An exploration of gas tax revenues

I got into a twitter discussion the other day about mileage-based user fees versus gas taxes as a useful future revenue source for funding transportation.  There was an argument that the failure of gas taxes to keep up with funding needs is not about new alternatively-fueled vehicles coming online, but rather that the tax hasn’t really gone up for a decade and therefore, hasn’t kept up with inflation.

I don’t disagree with this as historical reasoning, but I was curious how this might play out in the future.  After all, we’re told the increasing numbers of vehicles fueled by stuff other than gas and diesel will lead to increasing shortfalls even as mileage (and therefore wear-and-tear on roads) may increase or stay the same.

In my twitter discussion, this argument wasn’t convincing to @sumnums.  After all, even by 2030, electric and other non-gas-taxable fueled vehicles will make up a small percent of the fleet.  According to the EIA 2012 Energy Outlook, electricity and natural gas (the only two non-petroleum alternatives worth measuring), will only make up something like 1% of the energy used for road transportation.

However, gas-taxable fuel (gasoline, diesel and E85), will see an 8.5% drop in BTU usage between 2013 and 2030.  So it’s not just alternative fuels, but fleet fuel efficiency that will impact gasoline consumption.  In the meantime, vehicle miles traveled (VMT) on roads will increase 28% (27% if you just look at light-duty vehicles) in the same time period.

What does this do to gas tax revenues? If rates remain the same (I’m using $0.20/gallon federal taxes as a compromise between gasoline and diesel rates), revenues will decline by 7.5% through 2030.  If you index gas taxes to inflation, as was suggested in my twitter conversation (say 1.4% annually), revenues will climb 17% through 2030.

Leaving aside for the moment the political hurdle of indexing gas taxes to inflation (not minor), would an increase of 17% be enough to support a 28% increase in VMT?  You could always bump the current rate to something you thought more acceptable and peg to inflation from there, but that’s an even steeper political hill to climb, plus it leaves you with the same mismatched rate of growth between VMT and revenues.  Maybe that’s not an issue, smarter people can decide, but I wanted to point it out.

Other issues with the figures could be argued: will VMT really grow that much?  If not, then perhaps the revenue issue isn’t as important.  On the flipside, is it really realistic or acceptable to have only 1% of road transportation energy delivered as electricity or natural gas in 2030?  If we started being adults about climate change in the next few years, couldn’t incentives/disincentives change that figure dramatically?  If electricity is providing 10% of the fleet energy in 2030, an inflation-indexed gas tax will only bring in 5% more revenue in 2030 than today (with EIA AEO VMT assumptions intact).  At 15% electrical energy, revenues are dropping even with an inflation-indexed rate.  In the meantime, the cost of road maintenance and materials will likely continue to climb.

Should local transit just be built by the states?

One of my new favorite snarks, Lisa Schweitzer at Sustainable Cities and Transport, discusses whether local transit funding shouldn’t just “devolve” to the states.

Federal involvement in transit also has led to a heavy capital bias in transit investment, prompting local and regional agencies to build transit projects, again and again, that they can’t afford to run with any frequency. This leads to a wider geographic coverage for transit–which probably still isn’t wide enough to deal with spreading regions–and with lower frequencies than really make for high service quality. (And sprawl is bad, bad, bad, evil and terrible! The worst thing ever! There? Will that sentence keep some of you land-use people outta my grill for the purposes of this post? Can I talk about something else now? Thanks.)

Transit has been on the teeter-tottery edge of those issues and criticisms for a long time. Why can’t New York pay for its own subways? Or Los Angeles? Or anywhere? That’s why we have local taxes and general funds, right? If you want transit, don’t go holler at the feds. Make it happen if you want it. Perhaps there would be a greater chance of that self-helping if leaders know that the buck really began and stopped with them, and they might instead be much more careful to match investments to operations.

The US Congress is overly dominated by rural interests, and many of us for years have argued that this creates a hostile environment for transit funding in the first place, as many rural senators wonder: “what’s in it for my constituents?” and the ineffectual spreading of scarce resources around to systems that aren’t particularly viable or worth investing in. Porky McPorktown.

The key drawback to devolution? Locals might not have the stomach for a local gas tax to replace the federal one.

So if places like California, New York, Illinois, and Minnesota were running their own budgetary shop, they could keep the revenues they are currently sending to Portland and Memphis and Charlotte.

Here’s the glitch: these donor state are only fiscally better off with Federal gas tax elimination or erosion if those donor states prove capable of passing a gas tax on its residents equal to or better than the 18 cents a gallon [- whatever the Feds give away to other jurisdictions]. And I’m not seeing that happen, at least not in California. Maybe in Minnesota. Maybe in New York, or Massachusetts. Maybe.