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An Economic Analysis of Kentucky’s VET Program

by D. Eric Schansberg

Professor of Economics
Indiana University (New Albany)

1.) The VET program is costly. The costs of a VET program are the resources used to fulfill the program mandates: the direct cost of the test ($11), the opportunity cost of one's time, and the cost of the program on cars (for gas and "wear & tear") and the environment (driving to the test and idling while waiting). Assuming an hour of time, a seven-mile average round trip, and the IRS deduction for auto travel, the monetary cost of the VET program was $12.5 million for cars and light trucks in 1999. As a result, on average, Jefferson County residents devoted $360 in resources to catch each over-polluting vehicle. And the pollution created by VET is not trivial; for example, testing 1998 and newer models resulted in a net increase in pollution- testing more than 36,000 cars and light trucks while only fixing about 50 of them.

2.) In the public debate, the tendency is to trumpet and perhaps exaggerate
the benefits of VET while the costs of VET are downplayed or ignored.
Proponents of the VET program (especially those who administer it) have an incentive to emphasize the benefits of VET and to downplay its costs. For example, VET administrators take credit for reducing auto pollution, but
clearly, most of the advances against auto pollution have come from the
dramatically decreased emissions of newer vehicles. Meanwhile, those in the general public- those who bear the costs-- are not likely to notice the
total cost of the program or to argue against those costs since the costs
are relatively subtle and small-per-person.

3.) The current VET program is highly inequitable by imposing the same costs on vehicle owners whose vehicles are radically different. Using 1999 data, 1984 vehicles were 263 times more likely to fail than vehicles with model year 1998 or later. Only .1% of vehicles one year old or younger failed the VET test, yet all owners of these vehicles had the costs of the VET program imposed on them. Moreover, owners of newer vehicles have implicitly paid for the more advanced pollution-avoiding technology in their purchase price. VET testing mandates that they pay for this a second time.

4.) VET programs are limited- in practice vs. in theory. The academic literature on this topic indicates that the effectiveness of VET programs is typically overestimated. Moreover, the ability to repair and significantly improve the emissions of those who are marginal violators- within the cost ceiling of the waiver provision- is mixed. And of course, a one-time, scheduled test is always subject to a variety of fraudulent attempts to avoid the rigors of that test. In contrast, if it is still desirable to monitor vehicle emissions, mobile testing technology exists that measures emissions while vehicles drive by a particular location- much as a radar gun can be used to regulate speed. This can be done for about $1 per test and is much more effective at catching vehicles which, in fact, do over-pollute while driven in Jefferson County.

5.) Ending the VET program is really not a question of "if", but "when". By definition, the VET program will become increasingly ineffective and inefficient as time passes- given that the vehicle fleet will increasingly be composed of fewer older-model-year cars which emit more pollution and more recent-model-year cars which emit less pollution. For example, in 2004- the first full year when Sen. Seum's bill would go into effect- the current VET program would fail approximately 47% fewer cars and have a 71% increase in the cost of getting high-polluting cars fixed. Of course, these numbers will continue to increase as time passes. While the VET program was useful in its earlier years, advances in vehicle manufacturing technology will continue to render it increasingly obsolete over time.

Conclusion: It is perhaps an open question-- whether VET testing, in some
form, is appropriate in 2004- but given the long-term nature of VET contracts, extending VET testing well beyond 2004 would seem to be bad for the economy, the environment, and the people of Kentucky. State governments in Florida and Minnesota have already ended their VET programs; Kentucky legislators are in a position to decide whether they will be toward the front of the pack on this reform or if they will lag behind.