Indexed Motor Fuels Tax

An indexed statewide motor fuels tax would allow the current motor fuels tax rate to change based on the rate of inflation. Since 1991, Texas has charged a flat 20 cent per gallon tax on gasoline and diesel fuels, but inflation has gone up, causing the purchasing power of a dollar to go down. This means the taxes collected by the motor fuels tax do not increase at the same rate as the cost of construction.

For example, hypothetically, in 1991, 5,000 gallons of gas yielded $1,000 of taxes collected that could buy a mile of new pavement. In 2015, 5,000 gallons of gas yielded $1,000, but it can no longer buy a mile of new pavement, because the price of the materials for the mile of new pavement has increased due to market forces.

Indexing the gas and diesel tax rate to the Highway Cost Index or the Consumer Price Index (CPI) would allow the tax rate to adjust so that taxes collected do not lose purchasing power.

• Keeps pace with rising highway construction costs. Indexing the state motor fuels tax helps maintain the purchasing power of the gas and diesel tax. Cost increases due to inflation would be countered by proportional gas and diesel tax increases.
• Provides additional funds for transportation. Indexing the motor fuels tax rate would provide funds for transportation maintenance and congestion reduction.
• Reduces the need for borrowing. Texas has increasingly turned to bonds for financing transportation improvements because the fuel tax has lost purchasing power. Indexing the state motor fuels tax could slow this trend.

Estimated Funding Yield

• Indexed to the Highway Cost Index: $1.1 billion more for transportation from 2016 to 2019; $359 million more for education from 2016 to 2019.
• Indexed to Consumer Price Index: $509 million more for transportation from 2016 to 2019; $170 million more for education from 2016 to 2019.

• Uses of the state motor fuels tax are limited by the Texas State Constitution. Article 8, Section 7-a of the Texas Constitution dedicates 75 percent (15 cents) of the taxes collected to the Highway Fund, and the remaining 25 percent (5 cents) is dedicated to public education. The article also requires that all net revenue generated from motor fuels taxes that is deposited into the State Highway Fund must be spent on road-related purposes only.
• Legislative action is required to implement this funding change. Opposition exists to tax increases. Similar opposition has been seen in other states that have raised their gas tax, including recently in Wyoming.
• Voters/users would need to be informed regarding the costs and benefits. As the current transportation funding situation is better explained, there will be more understanding of how additional money to keeps our infrastructure and transportation systems competitive.

• There is general opposition to tax increases. Recent legislative proposals of this nature have failed to pass. Many citizens and their representatives see spending cuts, increased efficiencies, and elimination of waste, fraud, and abuse as taking priority over tax increases.
• Fuel tax revenues are eroded by increased fuel efficiency. Fuel tax revenues will likely decrease over time. The expected growth in future population means more people traveling on the roadways and consuming more fuel. However, today’s more fuel-efficient cars and trucks pay lower fuel tax per mile than when the tax rates were set 20 years ago. As vehicles become more fuel efficient and alternative fuel vehicles become more common, the number of gallons needed to go the same distance will decrease. While benefits such as a smaller carbon footprint and the ability to travel further per gallon are gained, the resulting decrease in fuel consumption means less gas and diesel tax revenue raised to tackle the rising transportation needs.