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Fixing our Broken Transportation Funding System

Karen Glitman -

The gasoline tax is on its last legs as a reliable and stable revenue source for the nation’s transportation system.

Transportation systems everywhere require regular maintenance, and buyers of gasoline and diesel for on-road use bear the cost of that maintenance through the gas and diesel taxes. When purchases of these fuels go down—as is the case today due to factors such as increasingly fuel-efficient vehicles—lower amounts of tax are collected.

Meanwhile, the current federal gasoline tax hasn’t been raised since 1993, and has lost more than 40% of its purchasing power due to inflation. These trends have exerted increasing pressure on the budgets of state transportation agencies and the United States Highway Trust Fund, which finances highway construction and projects related to bus and rail transit, ferryboats, bicycles and pedestrians.

The model is changing

Allocations to the Highway Trust Fund for “federal surface transportation” are subject to periodic reauthorization under law. The current surface transportation authorization expires on October 1, 2014. A new framework is being discussed, and options to fund the highway trust fund have begun to move away from the unsustainable per-gallon fuel tax model.

What might replace that model?

A good start would be to present an accurate picture of who the real beneficiaries of the transportation system are. This system is a public good, comparable to the electric grid or the education system. In other words, its benefits accrue not only to its immediate users, but to society at large. Our society relies upon the transportation system to deliver food, mail, and goods, and to get emergency vehicles to their destinations, regardless of whether we ourselves drive.

If the transportation system benefits far more of us than those paying fuel taxes to support its maintenance, it is fair to question whether the existing, narrow funding base approach is equitable.

Society Benefits, Society Pays

If the transportation system is a public good, let’s fund it like one, through general revenues. This could substantially reduce the gasoline tax. Because general tax revenues would be used to support surface transportation infrastructure maintenance such as paving and bridge repair, the gas tax could be repurposed to support air pollution abatement, as well as programs and infrastructure that help enable a more efficient use of the transportation system and transportation fuels. This could include support for public transit, bicycle- and pedestrian-friendly infrastructure, location-efficient land development, and electric vehicles.

As these measures take hold, the revenue from the gasoline tax would proportionally decrease (just as tobacco tax revenues which fund smoking cessation programs should decrease as tobacco use decreases over time). The end result? A transportation funding system in which relatively predictable infrastructure needs—such as maintaining roads and bridges—are no longer tied to a volatile funding source. Instead, that funding source—the gas tax—is repurposed for transitional purposes and eventually eliminates itself as gasoline consumption declines in favor of a transition to alternative fuels and modes of travel.

The sooner this transition begins, the sooner its benefits can be reaped. Take electric vehicles as an example. According to the Federal Highway Administration, drivers spent $481 billion nationwide on taxable motor fuel in 2010. To accomplish the same level of travel powered by electricity would have cost $112 billion, or less than one-quarter of that amount.

2010 National petroleum expenditures

Figure 1 - 2010 National petroleum expenditures and projected fuel costs of electrified fleet at 2010 $/kWh. (Source: FHWA, EIA)

The roughly $370 billion in annual transportation fuel savings, as illustrated in Figure 1, represents an economic windfall for the nation. These resources can be used, in part, to help ensure that nobody is left behind as part of this transition, regardless of geography, income level, or mode of transportation. This principle should be fundamental to our consideration of the transportation system as a public good, benefitting all.

That the current transportation funding system is broken is beyond dispute. This fact should be embraced as an opportunity. By ending our reliance on this outmoded funding source as a way to pay for our basic transportation infrastructure needs, we open the door to a new system that not only provides certainty for meeting those needs, but also creates a pathway for investment in a widely beneficial transformation of our transportation system.

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