Fitch: Gas tax hike should be paired with other revenue sources to fund transportation

| June 24, 2014

mountainroad-Better-Roads

Fitch Ratings released a statement on Tuesday noting that a gas tax increase needs to be paired with another revenue source to provide the necessary funding for transportation projects.

Fitch pointed to the recently-proposed 12-cent-per-gallon gas tax hike as a “positive first step to address transportation funding in this country” but added that “raising the gas tax to 30 cents per gallon on its own isn’t enough to meet the on-going infrastructure needs.”

The U.S. Department of Transportation (DOT) projects the Highway Trust Fund (HTF), the main source of funding for state and local transportation projects, to run out of money by August 30. Fitch pointed out that the Congressional Budget Office (CBO) expects the HTF (including the highway and transit accounts) to reach a shortfall of $172 billion by 2024.

The federal fuel tax provides revenue for the HTF and has not been adjusted since 1993, when it was raised to $18.4 cents per gallon. At that time, the gas tax also was not indexed to inflation. Fitch noted that if the gas tax had been indexed to inflation, the HTF would likely not be nearing a shortfall.

“We estimate the current rate would be approximately $0.30 per gallon, comparable to what Senators Murphy and Corker are proposing, versus the current $0.184 per gallon,” the Fitch statement noted. That approximation assumes gas consumption has remained steady since 1993. (Ideas about whether Americans are driving less vary. Check out this report and this report for more details.)

In order to keep up with transportation needs, Fitch added that the gas tax would need to increase by at least 56.6 cents per gallon, bringing the gas tax up to a minimum of 75 cents per gallon.

However, that may still not be enough. Corporate Average Fuel Economy (CAFE) regulations could stifle long-term revenue by raising the fuel economy of future cars, which would lower gas tax revenue by 13 percent from current levels, according to Fitch.

Fitch suggested pairing a gas tax hike with tolling  as a way to “address the country’s growing transportation funding requirements.”

“If strategically implemented, tolling can help better link costs for parts of the roadway network to the ultimate users and better manage highway capacity,” the statement from Fitch notes. “Implementing the greater use of tolling requires management of user fee levels to ensure affordability to the general population and promote economic activity.”

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