The U.S. highway network allows motorists and truckers to travel 3.3 trillion miles annually. Transportation is not just about traveling from point A to point B, but how that connection generates economic activity. According to the 2019 World Economic Forum’s Global Competitiveness Report, overall U.S. infrastructure ranks second behind Singapore. However, the U.S. ranks thirteenth in transportation and utility infrastructure, according to the report.
The U.S. funds its highway system largely based on the users-pay/users-benefit principle, in which drivers pay for the amount of infrastructure that they use, and that revenue is used to build and maintain that infrastructure.
A previous Reason Foundation policy brief examined how much fuel tax revenue is diverted to non-highway purposes in each state. One reason the U.S. lags in transportation infrastructure is not necessarily because it spends too little, but rather because it doesn’t use all of its highway revenue for highways.
The opposite—spending revenue from non-users to pay for highways—is also a problem. Some of these sources are indirectly tied to the users-pay/users-benefit principle; others have no link whatsoever. The problem is that spending non-users-pay revenue on highways dilutes the users-pay principle and legitimizes the diversion of users-pay revenue to non-highway purposes. Further, when the transportation revenue is being improperly spent, taxpayers are less likely to support increasing user fees when needed.
This study evaluates how strongly the 50 states’ highway funding sources adhere to the users-pay/users-benefit principle. It argues that states should move away from non-users-pay revenue sources, such as sales taxes, and adopt direct users-pay sources such as tolls and mileage-based user fees (MBUFs).
This study begins with an overview of state transportation funding and the degree to which states rely on the motor fuel tax. It also discusses differences among states regarding their transportation funding sources. The different types of revenue sources are categorized on the users-pay/users-benefit continuum. State budget documents were used to identify the transportation revenue sources. (Note that some revenue sources, particularly tolling, are not included in state budget documents and could not be included in this analysis).
The authors created a metric and used it to rank and analyze each state’s transportation funding based on its application of the users-pay/users-benefit principle. This is detailed in the methodology section.
The final section suggests recommendations for states to transition toward direct users-pay/users-benefit funding sources.
Key research findings include:
- Direct users-pay sources, such as motor fuel taxes, continue to be a major funding source for all states.
- Indirect users-pay sources, such as motor vehicle registration fees and driver’s license fees, are used extensively in states.
- All 50 states use a combination of direct users-pay, indirect users-pay, and non-users-pay sources for transportation funding.
- In the rankings, four states (Alaska, Connecticut, Kansas, and Pennsylvania) score below 0.5, which indicates that their funding sources are weakly aligned with the users-pay principle.
- In the rankings, 21 states score between 0.5 and 0.75, which indicates that their funding sources are moderately aligned with the users-pay principle.
- In the rankings, the top 25 states have a score above 0.75, which indicates that their funding sources are strongly aligned with the users-pay principle.
Table ES1 ranks each of the states from strongest adherence to users-pay funding sources to the weakest.
The table ranks the 50 states based on the strength of the users-pay/usersbenefit principle in funding highways.
Georgia is ranked highest with a score of 0.8839. Approximately 91% of Georgia’s transportation funding is collected from two sources: the fuel tax (76%) and the motor vehicle registration fee (15%).
In contrast, Kansas, which ranks lowest with a score of 0.4464, collects half of its transportation revenue from sales taxes.
The other 48 states lie between 0.4464 and 0.8839. To a certain extent, all states follow the users-pay/users-benefit principle in their highway funding. If the states want to move toward more-reliable revenue streams, they need to transition their funding sources to a stronger users-pay/users-benefit relationship.
|Table ES1: Percent of Highway Revenue|
Generated By Users-Pay Sources
Twenty-five states receive more than 75% of their revenue from a users-pay source. These states are at an advantage because they have a reliable revenue source not dependent on a strong economy or the preferences of legislators on the budget committee.
In the remaining 25 states, policymakers need to shift funding away from non-users-pay sources (e.g. sales tax, general fund) and toward direct users-pay sources. With direct users-pay funding sources, those who use the highways are the people paying for them.
Transitioning to a stronger users-pay system can be politically challenging. State departments of transportation and legislatures need to educate voters on the benefits of users-pay. Fiscal conservatives will appreciate the predictability. Mass transit and active transportation users will appreciate that they don’t have to pay sales and other general taxes for roadways that they do not use. The trucking community will appreciate the consistent revenue stream free of political influence. All voters will appreciate the fairness aspect of the people who use the roads paying for them.
Similarly, state governments need to create pilots and permanent road-charging programs to ease the transition from gas taxes to an even stronger users-pay mechanism: mileage-based user fees (MBUFs).