The Cost of Government
State budget crisis creates ripe conditions for new fees on trucking.
OLIVER B. PATTON
WASHINGTON EDITOR
Forecasting the cost of government next year is, more than ever, a game of Blind Man's Bluff. The elements of the formula are easy enough -- taxes, fees, regulatory compliance, pending legislation, and so on. But next year's mixture is unusually volatile due to large political forces that are hard to predict.
For example, Congress is going to rewrite the law that controls such fundamentals as highway construction, fuel taxes and sizes and weights. Also, the marketplace is going to have to work through environmental regulations that already have plunged the equipment industry into turmoil. And fuel prices, already unstable, could go haywire if the United States goes to war with Iraq.
Of most immediate concern to most trucking operations is the situation they face in the states. The recession has shredded state budgets, releasing impulses that could impact trucking in a variety of ways.
All 50 states are in trouble -- some more than others -- but the problems are universal, said Bob Pitcher, a state tax expert formerly with American Trucking Assns. and now an independent consultant.
Recession and the hemorrhage of capital from the stock market have dried up the income that governors and legislatures expected, leaving a beggar's bargain: cut back expenses and find a way to raise money.
"The outlook is dire," Pitcher said.
This fiscal year, the states collectively are staring at budget shortfalls of as much as $50 billion, according to Raymond Scheppach, executive director of the National Governors Assn. The problem is compounded by a 10% increase in Medicaid costs, a $6-billion tab for homeland security -- and the requirement in 49 states that the budget be balanced.
Trouble is, obvious ways of raising money, such as increasing taxes, don't go over well when voters are grappling with recession. "Any governor will be hard pressed to raise any taxes, even specific taxes such as fuel," said Tim Lynch, president of the Motor Freight Carriers Assn.
So legislatures and state administrations are looking for revenue sources that are less painful to their citizens. This makes trucking vulnerable. Trucks are often strangers, vehicles from another state passing through, pausing occasionally to handle a load or purchase a service. Not well liked -- and not a voter.
"States are acting as spiders that have widened their nets," said Gary Petty, president of the National Private Truck Council. "An out-of-state company doing business in its jurisdiction is deemed a taxable opportunity -- you tax the people who don't vote."
Legislatures and agencies will be looking for temporary fixes, low-profile ways to increase revenues, said Peter Vroom, president of the Truck Renting and Leasing Assn. (TRLA). "They will use a scalpel approach, looking for entities they can nick. They will go after those who are weakest and least able to defend themselves. If you are not out there putting up a good defense, you'll be in trouble."
Even if the economy gets steady on its feet next year, state revenues will lag. That's partly because of structural shortcomings in state tax systems. They emphasize taxing goods more than services, for example, which runs counter to consumer buying trends. And the Internet has shrunk the pool of transactions subject to sales taxes, creating the need to either raise sales taxes or broaden the base of what's taxable. But that will be a problem for another day, as trucking companies and other businesses face the day-to-day challenge of countering unfair state and local levies.
Experts who follow these issues closely agree that it is nearly impossible to forecast what each legislature will do. Many bills are introduced. Some have serious intent and political backing, some do not. Putting up a good defense, as Vroom put it, requires weekly vigilance. He and others interviewed for this article encouraged trucking companies to enlist the support of state trucking associations.
Greg Fulton, president of the Colorado Motor Carriers Assn., advises carriers who are hit with a new tax or fee to get a copy of the ordinance. "Find out exactly what ordinance you're being cited under. Sometimes someone has made a mistake, and sometimes there has been a policy shift."
Fulton does not expect any tax increases in Colorado. "My sense is that the governor is looking more to working with the private sector," he said, citing the idea of public-private partnerships to create toll roads.
But he agrees that trucking companies are likely to face new or higher fees. Services that are now free will likely get a price tag, and government offices will take a look at fees they previously ignored.
As an example, he cited Denver's decision to charge trucking companies for drop-boxes in that city. He also sees increased fees for waste water, and maybe even for lodging.
Of particular concern to Fulton are Colorado communities using truck safety inspections and speed enforcement as a revenue source. Safety is good, he said, but local safety inspectors often are not properly trained. And while photo radar technology is an effective tool against speeders, communities are tempted to see it more as a way to replenish their coffers -- particularly when it is outsourced to third-party providers.
While it is hard to accurately predict what state legislatures will do about taxes, it is possible to get hints from certain bellwether states.
"If, early on, a major state successfully clears a referendum raising taxes, other states may take it as a sign that they, too, could raise taxes," said ATA's Pitcher.
Two states to watch are Washington and Missouri, according to Vroom of TRALA, and state tax expert Dan Fleming of Legislative Solutions.
In November, Washington voters will decide on a fuel tax increase that the legislature could not pass on its own. The Missouri legislature, having rejected a fuel tax hike this year, will be back early next year for another try, said Vroom.
On the East Coast, Gail Toth of the New Jersey Motor Truck Assn. said there has been talk in the legislature of raising the state fuel tax. The governor has said he's not interested, Toth said, but she remains guarded.
"We have advised them that it would not be a good thing," she said. "We are an industry of pennies."
Trucking interests in the region are already battling a whopping 400% toll increase planned by the Delaware River Joint Toll Bridge Commission. The increases, which are supposed to take effect when a new EZPass system is in place, will boost the toll for a five-axle combination from $4.25 to $16.25. EZPass uses electronic readers to automatically record a passing vehicle and deduct the toll from a pre-paid account.
The increase is intended to fund a 10-year capital improvement program, including security upgrades. "We're not suggesting that the bridges don't need repairs and shouldn't be safe," said Jim Runk, president of the Pennsylvania Motor Truck Assn. "We're not suggesting that they do away with the tolls. But make it a reasonable increase over a period of time."
He said one small local company that hauls milk from Pennsylvania farms to a processing plant in New Jersey will see its tolls go up $20,000. "Where's he going to get that -- from the farmers?"
Meanwhile Toth, looking for an advantage anywhere she can get it, believes that the state may consider raising the discount on the New Jersey Turnpike for volume EZPass users. Right now, EZPass customers get a 2% break. Toth is pushing for a sliding scale of discounts, up to 20% for the highest-volume users. The idea is to give trucking companies an incentive to get off local routes, which would benefit not only trucks but the communities they currently transit.
"We've got some positive thinking going on here," Toth said. "We have not been laughed out of anyone's office."
One positive note in an otherwise bleak outlook.
Sidebar
Next Year In Washington
Fuel Tax Rates
Outlook 2003
Economic Comeback? Fits & Starts
The Cost of Government
