Tennessee Transportation Funding: Challenges and Options Susan Mattson, Principal Legislative Research Analyst Offices of Research and Education Accountability Susan.Mattson@cot.tn.gov To view the full report and presentation online, go to: http://www.comptroller.tn.gov/orea/
Scope Does not include recommendations Resource document with objective analysis Presents strengths and concerns for different options Does not address Level of funding needed How funds are or should be spent Transportation modes other than highways
Background State Road Funding Other/Local, 2% Sales and Use Gross Receipts 7% 1% Beer <1% State, 42% Motor Vehicle Registration 26% Gasoline 47% Federal, 56% Special Petroleum Tax 4% Motor Fuel 15% Total Revenue = $1.83 billion State Revenue = $788 million FY2014
Local Funding Local User Fees 4% State 48% General Fund Revenues 41% Bond Proceeds 2% Total Revenue = $605.3 million 2012 Miscellaneous 5%
Comparison to Other states Tennessee revenue per capita to highways in 2010 ($325.71) lowest in U.S. (Average = $620.59) Tennessee relies more heavily on highway user taxes than other states Tennessee does not use debt financing, tolls, or general fund revenues for highways Tennessee roads generally rated as being of good quality
Challenges Transportation revenues in Tennessee are not expected to be sufficient to maintain existing highways and meet long-term transportation demand User fee revenues have stagnated and are not expected to increase without changes
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 in millions Tennessee Highway User Tax Revenues, 1989-2015 $700.0 $600.0 Gasoline Tax $500.0 $400.0 $300.0 Motor Vehicle Registration Fees $200.0 Diesel Fuel Tax $100.0 Special Petroleum Tax $0.0
in billions Tennessee Taxable Fuel Consumption, in gallons, 1989 through 2013 4.5 4.0 3.5 3.0 Total Motor Fuel Gasoline 2.5 2.0 1.5 1.0 Diesel Fuel 0.5 0.0
Percent Change Tennessee Highway-User Revenue Compared to Population and Economic Growth, 2000 through 2014 Highway User Revenue 9% Gross Domestic Product 64% Per capita Income 48% Population 15% 0% 10% 20% 30% 40% 50% 60% 70%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Tennessee Fuel Tax Revenue, Nominal and Inflation-adjusted Dollars, 1989 through 2014 $1,000,000,000 $900,000,000 Nominal $ $800,000,000 $700,000,000 $600,000,000 National Highway Construction Cost Index $500,000,000 $400,000,000 Consumer Price Index $300,000,000 $200,000,000 $100,000,000 $0
Vehicle Miles of Travel (millions) Vehicle Miles per Capita Tennessee Vehicle Miles of Travel, 1989-2013 75,000 70,000 Vehicle Miles of Travel 12,500 12,000 65,000 11,500 60,000 55,000 Vehicle Miles per Capita 11,000 10,500 50,000 10,000 45,000 9,500 40,000 9,000 Vehicle Miles of Travel Vehicle Miles per Capita
Estimated Average Fuel Economy of Light-Duty Vehicles under CAFE Standards, 2010 to 2025
Uncertainty of Federal Funding Shortfalls in federal HTF in recent years funded with General Funds No long-term solutions passed by Congress to address shortfalls in Highway Trust Fund
Local Government Highway Funding Face same challenges as state with stagnating revenue and increasing costs Local governments rely heavily on state-shared fuel taxes Locals also use other local revenues for highways and some borrow funds to varying degrees
Possible Revenue Options Current Tennessee highway taxes and fees Increase fuel tax rates Index fuel tax rates to inflation or price or fuel efficiency standards Increase motor vehicle registration fees Add a use tax for alternative fuel or high-mileage vehicles that pay little or no fuel taxes that support the up keep of roads
Options cont. Used by other states Apply sales tax to fuel purchases Transfer General Fund revenue to highways Use debt financing General Obligation bonds Public-private partnerships Add weight distance taxes Local Option highway taxes
Options cont. Addressing structural issues with current taxes Use of tolls Mileage-based tax systems
Motor Fuel Taxes Strengths User pays tax Dedicated taxes are stable source of revenue Low administrative costs Out of state motorists pay A small change produces substantial revenue at a small cost to users Supports local roads under current distribution formulas
Motor Fuel Taxes Concerns Variation in fuel efficiency so taxes not tied as closely to road use Unless increased on regular basis do not grow with economy Not directly tied to pavement damage of vehicles
Other Considerations Tennessee gas tax last raised in 1989 TN gas tax 21.4 cents per gallon Tennessee diesel tax last raised in 1990 TN diesel tax 18.4 cents per gallon
Tennessee Gas Tax Rates (cents per gallon) Compared to Other States, 2015 Alaska New Jersey South Carolina Oklahoma Missouri Mississippi New Mexico Arizona Texas Louisiana Alabama Tennessee Arkansas Colorado Virginia North Dakota Delaware New Hampshire Wyoming Kansas Utah Kentucky Massachusetts Nebraska Montana Ohio Minnesota South Dakota Maine Vermont Oregon Iowa Idaho Maryland Georgia Wisconsin Nevada Rhode Island West Virginia Indiana Michigan Illinois North Carolina Florida Washington Connecticut California Hawaii New York Pennsylvania 12.25 14.50 16.75 17.00 17.30 18.78 18.88 19.00 20.00 20.01 20.87 21.40 21.80 22.00 22.33 23.00 23.00 23.83 24.00 24.03 24.51 26.00 26.54 27.00 27.75 28.00 28.60 30.00 30.01 30.81 31.07 32.00 32.00 32.10 32.62 32.90 33.85 34.00 34.60 35.64 35.99 35.99 36.25 36.42 37.50 40.86 42.35 45.10 45.99 Tennessee gas tax is 12 th lowest in U.S. 9.08 cpg below U.S. Average 0 10 20 30 40 50 60 51.60
Tennessee Diesel Tax Rates (cents per gallon) Compared to Other States, 2015 Alaska Oklahoma South Carolina Missouri New Jersey Tennessee Mississippi Texas Louisiana Colorado Alabama Delaware Arkansas New Mexico North Dakota Kentucky New Hampshire Wyoming Utah Virginia Kansas Nebraska Massachusetts Arizona Ohio Montana Nevada Minnesota South Dakota Oregon Maine Michigan Vermont Idaho Maryland Wisconsin Iowa Florida Rhode Island West Virginia Georgia North Carolina Illinois Washington California Hawaii Indiana New York Connecticut Pennsylvania 12.75 14 16.75 17.3 17.5 18.4 18.4 20 20.01 20.5 21.85 22 22.8 22.88 23 23 23.83 24 24.51 26.03 26.03 26.4 26.54 27 28 28.5 28.56 28.6 30 30.34 31.21 31.38 32 32 32.85 32.9 33.5 33.67 34 34.6 36.18 36.25 36.63 37.5 39.38 41.96 42.89 45.1 0 10 20 30 40 50 60 70 50.3 65.3 Tennessee diesel tax is 6 th lowest in U.S. 11.71cpg below U.S. Average
Annual Gas Tax Paid Common Passenger Vehicle Assumptions: 15,000 miles driven per year/ 20 miles per gallon = 750 gallons of gas State Gas Tax 750 gallons X 21.4 cents per gallon = $160.50 1.1 cent per mile Federal Gas Tax 750 gallons X 18.4 cents per gallon = $138.00 1 cent per mile Total State and Federal Gas Tax = $298.50 One cent increase = $7.50 per year
Revenue projections Gas Tax 1 cent increase = $30.9 million (+ 5%) State Highway Fund (60%) $18.54 m Local Highways (38%) $11.74 m General Fund (2%) $ 0.62 m
Revenue projection Diesel Tax 1 cent increase = $ 9.6 million (+ 6%) State Highway Fund (60%) $ 6.91 m Local Highways (38%) $ 2.5 m General Fund (2%) $ 0.19 m
Variable Rate or Indexed Fuel Taxes Strengths Allows fuel taxes to better adjust to changes in the economy and purchasing power over time User pays tax Retains lower administrative costs if tied to current taxes Requires less frequent legislative action to change the rates
Variable Rate or Indexed Fuel Taxes Concerns: Volatility of index measures Can include floors, ceilings, and change limitation to reduce volatility Limits public debate on changes What index to use to best reflect highway costs Still tied to fuel consumption
Variable Rate options Indexed to CPI from 1989 Gas tax = 20 to 38 cpg ($556.2m FY15) Diesel tax = 17 to 30 cpg ($124.8m FY15) Index to Wholesale or Retail Price of Fuel
Variable Rate options Add current sales tax rates (9.5% average) to fuel State $1 billion (+186 %)Local $368 million (+127%) Add 1% sales tax to fuel $147.1 million (+17.5%) Based on average fuel prices of $3.453 per gallon for gasoline and $3.77 for diesel fuel; sales tax revenue would fluctuate with the price of fuel.
Vehicle Miles Traveled Tax Strengths Enhances the user pays principle tax based on miles driven, not fuel used Can use to address other policy goals such as reducing traffic congestion and vehicle pavement damage More feasible administratively with new technology
Vehicle Miles Traveled Tax Concerns Public acceptance low Concerns with privacy protection Increased administrative costs How to account for non-resident driving
Debt Financing Requires a commitment of dedicated recurring funds to repay any debt issued
Questions or comments? To view the full report and presentation online, go to: http://www.comptroller.tn.gov/orea/