Adam Smith and the Road to Correctionville

US 20 in northwestern Iowa; photo by Tim Hinds, swiped from
siouxcityjournal.com

The State of Iowa passed a 10 cent increase in the motor fuel tax late in February, to 31 cents (for regular unleaded) and 29 cents (for ethanol blends) per gallon. Signed by Governor Terry E. Branstad, it went into effect Sunday, March 1, exacerbating a recent rise in local pump prices from $1.899 to $2.459 per gallon.

The measure's quick and relatively easy passage reflects widespread concern that maintenance of roads and bridges has fallen dangerously behind schedule all across the United States, including Iowa. Majorities, albeit narrow ones, of both parties in each house of the Iowa legislature supported the bill, and Republican governor Branstad clearly supported it, saying: I believe that the leadership deserves credit for working together on a bipartisan basis to pass a piece of legislation that I think will be very beneficial to meeting the needs of the counties and cities as well as the state transportation network.

The tax increase is expected to raise upwards of $200 million dollars in additional revenue. The state will allocate 47.5 percent to the state Department of Transportation, 32.5 percent to counties, and 20 percent to municipalities. The belief that street repairs are funded through the gasoline tax is a common misconception, and now it won't entirely be a misconception. In Cedar Rapids, for example, the funds will increase the streets budget by about 10 percent over what is currently provided through local property taxes. On the other hand, the measure taketh away from cities by limiting their ability to issue their own bonds for transportation money. So much for the myth of local control.

Raising gasoline taxes can correct two types of market failures:

1. As its advocates stressed in Iowa this year, gasoline tax revenues can provide a dedicated source of funding for highway maintenance, which is a "public good" because there does not appear to be incentive for private firms to provide this service. In fact, Adam Smith used public roads as the example of a public good, in The Wealth of Nations, book V.
2. Gasoline taxes can address a "negative externality" of driving cars: The market price of gasoline does not reflect effects of driving such as air pollution, resource depletion, habitat destruction and fighting wars in the Mideast. Raising the price of driving discourages people from doing it so much, which reduces the amount of those bad things listed above. Moreover, it does so more efficiently than regulation and more effectively than gas mileage standards (which reduce the cost of driving and so encourages rather than discourages it).

Adam Smith, from Wikipedia

However, Smith cautions us that, while public officials can address problems that markets ignore (or even create), political processes lack the discipline the market imposes. Iowa's politicians now have $200 million more dollars a year, and constituents that seem (to them, anyway) to expect to receive all good things for free. So there's an undeniable temptation to spend the windfall on flashy new construction projects instead of maintaining the infrastructure we're having trouble keeping up with. (Remember why we passed this thing?)

So, while IDOT's final decision is a ways away, one of the first things likely to be on the to-do list will be to widen US 20 in northwest Iowa between Correctionville and Early from two lanes to four. Governor Branstad is squarely behind this: They are working right now on a stretch of Highway20 from Moville to Correctionville, so that leaves you with a small segment of 37 miles from Early to Correctionville that needs to be completed. (The Quad City Times notes the effort to make US 20 four lanes across the state is 50 years on. So what? We're not building highways for 1965, we're making decisions for now.) Locally, the Cedar Rapids Gazette suggested the increased revenue is likely to be used to add lanes to Collins Road, Interstate 380 towards Iowa City, and the two lane section of US 30 west of town.

One might object that if we're having difficulty maintaining and repairing existing infrastructure--insert John Oliver commentary here, particularly the orgy of ribbon cutting about 10:45 in--the answer is not to add more infrastructure. One would probably not get elected dogcatcher, either. But, sheesh... average daily traffic count on US 30 immediately west of US 218 in 2013 was 6500, and by the time you get to the county line it's 4190. In Ida County, where the picture above was taken, the last survey (2011) counted less than 3000 cars on US 20 except for a brief stretch immediately by the intersection with US 59, where it reaches 3750. That's comparable to Memorial Drive SE in Cedar Rapids. WHY ARE WE SPENDING MONEY TO WIDEN LONELY HIGHWAYS?

Another, only slightly tangential point: Given that our country's transportation budgets for the last 70 years have amounted to enormous subsidies for driving, one might also argue for using some of the new revenue to improve bus systems and to invest in commuter rail. One would, in that case, certainly not be an Iowa elected official. They all want to party like it's 1949.

SOURCES

Rod Boshart, "10-Cent Gas Tax Increase Starts Sunday," Cedar Rapids Gazette, 26 February 2015, 1A, 10A

Rod Boshart, "U.S. 20 May Be Iowa Gas Tax Hike Beneficiary," Quad City Times, 25 February 2015, http://qctimes.com/news/local/government-and-politics/u-s-may-be-iowa-gas-tax-hike-beneficiary/article_adaca84a-274c-5622-a8d4-f43c279cd683.html

B.A. Morelli, "Gas Tax Paves Way for Area Projects," Cedar Rapids Gazette, 26 February 2015, 10A

Erin Murphy and Dave Dreezen, "Branstad: Fuel Tax Hike to 'Fast-Track' Highway 20 Widening," Sioux City Journal, 26 February 2015, http://siouxcityjournal.com/news/local/a1/branstad-fuel-tax-hike-to-fast-track-highway-widening/article_e7295eb7-5997-5425-aff8-baef555549ce.html

William Petroski, "Gas Tax Takes Effect Sunday," Des Moines Register, 25 February 2015, http://www.desmoinesregister.com/story/news/politics/2015/02/25/iowa-gas-tax-branstad/23990671/

NOT-TO-BE-MISSED VIDEO: "Last Week Tonight with John Oliver: Infrastructure (HBO)," https://www.youtube.com/watch?v=Wpzvaqypav8&t=88

MY EARLIER ADAM SMITH-INSPIRED POST: "Is a Baseball Complex a Public Good?," 5 August 2014, http://brucefnesmith.blogspot.com/2014/08/is-baseball-complex-public-good.html