Targeted Government Program Funding

I recently had to give kudos to a few Connecticut legislators who suggested partitioning transportation funds from the state’s general fund.

The notion of a general fund should be done away with to prevent our spendthrift legislators from diverting resources to projects intended to boost reelection chances or fill campaign coffers. The same should go for local governments and the federal government.

In this post, I'll propose funding alternatives to the general fund scheme that directly link funding to the specific roles of government.

Using the federal government model I have espoused in prior posts, I suggest that these are the government entities we ought to be funding:

• Justice
• State/Intelligence
• Defense
• Treasury
• Transportation
• Education

Not all entities need exist at all three levels of federal, state and local government. The following sections are organized in order from top to bottom of the government hierarchy.

Justice
The Justice department budget is about $28 billion which can be funded with a flat tax of 0.1% of national GDP.

At the state level this would encompass the Attorney General, the state courts and the sheriffs. These functions cost $85 million which can be funded with a flat tax of 0.03% of state GDP.

No local equivalent.

State/Intelligence Funding
Diplomacy and intelligence go hand in hand; trust but verify. The State Department has a budget of about $55 billion and the intelligence agencies have a budget of about $75 billion. This can be funded by a flat tax on national GDP of 0.82%. I think it should be half of that by getting rid of the Department of Homeland Security: the intent of DHS was to get the agencies to share information and that should not cost $43 billion/year.

At the state level, this is essentially the cost of the state congressional delegation. The costs aren't tallied anywhere I could find but we can assume that for 5 congressmen and two senators, there are probably 700 paid staff for a total of about $43 million or, about 0.02% of state GDP.

No local equivalent.

Defense Funding
At the federal level, I have proposed a return to the levels before 2001, about $400 billion/year. Get out of Japan, Korea and Germany. Gear more toward counter-insurgency and less toward large ground or sea wars. This could be funded by a flat tax of about 2.53% of GDP.

At the state level, we have the National Guard at $53 million which could be funded with a flat tax on state GDP of 0.02%.

At the city/town levels we have police, firefighters and emergency medical personnel. Using Shelton as a cost model since it's notably well run, we could fund this with a flat tax of 0.63% of city GDP. The GDP of Shelton is about $1.2 billion.

Treasury
The federal treasury budget is about $17 billion which can be funded with a flat tax of 0.11% of national GDP. That said, it should probably be self-financed for years when it unloads the securities it's been buying at a rate of $85 billion/month through the Federal Reserve.

At the state level, this cost is almost negligible as a portion of state GDP. The entire category of 'General Government' in the state budget is $770 million or 0.31% of state GDP.

At the local level, this is essentially city/town government. For my city of 35,000, the town government costs about $38 million, not including education or 'defense'. We have a GDP of about $1.2 billion so a flat tax of 3.2% of city GDP would be required. Get rid of property taxes and sales tax since these are unstable and largely regressive.

Transportation Funding

Transportation is important since it is the primary vehicle of commerce.

We have roads, rails, airports and seaports that must all be maintained.

Roads and Highways
Let’s fund our highways with taxes on miles instead of taxes on fuel; get the mileage as a part of the registration process. States can also raise highway revenue with concessions at rest areas by collecting a 10% surcharge on everything in-perpetuity. This in addition to registration and licensing fees.

To compensate states for the wear and tear of interstate trucking, the federal government can separately collect taxes on trucking and bus companies and distribute these funds to the states based on the number of Interstate highway miles each state has, this is infinitely preferable to tolls.

The federal funding that comes from fuel taxes should convert to ton-mileage taxes: why should I pay for highways when I run my lawnmower? Federal transportation funding currently comes from a gasoline tax of 18.4 cents per gallon on 134 billion gallons/year (in 2011). This amounts to $24.6 billion/year. Given the 650 billion ton-miles driven every year, a tax of a 5 cents per ton-mile would produce $32.5 billion/year. Of the 47,908 interstate miles, Connecticut has only 346 so we'd get $235 million/year from the federal levy. No cabinet department needed, just a ton-mile tax on the interstate operators: by the way, diesel is taxed higher than gasoline and the tax on that should also go away.

States must finance what federal funding doesn't cover but on interstates and state roads only; cities and towns should pay for their own roads’ maintenance.  Oh, and stop building new roads without long-term plans to maintain them.

Connecticut has about 21,000 miles of paved roads out of which the state maintains 3,733 miles and the state transportation budget is currently $610 million. However, it is not clear in the state budget how much is spent on road and bridge maintenance. My city maintains 210 miles of road for $2.9 million/year or about $14,000/mile so the state might be spending $52.25 million based on the mile ratio.  According to the City of New Haven, the average cost to mill and pave a road is $15 per square yard or $176,000/mile for a roadbed 20 feet wide. This means that we pay enough to repave every road every 12.5 years.

To maintain our bridges, nationally we need about $70.9 billion to fix them all. Connecticut has 383 structurally deficient bridges out of 68,842 so we need about $394 million to fix ours. We should be able to fix them all in 12.5 years for a state cost of $31.5 million/year.

Given the more than 3 million vehicles in Connecticut and the nominal 12,000 miles driven by the average car per year, this would produce 36 billion vehicle miles per year. Given that Connecticut has 1.25% of the nation's population and the national average is 3 trillion vehicle miles, this sounds right.

Given that the state needs $83.75 million/year to maintain the highways and bridges frome the foregoing analysis, a vehicle-mile tax of 0.25 cents per mile should cover it nicely. For me, $27.91/year versus 43.4 cents/gallon on 800 gallons is a savings of about $319.

Railroads

The US railroad system, excepting Amtrak, is privately owned; the tracks, the signals, the switches and the stations. We shouldn't pay a penny of taxpayer money for it. No subsidies, no maintenance fees, nothing.

Amtrak (passenger rail) is losing money. A ticket from Stratford, CT to Grand Central Terminal costs $18.25 and covers 60.7 miles in 72 minutes. The IRS allows 56.5 cents per mile for business travel by car but trains are charging only 30 cents and taking a $1.4 billion federal subsidy on top of $2.02 billion in revenue. I say jack up ticket prices by 69%, remove the subsidy and call it a day.

Seaports
The seaports are both publicly and privately owned. They are apparently a cash cow. They throw off more than $31 billion in tax revenue. Given that the entire budget for the Army Corps of Engineers is $4.6 billion, I think this is well taken care of. I'm not sure who's grabbing the other $26 billion in tax revenue but it seems the taxes could be reduced by about 80% with no harm done.

Airports
For aircraft, let’s fund it with airport tolls at security gates (in both directions) and a portion of the federal transit funding based strictly on ridership. Airports will lose big time with far fewer plane rides compared to train and bus rides.

Connecticut has about 2.7 million airline passengers each year.

Connecticut's many airports are partially subsidized by the federal government; about $3.4 billion in 2011.Connecticut should be paying 1.25% based on population.

The national air traffic control (ATC) budget is about $13 billion of which Connecticut's flyers should be paying about 1.25% based on population but more like 0.4% based on actual enplanements of 726 million. That said, I suspect many in the state use the New York airports so 1.25% seems more fair.

Doing the arithmetic, 1.25% of $16.8 billion is $210 million. Dividing this by the (expected 1.25% of) ridership gives $194 per rider. Splitting this fee between rider and airline means nothing since the airline will just raise ticket prices to compensate.

Air cargo must also pay for airport and ATC services. Between 2008 and 2012, the US shipped nearly 51,000 megaton-km of cargo by air, 12.7 gigaton-km/year. Comparing this to passenger ton-km, we find that with an average passenger weight of, say, 200 lbs (with baggage) a total of 133 gigaton-km. This means cargo shippers should pay 12.7/133 or 9.5%; call it 10% to make the arithmetic easy.

Passengers should pay $174.60 each and cargo shippers should pay $19.40/ton-km. The rest of us should pay nothing unless we fly.

Buses

For public bus-based mass-transit, let’s fund it by getting rid of school buses and letting kids ride mass-transit and pay fares like I did when I was a kid. Also use funds from advertising and general bus-ridership ticket sales.

Connecticut delivers about 38 million bus rides per year and operates with a deficit of about $130 million or about $3.40 per ride. Given that they sell monthly tickets for $47, this is obscene. Given a round-trip to work for 22 days as a minimum, this is about $1.07/ride. This means that the subsidy is about 75%.

Education Funding
Given my model of $5,000/student-year, with the enrollment at about 560,000 this amounts to a flat tax of about 1.2% of state GDP. No federal funds required.

Summary
The basic idea is that users should pay for government-provided services and users of one service should not pay for the others unless they use those too. If the user fees are insufficient to pay for services, services should be curtailed. Plain and simple.

In addition, governments must not co-mingle funds; using money raised for one purpose for other unapproved purposes. This would prevent things like congress' misappropriation of $2.7 trillion from the Social Security Trust Fund. It would also prevent government from borrowing money (except short term) to fund day-to-day business.