Infrastructure Policy Discussions at a Crossroad Across the US

After successive administrations talked big on infrastructure but failed to deliver, state legislatures are hoping President Joe Biden’s pledge to push for a $1 trillion infrastructure spending package this year can get through Congress.

The U.S. Chamber of Commerce, which orchestrated a 300-association call on Congress in February, is pushing for an infrastructure bill to be passed by July 4. That’s because states wrangling with pandemic-strapped budgets will need a massive plug of federal funding to augment underway projects or get others started with state dollars during the post-COVID recovery at a premium to meet, among other demands, pressing healthcare and education needs.

Already in 2021, Utah lawmakers have scaled back a $1.4 billion bond program for infrastructure to $264 million, and a multi-billion dollar plan to build 330 miles of toll roads across Florida by 2030 is being panned by legislators as too much, too soon after the pandemic left the state with a projected $2.7 billion revenue shortfall over the next two years.

Boosting, and potentially revising, federal transportation funding, particularly for roads and bridges, has been a priority for state lawmakers across the nation for years. How the Biden administration’s proposal fares could have dramatic impacts on state infrastructure initiatives for decades.

The state of the nation’s roads and bridges is particularly and acutely urgent. More than 10 percent of the nation’s highways and 8 percent of its bridges are in poor condition, according to AutoInsurance.org. 

The United States faces a $2.59 trillion shortfall in upgrading road networks, according to the American Society of Civil Engineers (ASCE), which urges all levels of government to increase investment in roads to 3.5 percent from 2.5 percent of U.S. gross domestic product by 2025.

Road funding is largely based on fixed-rate motor fuel taxes (MFT) that have not kept pace with inflation because of the political ramifications of raising gas taxes. But with more fuel-efficient vehicles and electric vehicles an increasing presence on roads, MFT revenues have been declining for a decade. That trend was aggravated dramatically during pandemic shutdowns when roads in many parts of the country were near-empty, solidifying the fact that solely using gas tax revenue to support roads is only going to become more inadequate.

State lawmakers won’t be launching many large-scale infrastructure plans in 2021 sessions primarily dedicated to combatting and recovering from the pandemic. But many will be reviewing how they fund roads with an emphasis on boosting MFTs, assessing electric vehicle taxes and fees, and studying alternate methodologies to give taxpayers more bang for their road-building buck.

Gas Taxes

All 50 states, Washington, D.C., and the federal government levy some form of Motor Fuel Tax (MFT) tax. 

The federal MFT as tax has not increased in more than 25 years. It now generates the equivalent of one-seventh the amount of “real revenue” the federal government allocated for roads in 1950.

States are heavily reliant on the federal and their own MFT revenues as the primary source for transportation funds. According to the National Association of State Budget Officers’ 2019 State Expenditure Report, MFTs constitute nearly 40 percent of revenue sources for roads. 

Since 2013, 30 states have increased their MFTs. One state, Virginia, and the District of Columbia increased gas taxes this year while five states — Alabama, Arkansas, Illinois, Ohio, and Virginia — did so in 2019, the NCSL reports. Lawmakers in about a dozen states are pondering bills to increase MFTs in 2021. 

• Kentucky: A bill introduced on Feb. 22 would raise Kentucky’s gas tax from 26 to 36 cents per gallon and adjust it annually based on changes to the National Highway Construction Cost Index. The bill also seeks to revise how state road fund dollars are sent to cities and counties. It’s the fourth straight the bill has been filed. 
• Arizona: Two Arizona bills seeking to increase the state’s MFT have already failed. Mississippi lawmakers have filed a bill seeking to raise its 18-cents per gallon MFT for the first time since 1987 by 10 cents. 
• Missouri: Missouri Senate President Dave Schatz, R-Sullivan, has filed SB 262, which would increase the state’s MFT by 2 cents annually beginning July 1, 2021, for five years until 27 cents a gallon in 2026. Missouri’s 17 cents a gallon gas tax, unchanged for a quarter-century, is the nation’s second-lowest behind only Alaska’s 14 cents-per-gallon tax. The state’s 33,800 miles of roads is the nation’s seventh-largest while its road funding ranks 45th of all 50 states.
• Illinois: A proposed Illinois Senate bill would allow cities to collect their own fuel tax. The state collects 38.7 cents per gallon on gas and 46.2 cents on diesel. The bill would authorize municipalities to impose a local fuel tax up to an additional 3 cents per gallon.
• Louisiana: Louisiana Rep. Jack McFarland, R-Jonesboro, has indicated he will introduce a bill when the legislature convenes in April to increase the state’s MVF tax by 10 cents next year, with a goal of doubling the state’s current 20-cent fuel tax rate. Additional increases of two cents would be made every other year through 2033 when it reaches 42 cents. Louisiana Gov. John Bel Edwards, who has previously supported a fuel tax increase, has not been enthusiastic, citing the struggling economy.

Many of the bills seeking to raise MVF taxes also call for permanently “indexing” gas taxes to keep pace with the rate of inflation. At least 22 states and Washington, D.C., already do so to varying degrees.

Electric Vehicle Fees

As of March 5, more than 30 bills in at least 20 legislatures related to electric and hybrid vehicle registrations, fees, and fuels. Lawmakers in Arizona, California, Florida, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Minnesota, Montana, New Jersey, New York, North Dakota, Oklahoma, South Dakota, Texas, Virginia, Washington, and Wisconsin were deliberating the foundational regulatory structure of an emerging new category of vehicles with an eye on developing registration fees and taxes on energy “transfer” to boost flagging revenues generated by MVF taxes.

Oklahoma lawmakers are pondering a proposed Driving on Road Infrastructure with Vehicles of Electricity (DRIVE) Act of 2021, which would tax the transfer of electric power to electric vehicles or hybrid vehicles.

A Florida bill would require the state’s Department of Highway Safety and Motor Vehicles to publish a notice when electric vehicles and hybrid vehicles make up 5 percent or more of the vehicles registered in this state, which will prompt further review of regulations and registration fees.

Conversely, a proposed Hawaii bill would establish an annual luxury pollution registration fee for high-dollar non-electric vehicles.

Alternative Tax Methodologies

Lawmakers in 12 states — most notably Massachusetts — are studying alternatives to MFTs, including taxes and fees based on the miles a vehicle travels rather than the amount of gas it consumes, also known as Vehicle Miles Traveled (VMT) or Mileage-Based User Fees (MBUF).

In 2013, Oregon passed the first U.S. legislation to establish a VMT for transportation funding, authorizing a mileage collection system for 5,000 volunteer motorists who are assessed a charge of 1.5 cents per mile. That pilot project called OReGO continues, as does a study in Illinois that applies VMT metrics to trucks.

Staying on Top of the Latest Infrastructure Policy Developments

More than 9,500 infrastructure-related bills were introduced at the federal and state level only eight weeks into the new year. For those tasked with monitoring the risk or opportunities associated with infrastructure policy, staying on top of rapidly developing issues at the local, state, federal, and global levels is crucial for building an effective strategy.

The good news is FiscalNote has you covered with the most comprehensive suite of products to help you manage policy developments as they erupt, engage with key stakeholders, and tackle the top issues on your agenda.