Analysis Finds Shifting Trends in Highway Funding: User Fees Make Up Decreasing Share
The way America's roads are funded is changing. Revenues that predominantly come from users of roads (“user fees”), including fuel taxes, vehicle registration fees and tolls, pay for a decreasing share of road costs. Taxes and fees not directly related to highway use (“non-user fees”) and bonds are making up the difference.
Using Federal Highway Administration statistics, Subsidyscope has calculated that in 2007, 51 percent of the nation's $193 billion set aside for highway construction and maintenance was generated through user fees—down from 10 years earlier when user fees made up 61 percent of total spending on roads. The rest came from other sources, including revenue generated by income, sales and property taxes, as well as bond issues.
Source: Highway Statistics, forms HF-10 and HF-210, Federal Highway Administration.
Going back further, the trend is more pronounced. Forty years ago, user fees amounted to 71 percent of revenues spent on roads. Today, user fee revenue as a share of total highway-related funds is at an all-time low since the Interstate Highway System was created in 1957. A complete data set of highway revenue by source is available for download. In 2007, non-user revenues contributed $70 billion to the highway system. By comparison, this contribution totaled $26 billion in 1967 (in 2007 dollars).
Not all user fees collected are made available for highway purposes. Of the 18.4 cent per gallon federal tax on gasoline, 2.86 cents are allocated specifically for mass transit projects. Another 0.1 cent per gallon is used to pay for environmental cleanup resulting from leaking fuel storage tanks. From 1990 to 1997, the federal government also set aside a portion of taxes on gasoline, diesel and other fuels to reduce budget deficits.
However, even if those funds were fully devoted to highways, total user fee revenue accounted for only 65 percent of all funds set aside for highways in 2007, according to Subsidyscope calculations. This is down from 84 percent in 1997 and 77 percent in 1967. Subsidyscope provides a complete data set of user fee revenues and allocations for download.
Various factors account for the shift in funding away from users fees. Fuel taxes lose their buying power unless adjusted to keep pace with rising highway construction and maintenance costs. The amount of federal fuel tax allocated to highway purposes has not increased since 1997 and states have had trouble increasing fuel taxes to keep up with inflation. Further, changes in driving patterns and fuel consumption can lead to unexpected dips and peaks in user revenues. For instance, increases in fuel prices at the pump can cause vehicle owners to cut back on driving, reducing revenues. Similarly, changes in vehicle efficiency can reduce revenues available from fuel taxes while vehicle usage remains constant.
Another major funding source for roads is borrowing through bond measures, which made up almost 13 percent of highway funds available in 2007. This number has fluctuated over the years. Moreover, the use of bonds to fund roads varies widely from state to state. Subsidyscope considers bonds separately from user fees and other revenue because it is not clear which sources of revenues will be used to repay the bonds.
In addition to a decline in user fee revenue, federal dollars have gradually declined as a share of total highway funding. As a result, state and local governments have taken on a higher share of road costs and are increasingly reliant on alternative sources of revenue.