Md.'s gas tax and transportation funding: a failure of leadership

March 08, 2011|By Andrew Farkas

The dire warnings of the last few years about inadequate transportation funding in the United States have come true. State and federal transportation trust funds are essentially empty, but transportation infrastructure requires additional funding just to maintain what already exists. Fuel taxes and other user fees flow into trust funds, and payments for transportation projects flow out. Federal officials have tried stop-gap measures for the federal trust fund, such as shifting general funds into it. In Maryland, on the other hand, the trust fund has been a source for transfers to the general fund.

A case can certainly be made for raising fuel tax rates. The federal fuel tax was last increased in 1993, and Maryland's in 1992. Economists agree that fuel taxes are a pretty good, although indirect, means of paying for travel as you drive — but with higher fuel economy standards and more alternatively fueled vehicles, the fuel tax, if it remains unchanged, will bring in less and less revenue over the next several years. During a special session of the Maryland Legislature in fall 2007, one proposal to raise revenues for transportation projects was to index the current state motor fuel tax of 23.5 cents per gallon to a construction cost index. The proposal was not enacted. In the current legislative session, there are bills that would institute a sales tax or raise the fuel tax by 10 cents a gallon.

Studies have shown that the public appears reluctant to accept fuel tax increases. Fuel taxes are highly regressive, disproportionally impacting low-income motorists (the average motorist pays approximately $170 per year in state fuel taxes and a little less in federal taxes). Also, the public has doubts that higher taxes would result in better roads and transit.

No taxes are popular, but there are reasons why raising fuel taxes — either through one-time statutes or through indexing — are particularly unpopular. For one thing, transportation funding does not generate the kind of predictable political interest and legislative focus as funding of such programs as education, health care and public safety. Sure, people become concerned when it takes too long to commute to work or roads aren't plowed quickly enough. They complain when potholes proliferate or a bus route is changed. But transportation funding just doesn't get much debate. Studies show that people generally do not know how transportation is funded or the amount of the fuel tax.

Indexing fuel taxes also is inherently problematic in that it puts the taxation power of legislatures on "automatic pilot," thus further isolating the public from policy. For state legislators, relying on an indexed fuel tax essentially means giving up the responsibility for making hard decisions. In addition, indexing based on construction costs takes away any incentive for greater efficiency when those costs are rising. (Some have suggested basing the index on the consumer price index, but there is no close relationship between construction costs and consumer prices. During periods of low inflation tax revenue would not rise, while during high inflation the increasing fuel tax would add to that inflation.)

Finally, the timing always seems wrong even for one-time increases in fuel taxes. When fuel prices were at unusually low levels a couple of years ago (about $1.50 per gallon in Maryland) we were in the depths of a recession — not a good time to raise a fuel tax. Currently, the price per gallon is high and rising; increasing the fuel tax now may not be a good time either because it could dampen the economic recovery. It does seem that if a 10-cent-per-gallon tax increase had been instituted when the prices were much lower, we would not be too concerned about it now.

So, in light of the need for transportation funding but the great political difficulty in raising those funds, what should the government do? It should make its case. Tell the public how much revenue is required, and explain why. What would happen to the transportation system if no additional revenues were available? If fuel taxes are increased, what, specifically, would the additional revenues be used for?

Only with clear answers to these questions can we, through our legislators, make the appropriate decisions regarding fuel taxes.

Andrew Farkas is director of the National Transportation Center at Morgan State University, a federally funded research and education center. His views do not necessarily reflect the views of the university administration or the U.S. Department of Transportation. His e-mail is andrew.farkas@morgan.edu.

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