By Douglas Shinkle and Jonathan Bates
Since the early 2000s, states have been at the forefront of discussions to explore possible replacements for the motor fuel tax (MFT).
States are heavily reliant on MFT revenue as a source for transportation funds. According to the National Association of State Budget Officers’ 2019 State Expenditure Report, “Motor fuel taxes represented the largest revenue source for transportation funds at 39.8%.”
Motor fuel tax receipts are projected to continue to decline as vehicles become more fuel-efficient and the surge of new electric vehicles continues to spark interest among buyers. The announcement that the nation’s most populous state, California, will end all sales of new gas-powered vehicles beginning in 2035 is one indicator of the momentous changes the transportation system and industry will undergo in the next few decades. An analysis published by Bloomberg predicted that 10% of all new car sales will be electric by 2025, increasing to 22% by 2030, and could be even higher as electric cars become more affordable.
Not only are vehicles revving entirely independent of gasoline, but internal combustion engine vehicles are simultaneously becoming more fuel-efficient. The most recent data by the U.S. Bureau of Transportation Statistics reported that the average light-duty vehicle in the U.S. achieved 22.3 mpg in 2017, up from 20 mpg in 2000 and 14.9 mpg in 1980. The U.S. Energy Information Administration predicts a 19% decline in gas consumption through 2050.
CDM Smith, a global engineering and construction firm, predicts a $9 billion annual decline in fuel tax revenues beginning in 2020 when considering what had been expected by 2015 revenue estimates and the fiscal impact of more fuel-efficient vehicles and new electric vehicle sales. This is forecast to accelerate by approximately $12 billion over the next five years, totaling $21 billion annually at that time.
Thus, the fallout is already hitting states as they investigate alternative sources of transportation funding. It is worth noting that revenue reductions are not one-time, but cumulative, recurring and deepening every year. CDM Smith’s 2040 revenue forecast, using the same variables and accounting for inflation, shows lower fuel tax revenues totaling as much as $66 billion annually.
For state transportation agencies, this could mean fewer resources for new construction and bridge projects, repairing crumbling infrastructure and maintaining the existing network of highways, roads and bridges.
Given these two major pressures on the MFT, states have begun to actively study, explore and pilot road user charge (RUC) systems as the most likely long-term replacement for declining MFT revenue. Also known as Vehicle Miles Traveled (VMT) charges or Mileage-Based User Fees (MBUF), these efforts have been supported by the federal government via the Surface Transportation System Funding Alternatives (STSFA) grant program.
Created as part of the 2015 FAST Act, the most recent federal surface transportation reauthorization, STSFA has granted over $50 million to states to deploy pilots designed to help identify potential alternatives to the gas tax. The objective is to identify alternative revenue mechanisms that utilize a user fee structure to help fund the nation’s systems of highways, roads, bridges and mass transit.
Thus far, 11 states have received STSFA grant awards: California, Colorado, Delaware (the Eastern Transportation Coalition serves as the project lead representing Delaware, New Jersey, North Carolina, Pennsylvania and Virginia), Hawaii, Minnesota, Missouri, New Hampshire and Oregon (overseeing two grants including one to the Oregon Department of Transportation and the other to RUC West (consisting of Arizona, California, Colorado, Idaho, Hawaii, Montana, Nevada, Oklahoma, Oregon, Utah and Washington), Utah, Washington and Wyoming.
NCSL is collaborating with the Federal Highway Administration (FHWA) to provide NCSL’s legislative constituents, RUC pilot administrators and other transportation policy stakeholders with insight on how the RUC pilots have fared thus far, lessons learned and areas in need of further inquiry. NCSL will develop a number of fact sheets on state actions and common challenges for RUC programs. NCSL will convene an in-person meeting in the future to bring RUC stakeholders together. Visit NCSL’s RUC webpage and read the first fact sheet on Missouri’s RUC efforts. More fact sheets and resources will be added in the months ahead.
Check back to the blog tomorrow to learn what steps legislatures are taking to get RUC systems road-ready.
Douglas Shinkle is director of NCSL’s Transportation Program.
Jonathon Bates, is a transportation policy associate in NCSL's Transportation Program.