Transportation

The Gas Tax Is Running on Empty



This summer, Congress will probably do what it does best: narrowly avert disaster by passing a quick fix to a big, long-term problem. This time the issue isn’t raising the debt ceiling or funding a budget. It’s keeping the country’s Highway Trust Fund from going bust. By early August the account will be so low on funds that the Department of Transportation will have to start cutting back on the billions of dollars it gives states for road and bridge construction projects. By the end of the month, the balance will be zero.

Although the problem has been looming for months, Congress waited until the last minute to start working on a solution. On July 15 the House passed a bill to rescue the fund by tapping tax receipts from corporate pension plans and diverting money meant to fix leaky underground storage tanks at old gas stations. The Senate is set to vote on the bill later this month. The stopgap measure would raise about $11 billion, or enough to last through May. Over the next decade the fund has a projected shortfall of $170 billion. The White House is pushing a plan that would generate four years of highway funds in part by closing some corporate tax loopholes. Republicans strongly oppose the idea.

Raising the federal gasoline tax, which provides the bulk of federal highway revenue, would seem to be the obvious solution. First passed in 1956 to pay for the more than 40,000 miles of road in the Interstate Highway System, it’s been stuck at 18.4¢ a gallon since 1993—the longest it’s ever gone without an increase. As a result, revenue from the gas tax has remained almost unchanged. In the Senate, Tennessee Republican Bob Corker and Connecticut Democrat Chris Murphy have co-sponsored a bill to raise the national gas tax by 12¢ over the next two years and then index it to inflation—a plan that might prevent Congress from having to vote on raising it ever again.

The problem? Even that approach wouldn’t permanently fix the Highway Trust Fund shortfall. In the past 15 years, federal highway spending has increased from $33 billion a year to $53 billion. The sharp increase in costs is driven in part by the deterioration of the federal highway system, which was mostly completed by the early 1980s. “Most of that pavement was intended to last 50 years, and that was 50 years ago,” says Robert Poole, director of transportation policy at the Reason Foundation. Last year, Poole estimated what it would cost to rebuild crumbling interstates and widen congested stretches. The number he came up with: $983 billion. “There’s basically zero chance of that being paid for,” says Poole.

Even if it were raised, the gas tax will never be the source of cash it once was. Americans are driving fewer miles and doing so in increasingly fuel-efficient cars. Less gas consumption means less gas-tax revenue. With cities growing faster than suburbs and federal fuel standards set to rise more than 40 percent by 2020, revenue from the tax will continue to decline. “It’s time to let go of the gas tax” as the main source of funding, says Susanne Trimbath, an economist and corporate consultant on transportation and infrastructure issues.

One idea is to end the federal government’s role in funding highway construction and give authority back to the states, which, along with cities, generally cover about 75 percent of road and bridge spending in the U.S. That’s what the Tea Party wants. In the House, Georgia Republican Tom Graves has sponsored a bill to lower the federal gas tax to 3.7¢ and transfer almost all funding authority to states over five years. Utah Republican Mike Lee has authored a companion bill in the Senate. States are already increasing their transportation budgets. Since 2013 lawmakers in a handful of states—including Maryland, Vermont, and Wyoming—have raised their state gasoline taxes. Virginia eliminated its gas tax and replaced it with a higher sales tax.

Other states have considered taking another approach to handling the paradox of the gas tax: Rather than taxing the fuel people buy, transportation economists advocate taxing drivers based on the miles they travel. That would more accurately account for drivers’ use of the roads and charge them the same whether they’re in a Prius or a Ford F-150. This approach is gaining traction in the West, where an 11-state consortium has pledged to study a mileage-based road tax.

Oregon is the furthest along. Next year the state will start a pilot program for 5,000 volunteers, who will pay a 1.5¢ tax for every mile they drive on Oregon public roads. (The state plans to reimburse participants for Oregon fuel taxes.) The program has been in the works since 2001, when lawmakers began studying alternatives to the gas tax; the trick has been figuring out how to charge drivers. An earlier version of the pilot relied solely on GPS systems, but the encroachment on privacy didn’t go over well. “As soon as we said ‘GPS,’ people got nervous,” says James Whitty, who manages the program for Oregon’s transportation department. Drivers will now have three options for reporting mileage: installing an odometer reader, having a GPS device track their location so they only pay for miles driven on Oregon roads, or choosing a device that switches between the two.

Fans of the mileage tax say the benefits outweigh the privacy concerns. “It’s very efficient, because you’re charging people based on their usage,” says Rick Geddes, director of the Cornell Program in Infrastructure Policy. Others point out that a lot of new cars come with GPS systems, and almost everyone has a cell phone with them in the car. “The Man already knows where you are,” says Oregon Democratic Representative Earl Blumenauer, who has proposed a national mileage tax.

Transitioning from a gas tax to a national mileage tax would take years, if not decades. The hope is that after the midterm elections, Congress can come up with a solution that lasts longer than 10 months. One option, of course, is to simply do nothing and allow highway spending to fall in line with current gas-tax revenue. In which case those potholes may be permanent.

The bottom line: The federal Highway Trust Fund will face a $170 billion shortfall over the next decade.

Philips_190
Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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