If California is the U.S. leader when it comes to environmental regulation, then Oregon could be the state to keep an eye on in terms of where transportation infrastructure funding is headed.
The Beaver State enacted the nation’s first fuels tax in 1919, with the other 47 states said to have created some type of gasoline tax by 1929. It wasn’t until 1932, barely a couple years into the Great Depression and the year Franklin D. Roosevelt won the White House, that the federal government imposed a national fuels tax.
Eighty years later, Oregon is on track to achieve another transportation spending landmark. The state Senate and House passed a bill in June that would allow some drivers of cars and light vehicles to pay by how far they drive, instead of paying the 30-cent-per-gallon state gasoline tax. Gov. John Kitzhaber, a Democrat, is expected to sign the bill into law.
Some transportation proponents see taxing drivers by how far they travel, instead of how much fuel they buy, as the next frontier for surface infrastructure funding. The idea behind the effort is that, although more fuel-efficient vehicles consume less fuel, they still add wear and tear to highways and roads.
In Washington, D.C., meanwhile, Congress may be a long way from adopting the model for national use — some members are concerned about privacy and technology costs — but hope is building that the legislative branch will authorize pilot programs in the next surface transportation bill, paving the way for more widespread adoption.
Other states are following Oregon’s lead in finding new ways to fund transportation infrastructure projects, as it becomes increasingly clear that the federal government can’t give them the support it once did. The growing understanding that efficient freight systems are key to competing nationally and internationally also is fueling states’ actions. Unfortunately, Congress has the same realization on freight networks but hasn’t been able to make the tough funding choices.
The Highway Trust Fund, the main engine of federal highway funding, will go insolvent in the next few years, according to government projections. The 18.4-cents-per-gallon gasoline tax and 24.4-cents-per-gallon diesel tax, which fuel about 90 percent of the Highway Trust Fund, haven’t increased since 1993, and inflation has cut about 7 cents from the taxes’ buying power. House Republicans are reluctant to continue using general fund injections to offset the declining HTF, meaning Congress must find a new funding source, decrease construction spending when the current bill expires in the fall of 2014 or use continuing resolutions to keep highway spending going.
“States realize there is no cavalry coming and they are going to have to raise their own funding for revenue,” Robert Puentes, a senior fellow at the Brookings Institution, said at a July 12 event on states taking the lead.
Four states this year have overhauled their transportation funding mechanism or hiked their fuels tax to boost their coffers. Virginia passed a bill to replace the state’s 17.5-cent tax on retail gasoline with a 3.5 percent tax on the wholesale price of gasoline and a 6 percent hike on wholesale diesel prices. Gov. Bob McDonnell, the Virginia Republican who pushed for the overhaul, expects the state to receive $6 billion in transportation funding over the next five years.
Wyoming in February raised its taxes on gasoline and diesel by a dime per gallon and expects to gain $70 million in additional funding. Maryland this year increased its gasoline and diesel taxes by 3.5 cents per gallon by adding a sales tax onto the fuels taxes. Vermont hiked its fuel tax by 5.9 cents per gallon after realizing it faced a roughly $36.5 million annual funding shortfall.
Gasoline taxes in other states, including California, Georgia and North Carolina, also climbed this year because their rates are tied to the cost of gasoline. Compared to roughly the same time last year, U.S. gasoline prices are up more than 3 cents and diesel prices are up more than 3.5 cents on average, according to the U.S. Energy Information Administration.
Despite the positive signs from the state level, shippers and transportation providers shouldn’t expect states’ efforts to make up for all of the slack in federal funding, said Joung Lee, associate director for finance and business development at the American Association of State Highway and Transportation Officials. Wyoming, for example, would have to increase its state fuels tax by 24 cents per gallon to maintain transportation funding if it stops receiving it, according to an American Road & Transportation Builders Association report.
Raising their fuel taxes isn’t the only way states can improve their surface transportation infrastructure. Better coordination between state agencies also helps, as New York has found, Margaret Tobin, executive director of NY Works Task Force, a group studying the way state agencies and authorities are using taxpayer dollars, said at the Brookings Institution event. Following Hurricane Sandy, all major New York state agencies must coordinate capital investments.
Public-private partnerships also can help states fund infrastructure, but too few of them have laws on the books needed to broker such deals, Puentes said. State officials often lack the expertise needed to meet with their private sector counterparts to execute the deal. States also can get more for their buck by streamlining construction processes and ensuring their projects fit with their own freight plans and the emerging national freight network.
“There is no silver bullet to solve all our (infrastructure funding) challenges,” Puentes said.