Road Revenue Plummets — New Ways To Fund Infrastructure Projects Needed
Recently, an article in the Washington Post bemoaned decreases in US toll road traffic and the negative effects that decrease is having on road repair revenues. The problem, in essence, is that COVID-19 era traffic levels are at a fraction of the previous year’s totals. As road revenue plummets — in the word according to legacy transportation analysts — road infrastructure projects that keep our labor force on the job and support the economy are in real jeopardy.
And isn’t it already bad enough that those darned electric vehicles don’t contribute their fair share to the Highway Trust Fund?
The toll industry’s 2020 losses, which by International Bridge, Tunnel, and Turnpike Association (IBTTA) estimates will exceed $9 billion nationwide, are prompting public and private toll operators to tap their reserves, delay capital projects, and cut jobs. Politico reports that about 85% of the dollars coming from fuel taxes, or revenue to the US Highway Trust Fund, fell about 41% from $3.7 billion in 2019 to $2.2 billion in 2020.
Moreover, since the federal government collects revenues from taxes paid by highway users — mostly from those levied on gasoline and diesel fuel — the emerging trend toward EV adoption poses even further dismay about the methods needed to maintain the sprawling network of US roads and bridges.
Alternative Approaches to Road Revenue
As early as 2005, noting that alternative sources of highway revenue could “rock the boat,” the US DOT/ Federal Highway Administration outlined how exploration of alternatives would raise a number of economic, technological, equity, privacy, and public policy issues.
That acknowledgment of political tensions that would arise whenever alternative road funding sources were under discussion was prescient. Indeed, little progress has been made in transforming road revenue in the last 15 years.
Nearly a decade ago in 2011, the Congressional Budget Office prepared a study that analyzed the effects of alternative approaches to funding highways. In particular, it compared the effects of fuel taxes and of possible new taxes on the number of miles highway users drive. While determining that potential per-mile charges failed to offer an efficient incentive for people to reduce the costs of their highway use, alternative methods were identified that could support federal spending on highways:
- existing taxes credited to the Highway Trust Fund on truck ownership and sales of trucks and truck tires
- new federal user charges other than per-mile charges
- revenues from the Treasury’s general fund
The Status of the Highway Trust Fund, June 2020
Fast forward to 2020. Here are the most recent available totals for Highway Trust Fund available dollars.
What we see in the graphic above is that the June, 2020 net balance of the Highway Trust Fund (HTF) is $5,565,628,457, and the September 2020 expiration of the Fixing America’s Surface Transportation (FAST) Act approaches quickly. This first federal law to provide long-term funding certainty for surface transportation infrastructure planning and investment was enacted by the Obama administration in 2015. The FAST Act authorized $305 billion over fiscal years 2016 through 2020 for highway, highway and motor vehicle safety, public transportation, motor carrier safety, hazardous materials safety, rail, and research, technology, and statistics programs.
The HTF funds all federal highway programs, as well as 80% of public transportation programs, with fuel, truck and tire taxes. Last raised in 1993, the excise tax on fuel – 18.4 cents per gallon on gasoline and ethanol blended fuels, and 24.4 cents per gallon on diesel fuel – accounts for about 90% of the HTF. For perspective, if the motor fuel tax were adjusted to 2020 values using the consumer price index, the excise tax would be 32 cents per gallon on gasoline and ethanol blended fuels and 43 cents per gallon on diesel.
But we must remember that, as much as we all want to fix the roads and supply the necessary future research and technology to determine the best ways to do so, we can’t agree on how to pay for it.
Possible Solutions to Solving the Road Revenue Dilemma
On July 1, 2020, the US House of Representatives passed an infrastructure proposal: the Moving Forward Act (H.R. 2). The Moving Forward Act would take important steps towards increasing deployment of electric vehicles and renewable energy as well as clean and resilient transportation infrastructure. But, because it’s easier to target EVs as culprits in the road revenue demise Big Picture, the problems with US roads continue.
The US Energy Information Administration projects that US liquid fuel consumption will average 15.7 million barrels per day (b/d) in the second quarter of 2020, a 23%, or 4.6 million b/d, decrease from the same period in 2019. To keep pace and recover from the pending funding shortfall of the HTF, a long-term commitment to prioritize and invest in our aging infrastructure is essential. But how?
As the September 2020 expiration of the FAST Act approaches, Congress may again examine adjustments to the funding and financing of the federal role in surface transportation.The Congressional Research Services says that Congress has 3 definitive options to consider.
- Raising motor fuel taxes could provide the Highway Trust Fund with sufficient revenue to fully fund the program in the near term, but may not be a viable long-term solution due to expected declines in fuel consumption. It would also not address the equity issue arising from the increasing number of personal and commercial vehicles that are powered electrically and therefore do not pay motor fuel taxes.
- Replacing motor fuel taxes with a vehicle miles traveled (VMT) charge would need to overcome a variety of financial, administrative, and privacy barriers, but could be a solution in the longer term.
- Treasury general fund transfers could continue to be used to make up for the Highway Trust Fund’s projected shortfalls but could require budget offsets of an equal amount.
The Hill concurs to some degree with these recommendations but also adds its own nuances, recognizing that “many of these are not politically palatable, but that makes finding a realistic, bipartisan solution all the more critical,” listing:
- annual road-use fees for drivers of electric vehicles
- mileage-based taxes
- tire taxes
- increasing the federal gasoline tax
- tolls
The Heritage Foundation argues that all federal funding should be eliminated and that the states should become solely responsible for road infrastructure.
In March, the Whitmer administration in suggested 6 ways that Michigan could fund its infrastructure needs, including:
- raising the state’s flat individual income tax rate from 4.25% to 5.3%
- raising the corporate income tax rate from 6% to 19.5%
- raising the sales and use tax rate from 6% to 7.4% (requiring a constitutional amendment)
- levying a new statewide 7-mill property tax (requiring voter approval)
- increasing annual vehicle registration fees by 180%
Which — if any — of these suggestions offers a realistic pathway forward to increasing road revenue? And how can legislators find common ground to make alternatives to funding the Highway Trust Fund less contentious and more pragmatic? Give us your thoughts.
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