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December 2013 Policy Study, Number 13-10

   

Fuel Tax:  What Is a Fair System for Iowa?

   

Innovative State Transportation Funding

   

 

The National Governors Association (NGA) has a report out that addresses several innovative state transportation funding and financing ideas for the 21st Century. This report takes into account the issues that Iowa is facing, along with other states that are in the same boat as Iowa. This is not a new problem that Iowa is having concerning the financing of our roadway system. This report addresses several of the flaws that exist with the fuel-tax structure of paying for roads.

 

The first argument about the fuel tax is that the purchasing power of the fuel tax decreases yearly. In order for a fuel tax to maintain the same buying power from year to year it has to be indexed to the consumer price index (CPI). But the downfall with this approach is that if the CPI decreases, then fuel taxes also decrease. Therefore there is no guarantee of the same buying power from year to year.[28]

 

The next argument against fuel taxes is that:

 

they are not user fees that finance a specific service or are collected only from the user of that service. This differs, for example, from tolls collected to maintain, operate, or upgrade a particular road or facility. Fuel-tax revenues are appropriated through a complex process that provides funding for a variety of transportation projects. Some states are examining the feasibility of increasing the development of user-fee-based projects to diversify their transportation revenue portfolio, although not all projects (such as rural roads and bridges or certain transit projects) are necessarily well-suited to a pure user-fee model.[29]

 

The third argument against the fuel tax is the fuel tax doesn’t charge drivers equally. We pay fuel tax on the number of gallons of fuel purchased, so if you have a high-fuel-efficiency car you will pay less fuel tax per miles driven than someone who owns a less-efficient vehicle. As the report states, the following issues aren’t being addressed with the fuel tax:

 

While it is desirable from an environmental standpoint to promote efficient vehicles, it also is important to consider the costs of miles traveled, regardless of fuel type used, in terms of road wear and congestion. Users pay the same motor-fuels tax regardless of whether the user is driving during off-peak hours on a road with ample capacity or on a congested road during peak periods. The result is that motor-fuel taxes do not necessarily result in the most efficient approach to managing transportation demand, particularly as compared to congestion-pricing schemes or vehicle-miles-traveled fees priced to manage demand. Additionally, motor-fuel taxes currently apply to petroleum-based fuels, but do not cover alternative fuels such as electricity.[30]

 

So given the arguments above about the fuel tax, this report offers several ways to pay for road systems without the fuel tax being used. This report discusses the following options:

 

• Debt-financing strategies, including state infrastructure banks;
• Tolling, vehicle miles traveled fees, congestion pricing, and other user fees;
• Public-private partnerships that leverage private capital and expertise; and
• Freight-specific strategies.[31]

 

So let’s take a look at these different options and how they can help the state of Iowa, drivers, and taxpayers.

 

   

 

Click here for pdf copy of this Policy Study

 

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