The Future of Transportation Funding

Earlier this month, Virginia Governor Bob McDonnell proposed eliminating the state's gasoline tax in favor of increasing the state sales tax. Gov. McDonnell cited the increasing fuel economy of passenger vehicles as the reason for the switch. As MPG rises, states' revenues dedicated to transportation funding are dropping. If the governor's plan passes, Virginia will be the first state to eliminate its gasoline tax and residents will see a 0.8 percent increase in their sales tax. The state would retain its diesel tax and also leverage a $100 annual surcharge on alternative-fuel vehicles, including those designed to run on natural gas.

The plight Virginia is facing is not just a Virginian problem, states around the country are facing increasingly smaller transportation revenues and rising costs of infrastructure maintenance. This is producing a plethora of new ideas for funding state transportation budgets. Of these, many states are turning to voters and asking for bond approval, to finance today's transportation costs over 30+ years.

Toll roads are also seeing increasing popularity among state legislators who are happy to unload the burden of maintaining roads onto private companies in return for immediate cash. Indiana recently leased the Indiana Toll Road to a private company for 75 years; some researchers have argued that agreements like this trade-in the long-term revenue possible with toll roads for the short-term ability of current legislators to fill holes in state budgets.

Taxes are not immune and continue to be a hotbed topic in the transportation funding conversation. Many opponents to new tax revenue argue that increasing sales or fuel taxes will set back America's still rocky economy. In response, many transportation stakeholders have gone after the diversion of transportation-raised revenue to non-transportation expenses. The Ohio Supreme Court recently declared the diversion of tax revenue from fuel sales to non-roadwork accounts unconstitutional. In past years, the state used revenue from the Commercial Activity Tax to pay for schools, prisons and healthcare.

One suggestion aimed to address improving fuel economy and proposed at the federal level is the use of a Vehicle Miles Traveled (VMT) tax. This tax system, currently used in Oregon, leverages transportation taxes on the actual miles traveled by a driver instead of building the tax into the cost of fuel at the pump. Supporters argue that this will eliminate the effect of improving fuel economy on transportation revenue, while opponents argue that management of tax collection will be too expensive and would be intrusive to the public.

With aging infrastructure, declining revenues and the increasing load we place on our transportation system it is clear that real solutions need to be enacted to maintain the viability and strength of our economy. And likely, the answer to our transportation funding cannot be solved with one proposal, but will require a variety of revenue sources and cost-cutting measures to work.

Fleets spend more time on our country's highways and byways than anyone else. What do you think is the answer to transportation funding?

This entry was posted on January 21st, 2013 by jhubbard and is filed under Recent News & Updates.