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.
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.