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November 21, 2013

New Draft Proposal Recommends Fifteen-Cent Increase to Federal Gas Tax

The rising cost of construction and operations for transportation projects, coupled with inflation, has significantly undercut the purchasing power of federal and state motor fuel tax (MFT) receipts. A draft U.S. House of Representatives proposal, the Update, Promote, and Develop America's Transportation Essentials Act of 2013 (UPDATE Act of 2013), would increase the federal gas tax from 18.4 cents to 33.4 cents and index it to inflation. If the bills is introduced and passed, this would be the first increase to the federal MFT since 1993.

The increase would provide much needed funding for transportation infrastructure.  Currently, the MFT does not cover the cost to operate, maintain, and fund new capital projects along transportation corridors. Over $50 billion from the General Fund was transferred to the Highway Trust Fund to support the most recent federal transportation bill, MAP-21, in 2012. Consequently, states and metropolitan regions receive less federal money to fund transportation projects.

The  UPDATE Act proposal acknowledges that increasing the gas tax and pegging it to inflation should only be a short-term mechanism to fund transportation. As noted in a previous Policy Update, the Corporate Average Fuel Economy (CAFE) standards were raised last August. While higher CAFE standards reduce motor fuel consumption, that may have serious impacts on the ability of federal, state, and local governments to fund transportation over the long term via MFTs.  The proposal calls to eliminate the gas tax by 2024 in favor of a more stable source of funding, though the Act does not prescribe such a new funding source.

GO TO 2040 estimates that from 2011-40, 95 percent of transportation funds in northeastern Illinois will be spent to maintain and operate roads and transit, leaving only 5 percent to improve, modernize, or expand the transportation network. The UPDATE Act proposal is consistent with GO TO 2040, which recommends increasing state and federal MFTs, as well as indexing these user fees to inflation or construction costs.  The Act is also consistent with GO TO 2040's long-term goals of eventually replacing the MFT with finance mechanisms such as mileage-based user fees, which would charge drivers based on vehicle-miles traveled (VMT) as opposed to a MFT. This funding source would preserve the "user pays" principle in transportation finance and holds better promise for long-term fiscal sustainability.