Roads, Fuel & Funding

Declining Gas Tax Revenues Make New Sources Of Transportation Funds Essential Original Article

State transportation leaders suddenly find themselves struggling with a $1.5 billion shortfall in anticipated federal and state gas tax revenues.

This shortfall, primarily due to improving fuel economy in our motor vehicles, has far-reaching implications.

Today’s debate in the Puget Sound region is whether to build more roads, or expand our transit system, or do both. But the truth is that the state will need innovative solutions – solutions beyond the ones on the November ballot – to ease our transportation woes and better address climate change.

We fund our roads, bridges and transit programs mostly with federal and state motor fuel taxes. The Federal Highway Administration recently estimated that by 2009 the national trust fund that gets most of its revenues from the gas tax will be $21 billion short of what’s needed just to maintain existing highways. There will be no federal money to add capacity.

Today’s vehicles have better fuel economy. More miles per gallon means vehicles are traveling farther without refueling. We may be at the beginning of the end of the age of oil and oil tax revenues. Just like the first baby boomers drawing down the Social Security and Medicare accounts, this downward gas tax trend has major implications.

The good news is that easing off the gas pedal will free us from dependence on foreign oil sources and reduce greenhouse gas emissions and air pollution. In the Puget Sound area, half of all greenhouse gases are from oil-based transportation.

Many people are using transit, telecommuting and driving less because of higher gas prices. And more consumers are turning to vehicles that get much better gas mileage.

Toyota Prius is now the best-selling car in the Northwest. New “flexible-fuel” and “plug-in hybrid electric” cars that can go more than 100 miles on a gallon of gas will be on their way to Toyota, GM and Ford showrooms in a few years.

GM predicts that the average commuter driving a 2010 model year Chevy Volt will never have to burn another gallon of gasoline.

In addition to continuing erosion of gas tax revenues as a state and federal funding source, regional transportation projects face higher construction and labor costs as China, India and our neighbors in British Columbia rush to complete infrastructure for their fast-growing economies and to showcase their countries on the international Olympic stage.

How should we respond? An immediate answer will come on Nov. 6 when Puget Sound voters decide the fate of an $18 billion roads and transit package. The measure is linked to robust taxing sources – sales tax and car license tab fees, rather than the eroding gas tax – and comes on the heels of two state gas tax hikes since 2003 totaling nearly $15 billion. No other state has taken such decisive steps to fill huge infrastructure gaps caused by population increases, economic growth and expanding freight traffic. (Oregon has not raised its gas tax since 1997.)

The state’s leadership role is set against a national backdrop of growing debate over traditional versus innovative transportation funding strategies. Traditionalists favor an increase in the federal gas tax, plus future indexing of the tax rate. Many state and private sector leaders question whether gasoline tax increases alone can meet the huge shortfalls in funding maintenance (think of the Minnesota bridge disaster) and new construction.

A noted transportation commentator, “Innovation Briefs” publisher Ken Orski, argues that new construction should be financed from tolls and private equity while federal Highway Trust Fund and state resources handle the maintenance of the existing system.

Until now, large international construction firms and foreign banks have dominated the private sector partnership world. But today, local labor unions like the Northwest Building Trades and state public employee pension funds like the giant California Public Employee Retirement System want a piece of the action.

The potential for funding alliances between public entities and labor unions or public employee pension funds is an important consideration in a state that has banned most public-private partnerships.

We are not talking about foreign investors making huge profits and setting ever-higher tolls. Instead, the men and women who build the infrastructure would share in returns on the investment while the public retains control over toll rates.

As former U.S. House of Representatives Majority Leader Dick Gephardt noted earlier this year at our Cascadia Forum, “pension funds are patient funds, a 50-year return on investment” for union members and the public.

Pierce County projects have used both traditional and innovative financing. State gas tax revenue funded the approaches to the new Tacoma Narrows bridge. But an innovative “design-build” partnership with private companies, rather than the traditional design-bid-build development process, was used to keep bridge construction on budget and on time.

A new High Occupancy Tolled vehicle lane on Highway 167 will use the existing HOV lane but will also allow solo drivers access for a toll. This is a tentative but significant step toward regional tolling.

Wringing more efficiency out of our existing transportation corridors while boosting safety is also essential. Motorists often wonder why traffic lights aren’t timed better. Help is on its way: The Puget Sound Regional Council is engaged in a major traffic light synchronization effort, prompted by remarkable savings in travel time and congestion in test corridors.

There’s more. Imagine cars and trucks equipped with collision avoidance systems to prevent those accidents that cause massive backups on congested freeways. Or imagine real-time, hands-free information systems in cars and trucks that enable users to avoid traffic bottlenecks, skirt adverse weather conditions or find needed services like a parking spot for a weary truck driver on Interstate 5.

The future of our transportation system depends on major catch-up investments in traditional metropolitan area roads, bridges and transit systems. But tapped-out taxpayers may not be able to fund all the long-delayed maintenance of the system, plus new construction.

If the regional package fails in November, all sides will need to get together to engineer an acceptable alternative. Without it, there will be the real chaos of a half-completed highway and transit system and some very frustrated taxpayers.

We’ve shown we’re not afraid to raise taxes to fund our infrastructure.

Let’s also use private sector talent to squeeze more productivity out of our transportation system, supplement revenue and control costs and develop a growing fleet of green cars, buses, trains, and passenger-only and car ferries.

We can expect a strenuous debate about the best ways forward. Yet one thing about the future of our region’s and nation’s surface transportation systems is certain: Financial, environmental and technological innovation is essential.

Bruce Agnew

Director, Cascadia Center
Since 2017, Bruce has served as Director of the ACES NW Network based in Seattle and Bellevue, Washington. The Network is dedicated to the acceleration of ACES (Autonomous-Connected-Electric-Shared) technology in Northwest transportation for the movement of people and goods. ACES is co-chaired by Tom Alberg, Co-Founder and managing partner of Madrona Venture Group in Seattle and Bryan Mistele, CEO/Co-Founder of INRIX global technology in Kirkland. In 2022, Bruce became the director of the newly created Pacific Northwest Economic Region (PNWER) Regional Infrastructure Accelerator. Initial funding for the Accelerator has come from the Build America Bureau of the USDOT. PNWER is a statutory public/private nonprofit created in 1991 by the U.S. states of Alaska, Idaho, Oregon, Montana, and Washington and the Canadian provinces of Alberta, British Columbia, and Saskatchewan and the territories of the Northwest Territories and the Yukon. PNWER has 16 cross-border working groups for common economic and environmental initiatives.