Presentation to Arkansas Blue Ribbon Committee on Highway Finance
September 16, 2009
by Sean Slone
Transportation Policy Analyst
The Council of State Governments
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Founded in 1933
Serves the executive, judicial & legislative
branches of state government through
leadership education, research and
information services
Regionally-based, non-partisan forum
Headquartered in Lexington, KY with
regional offices in New York, Chicago,
Atlanta, Sacramento, Washington
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America’s infrastructure crumbling
5-year investment of $2.2 trillion needed
Needed annually to improve the nation’s
highways: $186 billion
Current spending for highway capital
improvements: $70.3 billion
ARRA funding for transportation
infrastructure projects: $48.1 billion
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82% of federal transportation funding comes
from federal fuel taxes
24% of state revenues for highways come
from state fuel taxes
Motor fuel tax revenues continue to decline
Purchasing power has declined
No longer sufficient to finance large and
growing infrastructure needs
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Converting from Cents Per Gallon Excise
Taxes to an ad valorem tax
Indexing the fuel tax to some appropriate
indicator such as the Consumer Price Index or
the Construction Cost Index
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Several states adopted “variable rate” fuel
taxes between 1974 and 1982.
Fuel prices fell rapidly in the 1980s and fuel
tax revenues pegged to the price of fuel also
produced dramatic reductions in revenue.
Michigan is the oft-cited example.
About 15 states enacted some form of
indexing in the seventies or early eighties;
most reversed themselves
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Indexing only a portion of the motor fuel tax
Coupling indexing with a “cap” on annual
changes in the upward or downward direction
in order to avoid wild fluctuations in tax
revenue and in prices faced by consumers
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Six states index their gasoline taxes to
inflation.
Florida and Maine adjust gas taxes by the CPI.
Nebraska adjusts gas taxes by a state funding
formula.
Kentucky, North Carolina and West Virginia
link their gas taxes to the fuel wholesale
price.
Nine states also add a sales tax to gasoline
purchases or tax fuel distributors or suppliers.
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Oregon enacted a law to increase fuel taxes by 25
percent and to raise registration, title and driver’s
license fees.
Only three jurisdictions have enacted gas tax
increases this year; Vermont and D.C. are the other
two.
Minnesota increased their gas tax for the fourth time
in 15 months this summer as part of a graduated
increase approved by lawmakers last year.
Fifteen states considered raising state fuel taxes,
motor vehicle fees , or both this year.
Tennessee’s gas tax of 21.4 cents per gallon has not
been raised in 20 years.
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Relatively inexpensive to administer in
relation to potential yield
Can be varied by vehicle size
Can be set in rough relation to highway cost
responsibility
Categorized as “very promising” as both a
short- and long-term funding option
Types: heavy truck fees, excise taxes on
vehicle sales, personal property taxes
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Development Impact Fees
Special Assessments
Tax Increment Financing
Community Facilities Districts
Rental Car Taxes
Cigarette Taxes
Gambling/Lottery Revenues
Colorado hiked vehicle registration fees to raise
about $250 million a year for transportation.
 Iowa lawmakers agreed to Gov. Culver’s plan to
borrow $830 million, with the bonds paid off
from casino gambling profits.
 Illinois financed a $31 billion construction
program by legalizing video poker, raising fees
and hiking taxes on candy, beauty products and
alcohol.
 North Carolina lawmakers approved legislation
to allow counties to increase their sales taxes to
support transportation projects.
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Every state except South Dakota, Tennessee and
Wyoming has authority to issue state
transportation bonds.
 Bond funding provides states upfront capital to
accelerate project delivery.
 New state bond obligations in 2007 were valued
at $19.8 billion.
 At the end of 2006, outstanding state bond
obligations reached a record $96.5 billion.
 As credit markets have tightened, states seeking
to issue bonds or access credit and private
capital have encountered challenges.
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State Credit Assistance
Federal Credit Assistance
GARVEE Bonds
Section 129(a) Loans
Private Activity Bonds
Build America Bonds
Recovery Zone Bonds
Authorized by Congress in 1995
In 35 states and Puerto Rico
Allow for leveraging of federal and state
resources by lending rather than granting
federal-aid funds
 Can be used to attract non-federal public and
private investment
 Revenues from loan repayment and interest are
used to fund subsequent loans
 Vary widely in size, from less than $1 million to
more than $100 million
 South Carolina is the leader in SIB financing
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Interest rate is set by the state
Maximum loan term is 35 years
State may be willing to take more risk than a
commercial bank would for a project with
significant public benefits
A state infrastructure bank loan can make a
large project affordable by allowing for
smaller annual payments
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States lacked legislative authority to leverage
their funds and increase the capitalization
level of the bank
Complexity of federal requirements
Requirements for smaller projects can delay
construction schedules and increase costs
Insufficient demand for loans due to limited
marketing efforts
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Public-Private Partnerships
Tolling
Congestion Pricing
Vehicle Miles Traveled Charges
Collaborations between governments and
private companies that aim to improve public
services and infrastructure by capturing
efficiencies associated with private sector
involvement while maintaining the public
accountability of government involvement
Full-Service Long-Term Concession or Lease
Multimodal Agreement
Joint Development or Transit-Oriented Development
Build-Own-Operate
Build-Operate-Transfer or Design-Build-OperateMaintain
 Design-Build-Finance-Operate
 Design-Build with Warranty
 Design-Build
 Design-Bid-Build
 Construction Manager at Risk
 Fee-Based Contract Services & Maintenance
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More capital can be raised for a project
Operating risk shifted to private investors and operators
Costs and risks to taxpayers minimized
Help taxpayers unlock the inherent value in toll roads lost
under government ownership
Maximize the strengths of both the public and private
sectors
Take advantage of the more businesslike approach of
private sector firms
Private firms quicker to adopt cost-saving and customerservice oriented technology
Take advantage of the private sector’s diversified
knowledge and awareness of new methods in design,
construction, operations and maintenance
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Transparency & public participation
Use of concessions
Conflicts of interest
Better value for the money
Private partner must adequately maintain
No non-compete clauses
Facility will revert to the state
Capping the rate of toll increases
Revenue-sharing
Length of agreement term
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More than 5,000 miles of roads, bridges and
tunnels in the United States are tolled.
State and local governments used $6.6 billion
in toll revenues for highway investments in
2004 (7% of total revenues).
Increasing tolling on existing roads may be a
challenging proposition.
Tolling on new roads or when adding
additional lanes hold potential for generating
new revenue.
Legislators in Nevada rejected the state Department
of Transportation’s requests to have authority to
pursue toll roads and public/private partnerships.
 Texas failed to act to extend the state DOT’s ability to
enter into new P3s.
 Arizona and North Carolina’s Governors signed
legislation allowing their state DOTs to enter into P3s.
 West Virginia Turnpike increased tolls this year for the
first time in 28 years.
 Toll opponents in Massachusetts have filed ballot
measures to eliminate all turnpike, tunnel and bridge
tolls in the state.
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Mechanism that seeks to assess vehicles for
the costs they impose on society, which may
include time costs, external congestion costs
and other variable costs, such as
environmental and governmental
Types include: tolling the entire roadway,
tolling existing lanes, tolling new capacity,
imposing a “cordon fee” on any vehicle that
enters a designated area.
Easy to implement
Affordable and feasible administratively
Makes enforcement more effective
Manages demand on congested facilities,
thereby reducing traffic
 Can generate additional revenues that could be
used to expand highway and transit capacity in
the corridor to further reduce congestion
 Encourages the use of other routes and other
modes of travel, such as public transportation
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Impact on lower-income commuters
Drivers unable to accept the notion that they
should be charged for congestion and don’t
want to pay for roads currently free
Commuters feel they already “pay” for
congestion through delays and stress.
Commuters don’t consider traffic conditions
to be bad enough to warrant congestion
pricing
Privacy concerns
Fee based on miles driven in the state, collected
at gas stations
 Oregon conducted a year-long pilot project;
other states have ongoing research projects
 GPS-based receiver estimates miles driven in
different zones
 Mileage data transmitted wirelessly to receivers
at gas stations
 Revenues directly reflect the amount of travel
 VMT-based fees are in place in Europe
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Technological and institutional challenges
remain
 University of Minnesota added to the body of
evidence recently
 NCHRP also recently addressed strategies for
shifting to VMT
 Three national commissions have said U.S.
should adopt a mileage-based approach
 Premature to rule out other types of taxes and
fees to supplement traditional fuel tax revenues
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Revenue potential
Sustainability
Political viability
Ease/cost of implementation
Ease of compliance
Ease/cost of administration
Level of government
Promotes efficient use
Promotes efficient investment
Promotes safe and effective system operations/management
Address externalities
Minimize distortions
Promotes spatial equity
Promotes social equity
Promotes generational equity
Sean Slone
Transportation Policy Analyst
The Council of State Governments
sslone@csg.org
(859)244-8234