Wall Street Journal: States Raise Gas Taxes to Pay for Infrastructure
media mentionAs Congress Only Takes Short-Term Steps, Governors Seek More Funds for Roads
By JOSH MITCHELL
Updated April 4, 2014 7:32 p.m. ET
GEORGETOWN, Del.—States and cities desperate to build and repair roads and other infrastructure—but frustrated by inertia in Congress—are raising their own levies and turning to private companies for funding.
Six states and the nation’s capital have raised gasoline taxes in the past year to pay for highway construction. A handful of other states, including this small coastal state looking to kick-start its dormant economy, are weighing similar moves.
Before this burst, no state had raised its gas tax for nearly four years, according to the Institute on Taxation and Economic Policy, a nonprofit research group.
The local efforts come after years of failed lobbying by local lawmakers for Congress to raise the 18.4 cent-a-gallon federal gasoline tax, long the country’s biggest source of revenue for highway and transit construction. Congress hasn’t boosted the tax in 21 years due to partisan differences and public opposition. As a result, gas-tax revenues have far lagged behind prices for highway-construction materials and labor.
Crimped for funds, a slew of cities and states such as New York, Texas and Indiana are teaming up with private companies to build roads, bridges and other public projects, moving into zones once funded by gas-tax dollars or traditional state bonds. These partnerships replicate a model long practiced in Europe, with private firms putting up initial funding in exchange for future guaranteed payments, through toll revenue or other sources.
Eleven states are now using such partnerships to raise funds for projects estimated to cost $15 billion, mostly for highway construction, according to the trade publication Public Works Financing.
“Cities and metropolitan regions are having to figure it out for ourselves,” said Atlanta Mayor Kasim Reed, a Democrat, who is exploring a public-private partnership to build a light-rail line.
Instead of boosting the federal gas tax, Congress has passed a series of short-term measures in recent years to borrow money and keep payments going out. But states say they need more funding along with the certainty of long-term revenue to embark on major projects that take years to complete.
“There’s no business in the world that can be successful with expenses that grow with inflation and revenues that don’t, and yet that’s basically what’s happened” with transportation funding, said Delaware Gov. Jack Markell, a Democrat.
Some states have opted to raised their gas taxes outright, while others, fearing a public backlash, have shifted how the levies are charged. In either case, the moves are designed to raise more revenue over the long term.
Wyoming nearly doubled its gas tax last year to 24 cents a gallon from 14 cents, marking the first increase since the late 1990s. The move is expected to raise more than $70 million, mostly for highway repairs and maintenance.
Lawmakers in Pennsylvania have taken a different approach, scrapping the state’s 12-cent gas tax paid by consumers and raising taxes on oil distributors. The move is still expected to raise the price of gasoline at the pump as companies build the increase into consumer prices. The change is part of Republican Gov. Tom Corbett’s plan to raise $7 billion over five years for repaving and repairing the state’s aging roads and bridges.
Other states, such as Virginia, Maryland and Vermont, overhauled the way they tax gasoline so that the levy rises or falls along with the price of wholesale gasoline or overall inflation.
The challenges Gov. Markell faces in Delaware are similar to those cropping up across the country.
Facing a growing backlog of road repairs, Delaware’s Mr. Markell is pushing to win support for a 10-cent increase in the state gasoline tax, currently 23 cents a gallon. The governor hopes to raise $100 million a year—half of which would come from new borrowing—to upgrade roads notoriously choked by beachgoers.
The state also recently took out a $50 million line of credit to prepare for another potential funding crisis from Washington. With the federal Highway Trust Fund on pace to become insolvent this summer, federal officials have warned states to prepare for the prospect of Congress failing to reach a deal to replenish the fund. That would lead to a slowdown in payments to states, which in turn would be forced to halt some projects.
Taking no chances, Delaware will rely on the credit line to ensure contractors get payments and projects move forward, state transportation officials said.
Even at current funding levels, Delaware can barely keep up with needed repairs to roads and bridges, Mr. Markell said. After years of reducing debt, the governor now wants to boost highway spending to help the local economy grow, but he first needs state lawmakers’ approval.
The state needs to find about $3 million to realign Park Avenue, a two-lane road here that wraps around Sussex County Airport in Georgetown, in a mostly rural part of the state. The project would accommodate a planned expansion of the runway at the airport.
PATS Aircraft Systems, a company that refurbishes private jets, has told state officials the construction would allow bigger jets to fly into the airport, expanding its customer base. The firm would hire 100 people if the project is completed, Vice President Mark Ryan said. “We’ve been talking about this runway extension as long as I’ve been here, and I’ve been here for almost 15 years now,” he said.
But Mr. Markell’s plan has run into resistance in the state Legislature, where even some of his fellow Democrats have voiced disapproval. Mr. Markell estimates the 10-cent gas-tax increase would cost, on average, an additional $4.78 a month for each driver.