The National Academies

NCHRP 20-62 [Completed]

Long-Term Viability of Fuel Taxes for Transportation Finance

  Project Data
Funds: $100,000 (NCHRP contribution to $550,000 multi-sponsored TRB policy study)
Research Agency: TRB, Division B
Principal Investigator: Joseph R. Morris
Effective Date: 10/1/2003
Completion Date: 9/30/2005

For the past several decades, the building and maintenance of the nation's infrastructure has depended upon a steady and adequate stream of revenue, which has mostly come from state and national fuel taxes. Each year, the nation -- acting collectively through local and state government and federal agencies- -spends more than $100 billion to construct, maintain, regulate, and operate surface transportation systems. Fortunately, there has been a reliable mechanism for raising the necessary funds- -the fuel tax. About 25 to 30 percent of the $100 billion comes from federal sources, which are distributed by the federal government back to state and local authorities. Nearly 90 percent of federal revenues come from taxes on petroleum fuel. Fuel taxes are also a mainstay of state transportation revenues, accounting for roughly half of state expenditures on highways. At the local level, transportation agency funding (not including transfer payments from states and federal agencies) typically depends on general tax revenues, property taxes, and other sources. Based on aggregate estimates, it appears that between 55 and 60 percent of highway construction, operations, and maintenance is paid for from user fees, of which the fuel tax is the primary source. Transit capital funding is also heavily dependent upon fuel taxes because the 80 percent federal funding match for new capital is funded from the Highway Trust Fund. Transit operating costs are funded from a wide variety of local and state sources.

Fuel taxes have long been the mainstay for transportation infrastructure finance, but their future is now uncertain. In many states, there is a strong reluctance to raise fuel taxes, and some state legislatures have even reduced taxes to compensate for the sharp increase in average gasoline prices over the last two years. Many localities and states are supplementing or replacing fuel taxes with other sources, such as sales taxes and other general revenue sources. There is also a growing trend to use additives to gasoline for environmental reasons, and the most prominent additive, ethanol, enjoys a federal exemption from fuel taxes that reduces federal and state trust fund revenues by some several billion dollars annually. Looking ahead, a slow but steady increase in fleet efficiency- -perhaps due to increased market penetration by electric, fuel cell, or hybrid technologies- -would reduce the revenue per mile generated by users. Whereas cleaner-burning fuels and increased fuel efficiency are desirable policy goals in their own right, particularly in regard to global warming, they may reduce the ability to rely on fuel taxes in the future.

Other financing options are possible, such as wider use of tolls that could be collected electronically, and increased debt financing repaid by users or with other tax revenue sources. Tolls and debt financing and other forms of innovative finance have long been part of transportation finance, but they have been a very small part. Electronic methods of toll collection ease some of the relatively high administrative costs associated with tolls or congestion pricing, but public acceptance of any kind of toll on a wider scale is questionable.

Based on these general trends in fuel tax revenues and the shift to nonuser fee financing, consideration needs to be given to the options for a stable, long-term source of transportation finance.

The results of this multi-sponsored study have been published as TRB Special Report 285, The Fuel Tax and Alternatives for Transportation Funding.

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