Alternatives to Fuel Tax
A State Level Perspective
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Under the current fuel-tax-based highway financing system, the funding gap between highway needs and revenue available is expected to grow as vehicle fuel economy improves and use of alternative fuels increases. Consequently, the highway financing mechanism needs to be restructured or a different financing strategy undertaken. Previous research provided examples of successful implementation of pricing schemes in terms of design of pricing scheme, technology issues, legal and institutional issues, and public acceptability. Synthesizing this information, a methodological framework was establishe...
Under the current fuel-tax-based highway financing system, the funding gap between highway needs and revenue available is expected to grow as vehicle fuel economy improves and use of alternative fuels increases. Consequently, the highway financing mechanism needs to be restructured or a different financing strategy undertaken. Previous research provided examples of successful implementation of pricing schemes in terms of design of pricing scheme, technology issues, legal and institutional issues, and public acceptability. Synthesizing this information, a methodological framework was established for evaluation of alternative user charging schemes. Based on the assessment of the current and projected highway revenue and the needs and demand of Indiana, the study developed three alternative financing schemes: (1) enhancement of the current tax system; (2) addition of new funding sources to supplement the current system; and (3) replacement of the current system with new financing schemes. Each alternative was evaluated on the basis of the established criteria and compared with the other two alternatives. The third alternative, to replace the current fuel tax system with VMT fees, was found to have the best potential in achieving revenue adequacy, system efficiency, and equity. The implementation of this alternative, however, could be cost-prohibitive and could face opposition from the public. Based on evaluation results, a stepwise modification of the current system was proposed, aiming at a long-term goal of implementing ISCURP.
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