Fuel Tax Stopgap

Relying on a fuel tax to fund roads is relying on diminishing returns

Even if Montana lawmakers raise the state’s fuel tax to fund infrastructure, there’s little doubt they will be staring at depleted transportation revenues in the near future. Sure, they could plug the funding shortfall from other parts of the budget. Then plug it again, and again.

Kalispell Rep. Frank Garner has proposed legislation — the Bridge and Road Safety Accountability Act — that would include an 8-cent increase in the gas tax and a 7.25-cent increase in highway diesel. He says it raises about $35 million to help the state receive $220 million in federal match dollars. It also will reportedly raise millions more for counties and cities to fix roads and bridges and prevent cuts at the Montana Highway Patrol.

That’s a modest tax increase for significant returns. And it’s the best way to shore up funding in the short term. But long term, relying on a fuel tax to fund roads is relying on diminishing returns, a trend that’s only going to accelerate.

At least 20 states have debated whether to raise their gas taxes this year, citing a number of reasons. Alaska, which has seen its budget decimated by lower energy prices, wants to double its tax to make up some of the shortfall. In California, the tax is tied to the price of fuel, which has fallen dramatically along with revenues. Montana hasn’t raised its fuel tax in nearly 25 years and the Montana Department of Transportation has estimated it will face an annual funding shortfall of $874 million through 2021, which could halt or delay many needed projects.

Raising the fuel tax is a stopgap, but predicting how much revenue it will continue to produce and for how long is murky at best. As more vehicles become more efficient, and more people drive fuel-free vehicles, revenues will only continue to decrease.

For its part, Montana — a large rural state — is often a few years behind national transportation trends. But we’re catching up. There are now Tesla (the electronic car company) supercharger stations spread across the state. Fuel-efficient vehicles, whether smaller sedans or heavy-duty trucks, dot the landscape. In other words, fuel consumption isn’t rising like it used to and it will only slow further.

Some state lawmakers have proposed raising money for infrastructure in a more sustainable way. Colorado’s Republican Senate majority leader has called for the outright repeal and replacement of the fuel tax, saying, “It’s really a stagnant, or a long-term dying revenue source.” A study by Indiana University-Purdue University Indianapolis suggests a vehicle mileage tax is the best option for long-term highway funding while at once forecasting a “fuel tax revenue decline by up to 50.5 percent between 2015 and 2040 in states that do not adjust fuel taxes to inflation.”

Montana’s Legislature is considering its own law aimed at addressing falling fuel consumption. House Bill 205, proposed by Livingston Republican Rep. Alan Redfield, would add $180 to the cost of registering an electric vehicle and $90 for a hybrid vehicle.

His bill, along with Garner’s legislation, should help fill in some gaping holes the state faces in its infrastructure budget. That is, if they pass. A group of Garner’s fellow Republicans, including many from the Flathead, publicly opposed his gas-tax increase, stating, “We believe our state can fund infrastructure and not raise taxes.”

Maybe. For now. But what happens when a tax actually decreases substantially? Garner’s bill may not be the only long-term solution, but it’s at least part of it.