The math is unassailable. Texas is taking in far fewer dollars than it needs to fund new roads construction and to meet its huge debt obligation – debt accumulated over the years as the state has borrowed heavily to fund roads projects. Unfortunately, “32% of Texas’ major roads [are] in poor or mediocre condition,” according to that the American Civil Engineers Society’s 2009 Report Card for America's Infrastructure. Exacerbating the problem is a growing population that will hasten infrastructure decline.
Did I say the math was unassailable? By 2030, Texas will need $188 billion of roads projects to achieve what is deemed “an acceptable level of mobility.”
Estimates have us with $102 billion of available funding leaving a budget gap of $86 billion. Here are other statistics as published by the state of Texas:
|Over the past 25 years in Texas… || || Over the next 25 years in Texas… |
| - Our population increased 57%. || || - Our population will increase an additional 64%|
| - Our use of our roads grew 95%.|| || - Our use of our roads will increase an additional 214%|
| - State road capacity grew only 8%.|| || - State road capacity will grow only an additional 6%|
| - Congress transferred $7 billion in Texas gas tax payments to other states || || - Congress will transfer an additional $7.5 billion in Texas gas tax payments to other states|
| - The state moved $10.8 billion in transportation funds to other uses. || || - The state will use an additional $13.5 billion in transportation funds for other pressing needs |
The state gas tax only pays for 32% of Texas’s current transportation budget. To generate enough cash to expand the transportation system as needed over the next 25 years, the state gas tax would have to be increased by 600% to $1.40 per gallon.
Texas is not alone. Many states in fact have seen the real buying power of their gas tax decline dramatically (they don’t index their tax against inflation). Oregon, for instance, has seen a 50% decline
and Iowa a 70% decline
since the last time they raised their tax rates. Many states have also racked up large debt burdens similar to Texas.
Is there a better answer? Yes, but it will take a number of initiatives including an indexed gas tax, federal aid, additional toll roads, and more. Not doing anything, which is the more popular political move, will eventually cause our infrastructure to decline to such a state that it is hazardous to drivers and a drag on commerce.
As a consumer, it is usually in my best interest to pay as little as possible for items that I use daily, like gas, so that I can keep more of my hard earned money for the things I truly need - like a Tesla roadster 2.5
(Santa I hope you are reading this). However, today I’m focused on more than my own best interests by arguing for higher pump prices due to an increase in motor fuel tax rates.
Let me explain. In Texas, we pay a state tax on gas of 20 cents per gallon and a variable delivery fee which is typically $15 for a full load delivery, in addition to the federal tax rate of 18.4 cents per gallon. So why would I want to pay more than $38.4 cents per gallon
for a gallon of gas? The main reason is that, in spite of appreciation for the Dukes of Hazard
, I do not want to drive on dirt roads, careen sideways through tunnels or jump over rivers. According to Precinct 1 Commissioner Richard Morrison
, who was quoted in the Fort Bend County Herald
, “Our transportation system and our infrastructure in this state are in dire straits. In 2012, we’re going got have zero money for new roads.” All of those potholes on Richmond Avenue have a direct impact on my car maintenance budget, all of that freeway traffic keeps me idle an extra hour per day (minimum), and both items cost transportation companies’ money - costs which they then pass along to consumers with higher costs for everything that moves over the road – goods and transportation services.
If the State of Texas eliminates diversion of motor fuel tax revenue, which shifts money away from its original purpose to fill a budget gap elsewhere, we would pick up an additional $1.5 billion
. This is a lot of money and a great first step, but unfortunately, it’s a drop in the bucket when it comes to our deficit. Reduction in costs will only get us so far. Morrison suggests a gradual increase of 2.5 cents per gallon per year for four years to increase the state tax by 10 cents per gallon which will provide a balanced budget…for now.
Long term, the solution might be something totally different that a tax rate by product type and volume. A bi-partisan Congressionally-created committee, the National Surface Transportation Infrastructure Financing Commission, recommended that the U.S. should move away from a gas tax and to a mileage based usage fee by 2020
. Their view is a pay by use system is the only way to not only maintain the transportation infrastructure, but to start improving it as our nation continues to grow.
In the end, keeping motor fuel tax rates at the same level indefinitely lowers our tax revenue as vehicles become increasingly fuel efficient, resulting in less tax revenue per mile driven. For all of our strides environmentally, we seem to forget that the introduction of electric vehicles translates to no tax revenue per mile driven, and the increase in alternative fuels usage is combined with varying tax rates and a federal tax break. If we keep taxes steady, if we keep doing what we’ve always done, then we will be lucky to get what we’ve always gotten…. a road worth driving on.
More fuel efficient cars, less miles traveled, and non-indexed gas taxes mean diminishing gas tax revenue, which is at the heart of funding for state, county, and city roads projects. Sinking funds are causing needed infrastructure projects to languish as only the highest priority ones are tackled. The result is that roads are getting worse as a whole and not better. They are so bad, in fact, that the American Society Civil Engineers rated our roads a D minus in their 2009 report
Lost in the conversation about underfunded roads are other areas affected by gas tax shortfalls – in particular snow removal. Many states utilize gas tax revenue to fund snow removal and road salting. Just as roads projects are under pressure, so are these needed government services.
In a recent article
from Oakland’s Daily Tribune, the Road Commission for Oakland County (RCOC) warned that road cleanup after storms may take longer than in the past. The RCOC Vice Chairman, Eric Wilson said that they faced “a substantial reduction in our ability to fight a prolonged storm, or even a series of small storms, or to clean up after a storm.” RCOC Board member, Greg Jamian went further in saying, “This year is the fifth straight year in which our primary source of operating funds — revenue from the state gas tax and vehicle registration fees — has declined...Those five years of decline follow nearly 10 years of virtually flat revenues. We’ll receive less funding in the current fiscal year than we received in 2000."
Oakland is not alone. Other parts of the country are feeling the same pressure to cut back on such needed services. With the recent winter snow storms that blanketed the Midwest, this is distressing news for families, business, and the flow of commerce – and something that should not be forgotten in the ongoing debate on gas tax changes.
It’s like watching an ever-evolving soap opera (not that I watch soap operas) in which the protagonist, played by Governor Christie of New Jersey, has heroically cancelled the biggest roads project
in the US – a tunnel that would provide another needed link between New York and New Jersey – because it will cost over $14 billion to build. This is a huge overrun from original estimates and will require massive amounts of debt to complete. Ever the good conservative, Christie pronounces that there simply is not enough money to do the project, and he cannot in good conscious throw good money after bad. So, the tunnel project is dead. Or is it?
Like any good soap opera, nothing stays dead forever. Enter Transportation Secretary Ray LaHood to negotiate a review of the tunnel project in the hopes of resuscitating it. Why? Because the states have not embraced the idea of stimulus. Instead, when faced with rising debts, States lack the will to spend to accelerate recovery and better times. Will LaHood be successful? Will NY/NJ get a new tunnel that will spur additional commerce between the two states and employ over 6,000 people? Stay tuned for the next episode….
Next Episode Preview (actually, my prediction for how it all ends): The project will start again with LaHood and the Port Authority, the spurned lover who, like the federal government, has shared funding responsibility for the tunnel project, footing a bigger part of the bill. All of Christie’s posturing is a clever ploy to get someone else to pay more money. Smart. Is Christie still a hero or, if my prediction holds true, is he the goat? Queue mysterious sounding music…fade to black...
I am at the Federation of Tax Administrators Motor Fuel Tax Section Annual meeting this week in Helena, Montana. You can’t come to Montana without being amazed by the breathtaking mountains and beautiful landscapes in every direction. While part of me does not look forward to these conferences (the part that thinks about the backlog of emails, meetings and other tasks left unfinished) – I always enjoy the opportunity to hear about the latest issues facing industry and State governments in the area of motor fuels.
With a backdrop of State budgets in crisis and political uproar over stimulus and anything related to tax this conference is very timely in its efforts to address critical motor fuel tax issues. Are motor fuel tax rates going to increase? You better believe it. Are State governments going to look at both sales tax and per gallon taxes on motor fuels? Again - no doubt about it. In addition, mileage based taxes and other types of taxes are definitely under consideration.
We know there has been a budget shortfall in motor fuel taxes being able to cover the maintenance of roads and bridges. In fact, without the regular transfer of funds from the general fund to the Highway Trust Fund ongoing road maintenance cannot be funded. Clearly there is a need for additional funding sources. While vehicles with greater fuel efficiency are paying less motor fuel tax and subsidies for bio-fuel initiatives are expiring, we all wonder where the next source of funding will come from. With toll roads typically requiring a 15% administrative overhead, the less than 1% overhead cost for collecting motor fuel taxes cannot be ignored as the most efficient method of paying for bridges and roads. So while I don’t have a crystal ball – it is safe to expect a trend of increasing motor fuel taxes over the next several years.
The best part about attending the FTA Annual meeting is the interaction with tax compliance and tax collecting customers. It is a great opportunity to better understand their issues and spend time mulling over innovative ways for our products to better meet their needs. I can’t wait to start another round of product enhancements to target the latest issues that the motor fuel tax industry is encountering. Stay tuned – industry turmoil is the fuel for innovation.