Increasing Transportation Funding Without Raising Taxes

Many state departments of transportation are facing a perfect storm. As parts of their Interstate systems reach the end of their design life, the gas taxes which make up most of their funding stream are declining in real value due to inflation and increased fuel efficiency.

There are two solutions to this problem. The first is to go on a public crusade convincing citizens that roads are crumbling and stress the need for a major tax increase is urgent. The second is to acknowledge the problem but try to work with the existing revenue to solve the problem. The second solution is better from a policy standpoint, because states typically need small increases in funding which can often be found in the existing budget. But it is also better from a political standpoint. Everyday, taxpayers drive on roads, most of which are not falling apart. When politicians and transportation officials start claiming the sky is falling, people don’t believe them. When taxpayers think politicians are lying, they are less likely to support giving any new funding for transportation, even if it from resources which are being inefficiently used.

The Georgia Legislature is working on a package to increase transportation funding without increasing taxes. Currently, only approximately 52 percent of the gas tax revenue in Georgia supports transportation. The other 48 percent supports items in scope ranging from construction of school buildings to homestead exemptions, mostly good projects but irrelevant to transportation. By pushing to dedicate all revenue to transportation, both one-percent of a four percent gasoline sales tax, and gasoline sales for special purposes around the state, the state can generate almost a billion dollars in additional revenue a year. The legislation includes additional bonding and an electric vehicle fee but it is mostly revenue neutral. In fact, for many people, it will be a tax decrease. The gas tax assumes a sales tax on gasoline of 6 percent. But the average sales tax in Georgia is actually 7.2 percent with many counties paying 8 percent.

Of course not everybody in Georgia get the message on choosing option two over option one. Special interests want an additional $5 billion per year which would represent a 250 percent funding increase. Some of these interests suggest that Georgia would cease to be competitive if transportation does not receive all of this $5 billion.

The plan still needs to pass both state houses and be signed by the Governor. And some tweaks would make it even stronger. But it is good to see a state that realizes it does not need a massive tax increase to fund its transportation system and a government that actually takes that advice to heart.


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