Transportation Funding Ideas Abound, But What Role Should the Gas Tax Play?


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As was discussed in last week's Digest, adequate transportation funding has been hard to come by for many states as a result of stagnant gas tax revenues and rising transportation infrastructure costs. This past week, a couple of interesting developments in the transportation finance debate arose out of this nationwide problem.

The first of those developments was a summit held with the cooperation of the National Governor's Association and the U.S. Department of Transportation. Though no formal recommendations were made, among the more intriguing revenue-raising ideas to come out of that meeting were an expansion of tolling on new and existing roads, implementing congestion pricing during high-traffic times, and creating a tax on the number of "vehicle miles" one travels. Each of these provisions would be regressive, requiring low- and middle-income people to pay more of their incomes than their wealthier counterparts, but this could be offset with increases in the overall progressivity of state and federal tax systems. What makes each of these options most appealing is that they can serve two purposes simultaneously -- providing needed funding for roads while at the same time reducing traffic congestion by placing a "price" on driving.

Slightly less encouraging was the insistence by U.S. Transportation Secretary Mary Peters that the gas tax is essentially outdated and broken and should not be increased to keep up with inflation-driven increases in transportation costs. Peters' criticism was that as people consume less fuel by either driving less, switching to mass transit, or purchasing more fuel-efficient vehicles, the gas tax will become increasingly unsustainable. But with states facing immediate transportation shortfalls that need to be addressed in a matter of weeks and months, not years, such a firm opposition to a gas tax increase seems unwarranted.

The transportation funding debate in many states has recently turned to a competition between increasing the gas tax and increasing the sales tax. The gas tax, like Peters' other ideas, asks the most of those people who drive the most, and potentially has some effect on decreasing traffic congestion by adding to the price of driving. If the gas tax is indexed to inflation, as it is to some extent in Florida and Maine, it can also be a sustainable funding source. The sales tax, on the other hand, is just as regressive as the gas tax but isn't at all based on one's driving habits -- it therefore also has no role in reducing congestion. It would seem that until her more long-term goals could be enacted, Peters' should be a staunch supporter of the gas tax as the next best solution.

By contrast, the other big transportation development of the week was a report released by the Kansas Department of Transportation that recommended "protecting [gas tax] revenues from inflation" by continuously adjusting the tax rate. That report also recommended adding additional tolling as a method for addressing the state's transportation woes. But with Kansas facing an immediate transportation funding shortfall estimated at $30 billion over the next 2 decades, an easily implemented solution like a gas tax hike seems like an absolute necessity to any transportation funding package. Other states that lack the luxury of time would do well to listen to the recommendations out of Kansas and consider adjusting their gas tax rates so that the widening gap between revenues and costs may begin to be bridged.

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