Looking at Transportation Funding Beyond the Gas Tax

A gas station in San Marcos, Texas

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Infrastructure Week discussions delved into options for offsetting declines in gasoline and diesel tax revenues. Is taxing vehicle mileage the answer?

WASHINGTON — The need to find new ways of paying for transportation projects in an era of eroding fuel tax revenues was a recurring topic here last week, as leaders and experts from around the country gathered to discuss the nation’s infrastructure challenges.

There is widespread agreement that much of America’s road and transit network is aging and in need of billions of dollars in upgrades. More elusive is a solution for who will pay the bill and how. Central to debate about these questions are federal and state taxes on motor fuel, such as gasoline and diesel, which have long provided bedrock sources of transportation funding.

But, in more recent years, the money flowing to government coffers from these taxes has tapered, as vehicle fuel mileage has improved. That downslide in revenues threatens to continue, with electric-powered and automated vehicles expected to fundamentally alter motor fuel consumption and automobile use in the coming years.

The gas tax, meanwhile, has remained flat for over two decades at 18.4 cents per gallon, equivalent to its level in 1993. The rate for diesel is 24.4 cents per gallon.

“Everything’s on the table,” U.S. Rep. Sam Graves, a Missouri Republican who chairs the House Subcommittee on Highways and Transit, said as he discussed the future of federal transportation funding during a panel last Monday.

But Graves also noted: “I think vehicle miles traveled probably has the most promise.” This sort of revenue stream would involve charging motorists based on the number of miles they drive. A pilot program testing the practice is now underway in Oregon.

The panel discussion where Graves spoke was held as part of Infrastructure Week—a national series of events organized by business, labor and government groups.

After 36 short-term extensions, Congress passed, and President Obama signed, a long-term transportation bill to help pay for highways, transit and other programs last December. The Fixing America's Surface Transportation Act, or FAST Act, provides some certainty to state governments through 2020 by authorizing about $300 billion of spending.

“We’ve got almost five years of breathing room,” Jeff Davis, a senior fellow at the Eno Center for Transportation, a D.C.-based think tank, said during an Infrastructure Week panel discussion on Thursday.

But Congress failed to come up with a long-term transportation funding solution.

The Highway Trust Fund, a key source of money for road and transit infrastructure, has historically relied heavily on gas and diesel tax revenues. But, over the last eight years, lawmakers have enacted legislation to transfer a total of $65 billion to the fund, in order to stave off shortfalls.

The FAST Act, too, depends on one-time infusions of money like $70 billion from the Treasury Department's general fund, and oil sales from the nation’s strategic petroleum reserve.

Davis highlighted that, in some ways, U.S. environmental policies, which prioritize fuel efficient vehicles, have been at odds with the system for funding transportation.

“It is officially the environmental policy of Uncle Sam to reduce the number of taxable gallons of gasoline sold in America,” he said. But highway funding policies lean on per-gallon gas and diesel taxes. Davis noted: “They are working completely at cross purposes.”

‘Not a Foreign Concept’

Oregon has experimented since last July with a vehicle-miles-traveled program, which allows up to 5,000 motorists to pay a 1.5 cents-per-mile charge, instead of fuel tax.

“It’s actually not a foreign concept,” Joung Lee, policy director for the American Association of State Highway and Transportation Officials, told an audience that included state lawmakers, as he discussed mileage-based taxes last Thursday.

Lee likened per-mile taxation to paying for electricity or water in a home.

“If you use a lot, you’re going to pay a lot,” he said. “I think that kind of linkage is really missing when we’re talking about the transportation investment and the funding in this country.”

But Oregon state Sen. Fred Girod, a Republican who represents a rural district that stretches east of Salem, pointed out that mileage-based taxes continue to stoke privacy concerns, with some people troubled by the idea of the government collecting information about their driving habits.

“That is the push back, really hard, is the confidentiality of the information,” he said during the event where Lee spoke.

An electronic device installed in vehicles participating in Oregon’s pilot program tracks mileage. But it does not record a vehicle’s location, according to the state’s department of transportation.

Like taxes on mileage, other funding options floated during last week’s discussions sought to link the utility a person or business derives from infrastructure with what they pay to support it.

At a panel put on by the National Academy of Public Administration, Mark Pisano, former executive director of the Southern California Association of Governments, raised the notion that owners and developers of land should help pay for infrastructure they benefit from.

“I would say that the largest, single untapped set of revenues in the United States is this linkage between land use and transportation,” he said.

And Emil Frankel, interim president and CEO of the Eno Center, who served as Assistant Secretary for Transportation Policy of the U.S. Department of Transportation during George W. Bush’s administration, suggested federal prohibitions on interstate tolling should be eliminated.

“If the burden is going to grow on the states, the federal government should get the hell out of the way,” said Frankel, also a former Connecticut Department of Transportation commissioner.

‘Huge Amount of Activity’

About half the money states use for highway and bridge construction activities comes from the federal government, according to Alison Premo Black, a senior vice president for policy, and chief economist, for the American Road and Transportation Builders Association.

But, Black noted last week, the amount of federal transportation dollars flowing to states has largely been flat in recent years, after taking into account factors like inflation, or rising project costs. Looking ahead, the state and local level, she said, is “going to be where the real growth is for expanding transportation networks” and making other infrastructure investments.

During the last three years, Black said, there were 17 state-level gas tax increases, whereas historically there would have been three to five in a two to three-year timeframe.

ARTBA tracked a total of 179 bills related to transportation funding that were introduced in state legislatures last year. As of November, 101 of those measures had failed and 36 had passed. But, even so, “that’s a huge amount of activity,” according to Black. 

Special fees for electric and hybrid cars, along with upping prices for vehicle registrations and oversized truck permits are some of the other options states have turned to for raising transportation money. 

Along with discussions about revenues, state lawmakers and others participating in Infrastructure Week events stressed the importance of looking for efficiencies and savings.

“When we got our gas tax increase we promptly had all of our credibility destroyed,” said New Hampshire state Rep. Steven Smith, referring to a state-level hike in the tax.

The Granite State Republican explained that, shortly after the gas tax increase was approved, a number of projects cropped up that some people viewed as frivolous—such as plants put in place on medians, and road work that incorporated cobblestones and granite curbing.

Money for this work, he said, “came out of a federal beautification project,” not the state’s tax revenues. But that didn’t matter to residents who saw what they perceived to be wasteful spending.

“We’re not going to get another increase,” Smith said.

A report the American Society of Civil Engineers released earlier this month estimates that, over the next decade, funding for surface transportation infrastructure in the U.S. is on track to fall about $1 trillion short of roughly $2 trillion in total needed spending.

Frankel, of the Eno Center, said it’s not realistic that money on this scale will materialize.

“The fact of the matter is,” he said, “we have to make better decisions about how we invest public funds in infrastructure.”

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