Higher Gas Tax Unlikely to Gain Support in U.S. Congress

Published November 27, 2012

Although some infrastructure advocates are hoping to use the current federal budget negotiations to win support for an increase in the federal gasoline tax, the idea is unlikely to gain support in Congress or the Obama administration.

While the 2010 Simpson-Bowles deficit-reduction commission proposed raising the federal gas tax by 15 cents a gallon as part of a broad deficit-reduction plan, neither House Speaker John Boehner (R-OH) nor Senate Majority Leader Harry Reid (D-NV) has endorsed the idea.

Nor is an increase in the federal gasoline tax popular among their Capitol Hill colleagues. The rank-and-file do not sense a groundswell of public sentiment in favor of a higher gas tax. They see the pressure to raise it as coming from a narrow coalition of liberal advocacy groups and interests that stand to benefit from increased federal transportation spending.

The Obama administration is not eager to advocate a tax increase whose burden would fall most severely on the middle class — precisely the constituency the administration¬† wishes to protect from the pain of any further tax increases. Given this perception, it is almost certain that a federal gas tax increase will remain off the table in the fiscal cliff negotiations and probably in the next session of Congress as well.

More State Responsibility

Instead, look for the states to assume a larger share of responsibility for funding their transportation needs. An early harbinger may be the state of Arkansas, whose voters recently approved a half-cent statewide sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next 10 years. The measure has been called “the largest infusion of new tax dollars into a state transportation system in recent history” by the Pew Center on the States. There are also signs that some jurisdictions are willing to raise local money to build streetcar lines.

In addition to greater local financial participation, look for a shift from federal funding to public and private financing of large infrastructure projects. The shift will be fueled by a vastly expanded Transportation Infrastructure Finance and Innovation Act lending authority — by more than 600 percent, from $122 million in FY 2012 to $750 million in FY 2013 — and by a large reservoir of equity in pension funds and private infrastructure investment funds looking for attractive investment opportunities.

More Tolling

This means an expanded role for tolling, because TIFIA and private sources of capital can only be used to finance facilities that are backed by a dedicated stream of revenue to cover interest on the loan and to repay the loan itself. Tolls are viewed by many as a fairer way to pay for new and reconstructed highways and bridges because, unlike the gas tax,  they are paid only by users of the given tolled facility. In other words, drivers in Montana will not be required to pay for a road or bridge built for and benefiting residents of, say, New York. 

The likely prospect that financing will replace stagnant or dwindling federal funding dominated discussion among financial practitioners at the American Road & Transporation Builders Association’s Public-Private Partnership Conference in Washington on October 10-11.

TIFIA Loan Interest

Participants were encouraged to hear that 19 projects worth $27.5 billion have already submitted letters of interest for TIFIA loans in the past three months. More applications are certain to follow as it becomes clear that the Highway Trust Fund no longer can continue to serve as a source of investment capital for transportation infrastructure.

In sum, rather than hoping for an increase in the gas tax, the transportation community should look forward to three new trends as the most likely response to the perceived inadequacy of current transportation revenue:  greater financial participation by state and local taxpayers, a shift from federal funding to private and public financing, and an expanded use of tolling.

C. Kenneth Orski ([email protected]) is editor and publisher of Innovation NewsBriefs, a transportation newsletter. Used with permission of innobriefs.com.