Top 5 Issues for 2017: Transportation & Infrastructure Policy: States Seek Their Own Paths on Funding Infrastructure

Issue: State transportation funding efforts could be back in the spotlight in 2017. The list of those that could tackle transportation revenues includes as many as 16 states. Some have been at this for several years and haven’t achieved success due to political challenges. Some have had a task force or special commission in place in 2016 to come up with funding ideas. Plenty of old ideas (gas taxes, registration fees, tolls) are likely to be considered. But mileage-based user fees and other innovations are likely to get a look as well.

Regardless of what happens with a possible Trump plan for infrastructure investment in 2017, a substantial number of states appear poised to examine whether to raise more of their own dollars for transportation this year. The list includes:

  • States like Arizona, Indiana and Louisiana, which had special task forces in place in 2016 to come up with revenue options;
  • Oregon, where the Governor and legislators alike have targeted 2017 as a year for action;
  • California, where a late-2016 special session failed to yield a deal on billions of dollars to repair state roads; and
  • States like Alabama, Colorado, Minnesota, Mississippi, Missouri, South Carolina, Tennessee and Wisconsin, which have focused on funding solutions in recent years with only limited success.

In casting about for answers on how to fund more transportation, those states will have plenty of role models to choose from. In 2016, New Jersey lawmakers approved a 23-cent gas tax increase, the state’s first since 1988. Rhode Island meanwhile turned to tolling large commercial trucks to help fund a multi-year bridge repair program.

But the level of activity on the state transportation funding front last year paled in comparison to 2015, which saw eight states raise gas taxes and enact other measures to fund transportation.

One of those was the state of Georgia.

“Republicans led the way to create a six-cent excise tax that is tied to inflation and fuel efficiency so we never have to vote on it again,” recalled Rep. Stacey Abrams, Georgia’s House Minority Leader, at a Transportation for America (T4America) conference in Sacramento in November. “It will rise as it needs to cover the actual cost. It will produce at its peak about $900 million a year in transportation funding. But we also built in a $100 million bond package for transit for the first time. That was the first time the state of Georgia has made a significant investment in public transit. … The third piece of that bill was language that allowed local governments to then generate their own transit funding or transportation funding as they saw fit.”

That last piece set in motion a major transit expansion for the Atlanta region that was approved in a ballot measure by voters in November.

Washington State also approved a major transportation package in 2015 that also spawned a transit expansion for the Seattle region, Washington State Sen. Marko Liias told the T4America conference.

“Our challenge (in Washington) is a more traditional partisan challenge between a sort of Democratic view of raising taxes to invest in the economy and a Republican view of keeping taxes low and using that to catalyze a strong economy,” he said. “And in the face of that and in the face of a divided legislature with a Republican-controlled Senate and a Democratically-controlled House and a brand new Governor, we came together to pass the largest tax increase in state history (in 2015) and then we set up what became the next largest tax increase in state history with the passage of our light rail measure (on November 8).”

Liias said one key to Washington’s success on transportation funding was the involvement of one of the Seattle region’s largest employers.

“I think the employer community stepping forward in general is really powerful with the public and with lawmakers,” he said. “Microsoft … took out a full-page ad in The Seattle Times during the debate on the transportation package (in 2015) because their key project connecting their campus to the region was at risk of not being funded and so when Microsoft takes out a full-page ad saying ‘the legislature needs to act’ that certainly helps move some public opinion and it also gives cover to Republican and Democratic lawmakers.”

Another transportation funding case study can be found in Utah, where lawmakers in 2015 were able to do much more than simply raise the gas tax, according to House Speaker Greg Hughes, who also spoke at the T4America conference.

“We had a gas tax that was about 24.5 cents (per gallon) and that was passed in 1996 and by 2015 we had never been able to muster the political will to ever touch an increase in that gas tax,” Hughes said. “I was one who wasn’t really thrilled about raising the gas tax and it was because of this: it’s a unit tax. … Inflation eats it away every single year. … Your buying power of 24 cents a gallon keeps shrinking. … So in a state like Utah, where the vehicle miles are growing, the need for capital development is growing and repairs of these roads are happening, our transportation fund is just shrinking every single year.”

With the 2015 legislation, Utah lawmakers established a floor and a ceiling for the state’s gas tax, which is now assessed as a percentage at the wholesale level.

“When you’re in a hole, you’ve got to quit digging,” Hughes said. “If you’ve got a unit tax that you think has failed you from 1996 to the year that you’re talking about this, why would you double down on a gas tax? Because it’s just going to do the same thing to you that it’s been doing in those last 19 years.”

Those lawmakers who have been in the trenches on transportation funding say compromise is often needed to make things happen but it’s important to not lose sight of the end goal.

“I think the classic lesson that the perfect is the enemy of the good is a challenge of transportation,” said Liias, the Washington State lawmaker. “As advocates we want everything we want and we don’t want any of the bad stuff. We don’t want more highways in rural areas. We want just light rail in the urban areas. And the lesson we learned is that you have to get as much done as you can and you have to swallow some bitter pills if you’re going to get victories and if you’re really going to deliver on big things and in the light of the (November 8) vote in Seattle to do a historic investment in light rail, all those compromises we had to make to get there will really fade away with the generational investment we’ve made. So keep your eye on the prize, keep your eye on what you want to get done and don’t let the perfect be the enemy of the good.”

States Exploring Mileage-Based User Fees

States also are playing an essential role in exploring a revenue mechanism many believe could one day replace the gas tax—a mileage-based user fee. The proliferation of electric and alternative fuels vehicles, increasing fuel efficiency, a lack of political backing for gas tax increases and a variety of other factors have led state departments of transportation, researchers and policymakers down the path toward such a potential replacement.

The state of Oregon has been the most successful in exploring the concept with a series of pilot projects. Jim Whitty, who led the Oregon Department of Transportation’s efforts in this area for 15 years, now serves as a consultant for D’Artagnan, a firm that advises other governments about implementing mileage-based user fees.    

“(The Oregon pilots) worked well enough that the state legislature passed a bill (in 2013) saying ‘make this a program,’” Whitty said at the Transportation for America conference. “And so now there is a program in the state of Oregon. It’s a volunteer program but it’s a fully operational program right now. People are paying (mileage-based fees) and there is money in the state treasury.”

Oregon is not alone in exploring mileage-based fees either. The state of California is in the midst of a major pilot that is testing a variety of different methods for mileage reporting.

“We were able to gather a lot of good information to put together the best of what Oregon did and to get rid of the stuff we didn’t like that Oregon had done,” said Jim Madaffer, who runs the program for the California Transportation Commission. “So we took what worked and what didn’t work in a very constructive way to build on it.”

But Whitty also noted that the concept of mileage-based user fees hasn’t caught on everywhere, amidst concerns about privacy, cost of implementation and other factors.

“Most things are happening in the West,” he said. “Oregon has an operational program after many years of working on it. California is going forward with their pilot underway and then we have Colorado and Washington, which have pilots that start within this year as well as Hawaii. … Nevada did some tests as well. Now in the East … we have problem after problem as they try to get started. … You have a governor supporting it, a legislature rejects it or the legislature passes it out of committee, the governor …vetoes it. … What this really demonstrates isn’t anything but it’s about politics. In the West, we’ve kind of figured out how to align with each other and how to take from each other’s work. The legislators talk to each other and you can move forward. … In the East, they haven’t figured that out yet.”

The work of those states experimenting with mileage-based fees could prove to be very important at the national level. The Federal Highway Administration announced last summer that eight projects to pilot alternative revenue approaches to support the Highway Trust Fund would split $14.2 million in grants available under a program authorized by 2015’s Fixing America’s Surface Transportation (FAST) Act. An additional $80 million is expected to be awarded over the course of the FAST Act, which expires in 2020. If Congress wants to approve a six-year transportation bill to replace the FAST Act in 2020, they will need to come up with $120 billion to supplement gas tax revenues in order to fund a flat-line, status quo bill. Lawmakers in recent years rather than choosing to increase the federal gas tax have turned to General Fund revenues to shore up the Highway Trust Fund.

Many have hoped for a long time for an alternative revenue mechanism based on user fees to come to the rescue. But despite the best efforts of states like Oregon and California and the other projects funded with FAST Act grants, analysts say it’s unlikely mileage-based user fees will be ready for prime time on a national scope by the time it comes time to replace the FAST Act.

“There’s no way that any of this can be ready for even a glimmer of roll-out in FY 2021 because you can’t fight arithmetic,” said Jeff Davis, a senior fellow at the Eno Center for Transportation and Editor of the Eno Transportation Weekly, at the CSG National Conference in Colonial Williamsburg in December. “The gas and diesel tax is such a wondrously easy thing to administer because … you’ve got 1,200 or so entities (gas stations, etc.) filing quarterly tax returns with the IRS and it doesn’t take that many IRS employees to process and audit 1,200 quarterly returns that bring in $35 billion a year. … This is an incredibly efficient way to raise revenue.”

Davis noted that by contrast there are 215 million licensed drivers in the United States and 260 million registered vehicles.

“Going from 1,200 taxpayers to over 200 million taxpayers for a particular revenue system is such a daunting quantum leap in complication with what you’d have to do with the IRS to administer this program,” he said. “Any move to go to a system where you are taxing individual drivers and not gasoline has to find a way to get money from people who don’t have bank accounts. And there are so many complexities in this that to think it could be ready for rollout even in 10 or 15 years is a bit ambitious I think.”

Also, Davis points out that in order for a mileage-based user fee-based system to work fully and not be an impediment to interstate travel, it would need to be in all 50 states and at the federal level.

“I’m not 100 percent sure the federal government has the constitutional authority to force states to do this,” Davis said. “That would remain to be settled in court. So there are eventual good long-term options out there conceptually for continuing user-based taxation to support surface transportation programs but the devil’s in the details and the arithmetic and there’s no way any of this is going to be ready anytime soon.”

But Davis said unless Congress finds a way to take care of another looming surface transportation funding crisis or somehow kick the can down the road again in 2020, states could find themselves facing substantial reductions in what they receive from the federal government for transportation.

“The staff in the Senate who wrote most of the FAST Act or at least cut the political deals flat out said ‘this is the last bill like this we’ll ever have.’ There’s no way we’ll be able to have a five- or six-year bill funding these programs again because we’re not going to be able to get the political buy-in to raise the gas tax where we need it and in any case, the diminishing returns of the gas tax make that long-term unviable anyway and politically we’re not going to be able to find and steal this many millions of dollars for a bill like this next time because they were able to really overlook a lot of the inherent problems. We’ve had $144 billion in (General Fund) revenues pumped into the Highway Trust Fund since 2008.”

Moreover, Davis says not to expect Congress to have much discussion prior to 2020 about what to do about the long-term solvency of the Highway Trust Fund because they want to avoid having a conversation about the formula that sends federal transportation funds to states, which currently provides 80 percent for highways and 20 percent for transit.

“It would be good if we could have a reasoned discussion years in advance of the FAST Act expiring and be able to figure this out,” he said. “But if you have a reasoned discussion before it becomes an imminent crisis, you’ve got to have some really difficult conversations about ‘what are we going to do conceptually, what is the whole point of this program moving forward. And none of the power brokers on Capitol Hill and the Administration are really interested in having that conversation because they want to maintain the spending side of the situation kind of the way it is.”  

Further Reading & Resources

States to Watch in 2017: Transportation Funding

State Investment in Infrastructure

States That Previously Addressed Transportation Funding Needs

Mileage-Based User Fees

Other Revenue Mechanisms