Transportation funding gap widens as gas tax revenues weaken

Secretary of Transportation Brian Searles speaking before members of the Vermont House and Senate on Wednesday. VTD/Josh Larkin

Secretary of Transportation Brian Searles speaking before members of the Vermont House and Senate on Wednesday. VTD/Josh Larkin

Vermont’s transportation system faces an annual shortfall of $240 million over the next five years. A new report predicts the average gap between the state’s annual funding sources, roughly $457 million, and the cost of paying for basic infrastructure needs, estimated at $700 million per year.

This year alone Vermont will see a roughly $30 million gap in state transportation revenues, according to Rep. Patrick Brennan, the chair of the House Transportation Committee. The shortfall could affect the state’s ability to draw down more than $100 million in federal highway funds. That’s because the federal Department of Transportation requires states to come up with a 20 percent match rate. Last year, the state had to borrow money to draw down all of its federal funds.

Meanwhile, state officials anticipate federal funding could decline significantly this year and into the future. This transportation fiscal cliff comes at a time when Vermont is rebounding from years of infrastructure neglect and is making permanent repairs to roads and bridges damaged by Tropical Storm Irene.

“The infrastructure is coming back slowly,” Brennan said. “If we don’t address the money situation, we’re going to lose all the ground we’ve made over the last few years so I’m hopeful we can come up with something in the short term and maybe in the long term we can look at larger ticket items like vehicle mile tax.”

The latest information about the state of the state’s Transportation Fund was published this week in a new report from the Section 40 Committee on Transportation Funding.

The study indicates that this year’s gap is part of a long-term, national transportation revenue trend that could have a lasting impact on the state’s infrastructure and economy. If the state doesn’t take immediate steps to generate new revenues on its own, state officials warned that road repairs will be delayed and bridges that need to be replaced could be put off-limits for heavy vehicles or closed.

Even so, maximizing federal funds remains, the state’s primary strategy, according Brian Searles, the secretary of the Agency of Transportation.

“We can see a time coming when our federal funds would be at risk because of a reduction in state funds,” Searles told lawmakers on Thursday. “So our job is together to pursue some strategies to increase levels of federal funding … because there is no way or at least it’s going to be very difficult to raise $240 million plus a year. We’re a small state — you’ve already heard half our budget comes from federal sources — we just don’t have the capacity to do this on our own.”

The report outlines the causes of the state and federal revenue shortfalls and cites 15 possible revenue sources that could shore up the state’s transportation coffers.

Officials look for other sources of revenue

The problem is part of a national trend. The main revenue source for the Highway Trust Fund is the 18.4 cent per gallon federal gas tax. As Americans have reduced consumption, gas tax revenues have slipped. Consequently, Congress has had to shore up the Highway Trust Fund with money from the General Fund. The federal Highway Trust Fund, which funds 50 percent of Vermont’s transportation budget each year, could go bankrupt if Congress, which is faced with deficit reduction cuts, decides to gut funding for the program. The federal government is also changing its reimbursement formula for states, and that shift could have a negative impact on Vermont’s access to highway money.

State transportation fund revenues are somewhat more diversified. The 20-cent per gallon state gas tax generates about $61.6 million per year, or about 24 percent of the state budget. (Over the next 20 years, state gas tax revenues will decline by about 50 percent, officials said.) The state’s $253.9 million in revenue sources include motor vehicle fees ($75.6 million), purchase and use taxes ($58.3 million), a transportation infrastructure bond fund ($22.8 million), diesel taxes ($16.1 million) and other revenues ($19.5 million).

The Section 40 Committee on Transportation Funding proposed tax and fee increases that could be used to fill the $30 million state gap this year. The options include increases in taxes or fees on vehicle inspections, leases, rentals, tires, gas, fuel, diesel, vehicle registration, the purchase and use tax and an ad valorem vehicle tax. A potentially controversial items on the list include a reduction in the purchase and use tax contribution to the Education Fund.

Searles said the state needs to look at short-term tax and fee increases, though he declined to give specifics until the governor’s budget is released next week. “Everything,” he said, “will be on the table.”

Agency of Transportation officials held up a 1.51-cent vehicle miles travelled(VMT)  tax as an eventual substitute for the gas tax. Car manufacturers in the United States are developing GPS technology to track vehicle miles, and insurers are looking to use VMT as a way to more fairly apply premium rates for drivers, Searles said.

Searles said a utility-based, VMT model could take a decade to implement and would have to be initiated at the federal level. The state could then piggyback on the program.

The VMT raises many policy questions, including personal privacy and social equity issues, Searles said. Is it appropriate to monitor where and how far people travel? Is it fair to ask low-income people who live far from work to pay more for transportation?

Other states are also trying to raise transportation revenues in anticipation of federal cutbacks, Searles said. Oregon is working on a VMT this year, and he pointed to Massachusetts Gov. Deval Patrick’s recent proposal to increase revenues for transportation by $1 billion a year. “Everybody is looking at this,” Searles said. “We have to have our own conversation about what works for us.”

Brennan said none of the taxes and fees will be popular.

“I don’t think anything we do will make the general public happy because it will inevitably involve some money coming out of their pockets whether it be a few pennies on the gas tax, or whether it’s the VMT tax or a tax on tires or vehicles, it’ll affect the public a little bit,” Brennan said. “It all boils down to what the public requires or wants for a transportation system.”

The Section 40 Committee on Transportation Funding also looked at the possibility of eliminating $55 million in funding for town highways. Steve Jeffrey, a member of the committee and the executive director of the Vermont League of Cities and Towns, said in that scenario municipalities would have no recourse but to raise local property taxes.

“To the degree that we try to meet this $240 million gap by cutting back on expenses and the potential that some of those would be focused at municipalities is a big concern to us,” Jeffrey said.

Towns maintain 80 percent of the road mileage in Vermont, Jeffrey said.

Anne Galloway

Comments

  1. Lee Stirling :

    If the State is going to raise various taxes/fees on fuel and auto usage, then they should also enact the sugar sweetened beverage tax. Both of these would be “consumption taxes”. Both would address serious shortfalls in projected funding of major State initiatives. Both of these would be regressive, hitting the lower income earners harder. Both of these would be “broad-base” increases in fees that everyone in VT must pay…and I somehow think Gov. Shumlin came out against any broad-base tax increases. The only difference is that everyone who needs to get to work, pick up kids from school, or take advantage of the tourism industry in VT will have to pay increased fuel and auto taxes/fees while the only thing making anyone pay a sugar sweetened beverage tax is a choice to buy the drink. If you drive or own a car or pay to ride the bus the state has you over a barrel in terms of transportation taxes.

  2. Kathy Gutting :

    Oh Vermont: I love living here but state legislators or in this case bureaucrats have never met a tax they didn’t like. The fact gas consumption is down is an environmental
    plus. Now, why punish resident’s more moderate consumption. Time for more creative thought.

  3. David Rogers :

    I think we should

    Have a sugar tax

    Increase fuel tax

    Miles traveled tax that is checked at annual inpections

    Property tax on all registered motor vehicles

    And less burden on State/local Property tax

    • Moshe Braner :

      With increased fuel tax you don’t need a miles-travelled tax. A property tax on vehicles is both regressive and counterproductive if we want people to use their cars less, not more.

  4. Bruce Lierman :

    Implement GPS tracking of my vehicle so the insurance companies can “…more fairly apply premium rates for drivers”? Right.
    How about this: I go to get my car inspected. The mileage is already recorded on my registration each year. They take the difference from last year and charge me for the mileage I’ve driven. By the way, from the type of vehicle information on the registration, the rate per mile is based on the weight of the vehicle, because vehicle weight is a factor in highway wear. No muss, no fuss, no additional technology or bureaucracy to support, no ten year wait for the fed to act and my privacy is (more) protected. And yes, you’re likely to get a wonking big inspection fee if you’re a high mileage driver. Keep the gas tax for out-of-staters, or rebate part of it to in-staters. And yes, it’s still a regressive tax, but not so much so as a straight mileage fee. it’s time to start working on finding cheaper ways to get to work.
    Oh, by the way, if you’re looking to save a quick 50 million, cancel the southern leg of the Bennington bypass. Who needs it when “Over the next 20 years, state gas tax revenues will decline by about 50 percent”?

    • Lee Stirling :

      State Legislators argued against the sugar tax by saying that it will be a tax of diminishing returns. Over time, more people will move away from these beverages and the revenue from the tax will decline. If Vermont residents have to pay a fee for miles driven at annual vehicle inspections, this too ought to become a tax of diminishing returns…to a point of course. Environmentally speaking, it’s a good incentive to reduce driving and CO2 production etc. but it’s also a dis-incentive to travel within VT, taking advantage of the tourism opportunities, skiing, hiking, Ben & Jerry’s etc. It’s a horrible incentive for the economy of VT businesses. And what about the people who take driving trips where most of the miles are outside of VT? If I take a cross-country driving trip where only 100 miles out of 6000 are within VT, why should I pay for 5900 miles of driving that didn’t impact VT at all?

    • Moshe Braner :

      A tax by miles and vehicle weight is fair. But then it’s functionally equivalent to a fuel tax, since fuel consumption is more-or-less proportional to weight. So you might as well simply increase the fuel tax and be done with it. No privacy invasion, no additional administrative costs.

  5. Tony Redington :

    Massachusetts Governor Patrick called this week for a radical change in transportation funding for trains, highways, buses and subways. He rejected a gas tax increase and calls for a multi-billion increase income taxes to address infrastructure including all modes of transportation. Vermont needs to be careful here with a third of our traffic out-of-staters–we do not want to increase license fees or broadbased taxes which in effect, subsidizes visitor driving.

    Clearly with hundreds of Vermont workers each year ditching the car for rideshare, bus, and “active” walking and bicycling modes–these require support and expansion and we need to introduce commuter rail services beginning with Chittenden County-Washington County (Burlington to Montpelier State House to start).

    The financial start could be to place regional and statewide transportation services–commuter rail, longer distance commuter bus (like the Burlington Link services), Amtrak–into a General Fund supported program, possibly including the area transit agencies. This basically puts the growing transportation areas in one program with General Fund support and leaves the slowly declining “highway” program in the traditional “Highway Fund” category. Both areas need attention–highways, particularly, need a re-examination on how to cut some expenditures and how to do it (another study, of course).

    Clearly the funding approach of a changing transportation marketplace at both the state and federal level needs restructuring.

  6. Tony Redington :

    As Vermont transportation funding—even just matching a thin federal funding stream—reaches a crisis point the traditional approach of just increasing gas taxes, vehicle taxes and fees no longer addresses a changed marketplace. Governor Deval Patrick this week in a radical departure from the past points to a new path to fund highway, public transit and highway needs—he rejected a 19-cent gas tax increase and calls for transportation and other infrastructures needs funded by an income tax increase.

    Vermont faces two sharply divided trends–a slow but relentless decline in car travel and associated revenues and rapid increases in public transit and Amtrak growth plus demands for new Amtrak, commuter bus and commuter rail services. Literally hundreds of Vermont workers abandon driving their cars each year for bus and other ways to get to work. Now Link commuter buses started about a decade ago number 50 from Montpelier, St. Albans and Middlebury to Burlington carrying nearing 500 commuters each workday.

    Let’s separate the funding of highway and transit/Amtrak since each area—one in slow decline and the other growing like topsy—require different treatment. Before raising more highway revenues the Legislature needs to find out who wears out the roads, who is responsible for costs—cars and various truck types. Armed with that information, revenues can be increased or decreased fairly for all highway users. How to downsize the highway system and its costs needs to be looked at—not just revenue increases.

    Meanwhile, transit and rail passenger services really are regional and statewide services and deserve needed additional resources to accommodate the shift of “business” there from the car and highway set. The Legislature needs to focus on the transportation “customer”, how to serve those customers needs (particularly those traveling to and from work). And the Legislature needs to look at transportation as a “market” just highways with transit, bicycle, walker, and rail transportation afterthoughts.

  7. Stephen Beck :

    And in quirky Brandon the plan is to widen Route 7 through the town to accommodate bigger trucks and facilitate the smooth flow of traffic traveling north and south. And adding two traffic lights, destroy the historic Green with a parking lot. Yes, tourists want to see parking lots! And traffic counts on Route 7 are down from 20 yrs ago when the original traffic study was done and VTrans is forecasting for the next 20 years no increase in traffic on Route 7. Yes, raise the gasoline tax.

  8. Lance Hagen :

    I am not sure that I buy this story

    If I remember correctly, the last time the gas tax was changed; Vermont went from a fixed tax per gallon of gas to a percentage of the gas price. I think it was around 5-6%. For example, this means when gas was $3.00/gal (remember those days) the tax was 5%x$3.00/gal=$0.15/gal. At $4.00/gal the tax goes to $0.20/gal

    Since gas prices are higher, people are traveling fewer miles. But the increased tax resulting from higher gas prices should offset the lower traveled mileage.

    “This transportation fiscal cliff comes at a time when Vermont is rebounding from years of infrastructure neglect”

    It also looks like for all those years we robbed Peter to pay Paul (moving $ from the Transportation fund to the General fund) is coming back to bite us.

  9. Mel Allen :

    People are paying a higher premium and price for fuel efficient vehicles. A hybrid vehicle, for example, costs an average of $5,000 more than a similarly sized vehicle. Most research has shown that the average hybrid vehicle driver won’t see a recoup of that increase in price over the average ownership of the car. What this means is the state is taking a chunk of that additional price in taxes up front and paying less in gas taxes along the way. As it’s been shown in many states – there is no shortfall in taxes, there is a shift in where the taxes are being paid.

  10. Gaelan Brown :

    This is a PERFECT illustration for why the entire concept of “taxing bads to reduce the bads” is a flawed logic. Once you make government operations/financing dependent on $ from a so-called “bad” (like cigarettes, alcohol, fossil fuel burning, candy, soda, etc etc) that makes the government have a vested interest in perpetuating the bad. IF the program “works” and people buy less of the bad, government runs out of $ and must then counter the trend to remove the incentive that reduced consumption.

    So now that Americans are driving less and wasting less energy, the feds are proposing to TAX OUR MILES DRIVEN with all kinds of surveillance gadgets, completely penalizing people who have a high mpg vehicle since they will be taxed not on their fuel consumption by just for their actual personal freedom of movement. A bill was just introduced in the US House of Reps to actually do this.

    If government did not exist and all roads were owned/maintained by private interests, (not that I’m advocating for that), the way the roads would be funded is via tolls on those who use the roads. Maybe it’s time Vermont got innovative about how we fund our infrastructure.

  11. Kai Mikkel Forlie :

    Perhaps the most overlooked item in this article is the fact stated in the final sentence that, “Towns maintain 80 percent of the road mileage in Vermont….” Wow! Its no wonder the non-education side of our property tax bills are so high. I wonder what percentage of that 80% figure are dirt roads and what percentage are paved roads?

    Digging further, an underlying aspect of this issue is the fact that maintaining paved roads can cost far more that maintaining dirt/gravel roads. Are lawmakers and agency officials considering downgrading any roads (back to dirt/gravel) as a means to make more efficient use of our dwindling revenue? Is there a study floating around that examines this issue statewide? Asphalt is produced from oil and as peak energy times loom isn’t inevitable that we will have to eventually abandoned asphalt for gravel? Wouldn’t doing this sooner rather than later better prepare us for this reality? And might we not save money in the process? Why do we continue to beat our heads against a wall by throwing good money after bad in the area of transportation?

    I agree also with the comments made by others who have voiced support for increased emphasis on mass transit funding as a means of eventually lowering our overall transportation costs or at least bringing them into check.

    Moreover, this discussion dovetails with issues of settlement planning (where people live and work), the continued loss of self-sustaining rural farming families [living way out in the countryside will very soon require that rural people once again embrace self-sufficient practices] and likely others that I am missing. Are transportation planners really seeing the writing on the wall vis a vis our looming low energy future or are they working off a playbook that assumes future generations will enjoy the same standard of living as we do?

    Two interesting articles on turning asphalt roads to dirt/gravel are:

    http://www.naco.org/newsroom/countynews/Current%20Issue/12-13-10/Pages/Countiesturnsomepavedroadsbacktogravel.aspx

    http://www.startribune.com/local/118713504.html?refer=y

    I look forward to Vermont Digger compiling a followup post focused on these important issues. After all our ~150 year love affair with oil is rapidly coming to an end and unless we face the realities this precipitates, we are missing the point, to the very real detriment of our children and future generations.

  12. dale tillotson :

    Encourage conservation, but continue to budget for non conservation is a recipe for disaster. Disaster has now arrived because of conservation by us taxpayers, according to the legislature so the legislature now has to find a way to punish us for the very conservation that the legislature insisted we participate in. I am too pissed of now to continue but will be back another day.

  13. Pete Novick :

    Quoted from the article:

    “Agency of Transportation officials held up a 1.51-cent vehicle miles traveled(VMT) tax as an eventual substitute for the gas tax.”

    It’s quite likely that a law enacting this requirement would be unconstitutional.

    Aside from that minor matter, suppose you live in Fair Haven, or Bellows Falls, or Grafton or Bennington but work out of state. Now suppose more than 50% of the miles you drive are out of state (VT) miles. Your driving on roads built and maintained by other states does not impact Vermont roads, so should you be required to pay this per mile tax on all miles or just those you drive in Vermont?

    Vermont is a poor state economically speaking. And it is getting more poor year on year.

    While all the work and efforts of our legislators to solve difficult problems is welcome, the real challenge is clear: Vermont must grow the work force in both quantity of jobs and quality of compensation.

    Once again, our governor and legislature need to partner with the private and non-profit sectors and I suggest this be a modest first goal:

    Grow the white collar work force by 3 per cent a year.

    With more Vermonters earning more money, most of the public sector funding shortfalls facing our state will decrease dramatically if not disappear altogether in the coming years.

    The best boss I ever had used to say to me, “Pete, solving today’s problems is easy. That’s why no one likes to step out and lead to solve tomorrow’s problems.”

    It took me a long, long time to figure out what he meant.

  14. Kevin Jones :

    If gas revenues are declining then the simplest and most environmentally sensible solution is to increase the gas tax. It would not be an increase in tax revenues just an adjustment of the rate to collect the same pot of dollars.

  15. Jim Busch :

    The problem with the current gas tax is that too much is being diverted from the DOT to the General fund.
    Don’t raise the rate, just stop the diversion of funds…simple enough.

  16. Douglas Duprey :

    A miles driven tax would have cost my family from 2008-2012 tax year a minimum of $2869.00 based on one fact alone, my wife is required to drive her own car for her job. This is the amount of tax from just one vehicle. She sometimes drives another. Talk about a bad idea, then it would also be tracking where we go. This would be an infringement on my privacy and the entire state population’s.

  17. Johnny Appleseed :

    Let’s not forget to mention employees who drive their personal vehicles for work and are reimbursed by their employer. Who is paying taxes on those miles?

  18. rosemarie jackowski :

    Speaking about transportation, in Bennington transportation has become a luxury. No way to get in or out of town unless you have a car. Many people – young families, and especially the elderly, are becoming more and more isolated. The quality of life has taken a drastic plunge.

    The old saying: “You can’t get there from here” is now changed. “You can’t get anywhere from here”.

    This is a problem that could be fixed. All we need is a grant for a 14 passenger van.

    How come we can get a man to the moon, but can’t get Grandpa from Bennington to Albany?

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