CBO: Stop Relying on Gas Tax Revenue to Build Highways

Just after the new highway bill passed – ensuring a steady flow of federal dollars for highway projects for at least a couple of years – gas prices took a deep dive. While this decline in price was welcomed by consumers, it put a dent in many state’s road funds and left highway projects stacking up without sufficient money to cover them.

 In Kentucky, state motor fuels tax revenues in the current fiscal year are about $33 million below projections. Mississippi and Delaware are just two states looking at increasing their gas tax. Others are considering replacing their gas tax altogether.

Take California, which is currently searching for volunteers for a nine-month experiment into what they call mileage-based road charges. Gas taxes in this state are expected to bring in $4.5 billion this fiscal year, 16% less than last year and 21% less than in 2014.

It’s no wonder a recent report from the Congressional Budget Office (CBO) said mechanisms like tolling, mileage fees or congestion pricing could be considered to fund transportation projects in lieu of relying mostly on gas tax revenue.

The 18.4 cents-per-gallon federal gas tax has not been increased since 1993. The federal government typically spends about $50 billion per year on transportation projects, but the gas tax only brings in approximately $34 billion annually at its current rate. There’s no hope in sight that Congress will raise it any time soon.

Lawmakers turned to other areas of the federal budget to close the $16 billion per year gap last year, but the CBO said they would have been better off finding another funding mechanism that would charge drivers directly for their highway use.  

"Charging drivers specifically for using roads would increase economic output by allowing highly valued transportation to move more quickly and more reliably," the study said. "Such pricing could take the form of per-mile charges (a.k.a vehicle-miles traveled, or VMT, charges), congestion charges, or tolls on Interstate highways. 

"When faster travel and avoiding delays were a priority, drivers could opt to pay for the use of a less congested road, and when travel speed was less important, they could use a road with a lower fee or avoid paying a fee by using a road without one," the report continued. "Charges that varied by time of day or that differed by road would also affect economic activity by limiting congestion."

The CBO has projected that it would have taken about $100 billion, in addition to the annual gas tax receipts, to pay for a six-year transportation bill, which is the traditional lengthy of highway funding measures. 

The full report from the CBO can be read here: cbo.gov/publication/50150.

What do you think? Should we just get rid of the gas tax altogether? Drop me a line at [email protected] and let me know.

Thanks for reading!