Fuel Taxes

I have an article in this week’s issue of The Current State looking at Kentucky’s quest for additional revenues to fund transportation in the future. That makes it as good a time as any to check in on some of my other states to watch in 2018 on transportation funding.

President Trump’s State of the Union speech and a leaked outline of his infrastructure package last month produced no shortage of opinions about what the administration has in mind for one of his major policy priorities. Many from across the transportation and public policy communities and from across the political spectrum have expressed serious concerns about the shape the package may be taking. Here’s a roundup of some of the reaction so far.

Issue: Seven states (CA, IN, MT, OR, SC, TN and WV) raised gas taxes in 2017 while Utah modified its gas tax formula to allow for more robust revenue growth. Other states including Colorado, Idaho, New Hampshire, Utah and Wisconsin approved one-time transportation funding. Wyoming, which raised its gas tax in 2013, increased vehicle registration and other fees. Ten states approved new fees for electric and/or hybrid vehicles in 2017. Meanwhile states like California, Oregon and Washington continued their experiments with mileage-based user fees, which some believe could one day replace gas taxes. Will 2018, an election year in most places, continue to see state activity on the state funding front and how will a change in philosophy from Washington influence states?

Issue: Infrastructure investment was expected to be a key policy goal of the Trump administration. While the administration did not produce a comprehensive plan to accomplish that in 2017—it’s now expected after the State of the Union in late January—details of the administration’s priorities that have emerged suggested an emphasis on more targeted federal investments, the use of federal dollars to encourage states that help themselves by seeking additional transportation revenues, and an effort to leverage private sector investment. In late September, the president appeared to sour on how big a role public-private partnerships, or P3s, could play in a federal investment package, but many continue to believe P3s could play a significant, if limited, role in facilitating some infrastructure projects.

2017 was a big year for state transportation funding efforts, following in the footsteps of recent odd-number years 2013 and 2015 that also saw significant activity. So, what’s on tap for 2018? Here’s my annual look ahead.

Infrastructure investment was a big winner on Election Day 2017 as a variety of state and local ballot measures around the country to raise taxes or authorize borrowing won voter approval. Here’s a roundup of what happened Tuesday and a look ahead to 2018.

CSG Midwest
Stuck between the reluctance to raise taxes and the omnipresent need to fix transportation systems, legislators and governors may well feel the frustration of drivers caught in traffic. In Wisconsin, for example, Gov. Scott Walker and Assembly and Senate Republicans have been at odds over how to close an almost $1 billion deficit in transportation spending. Walker’s initial $6.1 billion transportation budget, unveiled earlier this year, included a $40 million increase in general transportation aid to local governments and $500 million in borrowing.
In early May, Assembly Republicans proposed raising gasoline taxes to pay for roads while significantly cutting income taxes over the course of a decade, moving from the state’s progressive income tax to a 3.95 percent “flat tax.” Their plan includes new fees on hybrid ($30) and electric vehicles ($125) and the elimination of tax credits aimed at homeowners. It also would cut the existing 30.9-cent per-gallon fuel tax by 4.8 cents while applying the 5 percent state sales tax to fuel purchases.
The Legislative Fiscal Bureau estimated those changes would increase revenue by about $380 million over the next two years, most of which would be used to reduce the borrowing that Walker proposes (from $500 million to $200 million) and to eliminate a transfer of funding from the general fund to the transportation fund.
Gov. Walker rejected the plan’s new sales tax on gasoline, saying it amounts to a new gas tax, but has indicated that he’s open to the tolling of interstates (another proposal from Assembly leaders), if such a plan brings in revenue from out-of-state drivers and is linked to a reduction in the gas tax.
A budget all sides can accept remained elusive as of mid-June. Absent a budget in place before the state’s new fiscal year began on July 1, funding would continue at current levels until one is approved.
Since 2012, six Midwestern states — Indiana, Iowa, Michigan, Nebraska, North Dakota and South Dakota — have raised gas taxes to provide additional transportation funding. Collectively, half of all U.S. states have enacted transportation funding packages since 2012 to make up for the erosion of gas tax revenues by inflation, says Joung Lee, policy director at the American Association of State Highway and Transportation Officials.
CSG Midwest
Indiana has become the latest state in the Midwest to raise the gas tax and user-based fees to generate more revenue for its transportation infrastructure. The 10-cent increase on motor fuels takes effect on July 1; it will result in Hoosier motorists paying a total of 28 cents per gallon of gasoline. In subsequent years, through 2024, Indiana’s gas tax will be indexed to inflation, though annual increases will be limited to 1 cent per gallon.

Last December, I compiled my annual list of the states to watch on transportation funding. Last month we followed that up with a CSG eCademy webinar featuring Alison Premo Black of the American Road & Transportation Builders Association and reporters from three key states. With legislative sessions well underway in many places, it’s time to see where things stand in the debates about transportation funding going on around the country.

Issue: During the campaign, Donald Trump called for a $1 trillion package to invest in the nation’s infrastructure. But the devil likely will be in the details for both Republicans and Democrats when it comes to funding the plan and deciding what to fund. Beyond any one-time infrastructure investment in 2017 though, will Congress be able to hit the ground running so they can be ready when it comes time to reauthorize the FAST Act transportation authorization bill in 2020?

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