Thursday 6 May 2021

Governor of Pennsylvania commits to phasing out state fuel tax

The Governor of the US State of Pennsylvania, Tom Wolf, has announced on his website that the state fuel taxes ("gas tax") are unreliable and will have to be phased out.  He is understood to be the first Governor of a US state to say this and is possibly the first jurisdiction in the world to have done so. 

The key part of the statement reads as follows:

“Our economy, our communities, and our future rely on a strong transportation system that supports our safety and growth. We have more than $9 billion in annual unmet needs across our state-maintained transportation system alone. At the same time, Pennsylvania is relying too much on outdated, unreliable funding methods, and the federal government hasn’t taken meaningful action in decades,” Gov. Wolf said. “Phasing out the burdensome gas tax, coupled with seeking long-term reliable funding solutions that will keep pace with our infrastructure needs, deserves a close examination. Forming this bipartisan commission will bring multiple, bipartisan voices to the table to ensure that we can examine reliable, sustainable revenue solutions to address both near-term and long-term funding needs.”

In other words, there is insufficient revenue now from the gas tax to meet the state's demands, with the US$9b shortfall estimated to rise to US$14.5b by 2030.  He puts the unreliability of the gas tax down to the rapidly increasing fuel efficiency of vehicles and the rise of new motive power technologies (electric and hybrids) that render the gas tax increasingly unreliable.

It is of course also increasingly unfair. It is only those who can afford to buy a relatively new vehicle who get the benefits of new vehicle technologies, so over time it means those who don't have the financial means to buy such vehicles that would increasingly pay a higher proportion of the gas tax.  This argument has been critical to the success of states such as Oregon and Utah in starting a transition towards distance based road user charging. 

The Governor has announced establishment of a "Transportation Revenue Options Commission (PDF for the executive order), to investigate how to progress away from the gas tax.  It's main responsibilities are to:

  • Study  and  prepare  a  comprehensive  list  of  potential  revenue  sources  available  for  current  and  future  funding  of  transportation  in  the  Commonwealth  for  all  modes  of  transportation.    The  funding  sources  must be reliable, dedicated, inflation sensitive, and adaptive to changing environmental factors; and 
  • Prepare  a  comprehensive,  strategic  Commonwealth  transportation  funding proposal.
This is a wide open mandate, but this should be expected. The modes referred to are not just roads, but also public transport, Amtrak, rail freight and airports/heliports, so it will include public transport fares and airport user charges, as well as the road based options well known on this blog.

So I fully expect Pennsylvania to consider:
  • Tolls on major highways and crossings;
  • Full network distance (and weight) based road user charging;
  • Congestion pricing on congested corridors or at major centres;
  • Motor vehicle registration/licensing fees;
  • Taxes on energy;
  • Taxes on land related to it benefiting from transport infrastructure;
  • Other direct user charges;
  • Non-transport related taxes (sales taxes, income taxes).
The Tax Foundation reports that 56% of Pennsylvania's state transportation tax revenue is raised by the state gas tax, and to replace this with distance-based RUC (also known in the US as Vehicle Miles Tax (VMT) or Mileage Based User Fees (MBUF)) would need to be an average of US$0.08 per mile, but rightfully points out that any such fee would have to vary by vehicle weight.  Heavy trucks should pay much more than that, and cars much less, to more closely reflect their current fuel consumption, or better yet to actually reflect the costs they impose on the network (as is done in Oregon).

Pennsylvania currently has one of the higher state gas taxes in the US at US$0.576 a gallon (that's US$0.152 per litre for the metric world).  In July 2020 it was the second highest, so perhaps it is an admission that it isn't just the rate that is the issue, but the yield. Noting that this is significantly higher than the Federal gas tax at US$0.184 per gallon (US$0.049 per litre) which itself hasn't increased since 1993.

Whatever comes out of Pennsylvania, it demonstrates that there is growing political recognition at the higher levels of government in some US States that the status quo is unsustainable.  It is encouraging to see these emerging on the eastern states, given that the western seaboard states (Oregon, Washington, California and Hawaii) have all embarked on pilot programmes (and in the case of Oregon revenue-collecting) to explore RUC. There are bigger challenges in the east, due to the smaller states and much higher interstate traffic movement, but these challenges can be overcome, since they all face the same issue.

In the long term, the gas tax is not only unsustainable, but is unfair.

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