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The Gas Tax Folly and the Future of Infrastructure Funding

February 26, 2018 Robert Fischer, GTiMA President

There’s a debate raging in statehouses across the United States, and in the US Congress itself: to raise the gas tax, or to not raise the gas tax?

But many elected officials don’t realize the gas tax is a short-term solution with diminishing returns, and that there’s a new approach to funding roads — road pricing, or congestion pricing — that is already showing so much promise that experts believe it will be the sole revenue stream for transportation dollars once it’s widely adopted.

At the heart of the current gas tax debate is this quandary: the Federal Highway Trust Fund – which is primarily paid into by the federal gas tax and serves as the nation’s pool for infrastructure and road repair – is due to run out of money at the end of 2020.

In many states, lawmakers are borrowing money to make basic road repairs after deciding not to raise the gas tax.

The gas tax has certainly fallen behind in terms of inflation. The last time the federal government raised the gas tax, Bill Clinton had just been sworn in as President, the season finale of Cheers was the talk of the nation, and the World Wide Web was born at CERN.

How far we’ve come since 1993, and how far our infrastructure has not. On the last two report cards from the American Society of Civil Engineers, US infrastructure scored a D+ and we don’t seem to have a dime to spend on new, transformative projects.

But here’s the rub. While we need additional revenue for infrastructure, the days of the gas tax being sufficient are numbered. Emerging technologies like autonomous vehicles and electric cars will eventually make the gas tax obsolete, according to many experts.

The reason for the fund’s insolvency is simple: when you don’t raise the gas tax for 24 years, inflation gets way ahead of you. And it’s not just a little chunk: accounting for inflation, $100 worth of buying power in today’s economy was $57.62 in 1993.

Further exacerbating the problem, cars are more efficient and don’t use as much gas as they used to.  Car fuel efficiency has roughly doubled in the past 25 years.  Meanwhile, we are driving more than ever.

And, of course, there are two major technological revolutions on the horizon – the automated vehicle revolution and the electric vehicle revolution. Both of these are seen as likely eventualities, but only one of them would need to happen to render the gas tax more or less obsolete.

But Trump, the US Congress, and statehouses around the country are limiting the scope of their vision for funding infrastructure to the gas tax alone.

As recently reported by the Hill, Trump made several off-the-cuff remarks at a meeting with Senators over how to fund infrastructure, suggesting he’d be receptive to a 25-cent increase in the federal gas tax. This apparently confounded everyone in the meeting, because he was expressing what has traditionally been the Democratic argument over the issue.

But his instincts may not have been all that bad in this case. First, Trump will eventually have to address the funds insolvency during his presidency – whether he wants to or not.  Second, proposals to raise the federal fuel taxes have long been championed by certain sectors of the business community, truckers and other groups that have backed Trump strongly. Basically, it’s probably not a coincidence that the U.S. Chamber of Commerce (which, despite its official-sounding title, is a right-leaning business-oriented lobbying group with a whole lot of clout) recently endorsed a 25-cent boost in the federal gasoline tax — the same figure cited by Trump this week.

While it’s true that we badly need funds right away, we would be foolish to simply raise the gas tax and spend it on short-term repairs. What we really need is an investment in building the infrastructure that will allow for what many analysts see as the most realistic source of income for highways in the future: road pricing.

Road pricing charges motorists for the use of busy roads at certain times, especially to relieve congestion in urban areas. This is basically what we might call “smart tolling”, or, perhaps even better, “fair tolling”. The key is charging based on when, how much and where drivers use the roads.

With the worlds most comprehensive road-pricing system, Singapore could be the model others will try to follow. When they introduced the world’s first congestion charge zone (CCZ) in 1975, it used paper permits to control access to a charge zone. They switched to electronic sensors in 2008.

The logic behind the system is remarkably simple: If average speeds are deemed too slow over a three-month period, then the city raises the cost of entrance.

So far, their approach has been working. According to Woo Sian Boon of Singapore’s Land Transport Authority, congestion has fallen as motorists have switched to less busy routes or to the city-state’s public transport, or traveled at off-peak times when charges are low.

And things could get even better. Singapore will introduce a new system in 2020 that uses cars’ global positioning systems (GPS) to charge motorists more precisely. By using GPS data in algorithms to calculate the amount drivers pay based on distance, time, location and vehicle, drivers will receive real-time information about the cost and congestion of roads, encouraging them to consider other routes.

Other schemes are being tried out in US states such as California, Colorado, and Oregon.

The biggest, OReGO (a pilot program in Oregon), aims to find an alternative to the state fuel tax. Drivers fit devices in their cars that draw data from the engine’s computers. The gadgets record the amount of fuel used and distance driven, and transmit the data to a state server via mobile networks.

The technology enables motorists to be charged based on how far they drive, with each mile costing 1.5 cents, whatever the location or time. Then, the state fuel tax they have paid (30 cents a gallon) is refunded.

Whether or when OReGO will replace the state fuel tax is unclear, but early results have been promising.

Nevertheless, innovative schemes like those we see in OReGO and Singapore, among others, deserve the attention of elected officials all across America. They can provide a revenue stream that will rival the gas tax at its peak efficacy, and that will set us up for the future.

Let’s just hope that Oregonians are right when they say: “As OReGO goes, so goes the nation.” We think they are.

Some facts in this piece, along with a quote from Woo Sian Boon, were sourced from The Economist.