Better Fuel Economy Takes Toll on Transportation Projects

Friday, 15 Feb 2013 10:41 AM

By Cyrus Afzali

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The proliferation of fuel efficient vehicles may be helping the environment, but it's wreaking havoc on federal and state revenues as gasoline tax collections decline.

According to the New York Times, the increase in the number of alternative fuel vehicles and the rise in fuel efficiency of traditional cars, is translating into a decline in gasoline tax revenues while maintaining roads and bridges is becoming more expensive.

The National Conference of State Legislators reports that 40 percent of state highway revenues and 92 percent of the money that goes into the federal highway trust fund comes from fuel taxes. More efficient vehicles, coupled with the fact that only about a dozen states tie their fuel tax rates to inflation, is translating into annual decreases in fuel tax receipts, the Times reported.

Adding to the problem, 17 states haven’t raised gas taxes in the last 20 years and the federal gas tax has stood at 18.4 cents per gallon since 1997.

The revenue decline from gas taxes has led state officials across the country to consider new ways of raising money to finance transportation programs, and at least one unlikely source, the U.S. Chamber of Commerce, has joined in the call for change. The chamber this week said it would support an increase in the gas tax if the revenue is dedicated to transportation infrastructure.

In Virginia, Republican Gov. Bob McDonnell last month floated a proposal to scrap the gasoline tax completely and increase the state’s sales tax to fill the gap. McDonnell’s plan would retain taxes on diesel fuel and would include a $100 annual fee on alternative-fuel vehicles.

Other states are considering more radical solutions. Oregon and Washington, for example, are considering proposals that would charge drivers based on the number of miles they travel. Oregon legislators have also proposed a mileage tax on fuel-efficient cars, starting with model year 2015 and later.

But despite the different proposals floating around, the Eno Center for Transportation says more states will probably end up turning to the traditional sales tax to make up for lost gas tax revenue.

“People generally prefer a sales tax to these other forms of taxation,” Eno Chief Executive Joshua Schank told the Times.

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