Plateauing Gas Tax Needs Another Look

The gas tax generates more transportation financing than any other single source. However, several trends (reductions in travel growth, advances in fuel economy, alternative fuels and stagnating tax rates) have slowed the growth of gas tax revenues in recent years. This paper undertakes to describe the use of federal and state gas taxes, and assess their impacts on state and local transportation systems and funding. To that end, the paper finds that in many states, the gas tax ill serves cities and urban areas. This is primarily due to requirements that gas tax revenues be spent on roads, and biased distribution formulas. Such arrangements limit metropolitan areas' ability to finance transit and other critical projects, and ensure that urban areas act as "donor regions" that contribute more in tax receipts than they receive back in transportation allocations. In the end, the report emphasizes that any state considering increases in their gas tax should do so only after instituting applicable reforms.