January 21, 2013 8:00 AM, EST

New Transportation Funding Proposals Include Replacing Fuel Tax With Sales Tax

By Michele Fuetsch, Staff Reporter

This story appears in the Jan. 21 print edition of Transport Topics.

WASHINGTON — With the nation’s Highway Trust Fund on the brink of insolvency and states searching for ways to pay for transportation, a flurry of innovative funding proposals surfaced last week.

A proposal to replace the per-gallon tax on diesel and gasoline with a federal sales tax was unveiled last week by the executive director of the American Association of State Highway and Transportation Officials.

Taxing diesel sales at 10.6% and gasoline sales at 8.4% would pump $350 billion into the Highway Trust Fund over six years. The current per-gallon tax and truck excise taxes will generate only $236 billion, AASHTO’s John Horsley said in a keynote speech during the Transportation Research Board annual conference here on Jan. 16.

The Congressional Budget Office is projecting the Highway Trust Fund will be insolvent by the end of 2014.

“We hit a ‘fiscal cliff’ in transportation,” said Horsley, who is retiring Feb. 1 after 14 years as AASHTO’s executive director.

Michigan Gov. Rick Snyder (R) proposed in his State of the State address that Michigan eliminate its 19-cent per-gallon tax on gasoline and its 15-cent per-gallon tax on diesel fuel.

In place of the retail fuel tax, Snyder proposed a wholesale tax on oil, increasing registration fees on cars and trucks and allowing localities or regions to also impose registration fees.

“We need to invest at the state level $1 [billion] to $1.2 billion more a year,” Snyder said. “If we invest that billion dollars a year, it will create over 12,000 jobs in Michigan; that’s a lot of jobs that helps the economy a lot.”

In Massachusetts, where transportation officials recently reported an annual $1 billion funding gap, Gov. Deval Patrick (D) proposed raising the state’s income tax while slashing the sales tax and dedicating its revenue to school buildings, transportation and public infra­structure.

In Virginia earlier this month, Gov. Bob McDonnell proposed adding a 0.8-percentage point to the state’s 5% sales tax for transportation. In exchange, he would eliminate the 17.5-cent fuel tax on gasoline but not on diesel (1-14, p. 5).

The current federal tax — 24.4 cents a gallon on diesel and 18.4 cents on gasoline — has not been increased in 20 years, and more fuel-efficient vehicles are narrowing the revenue stream.

“So, the question is what alternatives are out there that enable us to sustain the solvency of the Highway Trust Fund and pass in a Republican House?” AASHTO’s Horsley asked in his speech. “That’s the big challenge.”

To keep the Highway Trust Fund solvent, Congress transfers $15 billion annually from the general fund, increasing the deficit, Horsley said. AASHTO’s plan would reduce the deficit by $150 billion over 10 years, he said.

American Trucking Associations spokesman Sean McNally said that ATA will examine AASHTO’s plan during the study ATA is conducting of new revenue possibilities.

“However, given the general antipathy in Congress to new taxes, along with the long tradition of financing the Highway Trust Fund with user fees like the fuel tax, this proposal certainly seems like it would have long odds at becoming law,” McNally said.

Horsley said AASHTO’s plan has a good chance of passing because it would eliminate one tax.

A solution to the transportation funding problem is critical, according to another report last week from the American Society of Civil Engineers.

ASCE said if current infrastructure spending levels are not increased, surface transportation, aviation, waterways, the electrical grid and sewers will, by 2020, have been underfunded by about $1.1 trillion.

If America increased infrastructure spending by $157 billion annually for the next eight years, 3.5 million jobs would be saved, the Jan. 15 report said.

Deteriorating infrastructure “has a cascading impact on the nation’s economy, negatively affecting business productivity, gross domestic product, employment, personal income and international competitiveness,” the report said.