Baker Center Releases Update on Future of Tennessee’s Roadway Funding

In the past three years, many states have increased or introduced new taxes in order to boost roadway funding. Tennessee, however, has made no policy changes and will increasingly confront challenges to its ability to fund roads, according to a new paper by researchers at UT’s Howard H. Baker Jr. Center for Public Policy.

The report, “Tax Policies and Alternative Revenue Sources: State Responses to Declining Purchasing Power of Roadway Funding,” examines roadway funding alternatives being adopted by other states.

Matt Murray, director of UT's Baker Center and associate director of the Boyd Center.

Matt Murray, director of UT’s Baker Center and associate director of the Boyd Center.

“A primary goal is to inform the public and policymakers on how other states have tried to enhance roadway funding,” said Matt Murray, director of the Baker Center and associate director of the Boyd Center for Business and Economic Research in UT’s Haslam College of Business. “If the governor and legislature choose to explore funding opportunities, a first place to look is at other states.”

Tennessee’s Department of Transportation had roughly $2 billion to use toward roadway funding in 2014, approximately $314 per person in the state. Half of those funds came from the Federal Highway Administration and the rest from state revenue sources.

As in other states, fuel taxes are Tennessee’s primary revenue source for roadway funding, but the state has the 11th lowest gasoline tax rate in the country.

Tennessee’s current gasoline tax is a fixed excise tax of 21.4 cents per gallon. If, as expected, growth in gasoline consumption slows and construction costs continue to rise, this tax system will not produce needed revenue growth.

“Stagnant tax rates continue to threaten transportation funding, as well as decreases in fuel consumption due to increases in fuel economy,” said Murray.

Since 2013, 18 states have either increased their fuel taxes or restructured how their gas tax rates are determined. But several states, including Tennessee, have not made changes to their fuel tax rates in decades. Tennessee’s last increase in its gas tax—four cents per gallon—was in 1989.

Due to these funding challenges, several states have moved in a variety of directions, including increasing fuel tax rates, imposing the sales tax on gasoline consumption, and exploring taxes on vehicle miles traveled.

Aggressive federal corporate average fuel economy (CAFE) standards set for 2025 will also mean significant advances in fuel economy yet further deterioration in the output of the traditional gas tax.

Funding challenges will continue to worsen as states try to use deflated transportation funds to meet increases in demand arising from ongoing population growth. Tennessee’s population is expected to grow by 9.9 percent between 2016 and 2025.

Twenty states are currently making transportation funding changes. Tennessee is one of several that will likely look for a solution to its roadway funding problem in 2017.

Mark Burton, director of economics for UT’s Center for Transportation Research, collaborated on the report with Murray. Other collaborators were Emily Pratt, Boyd Center research associate, and Jilleah Welch, Baker Center research associate.

The authors conclude by suggesting there is no single best means of enhancing the capacity to fund essential transportation infrastructure.

“States should choose their own policy path based on their unique circumstances,” said Murray. “Policymakers and the public need to evaluate potential funding solutions carefully since each will offer specific strengths and weaknesses.”

The full report is available here (pdf).

CONTACT:

Tyra Haag (865-974-5460, tyra.haag@tennessee.edu)