Fitch: Gas Tax Would Be More Stable Form of US Highway Funding

NEW YORK -- March 20, 2015: The American Road & Transportation Builders Association (ARTBA) proposal for raising the gas tax is a pragmatic, much-needed source to fund investments through the Highway Trust Fund (HTF), Fitch Ratings says. The gas tax is the fastest and most reliable method to provide desperately needed resources to states for road and rail infrastructure projects. A solution is imperative as the latest extension of funding for the HTF will expire on May 31.

Last week, the ARTBA proposed a plan to that would increase the HTF by $27 billion per year over a term of six years. The plan would raise the federal gas tax by $0.15 and offset that increase with a tax credit. The credit would be $90 rebate for single filers with adjusted gross income (AGI) less than $100,000 and $180,000 for joint filers under AGI $200,000. The tax credit would be funded by a one-time repatriation tax on U.S. corporate foreign earnings.

The six-year proposal provides needed multiyear stability to facilitate long-term infrastructure planning after more than a decade of stop-gap measures that have created an atmosphere of instability and inefficiency incongruent with planning for long-lived assets. But the tax credit offset in this proposal subjects it to the political uncertainty that has resulted in a decline in transportation infrastructure. The effects of infrastructure maintenance and development on the overall economy -- job growth, higher incomes -- are well-known, as is the importance of withstanding natural disasters such as Superstorm Sandy. Such disasters have increasingly weighed heavily on national security through loss of life and physical and economic damage.

The lack of stability is one of the main factors contributing to the estimated $3.6 trillion that the American Society of Civil Engineers forecasts will be required in infrastructure spending through 2020. Using the gas tax, which remains the most reliable source for surface transportation infrastructure projects through the medium term, provides the ability to plan for a smoother transition to a more sustainable and efficient funding source for the long term.

In our view, longer term solutions for the HTF could include a combination of different funding forms. These include taxes and fees and tolling of existing interstates that could be phased in over time. There is also some risk that a gas tax extension and increase could intensify the inherent inefficiencies in the current system of policymaking and procurement. New legislation needs to wean the system off the ways of the past and begin building a more disciplined, outcome-driven, performance-based accountable framework that better links the beneficiaries of transportation assets to those that pay for it. This will not be easy, but the public needs to understand that taxes and fees are being used efficiently to garner the long-term support needed for a 21st century transportation infrastructure.