Innovation Brief: The Gas Tax and Some Fresh Thoughts on How to Pay For Transportation (1/14)

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

With gasoline prices at a five year low, isn’t this the perfect time to raise the federal gas tax? A growing chorus of voices including several infuential 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 theWashington Post and the New York Times. “Now is the best time Washington has seen in years to raise the federal gas tax,”  a Post editorial said. “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. “In fairness to members of Congress, votes on gas taxes are really tough” he observed, responding to a question by FedEx CEO Fred Smith about the prospects for a gas tax increase at a December 3 meeting with members of the Business Roundtable. Instead, Mr. Obama said, we should be looking for a “dedicated revenue source for infrastructure funding that is not so politically frightening to members of Congress.”  

White House opposition to raising the fuel tax was reiterated again at a press briefing  on January 5. “We don’t believe that the best way to fund modernizing our infrastructure is to raise the gas tax” said Press secretary Josh Earnest. He said the Administration continues to believe  the best option  to pay for a long-term surface transportation bill is through  “corporate tax reform.”

In the House of Representatives, the prospect for a gas tax hike appears equally dim. “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 is also said to be against a fuel tax increase. Given the House Republicans’ solid opposition, most congressional observers do not see a gas tax increase as a practical reality during the current session of  Congress.

Rethinking our approach to transportation funding

If that indeed is the case, perhaps the time has come to reconsider the way we pay for transportation and look for some other alternatives. Perhaps we should abandon our 50-year old reliance on the gasoline tax and the Highway Trust Fund and seek fresh approaches to funding transportation infrastructure.

These speculations no longer are 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 on Urban Solutions for Global Challenges.  (“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 (using the gas tax), “that is no justification for perpetuating the current system in which fifty states pitch into a national transporation slush fund that gets divided up unequally and returned.”

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 Interstate Highways era.”

Eno Transportation Center Report  

Joining in challenging the fiscal status quo has been the Eno Center for Transportation, a self-described “neutral, non-partisan transportation think tank.” Its new report, entitled provocatively “The Life and Death of the Highway Trust Fund,”  questions the continued viability of of the Highway Trust Fund and suggests eliminating the Trust Fund in favor of a funding structure drawing on General Funds.”The current approach to funding surface transportation is not working,” declared the report’s authors, citing political opposition to increasing the gas tax, diminishing travel per capita and improved fuel efficiency that have held down demand for gasoline, and the desire to maintain transportation spending above trust fund receipts, necessitating continual General Fund infusions to keep the Trust Fund solvent.  (“The Life and Death of the Highway Trust Fund,” December 3, 2014).

“Maintaining the status quo will continue to produce funding uncertainty and perpetuate current funding problems,” states the report. Instead, the entire surface transportation bill might as well be fully funded with general funds through the appropriations process. This more straightforward approach  “deserves fair consideration as an effective long-term solution to our national transportation funding problem,” concludes the report. Echoed William Ankner, former head of the Louisiana and Rhode Island Departments of Transportation,  “It is time to change how we fund transportation. Who benefits from our national transportation system? The answer is every person and business. If everyone benefits, then everyone should pay.”

While  Eno’s proposed approach might make good sense policywise,  it’s not likely to find widespread support among transportation boosters. The transportation industry does not cherish the thought of having “their” program become part of the annual appropriations process that would make it vulnerable to budget cutting pressures and expose it to competition for funds from other federal programs.

States Are Assuming More Responsibility for Transportation Funding 

Eno’s proposal is not the only alternative funding scenario to have caught the attention of the transportation community.

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. Six states have increased local fuel taxes (MD, WY, MA, VT, NH, RI). Others have introduced fuel taxes at the wholesale level (e.g. PA, VA), 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 to fix the states’s roads and bridges; Texas, whose Republican Gov.-elect Gregg Abbott announced plans to add $4 billion to road funding; Utah, whose Republican state House is moving to raise the gas tax by 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; and Washington State, whose Governor Jay Inslee unveiled a $12 billion multi-year transportation plan funded through bonds, fees and a new carbon tax.

Collectively, these and other states will generate billions of additional revenue for their transportation programs and make up for the absence of long-term federal funding. According to ARTBA’s Transportation Investment Advocacy Center, the transportation initiatives that were on the November ballot alone will provide nearly $21 billion in additional revenue.

In sum, states are not standing idly by, waiting for Congress to come to the rescue with 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, tolling or leasing highways, and entering into investment partnerships with the private sector.

As Senator Inhofe remarked,  “a lot of states are doing that on their own because if the federal government won’t do it ‘we’ve got to do something ourselves.’ ”

“Power is flowing out of Washington…”

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 level is likely to grow in strength. The Republicans currently hold 31 governorships and 68 of the 98 legislative chambers. The GOP  controls both the legislatures and governorships in 23 states.

A new generation of problem-solving Republican governors —-Scott Walker of Wisconsin, Chris Christie of New Jersey, John Kasich of Ohio, Rick Scott of Florida, Sam Brownback of Kansas, Rick Snyder of Michigan, Mike Pence of Indiana and many others— are turning away from excessive dependence on Washington and seeking their own paths toward sustainability.

“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.”

With the transportation reauthorization facing a climate of continued spending restraint, the need to reconsider the manner we pay for transportation may be indeed upon us.



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— Posted on January 17, 2015 at 9:46 pm by