States wrestling with solutions to drop in gas tax revenues

States are casting around for solutions to a drop in gas tax revenues which includes hiked registration fees and the expansion of toll roads, which remains politically sensitive. 

“Various projections from state DOTs, think tanks, and economists show that gas tax revenue, which is the largest source of revenue for state transportation trust funds, is declining and slated to decline even more precipitously in the next five to ten years,” said Douglas Shinkle, associate director, Environment, Energy & Transportation, National Council of State Legislators. 

“Many think that the nation may have already achieved peak fuel levels in terms of total gallons of fuel sold in the United States.”

The comments came during a webinar produced by NCSL May 16. NCSL cited the National Association of State Budget Officers 2023 State Expenditure report showing that motor fuel taxes, as a share of transportation revenue has dropped to 37.6% in 2023 from 41.1% in 2016. Even with the drop, it’s still the largest contributor to state transportation funds.

The drop is ascribed to the rise of hybrid and electric vehicles which use less gas or in the case of EVs, none. According to NCSL, 33 states and the District of Columbia have enacted legislation to increase gas taxes since 2013 to compensate for the loss in revenue. Almost half the states now index gas tax rates to inflation.   

Toll roads, often built with bond financing remain a steady revenue generator but from 2016 to 2023 toll revenue was flat and only accounts for 1.4% of transportation revenue.

According to the International Bridge, Tunnel and Turnpike Association the toll road network in the U.S. stretches across 34 states, representing 6,700 centerline miles of roadway. 

“These facilities generate a substantial amount of revenue for our transportation system exceeding $20 billion a year annually,” said Mark Muriello, director, Policy and Government Affairs, IBTTA. 

S&P Global Ratings tracks toll roads in the U.S. as a sector and rates it as stable. 

Per S&P’s 2023 analysis, “Traffic volumes for most toll operators continue to increase despite a material step-up of toll rates against the backdrop of eroding disposable income. This has helped most toll operators to recover to pre-pandemic levels.”  

States are also eyeballing managed lanes which include High Occupancy Vehicle lanes, and express lanes, some of which charge drivers a toll to use them. 

How much revenue they can generate must be weighed against the costs of construction maintenance and enforcing the rules.  

According to the IBTTA, there are currently 63 price managed lanes operated by 30 different organizations in eleven states representing 935 centerline miles.

Oregon is a leader in EV policy by setting up its Road Usage Charge Program that supplants an upcharge on vehicle registration fees for high mileage vehicles with an option of paying the base registration fee plus 1.9 cents a mile.  

In March the state paused efforts to add tolls to interstates around Portland after facing public and political backlash.   

“Taking this action today will allow the state to focus its limited resources on high priority needs and provide an opportunity for meaningful legislative conversations about alternative revenue sources in the 2025 legislative session,” said Gov. Tina Kotek, via a letter to taxpayers.