Surface Transportation Funding: 2014 Update

By James B. Reed and Ben Husch | Vol . 22, No. 44 / November 2014

NCSL NewsDid you know?

  • States pay for 40 percent of highway and transit costs, the federal government pays 24 percent and localities pay 36 percent.
  • The federal Highway Trust Fund was temporarily replenished by Congress with an $11 billion funding bill passed in August 2014.
  • Several states recently have taken a percentage based approach to gas tax rates to shore up transportation revenues.

States continue to explore and enact new approaches to transportation funding in the face of declining gas tax revenues and an uncertain federal program. State budget shortfalls caused by the Great Recession starting in 2008 exacerbated a series of circumstances—including years of underinvestment, an aging infrastructure, growing transportation demand in economically robust areas and political reluctance to raise the gas tax—and created a serious transportation funding crisis. The challenges include not only maintaining and operating current infrastructure, but also building new or replacing obsolete facilities.

From 2007 to 2011, a total of $207 billion was spent annually by state, federal and local governments on highway and transit systems. A recent Pew study, however, documents a $27 billion decline in total real dollars spent from 2002 to 2011, and a state funding decline of $20 billion—or 20 percent—in total during this period.

State Action

States have taken a variety of approaches in dealing with the transportation funding crisis. In 2013 and 2014, at least 748 bills on the topic were considered in the states and the District of Columbia, while transportation infrastructure was mentioned in at least 22 governors’ “State of the State” addresses in 2014. Existing funding for states comes from motor fuels taxes, motor vehicle/truck registration fees and taxes, tolls and state general funds. In addition, most states use bonding and other forms of borrowing to pay for transportation infrastructure.

The most prominent trend in transportation revenue legislation during the past two years has been a move away from the fixed cents-per-gallon gas tax rates—fixed no matter the price of gasoline—to a percentage-based approach. This method tracks with the economy to some degree, either by tying the tax rate to inflation or basing it on the actual price of fuel.

In 2013, overall state gas taxes were increased in Maryland, Massachusetts, Pennsylvania, Vermont, Virginia and Wyoming. Except for Wyoming, which raised the gas tax from 14 cents per gallon to 24 cents per gallon, all these states moved toward a percentage-based gas tax. Virginia, for example, replaced its 17.5-cents-per-gallon gas tax with a 3.5 percent tax on the wholesale price of gasoline, coupled with an increase in the state retail sales tax, which was partially dedicated to transportation. These recent changes reverse a trend of no state gas tax increases of any kind in 2010, 2011 and 2012.

New Hampshire and Rhode Island passed gas tax laws this year. New Hampshire bases the one-time increase on the rate of inflation from 2003 to 2013. Rhode Island did not increase the gas tax outright, but instead indexes it to inflation starting in July 2015. With these laws, the number of states with variable-rate gas taxes now totals 16; a few other states apply their general sales taxes to gasoline. Florida passed HB 7175, which establishes a mechanism for capturing future right-of-way leasing revenue from wireless communications facilities along state roads. It also generates revenues by allowing agreements for commercial sponsorship displays along recreation trails. Delaware raised tolls on State Route 1 to generate an additional $20 million in transportation funding.

Another recent trend is to assess fees on drivers of electric vehicles, since they pay no gas tax. Colorado, Nebraska, North Carolina, Virginia and Washington have special annual fees for electric vehicles that range from $50 to $100.

Despite these recent increases, many academic studies and numerous state legislators agree that the long-term viability of relying heavily on the gas tax is questionable, due to such factors as higher automobile fuel efficiency and alternative fuel vehicles. In response, 18 states have used a study or pilot project to examine the feasibility of a vehicle-miles fee or a mileage-based user fee as an alternative. Such a fee would assess a flat or variable transportation system user fee based on the number of vehicle miles traveled. In 2013, Oregon created the largest test in the United States to date. It allows owners of up to 5,000 vehicles to pay a per-mile road usage charge (in a variety of ways) rather than gas taxes, starting in July 2015.

Federal Action

Federal surface transportation programs were given a temporary boost on Aug. 8, 2014, when the president signed into law the Highway and Transportation Funding Act of 2014 (H.R. 5021), which extends both authorization and funding through May 31, 2015. The law transfers nearly $11 billion, fully offset, to the Highway Trust Fund. Congress approved the legislation late on July 31, 2014, just hours before the U.S Department of Transportation (DOT) was set to begin instituting cash management strategies to ensure the solvency of the Highway Trust Fund. Such strategies would have included reducing reimbursements to states. Congressional action on a long-term reauthorization of the previous long-term bill, Moving Ahead for Progress in the 21st Century Act (MAP-21), is still pending.

In the House, neither committee of jurisdiction—Transportation and Infrastructure (highways, transit and highway safety) and Ways and Means (funding)—has introduced legislation. In the Senate, where there are four committees of jurisdiction—Environment and Public Works (highways), Banking, Housing and Urban Affairs (transit), Commerce, Science and Transportation (highway safety) and Finance (funding)—only the Environment and Public Works Committee (EPW) has taken action. In May, EPW approved a six-year bill, the MAP-21 Reauthorization Act, which would reauthorize many of the core programs within MAP-21 for six years and also would gradually increase the funding from $38.4 billion in FY 2015 to $42.59 billion by FY 2020. In addition, in April 2014, DOT unveiled its four-year reauthorization bill, the GROW AMERICA Act, which would provide significant increases in funding levels for transportation programs.

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