August 17, 2006

Funding Transportation Infrastructure: Issues and Options

For many years, states have relied on taxes on gasoline and diesel fuel to build and maintain highways. The predictability and stability of the gas tax revenue stream made gas taxes very attractive to lawmakers. In addition, fuel taxes are linked with road use: People who drive more than average create more wear and tear on the roads, but they pay more in gas taxes towards the upkeep of the roads. Fuel taxes also help take into account the negative externalities that driving a car produces. For example, people who use more gas produce more pollution, but pay higher gas taxes.

However, the growing cost of gas makes many state policymakers reluctant to increase gas taxes even as needs increase. As the Center for Budget and Policy Priorities points out, increased gas prices create extra burdens on state budgets. Since most state gas taxes are fixed amounts and not a percent of the sale price, like a sales tax, higher gas prices do not increase gas tax revenues. In fact, prices at the pump may lead to a decline in consumption, lowering gas tax receipts. Higher gas prices also mean states have to pay more to keep their ambulances, police cars, fire trucks, and school buses running.

The growing inadequacy and political unpopularity of gas taxes have left state governments scrambling to find new sources of revenue for highway infrastructure. Some local governments pay for road improvement and repair with local sales or property taxes. Such taxes are usually justified with the idea that local roads benefit local drivers the most, and so local drivers should pay for them. Both these taxes can help ensure enough revenue is generated to pay for the road work. These taxes can seem less "fair" to many because there is no direct link between sales and property taxes and use of the transportation system. However, these taxes are usually only implemented for a specific project, and are not a long-term solution.

One option under consideration in Indiana and other states are toll roads. Currently, twenty-four states maintain toll roads, and seven states plan to implement toll roads for the first time in the near future. Toll roads have long been unpopular with many motorists for increasing travel costs. However, tolls are linked with road use: only the motorists who choose to use the toll road will be force to pay the tolls that finance the construction and upkeep of the road. Since all toll roads work on a project-by-project basis, however, they do little to address the state's long-term funding needs .

As the inadequacy of gasoline taxes becomes clear, the demand for adequate and fair transportation funding grows louder across the country. But this hasn't deterred some Illinois Republicans from calling for a suspension of the state gas tax to help counter high gas prices. This proposal is quite costly, with a price tag of at least $100 million, which represents the bulk of the Illinois transportation budget. In a state with a growing structural deficit, now is not the time for gas tax gimmicks. Only a combination of revenue sources holds the promise of stable, sustainable, fair, and adequate funding for state transportation needs.


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