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State Infrastructure Spending & State Infrastructure Revenue

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Both the federal government and the states raise revenue for infrastructure spending through taxes on motor fuel and vehicles. The states also collect fees from toll roads and other road charges. This system constitutes a well-designed user fee system, as taxes paid by users of infrastructure are dedicated to building and maintaining infrastructure. However, neither the federal government nor the vast majority of states collect enough taxes through these levies to cover infrastructure-related spending.

Per tradition in Washington, D.C., every week is infrastructure week, but currently, this joking description holds especially true. Since President Biden unveiled his administration’s proposal for increased infrastructure spending in the American Jobs Plan, debate over how to fund investments in infrastructure has taken center stage. A similar discussion is happening in many states, where lawmakers are grappling with questions over the future of infrastructure revenue and spending.

Traditionally, revenue dedicated to infrastructure spending has been raised through taxes on motor fuel, license fees, and tolls, but revenue from motor fuel has proven less effective over the last few decades. Between developments in vehicles’ fuel economy, increased sales of electric vehicles, and inflation, taxes on motor fuel generally raise less revenue per vehicle miles traveled (VMT) than they did in the past. As a result, most states contribute revenue from other sources to make up differences between infrastructure revenue and expenditures.

The amount of revenue states raise through taxes on infrastructure and transportation vary to a significant degree—as do the sources. Four states (California, Indiana, Montana, and Tennessee) raise enough revenue to cover their highway spending, but 46 states and the District of Columbia must cover the difference with tax revenue from other levies. Alaska (17 percent) and North Dakota (29 percent), which both rely heavily on revenue from severance taxes, raise the lowest proportion of highway funds from transportation taxes and fees.

State infrastructure revenue and state infrastructure spending, How are roads funded in your state? Road funding by state, infrastructure spending by state, infrastructure revenue by state, gas taxes and tolls 2021

States that cannot rely on the oil and gas industries for funding have tried a variety of funding sources to come up with the money necessary for infrastructure upkeep. Though politically unpopular, motor fuel taxes, license fees, and tolls are all relatively good applications of the benefit principle—the idea that the people paying the taxes and fees should be the ones to benefit from them. States should seek to fund infrastructure through user taxes and fees as much as possible, internalizing the costs associated with using the state’s transportation systems.

However, with the sustainability of established motor fuel taxes increasingly threatened, it may be time for lawmakers at both the state and federal levels to consider other options for transportation revenue. One such option is a vehicle miles traveled (VMT) tax. Instead of using fuel as a proxy for road usage, taxing actual road usage would better respect the benefit principle and guarantee that the tax acts as a user fee.

A few states have already begun pilot programs to study the feasibility of VMT taxes, and Pennsylvania Gov. Tom Wolf (D) recently announced a commission to study phasing out motor fuel taxes. On both a federal and a state level, imposing a VMT tax does require lawmakers to make some hard decisions on trade-offs. Significant concerns regarding privacy must be addressed and balanced against a desire for a targeted, equitable, and efficient tax.

For a more detailed breakdown of where states’ user-based road funding comes from, check out the following table.

How Much of Road Spending is Funded with User Taxes in Your State?
Share of State & Local Road Spending Covered by State & Local Tolls, User Fees, & User Taxes (FY 2018)
State State Infrastructure Revenue Motor Fuel Tax Revenue as % of Infrastructure Revenue License Revenue as % of Infrastructure Revenue Tolls and Charges as % of Infrastructure Revenue State Share of Highway Spending % of Highway Spending Funded with Transportation Taxes, Licenses, and Fees
Alabama  $1,005,256,000 74% 24% 1%  $2,096,229,538 48%
Alaska  $180,796,000 26% 32% 42%  $1,049,724,632 17%
Arizona  $1,121,782,000 77% 21% 2%  $1,897,356,648 59%
Arkansas  $665,839,000 74% 25% 1%  $1,475,428,608 45%
California  $11,994,405,000 53% 39% 8%  $12,028,601,965 100%
Colorado  $1,776,573,000 38% 39% 23%  $2,772,456,079 64%
Connecticut  $734,855,000 66% 32% 1%  $1,624,393,202 45%
Delaware  $514,989,000 26% 11% 63%  $583,560,989 88%
District of Columbia  $66,453,000 40% 59% 1%  $433,172,639 15%
Florida  $7,255,636,000 50% 20% 30%  $9,149,817,994 79%
Georgia  $2,285,872,000 79% 17% 4%  $3,041,441,116 75%
Hawaii  $588,588,000 30% 69% 1%  $700,173,043 84%
Idaho  $611,791,000 59% 33% 7%  $735,035,798 83%
Illinois  $4,587,377,000 33% 36% 31%  $6,351,456,099 72%
Indiana  $1,814,581,000 78% 21% 1%  $1,608,662,790 100%
Iowa  $1,359,242,000 49% 50% 0%  $2,413,757,285 56%
Kansas  $852,289,000 54% 30% 16%  $1,300,095,656 66%
Kentucky  $994,139,000 71% 22% 8%  $1,568,414,015 63%
Louisiana  $768,565,000 82% 11% 7%  $1,396,341,731 55%
Maine  $513,049,000 49% 22% 29%  $785,498,103 65%
Maryland  $2,346,694,000 46% 21% 32%  $3,073,226,970 76%
Massachusetts  $2,240,354,000 34% 20% 46%  $2,820,488,160 79%
Michigan  $2,914,169,000 50% 45% 5%  $3,561,316,511 82%
Minnesota  $1,956,224,000 48% 42% 10%  $4,154,896,242 47%
Mississippi  $623,279,000 71% 25% 3%  $1,229,031,074 51%
Missouri  $1,064,220,000 67% 30% 3%  $1,561,177,182 68%
Montana  $446,746,000 57% 36% 7%  $433,591,746 100%
Nebraska  $618,280,000 60% 33% 7%  $1,321,709,603 47%
Nevada  $836,044,000 75% 24% 1%  $1,717,267,299 49%
New Hampshire  $419,101,000 44% 20% 37%  $586,801,288 71%
New Jersey  $3,376,399,000 14% 19% 67%  $3,982,997,979 85%
New Mexico  $460,410,000 50% 47% 3%  $572,029,177 80%
New York  $7,836,570,000 21% 20% 59%  $13,034,850,267 60%
North Carolina  $2,994,714,000 66% 32% 2%  $4,638,624,873 65%
North Dakota  $335,827,000 59% 37% 5%  $1,149,956,181 29%
Ohio  $3,162,061,000 60% 29% 11%  $4,608,355,216 69%
Oklahoma  $1,586,164,000 31% 49% 20%  $1,931,412,570 82%
Oregon  $1,230,917,000 47% 45% 8%  $1,581,015,574 78%
Pennsylvania  $6,003,784,000 56% 20% 24%  $9,079,177,201 66%
Rhode Island  $147,305,000 54% 14% 32%  $316,365,174 47%
South Carolina  $1,211,199,000 53% 35% 12%  $1,642,141,422 74%
South Dakota  $315,547,000 59% 37% 4%  $666,259,918 47%
Tennessee  $1,613,688,000 67% 33% 0%  $1,602,780,484 100%
Texas  $8,591,051,000 43% 32% 25%  $11,542,374,988 74%
Utah  $736,694,000 68% 30% 2%  $1,665,680,229 44%
Vermont  $158,249,000 52% 46% 1%  $452,556,470 35%
Virginia  $2,755,628,000 40% 25% 35%  $4,484,927,457 61%
Washington  $3,525,274,000 49% 36% 16%  $3,716,875,084 95%
West Virginia  $559,850,000 75% 1% 24%  $846,427,681 66%
Wisconsin  $1,776,622,000 59% 30% 11%  $3,935,721,697 45%
Wyoming  $238,314,000 48% 48% 5%  $409,774,278 58%
U.S.  $101,773,461,000 49% 30% 21%  $145,331,426,925 70%

Note: Federal highway funding to the states is subtracted from spending figures. Percentages reflect only the share of the spending that state and localities are responsible for.

Sources: Tax Foundation calculations from the Census Bureau, State and Local Government Finance and Federal Highway Administration data.

 

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