Transportation Funding and Financing during COVID-19

Fuel taxes are a fixed or indexed tax collected at the point of sale of vehicle fuel, primarily diesel and unleaded gasoline. In addition to the federal motor fuel tax, all states collect their own separate motor fuel taxes. Motor fuel taxes are the single largest source of state transportation funding, accounting for nearly 40% of all revenue. The degree of reliance on motor fuel tax revenue varies from state to state, ranging from 29 – 60 percent of state transportation funding. In 2019, states collected at least a combined $44 billion in motor fuel taxes.

Twenty states index or adjust the motor fuel tax rate based on inflation or other metrics, such as the price of gasoline. Since 2013, 30 states have increased the fuel tax rate. States typically set different rates for gasoline and diesel, with the average state gasoline tax being 25.6 cents per gallon and 26.25 cents per gallon for diesel. Further, several states have begun piloting or implementing Road Usage Charge programs or mileage-based user fees to replace or supplement the state motor fuel tax.

Key 2019 and 2020 State Funding Initiatives

In 2019, five states (Alabama, Arkansas, Illinois, Ohio and Utah) passed increases to their gasoline or diesel taxes. Four of the states (Alabama, Arkansas, Illinois, and Ohio), included a variable-rate component to adjust the motor fuel tax over time to keep pace with inflation. In 2020, Virginia passed a gas tax increase and linked the rate to the Consumer Price Index, which prior to the pandemic was projected to raise $1 billion over the next four years.

• Alabama passed the Rebuild Alabama Act of 2019, which included a 10 cent per gallon fuel tax increase, with a phased-in adjustment to track with the National Highway Construction Cost Index over the next three years. The state also introduced an annual electric vehicle and hybrid vehicle registration fee.
• California’s SB1, originally passed in 2017 and reaffirmed by a ballot initiative, continues to provide approximately $5.2 billion per year in increased transportation revenue through a 12 cents per gallon increase in gasoline excise taxes, a 20 cents per gallon increase in diesel excise taxes, a 4 percent increase in the diesel state sales tax, and additional registration fees (highlighted below). Notably, each of these revenue sources include an annual inflationary adjustment, and the revenue funds a “Fix it First” program for deferred maintenance projects on state highways, while providing funding to enhance trade corridors, transit, and active transportation facilities, in addition to repairing local streets and roads throughout California.

• In 2019, Delaware levied a 5 cent per gallon tax on certain types of jet fuel and passed a bond bill, raising an additional $57 million in transportation funding.

• Illinois passed the Rebuild Illinois initiative, a six-year capital plan beginning in 2019, totaling $45 billion. The state created a Transportation Renewal Fund, funded by an increase to the state gas tax from 19 cents per gallon to 38 cents, which will also be indexed to inflation via the Consumer Price Index. Eighty percent of the fund will be dedicated to surface transportation and aviation facilities, and 20 percent will be dedicated to rail and mass transit facilities. Illinois also raised vehicle registration fees and introduced an annual electric vehicle registration fee.

• In 2019, New Mexico passed legislation to begin piloting a Road Usage Charge system.

• Ohio increased the state’s motor fuel tax by 18 cents per gallon and tied the per gallon rate to the Consumer Price Index, with incremental adjustments occurring from 2019 to 2023.

• At the beginning of 2020, Oregon expanded the state’s Road Usage Charge program, OReGO, indexing the per mile rate to adjust to fuel taxes and increasing registration fees. Participants in the program pay a set rate for each mile they drive on Oregon roads.

• As of 2020, Utah implemented a new Road Usage Charge program for electric and hybrid vehicles.

• In 2019, Virginia introduced a regional gas tax for the corridor around I-81 and, in early 2020, also increased the gasoline and diesel taxes statewide, indexed for inflation.

Several states raise a significant portion of their transportation revenue from general sales taxes and taxes on individual items such as alcohol and tobacco. In 2019, voters in 20 states passed over 100 transportation ballot measures, totaling $8 billion in investments. Of these passed measures, 18 were new or increased state or local sales taxes. In 2020, 12 additional local sales tax and 36 property tax measures passed on ballot initiatives, with proceeds dedicated to transportation.

Most states levy a specific sales tax on the purchase of new or used vehicles, typically ranging between 4 and 8 percent.[iii] States also have a wide variety of other transportation-specific taxes, including fuel storage and fuel delivery fees, tire fees, car rental fees and taxes specific to ride-hailing companies. The application of general sales taxes, in addition to taxes on the sale of gasoline or other transportation commodities such as vehicle rentals or tires, varies across states.

Key 2019 and 2020 State Funding Initiatives

• In November 2020, voters in Arkansas have opted to continue a 0.5 percent sales tax with revenue dedicated to state and local highways, roads and bridges that would have otherwise expired in 2023.
• In April 2020, Kansas passed a 10-year transportation plan, dedicating a portion of the state sales tax to transportation and enabling tolls on three select projects.

• At the end of 2019, Utah passed legislation making gasoline purchases subject to sales taxes and increased the diesel tax and taxes on natural gas.

• In 2020, Virginia raised a local transportation tax in northern parts of the state on hotel rooms and increased the real estate transfer tax, with proceeds dedicated to transportation.[vii]

Every state charges a vehicle registration fee. In 2018, license and registration fees accounted for nearly 20 percent of state transportation revenue. Twenty-eight states have also introduced an additional annual registration fee on electric vehicles, ranging from $50 to $225 per year. States also levy a number of fees on the documentation process of vehicles, including:

• License Plate Fees: The license plate cost might be included in the vehicle registration fee, or billed separately, though some states allow residents to transfer license plates from an old car to a new one.
• Title Transfer Fees: Nearly every state charges a nominal fee for the process of changing the title on a vehicle, ranging between $5 and $165.
• Lien Recording Fees: Several states charge a fee for the process of recording any lien that has been taken out on the title of a vehicle.
• Emissions/Inspection Fees: Several states charge a fee for the inspection of vehicles during either the point of sale or on an annual basis, and several states also charge a fee for emissions testing.

Key 2019 and 2020 State Funding Initiatives

For electric and hybrid vehicles, Alabama, Arkansas, Hawaii, Illinois, Iowa, Kansas, North Dakota and Ohio imposed new electric vehicle annual registration fees, and Wyoming adjusted an existing fee.

• In 2019, Arizona implemented a new registration fee based on the value of the vehicle.

• California’s SB1 included a new registration fee for zero emission vehicles ($100 annually) and a transportation improvement fee (between $25-175 annually) depending on the value of the vehicle, which went into effect in 2020 and 2018, respectively.

• Florida reallocated revenue from the collection of motor vehicle license taxes ($132.5 million) away from the general fund and to the Transportation Trust Fund beginning in 2019.

• At the beginning of 2020, Nevada added new registration fees for a new tier of vehicle weighing 80,001 to 131,550 lbs.

• In 2019, Virginia increased truck registration fees and, in 2020, implemented a new annual highway use fee.

In 2018, states reported collecting $14.5 billion in road and crossing tolls. Notably, tolls are typically dedicated to the maintenance or repayment of the specific road or highway that it is levied on or to a specific project; as such, only an estimated $1.5 billion in national toll revenue went to state transportation funds in 2018, or 1.4 percent of all state transportation fund revenue. As of 2018, 27 states operate tolls on roads or bridges.

States and local governments are also exploring congestion pricing or cordon pricing systems, focused on charging for vehicle travel within a specific travel lane or larger area (such as the downtown Central Business District in Manhattan) or during a specific period of time (such as rush hour). Congestion pricing systems often include a variable rate depending on the level of congestion, and can include surcharges or exemptions on different vehicle types.

Key 2019 and 2020 State Funding Initiatives

• New York established a congestion pricing program, tolling vehicles in the Central Business District of New York City. Set to begin collection in 2022, $15 billion in expected revenue will be dedicated to public transit projects and improvements.

• In 2019, Washington designated the Puget Sound Gateway project and a portion of Interstate 405 as eligible toll facilities.

Importantly, states and territories also fund a significant portion of transportation operations and projects via allocations from their general funds. In 2018, general fund transfers accounted for 6 percent of state highway funding, and at least 18 percent of state transit funding.[i]^,[ii] States have also leveraged settlement payouts for transportation funds, notable cases being the Volkswagen settlement of $14.7 billion with a portion of the trust dedicated to states and Puerto Rico, and the Deepwater Horizon settlement with Gulf Coast states following the BP oil spill.  

Key 2019 and 2020 State Funding Initiatives

• In 2019, Colorado increased the allocation of general fund transfers to the state’s highway funds by $100 million.

• Louisiana dedicated proceeds from the Deepwater Horizon, BP Oil Spill settlement to transportation projects, securitizing $50 million in annual payments to finance $700 million in projects, beginning in 2020.

• In 2019, Massachusetts appropriated an additional $200 million for a local road projects fund, $1.5 billion in federal funds for highway projects, and $200 million for transit projects.

• In 2019, New Mexico appropriated an additional $256 million for transportation projects.

• Oklahoma appropriated $30 million from the state’s FY2020 general fund to a County Improvements for Roads and Bridges Fund.

• West Virginia dedicated $54 million from a 2019 budget surplus to the State Road Fund, dedicated to highway maintenance funding.[v]

States also have access to loans and various types of credit through state infrastructure banks and revolving loan funds capitalized by a combination of federal and state funds. Authorized in 1995 and expanded in 2005, at least 33 states and territories have established state infrastructure banks that have issued some form of financial assistance.

Public-private partnerships give states the option to finance transportation projects by entering into agreements with private entities to design, build, finance, operate and maintain the project for a set period, with payment often largely based on either an availability payment structure (availability payments are based on the performance of the private partners rather than based on demand) or project-specific revenue.[ii]

To finance projects across a region, a few states have implemented special purpose districts (ex. Transportation Improvement Districts) that rely on a variety of revenue sources such as special sales taxes, user fees, tolls, or property taxes. Missouri, Ohio and Virginia actively utilize transportation districts to fund and finance projects.

Key 2019 and 2020 State Financing Initiatives

• In 2020, Connecticut authorized up to $1.6 billion in special tax obligation bonds (over FY2020 and 2021) for transportation projects.

• Idaho issued a $15 million bond in 2019 for a congestion-related project against the 1 percent annual sales tax collections from sales taxes dedicated to road work.

• Maine passed a $105 million bond for transportation projects, with $90 million set aside for surface transportation construction and maintenance and $15 million for pedestrian, bicycle, port, rail and aviation facilities. In July 2020, voters authorized the general obligation bonds in a ballot initiative. Maine also passed legislation to allow for the creation of multijurisdictional transportation districts, with the authority to issue infrastructure bonds, raise funds for operations and capital projects, and support financing initiatives.

• At the beginning of 2020, Michigan Governor Gretchen Whitmer requested $3.5 billion in revenue bonds for 122 surface transportation projects.

• Minnesota passed a $6.7 billion transportation finance bill, with $100 million in new appropriations for transportation funding in 2019. In 2020, the state passed a $1.9 billion construction bond package, with $627 million for transportation projects, including local grant programs.

• Missouri issued a $300 million bond in 2019 to repair more than 200 bridges.

• Montana issued infrastructure bonds for nearly $33 million in projects in April 2020, as a part of an $80 million infrastructure package passed in 2019, including $3 million for seven bridge projects across the state.

• The North Carolina Council of State approved a $700 million bond sale for the Department of Transportation in October 2020 as a part of the $3 billion “Build NC Bonds” initiative, which originally passed in 2018. This money will be repaid by a combination of highway use taxes, motor fuel taxes, and title and registration fees.

• In October 2020, the Oklahoma Department of Transportation issued $193 million in revenue bonds through the Oklahoma Capitol Improvement Authority, headed by Governor Kevin Stitt.

• Washington approved the issuance of $1.5 billion in transportation bonds over the next ten years, beginning in 2019, first paid from toll revenue and then backed by a pledge of fuel tax and vehicle-related fee revenues and the full faith and credit of the state.