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Motor Fuel Taxes on the Inter-City Bus Industry". We believe that this report is the most comprehensive study of Federal subsidies to various inter-city modes of passenger transportation over the last 30-plus years.

The CHAIRMAN. Did you commission this study?

Ms. PERRY. We and some other people did commission this study, originally in 1989, and it was updated in 1993. It has now been updated again. But I must say, although we commissioned it, what is in it is merely a compilation of DOT statistics and other Government statistics that they could get their hands on.

I would request permission, Mr. Chairman, to enter this report into the record with my statement.

The CHAIRMAN. Without objection.

[The report appears in the appendix with Ms. Perry's prepared statement.]

Ms. PERRY. Thank you.

There is one bar chart in it which clearly shows the competitive disadvantage of inter-city bus. And I mentioned it in rhetoric in my written statement. The chart shows a very tall line for AMTRAK, which receives $54.88 per passenger trip. It shows a smaller line for commercial air carriers, which receive $6.38 per passenger trip. There is a teeny little line for mass transit, which competes with us somewhat on rural inter-city routes, 33 cents per trip for mass transit. And then I cannot say that this fourth one is really a bar on the bar chart. That is the inter-city bus one. It is really just a very skinny line, and it is a nickel per trip.

The CHAIRMAN. Are these Government subsidy payments per passenger? What are these dollars?

Ms. PERRY. These are total Federal subsidies per passenger trip, exactly, for the years 1960 through 1993. So it is an average of all of those.

The CHAIRMAN. It is an average for each year?

Ms. PERRY. No. It is a total.

The CHAIRMAN. I am confused.

Ms. PERRY. It covers the 33 years, 1960 to 1993.

The CHAIRMAN. And during the 33 years, the total subsidy per

rail passenger?

Ms. PERRY. Yes. For each of the modes.

The CHAIRMAN. All right.

Ms. PERRY. For each passenger trip, $54.88 for AMTRAK, $6.38 for air, 33 cents for mass transit, and 5 cents for inter-city bus. So that is in this report that I have submitted.

We ask that this Committee not make this inequity worse, but rather that you begin to correct it. And we believe that this can be done by treating bus companies like the airlines, if indeed you decide to exempt the airlines and, as I said, like AMTRAK, which we understand has something pending in other legislation.

The second issue you asked us to comment on is the red-dyed fuel. This Committee in 1987 recognized that the inter-city bus industry had both a cash flow and a paperwork problem, in that its partial exemption from Federal diesel fuel taxes, which is what constitutes our subsidy, really was not an exemption but a rebate. Thus, operators paid the full tax and filed for a return.

Effective in 1988, the new law afforded the industry a true rebate, and we were grateful to this Committee for its leadership role.

OBRA 1993 changed it again when it moved the collection point of fuel taxes, and required that low sulphur tax-free fuel be dyed red. Fuel distributors were allowed to treat State and local governments, which includes public transit agencies, differently from inter-city bus companies.

This did two things-it dried up the market for red-dyed fuel, because transit agencies did not have to use it, and it returned the inter-city bus industry to its pre-1988 position of having to buy fuel which now carries the full Federal tax, pay the full tax and, once again, apply for the rebate. At the same time, the IRS made the rebate procedures a lot more complicated than before.

We were not part of this billion-dollar-a-year tax evasion problem, which it was trying to fix. You now have the opportunity to fix this cash flow paperwork problem again, and we certainly request that this be done.

Thank you, Mr. Chairman.

I would be pleased to answer any other questions that you have. [The prepared statement of Ms. Perry appears in the appendix.] The CHAIRMAN. Thank you.

Senator Grassley?

Senator GRASSLEY. Thank you, Mr. Chairman.

The CHAIRMAN. Chuck, we have new mikes. You have to turn the switch on.

Senator GRASSLEY. I will never get used to that.

Obviously, Mr. Collins, I missed your testimony. So I want to deal with the practicality of a suggestion that you made. So, if I misinterpreted your statement, feel free to set me straight.

I believe you are making a case that you should not have to pay the diesel fuel tax on certain non-highway use.

Mr. COLLINS. That is correct.

Senator GRASSLEY. And I assume you have given several examples. But whenever you are not on a public highway, whenever the wheels of the truck are not moving, is that kind of the extent to which you would make the determination to exempt diesel fuel use from the tax?

My question would be, is that not practically an impossible thing for us to make a determination on, when you would owe tax and when you would not?

Mr. COLLINS. Senator Grassley, the original idea behind the highway tax was that the highway users would pay for the wear and tear they were causing on the highways. So the law now provides, for instance, for a large construction vehicle that may spend most of its life building a highway, not really on the highway itself, that those vehicles do not pay tax. They are off-highway vehicles. When vegetables come out of California, they are in a trailer that is operated by its own little fuel motor that keeps the trailer cool. The Tax Code provides right now that the fuel used in refrigeration trailers is tax free because it is not highway use. It is not causing wear and tear on the highways.

In my written statement, I described the problems with the current IRS mechanism to get a refund of the tax that has already

been paid on that so-called reefer, or refrigerated, fuel use. That is a kind of off-highway fuel use.

In my written statement, I also talk about other kinds of other off-highway fuel use, the so-called power take-off motors. When a garbage truck that is compacting trash uses fuel, that is not really highway use.

Senator GRASSLEY. Well, you are saying that there is no problem in making a fair determination for the businessperson, as well as the Government, of what that use would be-non-highway use versus highway use?

Mr. COLLINS. There are some things that are very easy to dothe vehicle that is never on the highway at all, the off-highway construction vehicle.

Senator GRASSLEY. Yes. That is obvious.

Mr. COLLINS. There are other uses that are easy because they are powered by a separate engine, and that is the reefer fuel exemption. IRS provides for that right now.

The expansion we are looking for, that I described in my written testimony, is that with new electronic engines there is a monitoring capability that exists in that engine which we have never had before.

We believe it gives us the ability to know that that engine is not propelling a vehicle that is traveling on the highway, that that engine is being used for some other purpose. The technology now gives us the ability to track whether that vehicle is on the highway.

Senator GRASSLEY. So, basically, when the diesel truck operators leave their trucks idling while they are eating a meal or backing up in a public or private parking lot, then you are not going to have them pay that tax?

Mr. COLLINS. Well, the idling is a real serious issue. In the heat wave we have had in the middle of the country, truckers who have a little sleeper cab behind their seat have sort of a recreational vehicle in the truck. And the driver sleeps in that vehicle to keep his costs down on the road. To keep cool, the driver runs an air conditioner that is part of the main engine

Senator GRASSLEY. I am not questioning if that is legitimate. I am just saying that is what you are talking about?

Mr. COLLINS. Exactly, sir.

Senator GRASSLEY. And you say that can be measured precisely, when the truck is on the road?

Mr. COLLINS. We believe that the technology can be made to work.

Senator GRASSLEY. Well, obviously, you do not want to change the law until the technology is available.

You would not presume that we would make some sort of estimates in that regard, would you?

Mr. COLLINS. What we would like to do is to have the IRS explore this more through the regulatory mechanism.

I agree with you that it is not appropriate through the statutory mechanism to get down to that degree of micromanagement.

To go back to the basic principles, Senator, what we are looking for is that, if the fuel is being used in a way that uses the highway, then we ought to be taxed on it as a user fee. And, if the fuel is

being used in a way that has nothing to do with wear and tear on the highways, then we should not pay highway use tax on it.

Senator GRASSLEY. However complicated you get it, and successful for the trucking industry, it is going to be just as complicated for the farmer in his tractor, pulling grain down the road to the local elevator.

That is an afterthought. [Laughter.]

I will go to you, Ms. Hallett.

You said that, for every 1-percent increase in tax to the industry, passed along to the consumer, there is a corresponding 1-percent reduction in paying passengers.

My question is, whose statistic is that? And can you document those figures for the Committee?

Ms. HALLETT. Yes, we can document that for the Committee, Senator. In addition to that, I believe that was a CBO figure. I will stand corrected if that is not the source. But it is an analyst source, and we will provide that to the Committee.

Senator GRASSLEY. And what does it do to employment in your industry, assuming your figures are accurate?

Ms. HALLETT. Well, first of all, employment in the industry is in relation not only to the cuts that have been taken but, more precisely, an example would be for every cancellation of a new aircraft, the figures-again from the analysts-relate to approximately 5,000 employees in manufacturing positions being lost and 250 positions being lost in the airlines.

With everything we do, whether it is an increase in prices or whether it is a loss of revenue, we have negotiated a $1 billion reduction in benefits and wages with employees over the past couple of years, just because of the loss of revenue of the $13 billion.

And so I think, not only their willingness to accept less, but also the fact that we have eliminated 120,000 jobs in the last 5 years, is an example of how, even though prices may have gone up, the revenue loss, as well as the loss in jobs, as well as the loss in salaries and wages, has been enormous.

Senator GRASSLEY. One last question, I will ask you, Ms. Perry. The argument you make about the increase in the tax, and what that might do to service to small cities, if we did not continue the tax, are you in a sense saying that small cities would be guaranteed a service that they might otherwise lose?

Ms. PERRY. I do not know that they would be guaranteed, but there would certainly be a much better chance of it. Each time the tax and other costs are increased, more small cities do lose service. The small rural service is just no longer economically feasible. So, yes, I think there would be a much better chance, with fewer burdens and fewer taxes, for retaining, and even putting back some of that small rural service.

Senator GRASSLEY. Notice I did not ask you a question, Mr. Harper. I do not want to referee between you and the truckers in this particular debate.

Mr. HARPER. This is a friendly debate.

Senator GRASSLEY. Thank you.

The CHAIRMAN. Ms. Hallett, let me ask you a quick question about your 1-percent figure. For each 1-percent increase in excise tax, there is a 1-percent downturn? Or is total taxes, or what?

Ms. HALLETT. For each 1-percent increase in the price of a ticket. The CHAIRMAN. The price of a ticket.

Ms. HALLETT. There is an automatic 1-percent decrease in the number of people buying a ticket.

And, more specifically, where do they go? They go to automobiles. In fact, automobiles are our principal competition-not buses, not trains, and certainly not trucks.

So it is a very serious problem when people make the decision to take their cars, rather than to fly.

The CHAIRMAN. And the 1 percent, just so I understand it, if your normal projections would be that your traffic is going to be up 50 percent, a 1-percent increase would make it go up 49 percent rather than 50?

Ms. HALLETT. That is correct.
The CHAIRMAN. Thank you.
Any other questions, Chuck?

Senator GRASSLEY. No, Mr. Chairman.

The CHAIRMAN. Thank you.

We will conclude today with W. Gene Burden, the Commissioner of the Department of Environmental Conservation for the State of Alaska, Phillip Chisholm, the Executive Vice President of the Petroleum Marketers Association, and Michael Sciulla, Vice President of the Boat Owners Association of the United States.

Mr. Burden, we will start with you.


Mr. BURDEN. Thank you, Mr. Chairman.

My name is Gene Burden. I am Commissioner of the Department of Environmental Conservation, State of Alaska. Prior to being appointed to that position in December, I served 10 years in a variety of positions, including senior vice president of marketing and operations for one of the Alaskan refiners and marketers, Tesoro.

I want to talk just briefly. I have submitted a statement, and I am going to capsulize that, particularly in view of the comments of the Treasury Department, which were very welcome.

I want to summarize some of the background of why an exemption from this requirement is very important to the State of Alaska, and to the citizens there.

The State is served by a marine highway system and barges, much more extensively than any other part of the country. In fact, 65 percent of the State's communities are served solely by barge lines, and only 38 percent by Federal aid highway systems.

We have an anomaly in Alaska from the rest of the United States, relative to the usage of diesel fuel. In Alaska, approximately 4 percent of the diesel fuel is taxable. In some cases, with some operators, less than 1 percent of the diesel fuel sold is for taxable purposes.

This equates to a general scenario where 96 percent plus of all diesel fuel is dyed in order to sell that 4 percent or less.

There is one small operator in Alaska who sells a significant amount of fuel to the fishing fleet. He sells about 75 million gallons. And only about 600,000 gallons a year goes for taxable pur

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