Fuel Taxes, Tolls Pay for Only One-Third of Road Spending
A key issue for many state legislatures this year is transportation funding. Maryland Gov. Martin O’Malley (D) and Virginia Gov. Bob McDonnell (R) have proposed sales tax increases for transportation, Wyoming Gov. Matt Mead (R) has proposed raising his state’s second-lowest-in-the-nation gasoline tax, and others have proposed new toll roads or the adoption of a “vehicle mileage tax” (VMT) system.
The lion’s share of transportation funding should come from user taxes and fees, such as tolls, gasoline taxes, and other user-related charges. When road funding comes from a mix of tolls and gas taxes, the people that use the roads and benefit from them bear a sizeable portion of the cost. By contrast, funding transportation out of general revenue makes roads “free,” and consequently overused or congested—often the precise problem transportation spending programs are meant to solve.
Mostly from General Funds
Nationwide in 2010, state and local governments raised $37 billion in motor fuel taxes and $12 billion in tolls and non-fuel taxes, but spent $155 billion on highways. In other words, highway user taxes and fees made up just 32 percent of state and local expenses on roads. The rest was financed out of general revenues, including federal aid.
The ratios do not change much when adding in all transportation modes. In 2010, state and local governments spent $60 billion on mass transit, $23 billion on air transportation facilities, $1.6 billion on parking facilities, and $5.3 billion on ports and water transportation. They raised $13 billion in mass transit fares, $18 billion in air transportation fees, $3.2 billion in parking fees and fines, and $3.8 billion in water transportation taxes and fees.
Altogether, states raised about 36 percent of their transportation spending from user taxes, fees, and other charges.
Delaware Tops in Funding Share
Delaware, Florida, New Jersey, North Carolina, New York, and New Hampshire do the best, raising about half of their transportation spending from user taxes and fees. Although these states’ commuters and visitors may gripe about high tolls and gasoline taxes, they are helping pay for services they are themselves using.
By contrast, Wyoming, Alaska, South Dakota, Vermont, and Iowa raise little of their transportation spending from user taxes and fees, instead subsidizing it heavily from general revenues.
Expanding tolls and indexing gasoline taxes for inflation may not be politically popular even though transportation facilities and services are highly popular. Given that transportation spending exists, states should aim to fund as much of it as possible from user-related taxes and fees. Subsidizing highway spending from general revenues creates pressure to increase income or sales taxes, which can be unfair to non-users and undermine the state’s economic growth.
Joseph Henchman (firstname.lastname@example.org) is vice president of legal and state projects for the Tax Foundation.
“Gasoline Taxes and Tolls Pay for Only a Third of State & Local Road Spending,” Joseph Henchman, Tax Foundation: http://taxfoundation.org/article/gasoline-taxes-and-tolls-pay-only-third-state-local-road-spending