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Research & Commentary: Utah Studies New Method for Transportation Funding

October 11, 2019

In this Research & Commentary, Matthew Glans discusses gas taxes, Utah's efforts to improve transportation funding, and why gas taxes are an ineffective, regressive form of taxation that leave transportation systems shortchanged.

More infrastructure revenue is a top agenda item for Utah lawmakers. In recent years, more fuel-efficient cars have decreased gas tax revenue in the Beehive State. Efforts to increase Utah’s gas tax have failed because the public has opposed gas tax hikes.

According to a recent poll by UtahPolicy.com, 49 percent of Utah voters oppose a gas tax hike and just 36 percent support a gas tax  increase to maintain funding for road construction and maintenance. Voters also opposed toll roads, with 68 percent opposed and only 23 percent in favor. Utah residents are right to question the efficacy of fuel taxes. Mounting evidence shows gasoline levies are an ineffective, regressive form of taxation that leave transportation systems shortchanged.

In 2015, Daniel Vock analyzed state gas tax data reported to the U.S. Census Bureau. Vock found two-thirds of state fuel taxes failed to keep up with inflation. The Institute on Taxation and Economic Policy has also found that gas taxes are not a sufficient funding source to repair and rebuild the nation’s crumbling infrastructure. This is mainly due to more fuel-efficient vehicles on the road coupled with skyrocketing transportation construction costs.

The current gas tax rate in Utah is 30 cents per gallon (48.41 cents per gallon when combined with local, state, and federal taxes). Although this rate is below the national combined average of 54.70 cents, it is higher than many of Utah’s neighbors, including Arizona, which averages 37.40 cents, and Colorado, which averages 40.40 cents. Increasing Utah’s gas tax would push the Beehive State above the national average and further reduce its regional economic competitiveness.

Wendell Cox and Ronald Utt argue gas taxes have a more detrimental effect on lower- and middle-income families than they do on the wealthy. Americans for Prosperity estimates lower gas prices amount to approximately $100 in additional spendable income per month for an average family. On the other hand, a tax hike would raise prices on goods and services throughout the economy, not just on gasoline, because virtually all consumer goods are transported using gasoline-powered vehicles. Businesses will simply pass the added costs on to consumers.

One reform Utah lawmakers are considering to counteract the decreasing funds from the gas tax is a pilot program that would create a vehicle miles traveled tax (VMT) for electric vehicles. A VMT tax is based on road use measured in mileage using an in-car device that captures the distance driven by a vehicle through GPS. The primary benefit of the VMT is its fairness, as it charges all residents equally based on how much they drive. According to a 2017 study in the Journal of Public Economics, “A VMT tax designed to increase highway spending $55 billion per year increases annual welfare by $10.5 billion or nearly 20% more than a gasoline tax does.”

VMT is a viable option for states seeking to replace the gas tax. However, there are issues that could make implementation difficult. The biggest issue is concern over privacy. VMTs could allow the government to track drivers. Although this concern can be mitigated by limiting what is transmitted by the device and data storage rules requiring deletion of personal data, it is still a major paradigm shift in tax collection that may be unacceptable to the public.

Moreover, installing the devices in cars and periodically collecting the data would be a costly endeavor that may offset some of the gains from the tax. There are also concerns that the VMT could move consumer choice away from energy efficient vehicles as they are no longer penalized for driving vehicles with poor gas mileage.

Another reform Utah lawmakers ought to consider is privatization of the state’s roads, bridges, tunnels, parking garages, and bus systems. Privatization frees up public funding for infrastructure that’s more difficult for the private sector to maintain or build. Recent financial innovations such as blockchain technology also make it easier to raise money for these projects.

Similar to privatization, Utah lawmakers should consider the public-private partnerships (P3) that allow for private companies to finance, construct, operate, and maintain transportation projects. Under a P3, government grants a long-term user fee or toll road concession to a private company. In exchange, the company provides the capital needed to build, maintain, and operate the road while the state retains ownership of the road or bridge.

The following documents provide additional information about how motor-fuel taxes are applied and their effect on the economy.
 

Pros and Cons of a Vehicle Mileage Tax
https://www.glostone.com/2019/04/04/pros-and-cons-of-a-vehicle-mileage-tax/
This article from Glostone Trucking Solutions outlines several pros and cons about the vehicle mileage tax and how states should proceed.

Will Vehicle‐​Mile Fees Be a User Fee or a Tax?
https://www.cato.org/blog/will-vehicle-mile-fees-be-user-fee-or-tax
In this article, Randal O’Toole of the Cato Institute examines the potential of VMT and why they must be structured as a true user fee. “Vehicle-mile fees would be a true user fee if the money went to the roads that users drove on. They would be a tax if the money went to transit or some other program, especially if the fees were set at a punitive level designed to reduce the amount of driving people do. As a user fee, vehicle-mile fees would increase mobility and, in the long run, reduce the cost of travel. As a tax, they would increase the cost of travel and limit mobility to the wealthy,” wrote O’Toole.

State Motor Fuel Taxes
https://www.api.org/oil-and-natural-gas/consumer-information/motor-fuel-taxes/gasoline-tax
The American Petroleum Institute documents each state’s current motor-fuel taxes (both gasoline and diesel). 

Top Five Reasons Not to Raise the Gas Tax
https://www.atr.org/top-five-reasons-not-raise-gas-tax
In this article, Emma Boone of Americans for Tax Reform outlines five reasons not to raise gasoline taxes.

Gas Taxes Not Long-Term Answer For Infrastructure Funding
https://www.forbes.com/sites/adammillsap/2019/04/29/gas-taxes-not-long-term-answer-for-infrastructure-funding/#697cfa692ae8
In this Forbes article, Adam Millsap of Florida State University argues that while pressing infrastructure needs do exist many states, the gas tax is not the long-term funding answer. Millsap examines several alternatives to gas taxes that are not impacted by electric vehicles and that are more connected to road use.

23rd Annual Highway Report on the Performance of State Highway Systems
https://reason.org/wp-content/uploads/2018/01/23rd_annual_highway_report.pdf
In this report, the Reason Foundation ranks the performance of state highway systems in 11 categories, including spending per mile, pavement conditions, deficient bridges, traffic congestion, and fatality rates.

Alternatives to the Motor Fuel Tax
https://www.heartland.org/publications-resources/publications/alternatives-to-the-motor-fuel-tax
This report, prepared by the Center for Urban Studies at Portland State University and submitted to the Oregon Department of Transportation, evaluates potential alternatives to motor-fuel taxes. The report also identifies the economic and technological problems that must be addressed when designing alternative revenue sources.

Designing Alternatives to State Motor Fuel Taxes
https://www.heartland.org/publications-resources/publications/designing-alternatives-to-state--motor-fuel-taxes?source=policybot
Writing in Transportation Quarterly, Anthony M. Rufolo and Robert L. Bertini consider the future of motor-fuel taxes as more fuel-efficient vehicles become available. They also report on the economic effects of road pricing as a substitute for fuel taxes.

Paying at the Pump: Gasoline Taxes in America
http://taxfoundation.org/article/paying-pump-gasoline-taxes-america 
In this paper from the Tax Foundation, Jonathan Williams argues gas taxes can be an effective means of funding transportation improvements. In many cases, however, governments exploit the taxes for political reasons, spending them on projects unrelated to roads and other transportation improvements. 

Research & Commentary: Congestion Traffic Pricing
https://www.heartland.org/publications-resources/publications/research--commentary-congestion-traffic-pricing
Congestion pricing, an alternative to gasoline taxes, uses market principles to address traffic congestion. Under congestion pricing, operators of a road charge a variable price based on congestion, allowing the operator to manage demand and limit congestion. Heartland Senior Policy Analyst Matthew Glans examines several proposals for implementing pricing systems to alleviate traffic congestion. 

Raising Gas Taxes Won’t Fix Our Bridges
https://reason.org/wp-content/uploads/2007/10/59f2e045a676b9c69bb9139b2c217bf3.pdf
In the aftermath of the I-35 bridge collapse in Minneapolis, Minnesota, Adrian Moore of the Reason Foundation argues increasing fuel taxes should not be the only response to state transportation funding problems. Moore wrote, “First we must examine how we spend transportation dollars now. Then we maximize the value out of those dollars. Finally, the last step is to address the need for additional revenue.”

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

If you have any questions about this issue or The Heartland Institute’s website, contact the government relations team, at governmentrelations@heartland.org or 312-377-4000.

Author
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance. In 2012, Glans was named senior policy analyst.
mglans@heartland.org @HeartlandGR