August 30, 2006

Detroit: High Gas Prices Are Here to Stay

It's been a while now since the price of gas hit $3 a gallon. But many of us who remember the halcyon days of low gas prices and open highways have a little tiny voice inside us that says things will return to normal soon enough. Unfortunately, Detroit automakers are now strongly suggesting that we shouldn't hold our breath. Here's the chief sales analyst for the Ford Motor Company:
We don’t see the price of gasoline returning to the levels that we all enjoyed in the 90’s and the early part of this decade...[T]he base case assumption around which we’re planning our business is that gas prices remain high. The days of inexpensive gasoline are gone.
A Chrysler exec is quoted saying pretty much the same thing: he says Chrysler is "planning internally as if it is $3 to $4 a gallon" for the foreseeable future.

Should this forecast affect the tax policy strategies of state and federal lawmakers trying to cope with public anger over high gas prices? Opponents of gas tax hike frequently bleat that "with $3 a gallon gas, now is not the time" for a gas tax hike. But if the Detroit guys are right about price trends, there will never be a better time.

Meanwhile, evidence is mounting around the nation that more states need more transportation funding (which comes principally from gas taxes) to repair their crumbling highways and bridges. In Wisconsin, a legislative committee is recommending immediately ramping up transportation spending by 40%. Part of the reason such a big hike is needed is that the state has been siphoning off transportation funding revenues to help balance the regular budget in recent years. And a Pennsylvania commission has just issued a similar recommendation, calling for almost $900 million in new transportation spending.

Like it or not, we're entering a new era of higher gas prices. With a growing number of states nearing crises in their transportation infrastructure, policymakers will have to strike a balance between their dislike of regressive gas taxes and their need to keep the roads safe.


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