The Gas Tax and Some Fresh Thoughts on How to Pay For Transportation

Posted by Ken Orski on Thursday, January 15th, 2015

Innovation Newsbriefs
Vol. 26, No. 1

With gasoline prices at a five year low, isn’t this the perfect time to raise the federal gas tax? A large chorus of voices including several influential Republican Senators — John Thune (R-SD), Bob Corker (R-TN) Jim Inhofe (R-OK), and Orrin Hatch (R-UT)—seem to think so. So does the Washington Post and the New York Times. “Now is the best time Washington has seen in years to raise the federal gas tax,”  the Post editorialized.  “A modest increase in the gas tax  would hardly be noticeable to most Americans,” echoed the New York Times.  

President Obama isn’t so sure.He did not include a gas tax increase among his tax proposals in the State of the Union address nor did he mention it as a way of paying for a proposed “bipartisan infrastructure plan” whose perfunctory mention disappointed transportation advocates.

At a press briefing, Press secretary Josh Earnest reminded reporters that the Administration continues to believe  the best option  to pay for a long-term surface transportation bill is through a windfall from “corporate tax reform.”  But a tax reform bill isn’t a sure thing and certainly is not likely to be passed before the current transportation measure expires at the end of May.

In the House of Representatives, the prospect for a gas tax hike is virtually nil. “While there may be some voices in the Senate in favor of raising the gas tax, the sentiment in the House is overwhelmingly against it and this includes Speaker Boehner,” one senior House aide told reporters.  Paul Ryan (R-WI), chairman of the tax-writing House Ways and Means Committee and Bill Shuster (R-PA), Chairman of the Transportation and Infrastructure Committee also have flatly ruled out a fuel tax increase. 

Given the House Republicans’ solid opposition, congressional observers do not see a gas tax increase as a practical reality during the current session of  Congress. That is also the conclusion of a January 14  Associated Press dispatch entitled “Despite low gas prices, gas tax hike appears unlikely.”

Rethinking our approach to transportation funding

Since that is the case, perhaps the time has come to reconsider the way we pay for transportation. Maybe we should abandon our 50-year old sole reliance on the gasoline tax and the Highway Trust Fund and consider additional ways of funding transportation infrastructure.  

These speculations are no longer seen as outside the realm of serious discussion. They have been raised by a number of respected  think tanks such as the Brookings Institution, The Heritage Foundation, The Pew Charitable Trusts (and its Fiscal Federalism Initiative), the Bipartisan Policy Center, and the Eno Transportation Center.    

In the public sector, no less than U.S. Transportation Secretary Anthony Foxx has acknowledged  the need to rethink the traditional approaches to funding the federal transportation program. “We have to get unstuck from this idea that we’ve got to keep doing transportation [funding] for the next 50 years the way we’ve done it for the first 50 years of the Interstate system,” the Secretary said in an interview at the CityLab 2014 Conference   (“Improving Transportation Federally Can Begin Locally,”The Planning Report, Nov. 2014.) 

As the Washington Examiner put it, while Americans remain grateful for the original construction of the Interstate highways (and for the gas tax that made it posible), “that is no justification for perpetuating the current system in which fifty states pitch into a national transporation slush fund…”

And a respected longtime industry lobbyist reflected the sense of many in the transportation community when he confessed,  ” I have come to a reluctant conclusion that transportation funding will continue to stagnate if we persist in sticking to the funding orthodoxy of the bygone Interstate Highways era.”   

Shifting a larger share of funding responsibility to the States

So what is to be done? The transportation advocacy group Transportation for America (T4America) thinks the solution lies in shifting a larger share of funding responsibility to the state and local level.  “States that want to continue investing will have to explore new ways to raise funding for transportation on their own,” said T4America director, James Corless in announcing the launch of a new initiative to support efforts to raise transportation funding through state legislation.

T4America’s posture is backed by solid evidence. The past two years have seen a number of states seeking to compensate for the lack of congressional action with funding initiatives of their own. Indeed, for a growing number of states that have done so and have secured a stable, recurring source of funds for their transportation programs, a long-term federal transportation authorization is no longer an imperative.

Surveys conducted by the American Road and Transportation Builders Association and the National Conference of State Legislatures show that state governments have become veritable laboratories for fiscal innovation. Eight states have increased local fuel taxes (VA, MD, WY, MA, PA, VT, NH, RI). Others have floated toll revenue bonds (e.g. OH) or raised highway tolls (e.g. DE, FL). Still others have enacted or contemplate enacting dedicated sales taxes for transportation (AR, VT, WI, MN) or a “carbon pollution charge” (WA) 

At least 20 states are poised to tackle transportation funding in 2015 according to the Council of State Governments (“States to Watch in 2015: Transportation Funding,” CSG Knowledge Center.)  Among them are Michigan, whose legislature, with strong support from Gov. Rick Snyder, voted  to sharply increase gas taxes over the next four years to raise more than $1 billion annually through a ballot initiative in November; Texas, whose  Gov.-elect Gregg Abbott announced plans to add $4 billion to road funding; Utah, whose state House is moving to raise the gas tax, possibly by as much as 10 cents a gallon; Minnesota, whose Senate leaders introduced a comprehensive transportation funding plan to generate more than $800 million in new recurring revenue and $1.5 billion in bonds for the state’s transportation infrastructure;  Maine, whose Gov. Paul LePage unveiled a $2 billion three-year plan to rehabilitate transportation infrastructure; Washington State, whose Governor Jay Inslee unveiled a $12 billion multi-year transportation plan funded through bonds, fees and a carbon tax; Connecticut, whose Gov. Dannel Malloy announced that he is going to propose a “massive and comprehensive” long-term transportation plan; and South Carolina, whose Gov.Nikki Haley unveiled a road funding plan that includes a 10-cent-per-gallon tax increase that is expected to generate $3 billion over the next ten years (the gas tax hike is tied to an income tax cut). 

In sum, states are not standing idly by, waiting for Congress to come to the rescue with higher federal gas taxes and more money. Instead, Governors, state legislatures and local governments, responding to uncertain prospects for future federal funding, are taking aggressive steps to make themselves less dependent on federal aid. They are raising state gas taxes, passing bond referenda, financing large-scale construction projects with long term credit, raising tolls, letting out highway concessions, and putting private capital to work through public-private partnerships.

Collectively, these measures will generate billions of additional revenue for state and local  transportation programs and are expected to largely make up for the absence of increased federal funding. 

Implications for the Next Transportation Reauthorization

With the midterm elections having increased Republican majorities among governors and in state houses to historic highs not seen since the 1920s, the movement toward greater self-sufficiency and financial innovation at the state and local levels is likely to grow in strength.  Republicans currently hold 31 governorships and 68 of the 98 legislative chambers. The GOP  controls both the legislatures and governorships in 23 states. 

“Power is flowing out of Washington, largely unnoticed, and back to the states and localities,” wrote columnist Michael Barone. “You can see that if you look at transportation policy….In effect the feds are abdicating and the states are taking up the burden.”   

Will evidence of a growing fiscal involvement by state and local governments tend to diminish the need for a strong federal role in transportation? Will increased transportation funds raised locally offer a plausible reason to set lower funding levels in the next transportation reauthorization? And will the existence of stable and recurrent streams of transportation funding at the state level lessen the need  for a multi-year bill?  The answers to these questions may  likely influence congressional thinking about the shape of the next transportation reauthorization.

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation Newsbriefs, now in its 25th year of publication.

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