Funding Roads By Taxing Users Will Only Happen if People Care to Fund Roads By Taxing Users

Politicians have to judge how receptive people are to fuel and vehicle taxes

Infrastructure tends to be paid by the people that use it. Water and sewer bills pay for water and sewer treatment and pipes. Electric bills pay for power plants, transmission and distribution of electricity. Phone user charges pay for telephone poles and cell towers.

But that isn’t quite the case for the roads. Users tend to pay for the roads, even though drivers don’t receive a monthly bill for their usage. Yet roads are not fully paid by road users. And because road finances is determined by our elected officials, roads will only be financed by users if it is popular to charge the costs of roads to its users.

User fees tie the people that directly benefit from infrastructure to the costs of maintaining the infrastructure. A good user fee has people paying their fair share for what they use. This is also important for businesses that use the roads to ensure that their transportation costs are part of their cost of doing business. Their use of the roads then gets reflected in the prices business managers charge for their products. Ensuring that road usage is part of business costs keeps managers from pushing their costs onto the governments that own and maintain the roads.

The state government primarily funds the roads with fuel taxes and vehicle registration taxes. Fuel taxes are expected to raise $1.4 billion this year and vehicle registration taxes are expected to raise $1.3 billion. These taxes fall on road users, and acts like a user fee. There are some exceptions — like people that drive mostly out of state — but it’s fair enough to call it a user tax.

But there are other parts of road funding where the connection between the user and the financer breaks down. The federal government has a fuel tax that goes to transportation purposes, but it distributes more than it collects. Local governments raise property taxes for the roads, and property taxes are not tied to usage. Bus systems take a chunk of transportation revenue, and maintaining transit systems is different from paying for roads. The state has borrowed in the past to pay for road repair, and the debts (plus interest) are paid with today’s fuel and vehicle registration taxes. And policymakers have found some money in the rest of the state budget to pay for road repairs.

There are other ways that the state road funding is not a direct user fee. The gas paid for lawnmower fuel contributes to road construction but doesn’t use the roads, for instance.

The discrepancies on fair share happen to other use charges for other infrastructure as well. There are ways that the bills for phone, water and other infrastructure aren’t perfect user chargers.

The point is that road funding policies already depart from user fee principles. And presumably these divergences happen with public support. Since politician are held accountable to voters, roads will only be financed through user fees if it is popular. If the public doesn’t care, then it is difficult to pass laws that tie road finance with road use.

Or to put it another way, the benefits of connecting road finance with road usage are ignored if the public doesn’t agree with them. There are already divergences for transit, or deficit spending at the federal level, or general taxpayer support of roads were popular enough to be approved. And there are tradeoffs for disconnecting road finance with road use. Financing road repair with the state income tax — like we do right now — benefits households that do a lot of driving but don’t have a lot of income and costs households that don’t do a lot of driving but have a lot of income.

So when state lawmakers say that they need raise more money to get the roads in better shape, raising the user fee-like fuel and vehicle registration taxes is not a given way to get more road funding. Politicians have to judge how receptive people are to fuel and vehicle registration taxes.

They will be more reluctant to hike these taxes so if they think that the condition of the roads are being used to leverage revenue for other purposes. This skepticism is warranted. The governor’s proposed tax hike would raises $2.5 billion in taxes for $1.9 billion in road repair. That’s because she wants to eliminate the portion of the income tax that goes to road funding. Note that getting rid of this earmark would establish a stronger connection between users and road finance.

But people tend not to like that kind of thing. Some residents still complain when the state created a lottery for the schools then backed out some general taxpayer support for schools, alleging that it was stealing the lottery money. And eliminating a portion of road funding seems inconsistent with the repeated claims that current road conditions are embarrassing.

It could be more popular to continue to divert available resources to road funding regardless. The state budget is growing. Lawmakers have already used some of that growth to increase road funding. And there are plenty of ways to save money in the state budget to free up money for the roads. The savings can go towards roads while still maintaining user fee road principles if there is the political will to do it, too.

Whatever additional funds lawmakers might find for the roads will be restricted by what our elected officials think is popular. Residents’ views matter and people have to be committed to the connection between funding and road usage for it to affect policymaker thinking. People’s commitment to road funding is far from certain and the governor’s plan leveraged user fee principles to fund other policy priorities.