Changing economic conditions have hindered funding for transportation projects. Of primary concern is the declining purchasing power of the gas tax. Federal and state excise taxes on motor fuel-which account for one-third of total revenue for highway spending1 and are the primary source of transportation funding in many jurisdictions-have generally not kept pace with inflation and have diminished in real dollar value.
The federal excise tax on gasoline-currently 18.4 cents per gallon-has not changed since 1993. According to AASHTO, from 1996 to 2008, the federal gas tax will decline 26 percent in real purchasing power and will have a real value against inflation of only 13.5 cents per gallon. This decline in value will eliminate a projected 9 percent growth in gas tax revenue due to travel increase and will significantly affect on the continued viability of the Federal Highway Trust Fund. A 2005 study published by the U.S. Chamber of Commerce Foundation predicted that, without further action, the Highway Trust Fund will become bankrupt by 2010 and will run a $41.7 billion deficit by 2015.
State transportation spending also has suffered from the motor fuel excise tax purchasing power decline. State excise taxes on motor fuel alone provided approximately 28 percent of all highway revenues, and combined federal and state gas taxes accounted for over 50 percent of state highway revenues over the 1999-2004 period.2 From 1970 to 2001, the inflation adjusted average state tax rate fell from 35 cents to 20 cents a loss of 43 percent.3 An Oregon study indicated that the state's gas tax revenue in cents per vehicle mile traveled fell 50 percent from 1970 to 2003.4 Virginia has experienced a 43 percent loss in buying power of the gas tax since 1986.5 In South Carolina, transportation revenue, which consists largely of the gas tax, fell 36 percent in constant dollars from 1965 to 2000.6
Gas taxes have declined as a revenue source, due primarily to the effect of inflation on the fixed rate tax (and to difficulty passing large enough gas tax increases in state legislatures and signed by governors or approved by voters). Although 28 states raised gas taxes from 1992 to 2002, only three-Missouri, Utah and Wyoming-raised the rate enough to keep pace with inflation.7 The average increase fell from 5.8 cents during the 1980s to 1.7 cents since 1992.8 As of January 1, 2005, state excise taxes on gasoline ranged from 7.5 cents per gallon in Georgia to 31 cents per gallon in Rhode Island.9
Another economic concern is the rising construction costs following Hurricane Katrina and other natural disasters. Hurricane Katrina and high prices for gasoline have increased the cost of road construction. In 2005, prices for building materials, cement and skilled labor rose. In some states, officials reported that the average cost of building a freeway rose 20 percent to 30 percent in the last few months of 2005. The high construction costs mean that states can do less with available funds. The cost of materials used for highway construction generally rose 22 percent from early 2004 to the end of 2005.10