as now occurs with the federal gasoline tax.

“One of the things that happens—when you start diverting it—is that people start thinking of it as fees,” O’Toole said.

Aden said the panel discussed “at great length” the possibility of fees or more traditional taxes. He promised the panel will be making more recommendations to the governor in the coming months.

Jim Waters ([email protected]) is director of policy and communications at the Bluegrass Institute for Public Policy Solutions in Bowling Green, Kentucky.