Higher Gas Tax Unlikely to Gain Support in Congress

Although some infrastructure advocates are hoping to use the current budget negotiations to win support for an increase in the federal gasoline tax, the idea is unlikely to gain support in Congress or the Administration.  While  the 2010 Simpson-Bowles deficit-reduction commission proposed raising the federal gas tax by 15 cents/gallon as part of a broad deficit-reduction plan, neither House Speaker John Boehner (R-OH) nor Senate Majority Leader Harry Reid (D-NV) have endorsed the idea.  Nor is an increase in the federal gasoline tax popular among  the rank-and-file.  Most lawmakers see the pressure to raise it as coming only from a narow coalition of liberal advocacy groups and transportation stakeholders that stand to benefit from increased federal transportation spending.

Nor is the Obama administration eager to advocate a gas tax increase whose burden would fall most severely on the middle class ---precisely the constituency it  wishes to protect from the pain of any further tax increases.  Given this perception, it is almost certain that a federal gas tax increase will remain off the table in the current fiscal cliff negotiations  and probably throughout the next session of Congress as well.

Look instead for the states to assume a larger share of responsibility for funding their transportation needs. An early harbinger may be the state of Arkansas whose voters recently approved a half-cent statewide sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years. The measure has been called "the largest infusion of new tax dollars into a state transportation system in recent history." Local  referenda supporting public transportation also have appeared on the ballot in numerous states.  According to the Center for Transportation Excellence,  last November voters approved 70 percent of such initiatives.

In addition to greater local financial participation, look for a shift in emphasis from federal funding to public and private financing of large infrastructure projects. The shift will be fueled by a vastly expanded TIFIA lending authority ---by more than 600 percent, from $122 million in FY 2012 to $750 million in FY 2013---and by a large reservoir of equity in pension funds and private infrastructure investment funds looking for attractive investment opportunities. (TIFIA stands for the Transportation Infrastructure Financing and Innovation Act).

This means an expanded role for tolling, for TIFIA and private sources of capital can only be used to finance facilities that are backed by a dedicated stream of revenue to cover interest payments on the loan and the loan repayment itself.   Tolls are viewed by many as a fairer way to pay for new and reconstructed highways and bridges because, unlike the gas tax,  they are paid only by the users of the particular tolled facility. In other words, drivers in Montana will not be required to pay for a road or bridge built for and benefiting mainly  the residents of say, Texas.  

The likely prospect that  financing will replace stagnant or dwindling federal funding, dominated discussion among financial practitioners at ARTBA's Public-Private Partnership Conference in Washington on October 10-11. Participants were encouraged to hear that 19 projects worth $27.5 billion have already submitted letters of interest for TIFIA loans in the past three months. Four more projects totaling $1.9 billion have been announced since October.  More applications are certain to follow as it becomes clear that the Highway Trust Fund no longer can continue to serve as a source of investment capital for transportation infrastructure.

In sum, rather than hoping for an increase in the gas tax, the transportation community should look forward to three new trends as the most likely response to the perceived inadequacy of current  transportation revenue:  greater financial participation by state and local taxpayers,  a shift in emphasis from federal funding to private and public financing, and an expanded use of tolling.