This appendix provides a detailed discussion of transportation revenues and expenditures.
As defined in section 2, transportation revenue includes three categories: own-source revenue, revenue directed to other uses, and supporting revenue. The following discussion presents each category in detail.
Own-source revenue includes receipts collected by government from transportation-related taxes and charges earmarked to fund transportation programs. There are two criteria that distinguish own-source from other types of transportation revenue: the revenue must be raised from transportation sources, and it must be used for financing transportation programs. The primary types of own-source revenue are excise taxes, charges or fees, property taxes, income taxes, investment income, and fines and penalties.
Excise taxes are compulsory payments to the government levied on the purchase of specific types of goods or services. Transportation excise taxes include fuel taxes, aviation taxes, and taxes on the purchase of other transportation goods and services. Transportation excise taxes are a direct levy on transportation activity and form the most important source of transportation revenue. Examples of excise taxes are as follows:
Fuel taxes: Users of the transportation infrastructure system pay partially for the services they receive through taxes on motor vehicle fuels, jet fuel used in commercial and non- commercial aircraft, railroad fuel, and fuels used by vessels and motor boats. The major portion of the revenue raised through fuel taxes is dedicated for transportation purposes. This portion of fuel tax receipts is counted as own-source transportation revenue because it comes from transportation sources and is used for transportation purposes. The portion of fuel tax receipts that is allocated to finance non-transportation programs is counted as revenue directed to other uses.
Aviation taxes: The government imposes taxes on the use of the aviation system. Such taxes consist of aircraft tires and tube taxes, aircraft use taxes, taxes on payments to airlines for frequent flyer and similar awards by banks and credit card companies, international departure and arrival taxes, passenger ticket taxes, taxes on flights to rural airports, waybill freight taxes, flight segment taxes, and security charges. The revenue raised through aviation taxes are used to pay for the construction, maintenance, and operation of airports and airport facilities (e.g., air traffic control system), airport security, environmental protection, etc.
Other sales taxes: Another way users pay for using the transportation system is through sales taxes on transportation equipment and parts, such as motor vehicles, trucks, trailers, and buses. Such taxes are imposed as a percentage of the value of goods sold. That portion of the sales tax receipts to fund transportation-related activities is treated as own- source revenue. However, a major portion of the sales tax receipts goes to the general fund and is used to finance non-transportation programs. Therefore, this portion is counted as revenue directed to other uses.
Charges or Fees
Transportation charges or fees are assessments in return for transportation goods and services provided by the Federal, State, and local governments. The charges and fees for government services are intended to cover the costs of regulatory services as well as non-regulatory services. Examples of charges and fees include tolls, public parking fees, motor vehicle license fees, transit fares, airport and water port charges, and safety related assessments such as air passenger security fees. Some charges and fees are described as follows:
Tolls: A toll is the most direct form of user charge that is levied on users of transportation infrastructure for services provided to them by toll facilities including highways, bridges, tunnels, turnpikes, ferries, canals, and seaways. Toll facilities are operated by either
public enterprises, State transportation departments, or local operating authorities. A toll is a payment for the use of the toll facility and is paid only by those who actually use the facility. Most of the revenue from tolls is spent on administration, operations, law enforcement and safety, maintenance, capital outlays, and bond retirement for the facility from which it was raised or used for funding other transportation programs. Some portion of toll revenue is used for general purposes and is included in revenue directed to other uses.
Parking fees: Parking fees are imposed on users of on-street and off-street public parking lots or public garages. Local government authorities operate and collect the fees from the use of public parking facilities. The receipts are designated to finance the operational activities of the parking facilities and other highway and transit programs and are counted as own-source revenue.
Motor vehicle fees: There are two main types of motor vehicle fees: licensing fees and operator license fees. Licensing fees, such as fees for title registration, license plates, vehicle inspection, vehicle mileage and weight, etc., are imposed on owners or operators of motor vehicles for the right to use public highways. Operator license fees are payments for the privilege of driving commercial or private motor vehicles. Licensing fees and operator license fees are both intended to cover the cost incurred by the government in granting and administering these rights and privileges. They are payments for using the transportation system. These fees are also used to fund highway patrol services, emergency towing services, and other highway services such as removal of
Transit fares: Public mass transit agencies provide transit services by operating in a variety of modes, including motorbuses, light and heavy rail, street trolleys, vanpools, ferryboats, and cable cars. The transit agencies charge fares in exchange for the transit service they render to the public. The revenue generated from public mass transit systems operated under contract by private transportation providers is also included. The direct link between the use of the transit system and the payment of the fare make it natural to include transit fares in transportation revenue.
Airport charges: State and local governments finance the outlays of operating airport facilities with income generated from fees like hanger rentals, landing fees, parking fees at airport lots, terminal area rental charges, concessions, passenger facility charges, and other charges for the use of airport facilities. Landing fees are charged on the basis of aircraft landing weights and frequency of landing. Terminal rent is assessed on the size of the terminal area occupied by each airline. Concession is a form of public-private partnership in which public authorities authorize a private firm to run public services on its behalf and in which the private firm assumes the operating risks and collects revenue by charging fees. In return, the concessionaire pays a certain amount of money to airport authorities. Passenger facility charges are imposed on each passenger boarding an airliner at an airport. Proceeds from airport charges are used for operations and capital expenses
Water port charges: State and local government agencies and public port authorities own and operate most of the U.S. maritime infrastructure system. They levy facility charges and spends money on the development and operation of port facilities, including construction of wharves and piers, docking and terminal facilities, cargo loading and unloading equipment, and dockside rail and truck transport improvements. Public port authorities charge fees for shipping services (i.e., dockage, storage, etc), facility rentals, concession rents, and canal tolls, as well as for the use of commercial and industrial water transport and port terminal facilities. The Federal government also collects revenue in the form of user fees (e.g., harbor maintenance user fee) imposed on commercial port users.
Pipeline user fees: These fees are an assessment on natural gas and hazardous liquid pipelines on a per mile basis. Pipeline operators pay these fees. The receipts are dedicated for funding State transportation department pipeline safety activities, including the daily operations and program activities of the Office of Pipeline Safety.
Hazardous materials emergency preparedness fees: The government assesses registration fees on shippers and carriers of hazardous materials (i.e., solid and hazardous wastes, petroleum products, radioactive wastes, etc). The money is dedicated to finance hazardous materials transportation safety activities, including regulatory development, enforcement, training, and information dissemination.
Property taxes are proportionally levied on the value of property. Property taxes are the most important revenue source for local governments. Some State governments also collect revenue from property taxes.
As part of the property tax collection effort, State and local governments levy property tax on transportation industries and on transportation infrastructure, right-of-ways, and other transportation assets owned by non-transportation industries. Individuals also pay property taxes on privately owned transportation equipment, including motor vehicles, boats, etc. The receipts are used to fund various government programs, including transportation.
State and local governments also dedicate receipts from taxes on non-transportation properties to fund transportation programs. Some State and local governments dedicate property tax receipts from non-transportation sectors in funding transportation improvements. This amount includes receipts from all types of properties including properties owned by transportation industries, as well as properties owned by other industries and individuals. The receipts of property taxes from non-transportation sectors that are used for transportation are classified as transportation-supporting revenue.
There are two reasons that State and local governments use property tax receipts as a way of funding transportation programs. First, because transportation developments (e.g., building roads) benefit property owners, the owner is paying the rent for the infrastructure service allowing access to the property. Accessibility is a major determining factor of property value; therefore, the development and maintenance of street and road networks plays a major role in upholding and increasing the property value. With the access to the property provided by highways and streets, the property will be more valuable compared to the situation when the property is not accessible. Based on this argument, property owners who benefit from transportation developments should pay the costs of development. Second, transportation services provide broad public benefits, and those who benefit from the service should pay
for the costs.
Income taxes are levied on profits of corporations and businesses as well as on income of individuals such as wages and salaries, interest, and dividends.
Transportation companies engaged in freight and passenger transportation services as well as those involved in transportation supporting services pay income taxes to the government. Workers in the transportation sector, including in private transportation establishments; public enterprises; and Federal, State and local transportation agencies, also pay annual income taxes to the government. The income on which the taxes are assessed is generated from transportation activities. The receipts from taxing such income should, therefore, be treated as transportation revenue because they are raised from transportation activities. The portion of transportation revenue from income taxes is included in own-source transportation revenue if designated for transportation purposes. In reality, most of the income tax receipts from transportation activities are directed to the general fund for purposes other than transportation. This portion of the tax receipts is considered as revenue directed to other uses.
The government invests transportation funds that are not used in the current period and generates interest income or profit from purchase and sale of securities. The income earned from investing transportation fund balances, if used for transportation, is counted as own-source revenue. For example, the Federal government invests transportation trust fund balances and any interest income earned is deposited back into the respective trust funds to be used for transportation. The funds were all used for transportation purposes.
Fines and Penalties
Users of the transportation infrastructure may pay fines and penalties when violating transportation laws and regulations. The receipts from these sources are transportation revenue since the fines and penalties are directly related to transportation activities. The amount of receipts assigned for funding transportation activities is counted as own-source transportation revenue.
Revenue directed to other uses consists of government receipts from transportation-related taxes and charges, which are not used for transportation purposes. Such revenue is raised from transportation sources but is used to finance activities other than transportation. The difference between own-source revenue and revenue directed to other uses is not where it comes from but what it is used for. While own-source revenue is used to finance transportation programs, revenue directed to other uses is dedicated to finance programs other than transportation. Therefore, the sources of revenue directed to other uses is the same as those of own-source revenue as discussed above, which include excise taxes, charges or fees, property taxes, income taxes, investment income, and fines and penalties. The following list highlights some practical examples of transportation revenue dedicated for funding non-transportation programs:
A Federal fuel tax of 2.5 cents per gallon on gasohol and certain other alcohol blends is deposited to the general fund for deficit reduction.
A fraction of proceeds from taxes on fuels used by motorboats is transferred to the Aquatic Resources Trust Fund and to the Land and Water Conservation Fund for cleanup and prevention of environmental damages caused by transportation and non-transportation activities. The amount used for cleanup and prevention of damages caused by non-transportation activities is considered as revenue directed to other uses.
The Federal government transfers 0.1 cents of the motor fuel tax per gallon to the Leaking Underground Storage Tank Trust Fund to be used for cleanup and prevention of damages caused by transportation and non-transportation activities.
Fuel tax paid by railway companies: Freight railroad companies pay Federal fuel taxes, and the money is directed to the general fund for deficit reduction. Currently, the railroad tax rate is 4.3 cents per gallon of diesel fuel consumed, and all of the tax receipt is deposited to the general fund for deficit reduction.
Property tax: Receipts from transportation property taxes are used for non-transportation purposes. For example, railroad companies pay property taxes, and most of the proceeds go to the general fund for deficit reduction.
Business income tax: Annual income tax payments of private companies involved in the business of freight and passenger transportation are mostly deposited into the general fund to be used for various purposes other than transportation.
Supporting revenue consists of receipts that are generated from non-transportation sources but are designated to fund transportation programs. The supporting revenue shows the amount of money coming from the rest of the economy for funding transportation. The most common sources of supporting revenue are general fund appropriations, general sales taxes, property taxes, income taxes, severance taxes, and gifts and donations. Since supporting revenue is raised from sources other than transportation, there is no direct link between the payment of the taxes or fees and the use of transportation infrastructure network. Some important sources of supporting revenue include the following:
General fund: The general fund is a government account whose receipts are collected through various revenue raising instruments, such as taxes, lottery income, fines and penalties, etc., and it is not earmarked by law for a specific purpose. Federal, State, and local governments use a substantial amount of money from the general fund each year to finance transportation projects.
General sales taxes: General sales taxes are imposed on the value of goods sold or services provided. Sales taxes provide State and local governments with an opportunity to generate revenue from a broad tax base they are imposed on. Proceeds from sales taxes
are treated as supporting revenue if they are earmarked for transportation activities.
Property taxes: Property taxes are proportionately levied on the value of property. State and local governments dedicate some property tax receipts to finance transportation programs. The portion of property tax receipts from outside of the transportation sector that is dedicated to financing transportation projects is counted as supporting revenue.
Income taxes: Some State and local governments earmark a portion of income taxes of individuals working in non-transportation sectors and business engaged in activities other than transportation for transportation purposes.
Severance taxes: Such taxes are imposed on the removal of natural resources (e.g., oil, gas, coal, other minerals, timber, fish, etc.) from land or water. They are assessed on the value or quantity of products removed or sold. State and local governments use receipts from severance taxes to fund transportation. Since such receipts are generated from taxes on non-transportation activities, they are classified as supporting revenue.
Transportation expenditures include government outlays for transportation-related activities. Transportation activities include construction, operation, and maintenance of the transportation infrastructure and facilities, as well as administrative, regulatory, and research activities that support the building and operation of the transportation system.
Transportation expenditures are classified into two groups: (1) operations and maintenance and (2) capital expenditures based on the time span of the effects of outlays on the transportation system. Both current operations and capital expenditures affect the capacity and efficiency of the transportation system. Capital expenditures have effects on future and long-term improvements to the transportation system, while current operations expenditures are focused on current and short-term improvements.
Operations and maintenance expenditures are recurrent payments used to cover the costs of administration, operation, and normal maintenance and repair of the transportation infrastructure and facilities. Such outlays are crucial to maintain the nation’s transportation infrastructure and provide a safe and efficient transportation system. Recurrent general expenses associated with research, training, law enforcement, and safety activities of Federal, State, and local government agencies are also classified in operations and maintenance expenditures.
Outlays for normal repair and maintenance activities constitute expenses for the upkeep of buildings, infrastructure, and equipment in working order, which are not permanent structural improvements that significantly extend their service life. Repair and maintenance are activities undertaken periodically in order to maintain the productive capacity of capital assets over their expected service lives. They are not intended to improve the capital assets or their performance, but simply maintain them in good working order or to restore them to their pervious condition in the event of breakdown.
Capital expenditures are composed of outlays for adding new equipment and structures and for improving or enhancing the capacity and quality of the existing equipment and structures if the improvements last for more than 1 year. Capital expenditures can help enhance the capacity and efficiency of the transportation system, either by directly expanding the capacity or by improving the efficiency of the system (i.e., reducing travel times, improving access, reducing costs, or reducing adverse safety and environmental effects).
There are three principal types of capital expenditures, namely expenditures on transportation infrastructure and facilities, expenditures on rolling stock, and expenditures on other machinery and equipment. Expenditures on infrastructure include outlays for building new infrastructure facilities or for the rehabilitation and improvement of existing facilities. In other words, capital expenditures in infrastructure constitute outlays for building new facilities or for rehabilitating existing facilities. Rehabilitation in this case refers to major renovation, reconstruction, or enlargement. Expenditures on rolling stock consist of money paid out for purchase of fixed assets such as motor vehicles, airplanes, boats, trucks, and vessels. Other machinery and equipment consist of all machinery and equipment other than rolling stock, which are used in the transportation sector.
Capital expenditures can be accounted on either a gross or on a net basis. Gross capital expenditures refer to outlays on fixed assets including depreciation.4 Net capital expenditures refer to outlays on fixed assets minus depreciation. The net capital expenditures represent the net addition to the capital stock. Therefore, net capital expenditures give outlays for additional transportation capacity, whereas the amount of capital spending used to offset the depreciated capital represents government spending for maintaining the existing transportation capital stock in operating order. The data on capital expenditures in this report are gross capital expenditures (before depreciation). The report does not provide data subdivided into net capital expenditures and depreciation due to lack of data.
4 Depreciation is the decline in the value of capital assets due to normal physical deterioration, obsolescence, or normal accidental damage.