States pitch mileage tax to bridge gap in federal highway funding

The primary federal account that provides funding to states for highways and transit could run out of money by 2028 unless Congress fixes long-standing problems, an expert told U.S. House members Wednesday.

Chad Shirley, an analyst for the Congressional Budget Office, said that the short-term influx of money from the 2021 infrastructure law would run out in five years, once again forcing Congress to decide whether to raise new transportation taxes, cut spending or use other federal money to make up for the transportation funding shortfall.

“If balances in the highway account or in the transit account go to zero, the federal government can’t make its payments to state and local governments on a timely basis,” Shirley testified during a hearing of the highways and transit subcommittee of the House Transportation and Infrastructure Committee.

The problem lies in how the federal government pays for surface transportation projects. Since the Eisenhower administration, the federal government has used money from gas and diesel taxes to fill up its Highway Trust Fund, which was intended to be a self-sustaining account that is separate from the rest of the federal funding process. But Congress has not raised the per-gallon fuel tax rates since 1993 (the rate for gasoline is 18.4 cents per gallon). Meanwhile, vehicles have become more fuel-efficient, and year-to-year increases in the amount Americans drive have slowed. Even though gas tax revenues have tapered off, Congress has not cut back on highway funding.

All told, Congress has repurposed $275 billion from other federal accounts over the last 15 years to prop up the Highway Trust Fund. The latest influx came with the 2021 infrastructure law that diverted $118 billion from general funds for highways and transit, essentially using deficit spending to make up for the shortfall.

But the gap is widening. In a decade, Shirley said, federal surface transportation spending is projected to be $65 billion a year, but projected revenues will only bring in $37 billion a year. The CBO anticipates the cumulative gap between revenue and spending will be $241 billion by 2033.

While the numbers are stark, lawmakers and transportation experts have long recognized the problem, which is only expected to get worse as more drivers buy electric vehicles instead of gas-powered ones.

“The Biden administration’s desired [fuel-efficiency] standards could result in reduced motor fuel consumption of 200 billion gallons by 2050. That’s billions of dollars in lost revenue, but not lost wear and tear on our highways. These factors have contributed to the widening gap between Highway Trust Fund receipts and expenditures,” said Rep. Rick Crawford of Arkansas, the top Republican on the subcommittee.

Federal legislators have looked to states to figure out how the federal government might address the problem. State legislatures have been much more willing to raise gas taxes to keep up with inflation, and many have actually tied their rates to inflation. Thirty-three states have also imposed higher vehicle registration fees—something that the federal government does not collect—for electric vehicles. A handful have also added excise taxes for electricity sold at EV charging stations.

But the subcommittee Wednesday focused on efforts to replace per-gallon fuel taxes with mileage taxes in places like Oregon and Washington state.

Kris Strickler, director of the Oregon Department of Transportation, which was one of the first agencies to explore a transition to mileage taxes, said states and the federal government need to move away from fuel taxes. “This modernization is necessary to put the focus back on the actual use of the system rather than just the consumption of fuel,” he said.

Oregon has been collecting road usage fees from thousands of volunteers since 2015, following several earlier pilot programs. The drivers report their mileage to third-party vendors who then send aggregated and anonymized data to the state. The motorists still have to pay fuel taxes at the pump, but those are credited toward the mileage charges they pay.

Strickler said rural residents would benefit more from the mileage fee than those who live in the city or suburbs. “Rural residents tend to drive longer distances and use less fuel efficient vehicles and thus pay more in the gas tax today than their [urban] counterparts,” he said. “Under a [mileage tax], rural residents likely wouldn’t pay much more than they [currently] do in a gas tax. And urban residents who tend to drive more efficient vehicles would likely pay a little more.”

“A road usage charge is a fair way to ensure that all vehicles pay for their use of the roads,” he added.

Reema Griffith, the executive director of the Washington State Transportation Commission, said the commission has been researching the transition for a decade.

Besides replacing lost revenue, the mileage tax could also be structured to help low-income drivers in ways that the gas tax cannot be, she noted. Lawmakers could put a cap on the amount of mileage charges a driver incurs each year, or they could offer discounts or exemptions for people depending on their income levels. “These are options we don’t have today under the gas tax. It’s collected at a flat rate at the rack,” she said.

“The road usage charge restores the simple principle of ‘user pays, user benefits’ that the gas tax once embodied,” Griffith told the panel. “We are paying by the mile today under the gas tax, we just aren’t paying the same per mile rate. With wide ranging vehicle fuel efficiency, drivers could be paying nothing for the roads through the gas tax or they could be paying up to five or even six cents per mile under our state’s 49.4 cent per gallon gas tax,” she said.

Griffith said Washington state’s transition from a gas tax to a mileage charge would be more like a “slow turn of the dial rather than the sudden flip of a switch.” It would take about 10 years to complete the change, she said.

At the federal level, the CBO’s Shirley said there are several options for Congress to shore up the Highway Trust Fund.

If lawmakers increased the gas tax by 15 cents per gallon, it would raise about $25 billion and cover the projected shortfalls over the next decade, he said.

“Highway users are responsible for many costs that they do not pay fully, including wear and tear on roads and bridges, traffic delays caused by congestion, fatalities, injuries and property damage from accidents and harmful effects from greenhouse gasses and local pollutants,” he noted.

The federal government could roll out a mileage fee like the ones that states are experimenting with, although that would take longer to get up and running, Shirley noted. Charging 1 cent per mile driven just by commercial trucks would raise $3 billion a year.

A tax specifically for electric vehicles could also help, although EVs still account for only about 1% of the cars and trucks on the road. Charging owners of each electric vehicle $100 a year would raise $2 billion a year, Shirley said.

Editor's note: This article was changed Oct. 19 to correct the spelling of Kris Strickler's name.