States Consider Tax and Fee Increases to Fund Transportation Improvements

This week CSG released a new Capitol Facts & Figures policy brief highlighting efforts to increase or otherwise change State Motor Fuel Taxes in a number of states this year. Although some earlier this year predicted that several states, faced with significant infrastructure challenges and limited options to raise needed transportation revenues, would increase their gas taxes in 2011, that hasn’t yet come to pass. Instead, escalating gas prices caused by instability in the Middle East and North Africa have meant that gas tax increases are still just as politically unpopular as they were in 2010, when no state adopted one. But that doesn’t mean there haven’t been some interesting developments this year. Here are some updates on recent activity in South Dakota, Arkansas, Oregon and other states.

South Dakota’s ‘Perfect Storm’ Blows in a Fee Increase

One of the lawmakers featured in the brief is South Dakota State Sen. Mike Vehle, who chairs the Senate Transportation Committee in Pierre and who is a member of CSG’s Transportation Policy Task Force. While Vehle was unsuccessful in his effort to raise his state’s 22 cent-a-gallon tax by 6 cents over two years, the legislature did approve an increase in license tag fees that will help fund maintenance of county, township and municipal roads and bridges. Vehle’s colleagues Democratic Rep. Steve Street and Republican Sen. Tom Hansen sponsored the legislation that carved out the local roads funding from Vehle’s comprehensive transportation funding bill.

“I was a co-sponsor of that carve out, but not the lead as I felt that it would look like I had given up on the comprehensive bill, which I still wanted to get passed,” Vehle explained in an e-mail.

The measure even survived a veto from Gov. Dennis Daugaard. Senators voted 30-4 and House members voted 53-16 to override the veto of House Bill 1192.

Vehle describes the confluence of events that allowed the measure to succeed even over the Governor’s veto as a “perfect storm.” One significant factor was the condition of the state’s infrastructure.

“For about four years, myself and a few others have been talking about the need to fix our roads,” Vehle said. “County and township roads are in mostly fair to poor condition and local officials were getting more and more vocal on the need for assistance for their roads. We’ve had several wet years and township and county roads were taking a real beating. Heavier farm equipment and grain loads were taking their toll. Instead of some paved roads being repaired or resurfaced, some were being ground back to gravel and gravel roads were returning to dirt.”

Vehle said the fee increase had broad support from the beginning this year, passing initially in the House Transportation Committee and later in the House by a wide margin. He picks up the story from there:

“It comes to a packed Senate Transportation meeting and I schedule it as the only bill for consideration,” he remembered. “With standing room only and people lined up out the opened door, an assortment of about 20 groups using excellent testimony and pictures testify in favor.  When I asked for opponents, only the Governor’s representative stepped forward, looked back at the crowded room of supporters, and before testifying said “I think I now know how Custer felt!” It passed the Committee 7-0.” 

Vehle said throughout the winter as the measure was considered in committee and on the floor of the House and Senate, the snow falling outside provided a constant reminder.

“Everyone knows when all this snow melts it’s going to make those local roads even worse,” he said.  

Then as the Senate prepared for a final debate on the bill, Vehle offered one final reminder.

“I passed out a picture of a county bridge that failed,” he said. “The last vehicle to cross before it failed was a loaded school bus. (The bill) passes 31-3 and the Governor’s veto only garners one extra vote in the Senate and it is a wash in the House. So in the middle of all our cuts to General Fund expenditures, we raise license tag fees for our county, township and municipal roads – perfect storm.”

Vehle said while the fee increase was the result of a lot of hard work, there was also a lot of luck involved.

“We had been working on this and other road funding for years; it was non-partisan; facts were backed by two Task Forces, testimony, and pictures,” he said. “Opposition was neutralized; strong support was garnered from various groups; current fees were recognized as extremely low; (successive) wet years were further deteriorating roads; (the) Administration (failed) to initially oppose (the measure); a picture (showed) a failed bridge with the last vehicle over it being a school bus; and (with everyone) knowing it will melt and make matters worse -- it just keeps snowing and snowing, and snowing.”

The Associated Press reported that although Gov. Daugaard believed a long-term solution for funding roads and bridges was needed, he argued that the state should wait for action from Congress on a new bill authorizing federal transportation programs so a clearer picture of the state’s needs could be discerned. Some of the handful of lawmakers who opposed the measure said local governments should decide on such fee increases. Others said the measure raised the fees for all South Dakotans to support primarily the needs of one region of the state, the northeast.

But supporters said it was simply time for it to happen. The fact that South Dakota’s license plate fees are among the lowest in the nation made it a “no-brainer” for many.

“The situation is serious, and it’s gotten worse,” said Street, the bill’s House sponsor.

“This has got to be the easiest bill in the Legislature,” said Rep. Gene Abdallah, a Republican from Sioux Falls.

“Paying attention to our farm-to-market roads is important not only for our No. 1 industry but for the safety of our citizens,” said Senate Majority Leader Russell Olson, a Republican from Madison. “It’s long overdue that we address the maintenance of our roads.”

“This House believes we need to take care of our roads, and it’s a critical, pressing need, and now’s the time to do it,” said House Majority Leader David Lust, a Republican from Rapid City.

The legislation raises the $42 registration fee for a typical car to $51 this year and to $60 in 2013. It will collect about $31 million over the next two years. Fees were also raised for noncommercial farm trucks, motor homes, travel trailers and motorcycles. In addition, the measure reduces the number of vehicles that get a 30 percent discount on registration fees.

Vehle summed up what it took to get the bill done this way: “Especially in these times, if you want to increase funding, you must establish a real and recognizable need, get solid grassroots support, and then get lucky and have a perfect storm.”

Arkansas Looking to Increase Tax on Diesel Fuel

In the brief, I also mention Arkansas House Bill 1902. That legislation, authored by House Speaker Robert Moore Jr., is now Act 773 with the signature of Gov. Mike Beebe. It creates a $1.1 billion interstate highway maintenance program to be funded in part by a proposed increase in the state’s 22.5 cents per gallon tax on diesel fuel. Voters will decide in a special election (the date of which Beebe will decide) whether to approve a 5-cent increase to finance a bond program to pay for the maintenance. The legislature also approved House Joint Resolution 1001 offered by Rep. Jonathan Barnett, who is also a member of the CSG Transportation Policy Task Force. The legislation proposes a constitutional amendment to be voted on in 2012 that would allow voters to decide on a half-cent sales-tax increase to finance a separate $1.8 billion bond program for construction of a new state four-lane highway system. The sales tax, if approved, would be in effect for 10 years.

TRIP, the Road Information Program, last year reported that in 2008, 39 percent of Arkansas’ urban highways carried a level of traffic likely to result in significant delays during peak travel hours. More than a third of major roads in the state are in poor or mediocre condition.

Last year, a state Blue Ribbon Committee on Highway Finance recommended that Arkansas increase revenue dedicated to transportation improvements. Full disclosure: I testified before the panel back in 2009.

The Arkansas case is interesting because the approved legislation insulates and provides political cover for lawmakers in a number of key ways, including:

  • As with local option and regional tax referenda being pushed in other states, it puts the onus on voters to decide whether or not to raise their taxes.
  • The per gallon tax increase would only be on diesel fuel. Although the Alliance for Automobile Manufacturers reports that there are more than 4.8 million diesel cars, pickups and SUVs registered in the United States, that only represents about 3 percent of vehicles on the road. As for heavy-duty trucks, a large number of which run on diesel fuel, the Arkansas Trucking Association recently went on record in support of the 5-cent increase since the additional revenue would fund maintenance to important freight corridors in the state that their members use every day. But as Robert Poole of the Reason Foundation recently pointed out in his monthly newsletter, a diesel tax increase would not only impact truckers willing to pay a little extra for better roads, it may discourage motorists from purchasing new-generation diesel-powered cars that AAA recently highlighted as being clean, quiet, economical, and providing a 30 percent boost in fuel economy with a corresponding decline in carbon emissions.
  • The proposed sales tax increase is a small percentage for a limited duration and with a stated specific purpose for the increased revenue. The vote on it also won't take place until next year.

We’ll have to wait and see what happens in Arkansas and whether it offers any lessons for other states.

Arguing Successfully for a Gas Tax Increase

Some analysis shows that how a gas tax increase is portrayed in the media and the way it is framed by government actors can have a huge impact on whether lawmakers ultimately have success in passing one.

Richard Watts of the University of Vermont analyzed proposed tax increase campaigns in six states between 2006 and 2009. Watts found that supporters and opponents framed the gas tax in a variety of different ways. Supporters highlighted “crumbling infrastructure,” the necessity of infrastructure investment to “economic progress” and job creation and increased gas taxes as a “long-term solution” to transportation funding needs. Opponents made arguments like “taxes are wrong,” “programs should be cut” before taxes are raised and raising taxes “hurts the economy.”

Watts discovered that the economic progress/jobs message can be effective, as it was in Oregon in 2009. Also, the crumbling infrastructure argument may resonate more than the long-term funding solution argument.  

Watts’ case study analysis is further detailed in this PowerPoint presentation.

Watts also points to other factors that can make such tax increase campaigns successful. Some are highlighted in a 2006 report from the Transportation Research Board’s National Cooperative Highway Research Program. Of special note is a case study from Ohio, where the state legislature approved a 6-cent gas tax increase in 2002. Among the factors cited for that success:

  • Agency Credibility: Prior to passage of the gas tax increase, the Ohio Department of Transportation undertook a long-term coordinated effort to improve its internal efficiency, which produced substantial cost savings and increased the agency’s credibility among the public. The agency was able to leverage its improved reputation for good management to present a strong case for a gas tax increase to pay for major capital improvements.
  • Validation by Bipartisan Panel: The Ohio legislature created a bipartisan Motor Fuel Tax Task Force in 2001 made up of legislators, state transportation, revenue and public safety officials, municipal groups, professional associations and members of the public. The panel recommended a 6-cent motor fuel tax increase to be “implemented over the course of a few years to lessen the impact on consumers” which would generate $270 million in additional revenue.
  • Establishment of Need: The task force estimated that the shortfall for maintaining and improving Ohio’s roads and bridges was in excess of $400 million per year.
  • Building a Broad Constituency: The recommendations of the task force won the backing of the governor, the State Contractors Association, local governments and many of the state’s chambers of commerce. In addition to the tax increase, the task force called for an increase in vehicle license, registration and title fees to support the Ohio State Highway Patrol. The Patrol had previously been supported by gas tax revenues. Now all gas tax revenues could be reallocated to benefit both the programs of the Ohio DOT and those of county and local governments, which won the proposals local support.
  • Targeting the Proposed Increased Revenues on Needed and Publicly Visible Improvements: The task force highlighted the critical importance of the transportation network to Ohio’s economy. Also emphasized were the major, new, corridor-level capacity improvements that would be possible in the state if the tax increase was adopted. Being specific about projects to be financed and their importance can play a big role in influencing public opinion.

Accounting for Electric Vehicle Users in the West

The new Facts & Figures brief also highlights the state of Washington, which is considering legislation that would institute a $100 a year flat fee on drivers of electric vehicles, who currently don’t pay gas taxes that go to pay for repairs on roads they use. But Washington isn’t the only state looking at that issue. The Oregonian recently reported that the state of Oregon is considering a different approach to get at the same problem. House Bill 2328, which was debated in a House Revenue Committee hearing yesterday, proposes charging drivers of electric and plug-in hybrid vehicles 1.43 cents per mile for their road usage. That would translate to about $172 a year for a car driven 12,000 miles.

One of the key supporters of the bill is Sen. Bruce Starr, long a proponent of the state transitioning from the gas tax to a tax based on vehicle miles traveled. Starr spoke about Oregon’s experiments with VMT at the CSG annual meeting in Omaha way back in 2008. He told The Oregonian this month the legislation is all about fairness.

“This is not about penalizing electric vehicle owners,” Starr told The Oregonian. “But why should they get a tax-free ride?”

But some argue the legislation could send a contradictory message to consumers at the wrong time. John Christian of the Oregon Electric Vehicle Association told the newspaper that while he understands the need for the fee, he thinks lawmakers should wait until the number of electric vehicles on the road hits at least 25 percent and greenhouse gas emissions come down.

“What’s the message they’re sending?” he said. “With one hand, they’re offering a tax rebate to get you to buy an electric car. With the other, they’re proposing a new tax. It looks like money-grubbing.”

While less than 1,000 of Oregon’s 3.2 million passenger vehicles are currently plug-in hybrid or electric, the number is expected to increase to 75,000 over the next decade. The legislation would take effect in 2014.