Motor fuel tax collections have stagnated in recent years due to increasing vehicle fuel economy and this problem will continue to get worse. Increasing tax rates offers at most a temporary fix while fuel taxes will become increasingly regressive and ineffectual as the tax burden is shouldered by a smaller and poorer segment of vehicle owners who drive older, less fuel-efficient vehicles. In the relatively near future, per-gallon taxation will need to be replaced with per-mile charging if dedicated transportation revenue collection is to be maintained.
At the same time, surface transportation spending is increasingly untethered from the beneficiaries who pay the user taxes to fund much of this spending. Mass transit, despite accounting for low single-digit percentages of total person trips, receives more than a quarter of federal, state, and local government spending on highways and transit. Meanwhile, highways continue to move more than $10 trillion in freight each year while mass transit moves zero.
If the federal government is to remain in the highway funding game, it should refocus its attention on nationally significant projects that promote interstate commerce—not local commuter or leisure travel that is best addressed by state and local authorities. State and local governments should also seek to harness private investment and do so in a way that shifts project risks away from taxpayers and on to private investors.
Unfortunately, current federal law greatly limits local self-help. These policies include restrictions on Interstate tolling and the lifetime volume cap on private activity bonds. If these barriers were to be eliminated, the U.S. could see increased surface transportation infrastructure investment while simultaneously enjoying reductions in government spending and the taxes required to support those spending levels.
In the report, I make five recommendations to Congress:
- Eliminate federal spending outside of highway freight corridors or at the very least allow federal capital funding to be redirected toward operations and maintenance activities;
- Establish a mileage-based user fee pilot program to examine a shift away from motor fuel user taxes;
- Eliminate federal prohibitions on states tolling their own Interstate segments;
- Eliminate the private activity bond lifetime volume cap and expand project eligibility;
- Eliminate procurement, labor, and environmental rules that unnecessarily increase costs and delay project delivery.
Read the full report here.