Nothing is certain, except for the death of fuel taxes
Gov. Tom Wolf recently announced a commission to study the phaseout of Pennsylvania’s gasoline tax. Achieving Mr. Wolf’s vision is possible, and quickly, but will require tough compromises in the Pennsylvania Legislature and a commitment to an entirely new way of getting transportation revenue. The result will be a sustainable funding strategy, based on vehicle miles driven, rather than on the outdated metric of gallons consumed, which embraces technology in modern cars.
Since the 1950s — when the federal tax was first earmarked to fund transportation infrastructure — federal and state agencies have become reliant on fuel taxes to pay for our roads, highways, and (to a lesser extent) public transportation services. It seemed like a perfect system — vehicles consume fuel to get from point A to point B; the more they use roads, the more tax they pay. This was also a time of great prosperity and vehicle ownership in the U.S., so fuel tax revenues were a steady and reliable source of funding. Since then, however, revenue from fuel taxes has declined steeply; state and federal transportation agencies have been struggling to pay the bills.
The federal government distributes its fuel tax revenues to states to maintain roads critical for national transportation, such as interstates. The federal tax peaked around 1993 at 18 cents per gallon and has not been raised since. Eighteen cents was not much money in 1993, and it is worth less than half of that today. The other main challenge in maintaining fuel tax revenue is the big increases in fuel economy of passenger vehicles. Further, various automakers have announced intentions to produce fuel-free vehicles in the next decade. As Pennsylvania’s fleet becomes increasingly electrified, a continued focus on paying for roads will push the entire burden of funding our highways on a per-gallon basis through ever-increasing fuel tax rates of fuel-powered cars.
Pennsylvania was one of a few states in the last decade to realize the looming lack of funds and, through Act 89 (of 2013) former Gov. Tom Corbett set a slow but sure increase in the state fuel tax from 28 cents to 58.7 cents per gallon of gasoline to build up the state Motor License Fund and improve highways. Even so, the sum of the revenues from all these sources does not cover necessary transportation projects. To make up for such shortfalls, alarmist suggestions like tolling nine highway bridges (one of them merely an overpass) around the state are floated. To further obfuscate the true size of the funding gap, Pennsylvania shuffles funds between accounts related to transportation. Act 44 (of 2007) diverts $450 million annually from Pennsylvania Turnpike tolls to the fund. On the other hand, about $800 million in fund monies are used each year to fund Pennsylvania State Police coverage in rural communities that have no local force. This police payment is a political horse trade squaring the $1 billion from the fund given to urban transit agencies. Audits have shown billions of dollars of the intended Act 89 fuel tax increases have gone to the state police instead of highway improvement projects.
All of these factors have revealed that highway funding cannot be sustained through indirect means such as a fuel tax: drivers need to be charged directly for their use of roads. In other words, instead of charging by the gallon, road users need to be charged based on how far they drive between point A and point B, regardless of how much fuel they consume. This is not a new concept — so-called “mileage-based user fees” (MBUF) have proliferated in the past 20 years. They have advanced from pilot studies to established programs in Western states like Oregon, where drivers pay per mile driven. What has enabled these programs to become reality is technology that can measure vehicle use, either via existing telematics features in the car or through third-party hardware or smartphones. A consortium of state departments of transportation, industry and other partners constitutes the Mileage-Based User Fee Alliance (MBUFA) to guide state and national efforts through various complexities — how to deal with out-of-state driving and ensure that everyone pays, while maintaining privacy.
The U.S. Department of Transportation is expected to shortly call for a national MBUF pilot, and, with a newly announced commission to assess the future of transportation funding, Pennsylvania has once again shown its commitment to working toward a solution. We propose a three-step approach to improved roadway funding in the mediumto long-term.
The first is to stop the existing funding shell game. The Legislature needs to end the required diversion of turnpike tolls and separately fund the state police services (which are important, but not fully associated with our highways). This will allow the fund to be exclusively used to improve our highways. These fixes alone would net hundreds of millions of dollars per year and avoid the need for more tolled bridges.
Second, consistent with the governor’s plan, is to begin the transition away from fuel taxes to a per-mile fee. We are strongly in agreement with his longerterm view that fuel taxes are inconvenient, inequitable and insufficient. Transitioning to MBUF will take several years. In the meantime, all-electric vehicles (currently about 1% of Pennsylvania’s fleet) that pay nothing in fuel taxes could be charged higher annual registration fees at rates equivalent to those paid by non-electric cars in per-gallon fuel taxes. This will not generate much revenue yet but will help as more electric vehicles are purchased.
As a last — but crucial — step, the commission must determine how much money Pennsylvania likely needs for highways over the next several decades. Our own work, based on PennDOT data, finds that average Pennsylvania cars are driven 10,000 miles per year and have average fuel economy of 25 miles per gallon, meaning that they are paying about $200 per year in state fuel taxes. In a hypothetical mileage-based user fee meant to collect the same amount as the fuel tax, a 2 cent per mile fee would generate the same $200 from average cars. However, we believe that the determination of funding needs and the setting of a permile fee must not be based on current revenues (which are insufficient), but on actual current and future funding needs. The commission must undertake an assessment of the requirement for new highways and transit systems, and for the overdue maintenance of existing infrastructure. This would provide a better picture of the amount of funding required, and to be used to determine a per- mile fee which neither underfunds transport, nor will need to be raised frequently.
Along the way, we encourage the governor and PennDOT to actively engage with MBUFA, to gain a seat at the table while national pilot guidelines are being written and other state DOTs are discussing their best practices. The death of fuel taxes is certain, and Gov. Wolf is right to start planning for their demise. The replacement needs to be paid by users of highways, and it needs to be easy to understand and equitable. Fortunately, it’s already here. It’s called a mileage-based user fee.