Union Tribune

April 4, 2002

More ethanol may mean less money for roads

By DANA WILKIE 
COPLEY NEWS SERVICE 

WASHINGTON Twenty-five years ago, when Congress gave tax
breaks for cleaner-burning gasoline, lawmakers may not have
known that by encouraging smog-free skies, they could
eventually contribute to snarled traffic.

Today, that is the irony facing the Bush administration: It
recently learned there was a $9 billion hole in the gas-tax
revenues that states use to widen highways, build new ones and make public transportation appealing enough to get motorists out of their cars.

And that hole may get deeper: The Senate this month will
consider requiring the nation to triple its use of this low-tax
gasoline, which by default would take even billions more
from America's roads.

"We're going to have to figure a way out of this," said one Senate source close to the issue. "If you accept the idea that
(clean-burning gas) usage is going to go up . . . this is going to
have a consequence. We have to figure out ways to ensure we
have enough money for the nation's highways."

In the country's smoggy regions, Washington requires oil
companies to mix gas with additives that reduce the pollutants
cars put in the air. There are two such additives: methyl tertiary
butyl ether or MTBE and ethanol, which is made from corn.

During the energy crisis of the 1970s, Congress reduced taxes on fuel with ethanol or "gasohol" to make it competitive with regular gasoline and to reduce dependence on foreign oil.
Today, the federal tax on regular gas is 18.4 cents a gallon. The
tax on gasohol is more than a nickel cheaper 13.1 cents a
gallon.

Many states, including California, are phasing out MTBE because
it is a suspected carcinogen that is showing up in water supplies. The result is greater use of the lower-taxed gasohol, which means less tax money in the pot that Washington sends states to build or improve highways, major roads, trolleys, subways and bus systems. Transportation officials estimate that increased use of ethanol will result in a $1.4 billion loss in road funds for the fiscal year that begins this fall.

"There is a fairly aggressive shift to (cleaner) fuels, which should only continue to accelerate in future years," said a U.S.
Department of Transportation official who declined to be quoted
by name. "But when the consumer is using a gallon of (cleaner
fuel) as opposed to a gallon of gasoline, Washington recoups
only about two-thirds of the tax."

Because of the resulting drop in federal revenues which is
partly because of the lower gas tax and partly because
companies are making fewer transportation-related purchases
Bush wants to cut nearly 30 percent of the transportation
money that California would get next fiscal year. In a state
notorious for clogged roads, that would mean losing $663
million, a cut that state officials have said would cost an
estimated 26,000 state jobs and disrupt plans to improve state
roads and mass transportation.

San Diego County stands to lose about one-fifth of the money
that Washington sends for transportation, or about $66 million
of the $350 million it gets.

"We're already under-investing in our roads," said William Faye,
president of the American Highway Users Alliance, a consumer
group for motorists and truckers. "We are seeing unacceptable
levels of traffic congestion, unacceptable levels of fatalities . . .
(and) roads that are crumbling. If you and I are both driving the
same car and doing the same damage to the road, but I'm using
ethanol and paying less for the road, then the fuel tax isn't fair."

Last year, California asked Bush to exempt the state from having to use ethanol because experts feared tight supplies would raise gas prices. Also, Gov. Gray Davis and industry officials said gasoline can now be made cleaner without the additive.

Bush refused, saying ethanol was the best way to keep the air
clean. Some critics, however, complained he was trying to
please Midwest farmers who sell the corn used in ethanol.

"The federal government has really been no friend to California
first by not giving us the (exemption) we requested, and now by
draining additional resources out of California (roads)," said
David Chai, a spokesman for Davis.

A spokeswoman for the U.S. Environmental Protection Agency
said the Bush administration is enforcing the federal Clean Air
Act, which requires gas additives to prevent smog.

"Unless someone comes up with another additive, then these are the only ones that are, as far as I know, available," said the
spokeswoman, Cathy Milbourn.

Davis who last month postponed his ban on MTBE because he
feared higher gas prices if the state used ethanol is fighting
Bush's proposed cut in road funds.

But if the Senate passes a plan that would do away with MTBE
nationwide, politicians may be fighting similar budget cuts for
many years to come.

When Congress resumes work next week, the Senate will
consider requiring refiners by 2012 to triple the amount of
ethanol they use in fuel. Experts estimate this would rob the
nation's roads of $2.6 billion every year. Moreover, Sen. Chuck
Grassley, R-Iowa, will try to overrule Davis' decision to keep
using MTBE, and instead force the state to start using ethanol.

"This means that from 2012 on, the nation's ethanol producers
would have a government-guaranteed annual market that grows
as gasoline consumption grows," wrote Sen. Dianne Feinstein,
D-Calif., to Senate colleagues.

The key groups affected by the Senate proposal oil companies,
corn farmers and environmentalists have agreed on most of
the ethanol plan, which is in the Senate energy bill. But Feinstein will try to amend the bill to postpone the ethanol mandate for one year. And Sen. James Inhofe, R-Okla., will try to phase out the tax break that ethanol now enjoys.

"There is no logical reason to continue a subsidy for a mandated
product, nor is there a reason to ask the taxpayer to forgo other
needed programs to pay for it," Inhofe wrote in a letter to Senate colleagues.