DALLAS -- Gasoline tax rates will go up in seven states on July 1 as Americans take advantage of the lowest fuel prices so far this year to hit the road in record numbers over the July 4 holiday.

Gas tax revenues are expected to decline as more alternative-fueled and fuel-efficient vehicles hit the road, threatening the main source of highway funding.
Gas tax revenues are expected to decline as more alternative-fueled and fuel-efficient vehicles hit the road, threatening the main source of highway funding. Minnesota DOT

The higher gasoline taxes are a reaction by state lawmakers to the anemic collections from the federal gasoline tax of 18.4 cents per gallon and the 24.4 cents per gallon tax on diesel that should provide the bulk of the $54 billion per year of federal funding to states for highway and transit projects.

“Summer gas prices are at their lowest level in 12 years, which makes right now a sensible time to ask drivers to pay a little more toward improving the transportation infrastructure they use every day,” said Carl Davis, research director at the nonpartisan Institute of Taxation and Economic Policy.

“Many state governments are struggling to repair and expand their transportation infrastructure because they are attempting to cover the rising cost of asphalt, machinery, and other construction materials with fixed-rate gasoline taxes that are rarely increased,” Davis said in a policy brief released on Thursday.

Indiana will raise its gasoline tax by 9.9 cents a gallon and its diesel rate by 10 cents, the first increase since January 2003. The rates will be adjusted over the next few years based on inflation and the rate of growth in Indiana’s total personal income.

California’s price-based gasoline tax will go up by 1.9 cents per gallon, and increases set for Nov. 1 by legislation enacted this year will boost the gasoline tax by 12 cents per gallon and the diesel tax by 20 cents.

Tennessee’s gasoline and diesel taxes will go up by 4 cents per gallon, the first step in a three-year phased boost of 6 cents per gallon for the gasoline tax and a 10 cent rise in the diesel tax. Saturday’s fuel tax increase is the first since July 1989.

Fuel taxes will also increase in Maryland, Montana, South Carolina, and West Virginia.

Congress has replenished the Highway Trust Fund with $140 billion of other revenue since 2008 as expenditures continue to outpace fuel tax collections. The transfers include some $70 billion needed to keep the HTF solvent through the five years of 2015’s Fixing America’s Surface Transportation (FAST) Act.

Federal fuel tax collections will total $41 billion in fiscal 2017 and $42 billion in fiscal 2019 before declining to $40 billion per year in fiscal 2022 through 2027, according to report released Thursday by the Congressional Budget Office.

The next five-year funding bill after the FAST Act expires at the end of fiscal 2020 will require $100 billion of additional revenues at current expenditure levels, CBO said.

The revenue problem is worsening, with collections from state and federal fuel taxes dropping because alternative-fueled vehicles and high-mileage cars and trucks are becoming more popular, according to a report on mileage-based highway user taxes from the American Association of State Highway and Transportation Officials.

“People are driving more alternative-fueled vehicles and higher mileage cars and trucks, and that means that local, state and federal governments will potentially collect less fuel taxes,” said AASHTO executive director Bud Wright.

AASHTO last week released a three-part series on its Transportation TV Internet channel that examines a mileage-based fee being explored by several states to replace fuel taxes as a primary funding source.

A pilot road-user-fee program underway in California that is highlighted in the AASHTO series will consider the technical aspects as well as public acceptance of a per-mile charge, said Malcolm Dougherty, director of the California Department of Transportation.

“While the gas tax is still an important revenue generator today, we know moving forward it is not sustainable,” Dougherty said.

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