Share this article

print logo

Shrinking revenue spurs gas tax alternatives

WASHINGTON – It was the potholes that convinced real estate broker Lester Friedman that there had to be a better way to pay for road construction and repairs.

Friedman, who lives in Bend, Ore., drives about 8,000 miles a year in his 1999 Chevrolet Suburban, ferrying clients throughout central Oregon. He sees roads in various states of disrepair and he can tell you firsthand that the current arrangement just isn’t working.

That’s why he volunteered to test a new program in his home state that would levy a tax on miles driven, rather than on each gallon of fuel purchased. In every other state, and at the federal level, gasoline taxes are levied on a per-gallon basis.

Friedman’s view from behind the wheel is only anecdotal, but state officials across the country know the current per-gallon gasoline is outdated and increasingly insufficient. It is raising less revenue as cars become more fuel efficient and more people turn to public transportation and electric cars. Meanwhile, crumbling infrastructure is increasing the need. Faced with these facts, many states are looking for alternatives to the gas tax.

California is considering a plan similar to Oregon’s. Virginia tried another route last year, eliminating the state’s 17.5 cents per gallon motor vehicle tax on gasoline and diesel and replacing it with a 3.5 percent tax on the wholesale price of gasoline and a 6.0 percent tax on the wholesale price of diesel. In addition, the state dedicated a portion of the general sales tax to the highway fund. And Missouri put a multibillion-dollar sales tax hike for transportation on the ballot earlier this month, but voters soundly rejected it.

In New York, gasoline is taxed at 68.3 cents per gallon, which includes the 18.4 cents federal tax.

“In most places, (the gas tax) is not keeping up with inflation because it’s a per-gallon tax and it’s not indexed,” said Norton Francis, senior research associate at the Tax Policy Center, a progressive think tank. “The revenue is not keeping up, and the road construction and other project needs are growing.”

Only a few states index gas taxes for inflation: Florida, Maryland and Massachusetts. According to a study by the conservative Institute on Taxation and Economic Policy, most state gas taxes, especially those not indexed, are “built to fail.”

After adjusting to account for growth in construction costs, the average state’s gas tax rate has effectively fallen by 20 percent, or 6.8 cents per gallon, since the last time it was increased. Among the 36 states levying only a fixed-rate tax, effective gas tax rates have plummeted by 29 percent, or 9.5 cents per gallon since they were last increased, according to the 2011 study.

Since the federal gas tax was last increased to 18.4 cents per gallon in 1993, inflation has eroded its value by 40 percent, according to Ben Husch of the National Conference of State Legislatures. States that tax by the gallon have fared no better, leading many to look at models like Oregon’s.

Last week, President Obama signed a bill transferring $11 billion into the federal Highway Trust Fund – a temporary fix to prevent the fund from going dry.

Private contractors are bidding to devise a way to calculate mileage. Several consultants will be selected and each could have a different method, said James Whitty, manager of the Oregon Office of Innovative Partnerships and Alternative Funding. The state is starting to sign up volunteers for the program, including real estate broker Friedman, with the goal of getting 5,000 testers in place by next spring to try out a variety of mileage calculation methods.

Another volunteer, Michelle Giguere, of Portland, said she signed up because it’s important to get data before making a policy decision.

One way to monitor mileage would be an odometer-like device that simply keeps track of miles driven. (The motorist would receive a refund for miles driven out of state.) A smarter system could involve GPS monitoring, and still others could rely on smart phone apps or a combination of tracking systems.

The proposed tax rate is 1.5 cents per mile, which is the current state gas tax rate of 30 cents per gallon divided by the average car’s miles per gallon, which is 20. Friedman, with his gas-guzzling Suburban, probably would do better under the mileage tax than the per-gallon tax. Drivers with more fuel efficient cars might do worse.

“There’s quite a lot of trepidation about what’s happening with motor vehicles as far as fuel efficiency goes,” Whitty said. That’s a good thing, to have fuel efficiency, but if a state is heavily depending on the gas tax, if the efficiency goes up, the revenue goes down. Electric vehicles don’t burn any gas. The question is what do you do?”