Washington (Platts)--23Jul2009

The US House Ways and Means Committee was told Thursday that an overhaul
of the federal gasoline tax system may be needed to help fund highway
construction and maintenance.

The Federal Highway Trust Fund, which is funded through a national
gasoline tax of 18.4 cents/gal, has been losing purchasing power since it was
enacted in 1993, both because of inflation and because new advancements in
fuel efficiency have resulted in fewer gallons of gasoline purchased by
motorists in proportion to miles travelled on public roadways.

Robert Darbelnet, president and CEO of the American Automobile
Association, said these factors combined mean the trust fund is receiving half
the real revenue in 2009 that it received in 1993.

The House Transportation and Infrastructure Committee has proposed
spending $500 billion over the next six years on surface transportation
investments, including $450 billion on road, bridge and projects that are paid
for out of the trust fund.

Jim Berard, a spokesman for that committee, said the difference between
projected trust fund revenue and the committee's proposed investment is $125
billion over the life of the bill.

To bridge the funding gap, Transportation Committee Chairman James
Oberstar of Minnesota and Highways and Transit subcommittee Chairman Peter
DeFazio of Oregon proposed a short-term $3 billion infusion to the trust fund
from the general treasury, followed by a suite of longer-term funding options.

Oberstar lamented that Congress did not index the gasoline tax to the
consumer price index years ago, largely because the Bush administration
opposed the increase.

"The previous administration was not willing to make any hard choices to
resolve this imbalance," said Oberstar. "This reluctance to face tough choices
has left highway users with a legacy of uncertainty and potential funding
cuts."

INDEXING OF GASOLINE TAX PROPOSED

Defazio proposed indexing the gasoline tax to the cost of construction in
the US in order to preserve the trust fund's earning power. Defazio said that
because of the current economic recession and flat or negative construction
cost index, a gasoline tax increase due to indexation would be delayed until
the economy improves.

"If you want to be more ambitious" said Defazio, the Ways and Means
Committee could consider taxing crude oil.

A $1 to $5/barrel tax on crude oil would mostly come out of oil producer
earnings, he said, including the "obscene profits of ExxonMobil" and members
of the oil cartel OPEC.

Another proposal was to levy a small fee on speculative transactions in
crude oil futures markets, a move DeFazio said would raise an estimated $190
billion over six years.

The fee would not apply to hedgers who ultimately plan to use the fuel,
he said. By wringing some of the volatility out of the market, the Oregon
Democrat predicted that fuel prices would fall dramatically.

At the other extreme, Representative John Mica of Florida, the senior
Republican on the Transportation and Infrastructure panel, proposed doing away
with the gasoline tax in favor of a percentage sale tax on fuel sales.

Meanwhile, Department of Transportation Undersecretary for Policy Roy
Kienitz indicated that the Obama administration was no more receptive to tax
increases than its predecessor had been. "We are not supporting any new
revenue from a new tax source right now," he said.

The tax-writing panel is responsible for raising revenues for an
extension of the federal transportation law, which is due to expire at the
end of this fiscal year. The House favors reauthorizing the law for the usual
six years, while the Senate and the Obama administration are pushing for an
18-month extension of the current law, which they say will provide time to
refine a federal vision on transportation policy.

--Jean Chemnick, jean_chemnick@platts.com