Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

Translink’s Fuel Tax Problem

with 8 comments

I was going to put EXCLUSIVE in large capitals in the title – but I have no reason to want to claim this information as my own. It is, after all, public domain or ought to be.

Last week, when I attended the SFU evening lecture (“Kiwi Urbanism”) I talked to Bob Paddon who is now Executive Vice President, Strategic Planning & Public Affairs at Translink. He was there to do a brief introduction, as Translink had made the contribution that made the evening possible. I started making notes as he spoke to me before the proceedings started. The discussion was prompted by me asking if the Evergreen Line funding was indeed “locked in” as the province has been saying. He assured me that it was, but then he went on to say that Translink is noticing an increasing gap in its revenue expectations. There has been quite a lot of information recently about how people are driving less in general. Much of the supporting information that I have seen has come from US sources – where the economy is taking much longer to recover from the recession and unemployment remains stubbornly high. While Canada has been somewhat better off, people are getting increasingly anxious as their disposable income has been static or declining. Gas prices in Vancouver have been a very high levels – although much of the local impact was attributed to a fire at the Cherry Point refinery and that capacity has since been restored. Not only are people driving less, but they have been getting more fuel efficient vehicles. To some extent, the reduction in driving can also be attributed to the opening of the Canada Line. I would like to be able to point to other major transit service improvements: apparently ridership is at least holding up under the present circumstances.

Bob later sent me a presentation, that examines the data on fuel sales that Translink has been looking at. He said that he would also provide me with a contact in the planning department with whom I could discuss this document, but so far I have not been able to have that discussion. Since a week has passed since I heard about this issue, I have decided to publish anyway, and stick to my own interpretation of what is a somewhat complex issue.

First, some context. In very rough order of magnitude Translink gets about half its revenue from taxes – and about half of that has been coming from fuel tax. The last Annual Report put it this way

Fifteen cents per litre fuel tax is applied to gasoline and diesel fuel sales in the transportation service region, with gasoline sales being 83 per cent of total revenue. Revenues are $12.5 million (3.9 per cent) unfavourable to budget. Total sales volumes in TransLink’s region have declined from the previous year by 5.3 per cent.

Over the last year the monthly revenue received from the Province has shown significant volatility. As a result of the carbon tax legislation changes made in 2009, the taxation process for fuel tax revenue has changed, which makes it difficult to forecast and compare trends. Another significant challenge of the revised process is the timing and magnitude of credits/refunds, which could go back four years. Discussions are underway with Consumer Taxation to examine the revenue capture and reporting systems. Further analysis will continue in 2012.

TransLink region experienced a decrease of 5.9 percent in 2011 fuel sales volume. High prices of fuel and a strong Canadian dollar would have contributed to the decline in fuel sales volume, which likely migrated to Fraser Valley Regional District and Whatcom County.

You can easily check yourself what gas prices are like by going to Gasbuddy.com. That is where I got the following information – and of course the volatility of gas prices means that the actual amounts will be changing continually, but this morning while gas prices in Vancouver were around $1.27 per litre, in Abbotsford they were $1.25. Since gasoline there does not carry the 15c/l that it does in Vancouver, you can see that some retailers are doing very well. Just over the border the average price (converted to litres, and assuming the dollar is at par) is $1.05. Bellingham is slightly lower at $1.0435 and Point Roberts (just one report and a bit out of date) was at $1.1492.

There have been reports recently of increased border crossings due to new higher duty free allowances – but that of course applies to overnight and longer trips. A savings of 20c per litre is obviously attractive, and people with high consumption vehicles are finding it worthwhile to buy large gerry cans to fill up at the same time as they fill their tanks. (The story about someone filling up garbage bags with gasoline turns out to have been a misunderstanding).

The following graph is one I concocted from the 2011 Translink Annual Report

This is perhaps not very beautiful as a graphic, but then it is the first time I have had to do anything like this for a number of years. It does show that Translink did get additional revenue as a result of the increase in gas tax, but as a share of the total, gas tax has been declining. From around 30% in 2007 to 26% last year.

The information in presentation that Bob sent me attempts to understand this and project its impact forwards. You can download the whole thing (TL Fuel Research – Rev Mgmt Comm – July 31) if you wish. I am just cutting and pasting  the graphics

This shows that while there has always been volatility in reported sales volumes this became much more pronounced when reporting requirements changed due to the introduction of the carbon tax.

This graph shows gasoline sales only (not diesel) and also indicates an increasing divergence between Ministry data and that of the industry (Kent is a consulting company that collects fuel sales data).

This year fuel sales have been declining generally

The “leakage” trend is not as clear – but note that there is no data for the cross border shoppers

Declining demand may be more prevalent this year (note that the data now refers to absolute volumes, not percentages as above)

The really big change is the decline in diesel sales

The presentation can only speculate about why this might have occurred.

  • Reduction in trucking activity in Metro Vancouver?
  • Purchases in the Fraser Valley?
  • Fuel switch in heavy-duty vehicles?

For example, garbage trucks in Vancouver have recently been converted to use natural gas instead of diesel.

There will continue to be research into these trends. The last slide of the presentation shows the intended structure of the work

The problem, of course, is that extrapolating from previous trends is a bit like steering a ship by studying its wake.  There is nothing in the presentation about mode share – nor does that appear in the annual report. The broader transportation survey that might help address that issue only happens once every five years, and of course the census data on journey to work – which was one of the few very good indicators – is no longer collected with the scrapping of the long form.

There is something happening here. People are not driving as much – some of that is due to better trip chaining, switching to walking and cycling, use of new media (no one goes to the video store any more now that they can download movies, most banking is done on line too). One of the drivers is not just that gas prices climbed but the expectation is that they are not going to get any cheaper. Cutting spending at the pump is one of the few areas where individuals can actually influence the outcome of their own personal budgeting. The decline in gas sales has been going on for a long time, as the reduction in the number of gas stations makes apparent. The decision to implement tougher corporate average fuel economy standards for vehicles also means that recent technological improvements  have been directed more at fuel efficiency than performance.

There always has been some “leakage” across the border – and out into the valley. But the Gasbuddy information seems to support my own view that much of the difference between gas pricing on ether side of the Langley/Abbotsford line has been swallowed up by the gas companies. The decision to go to the US means that people are planning ahead to make a trip just to get gas and put up with sometimes long waits – and much engine idling. Clearly those who are going down are not just buying milk. I can clearly recall warnings that we used to issue when discussing the potential for greater gas revenue, that the wider the gap between gas prices in South Surrey and Blaine, the greater the revenue loss would be. Of course we had no real data then either – just lots of anecdotal “evidence”.

What Bob Paddon was saying to me last week was that this needs to be incorporated  in future assessments of Translink’s finances: they are currently off $30m a year in their fuel revenue expectations. Which in a $1.2bn budget is not a disaster, but obviously has to be replaced somehow. In general the organization has done all it can to find efficiencies – as demanded by the Province and the Transit Commissioner – but as this trend seems likely to continue, future cuts will have to come at the expense of service, as there are no longer the opportunities for savings that have already been achieved.

Written by Stephen Rees

August 23, 2012 at 12:01 pm

8 Responses

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  1. Good discussion! A clarification on the fuel tax rates mid-article, the tax rate per litre is 11 cents higher in Metro Vancouver than in the Fraser Valley (not 15 cents) as a 6 cent reduction in the Provincial tax in Metro Vancouver offsets some of the TransLink tax. There used to be a handy table on the Government of BC website with this info but now Wikipedia is quicker: http://en.wikipedia.org/wiki/Motor_fuel_taxes_in_Canada

    Singapore has an interesting solution to the fuel taxation leakage of bordering Malaysia, where petrol prices are subsidized – all vehicles leaving Singapore must have at least a 3/4 tank of fuel, and Jerry cans are prohibited: http://www.customs.gov.sg/leftNav/trav/Three-quarter+Tank+Rule.htm

    Ian Fisher (@electricyvr)

    August 23, 2012 at 2:20 pm

  2. Stephen:

    That’s a lot of hard work going into that post. Kudos.

    One problem I see (and maybe I’m wrong, but you can tell me) is that the business model depends on gas taxes. When you tax something you tend to discourage it’s use (unless you really subscribe to the goose feather plucking approach to taxation, which I think is ignored these days). It’s not a surprise that gas tax revenue is under downward pressure, given a) it’s a tax b) disposable income is shrinking and c) the people paying the tax don’t get the same benefit as the people getting the tax.

    I drive a lot. 150,000 miles/240,000 klicks in less than 10 years. That’s 40 miles per day if you base it on 365 days. Obviously some days I’m putting on 100 miles. Transit doesn’t and won’t work for me, and my driving is overwhelmingly work related.

    I get taxed to support transit, but I only get ancillary benefits (apparently less traffic on the road, although you would be hard pressed to tell, better air, my employees can take the bus, etc).

    Meanwhile, a commuter who uses transit get’s the benefit of not paying the tax, not paying the vehicle operating costs, not spending time in the car (instead reading or doing computer work on transit).

    That’s not a fair deal (at least from my POV, as the guy paying). By “not fair” I mean not win-win. And something that isn’t win-win isn’t sustainable.

    It is a transfer of wealth from me to the commuter, to accomplish a goal I’m not that excited about. I’d rather my gas tax go to house street people suffering from mental illness. It makes more sense to me to transfer my wealth to someone who really needs it than to transfer it to another working stiff who experiences a drop in costs and an increase in benefits as a result of being a member of one of government’s favoured groups.

    If I could avoid the gas tax, I would (and I do when it’s worthwhile, but I can’t afford the time to drive to Blaine to get gas). Still, let’s assume the government doesn’t care what I think or do and continues on a path that taxes (punishes/discourages) drivers in order to make them take transit. That leads to killing the goose that lays the golden egg. What then? Do we start charging the actual users the actual cost of the system? Which begs the question….

    Rob

    August 23, 2012 at 4:26 pm

  3. Good post, raises some interesting problems. Unfortunately I don’t think the Singapore solution is viable or desirable (just imagine the custums staffing requirements or the extra wait times at the border).

    Rico

    August 23, 2012 at 4:42 pm

  4. The one thing that you need to look at is the number of people who increasingly work from home. This trend is very noticeable in high tech industries. The company I work for used to lease 4 floors of AAA building downtown. 10 years later we have the same number of people and we lease 2 floors with one of them being half empty as people simply chose to work from home. Some large companies such as Telus have recently implemented work from home programs. From what I hear Telus’ “booth” building is sitting half empty as a result. These trends are likely only going to continue and spread to other types of businesses so Translink and everybody else in transit planning should start thinking hard about this.

    Dejan K

    August 24, 2012 at 9:43 am

  5. “Do we start charging the actual users the actual cost of the system? Which begs the question”

    Are car drivers in B.C. paying for the full cost of the roads they use? (at least in Europe and Japan there are no freeways outside a limited area around a town. Motorways are tolled–and gas is way more expensive than here).
    Aren’t those of us that chose to use transit only, not paying for roads amongst other things we don’t use?

    As a single person without children, is it fair that I pay for your children schools etc.? (yes it is as your children will be paying for my pension…)

    No transit systems in the world–even the Japanese ones that are private companies–are asking their users to pay for the actual cost. They haven’t raised fares in Japan for years! but then they have LOTS of passengers a year (the Greater Osaka Rail System has 4 billion annual riders) and transit brings customers to the department stores and other businesses owned by railway companies and located next to– or above–a major rail station.

    http://en.wikipedia.org/wiki/Umeda_Station

    http://en.wikipedia.org/wiki/Shinjuku_Station

    I agree that relying on gas taxes is not smart at all as the better the transit system, the less numerous the car drivers…
    In the big metropolis of Europe and Japan where there is an extensive transit system many people manage well without cars at all. Those that have cars will often use them only on weekends for trips outside town (older apartment buildings, even those with huge expensive apartments, don’t have parking facilities in their building ..car owners often rent a garage in the suburbs…this was true of both clients of mine in France and the relatives and friends of my Japanese buddy in the Osaka area).

    A Transportation tax on businesses with more than 9 employees (in exchange employers in a big city don’t have to provide parking for staff and customers) has been beneficial for transit systems in some countries .

    Red frog

    August 24, 2012 at 10:36 am

  6. [...] notably the decline in one existing revenue source, the gas tax (Stephen Rees discusses that here and here), and the increasing pressure on the Broadway corridor, already the busiest bus route on [...]

  7. in addition of the reason previously outlined, we could suggest that people taking transit don’t drive:
    you can see a clear correlation between :

    (the drop in gas consumption when normalized, accounting of population growth is even more dramatic)

    For a host of reason, people are driving less, reduction of driven mileage is something noticed at large in US, but it is even more pronounced in Europe, where transit alternative are more developed, so it shouldn’t come at a surprise here.should it be?

    People drive more fuel efficient car too. French wiki tell me that in France, the average car (new and old) consumption is now 5.5l/100, it was 7.0l/100 in 2006…that also is a significant trend…

    So, not sure why we should be surprised by the fact gas tax yield less and less revenue? …and it will be like it, the fact this is ignored witness more of an agency forecasting problem than anything else – you can see that the financial forecast done in the moving forward plan, is ignoring the above trend – and that is what should be seriously questioned.

    As mentioned the short-coming is not that much, $30 million, and personally I believe there is still some efficiency to find in the network (mainly by reworking some bus route, like route 3,8, 49 or 410 among other as suggested in my blog) and I have the feeling that Translink is preparing, via the Buzzer, people to some sort of this necessary changes to make the network more efficient…

    I much prefer the translink revenue pie of 2011 over the one of 2007, that is an increasing source of revenue come from the transit rider, and making the network more efficient help this goal.

    Voony

    August 24, 2012 at 10:39 pm

  8. […] transportation blogger Stephen Rees has written on how the decline of driving will depress fuel tax revenues, another key source of transportation authority revenues. Mr. Rees draws in turn on an an […]


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