Introduction
This strategy would allow local governments to implement additional local option motor fuel taxes to supplement statewide fuel tax revenue.
The State of Texas charges a flat 20 cent per gallon tax on gasoline and diesel fuels. Of this 20 cents, the Texas Constitution dedicates 75 percent (15 cents) of motor fuel tax revenue to the state highway system, and the remaining 25 percent (5 cents) to public education. Article VIII, Section 7-a of the Texas Constitution requires that all the revenue from motor fuel taxes put into the Highway Fund be spent on road-related projects only (though recent bills propose expanding this to fund transit and other mobility projects).
The motor fuel tax is one of the major funding sources of transportation projects. The gas and diesel tax is included in the price of fuel at the pump. As the price of gasoline changes, the gas and diesel tax remains constant at 20 cents per gallon. The state motor fuel tax was last increased in 1991.
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Target Market
According to the American Association of State Highway and Transportation Officials, 15 states authorize local option motor fuel taxes. These states are primarily located in the Midwest, West, and South.
How Will This Help?
- Puts 100 percent of funds into local transportation. While only 75 percent of funds from state gas and diesel tax revenues go toward transportation, 100 percent of a local option fee would fund local transportation projects.
- Provides additional funds to reduce local traffic congestion and help maintain the safety and quality of the local transportation network.
- Increases the number of funded projects and helps speed up or expand the scope of existing projects.
- Slows the effects of decreasing fuel tax revenues.
- Helps the fuel tax keep up with rising highway construction costs. Since 1991, road construction and maintenance costs have almost doubled, while the state motor fuel tax has remained the same. Creating a local motor fuel tax would help bridge this gap.
- Reduces the need to borrow money or use bonds to fund transportation projects. Texas could help slow a growing trend of using credit to pay for roadway projects.
Estimated Funding Yield
- $42 million in Austin.
- $163 million in Dallas-Fort Worth.
- $150 million in Houston.
- $48 million in San Antonio.
- $212 million in Austin.
- $815 million in Dallas-Fort Worth.
- $750 million in Houston.
- $242 million in San Antonio.
Implementation Examples
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Application Techniques and Principles
Costs, ridership, and densities (both job and population) are strongly related. The following table3 presents the minimum population density that is required to support a heavy-rail system. The different costs per mile are based on an analysis of 24 urban rail systems in the United States.
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Heavy rail operates from an electrified third rail rather than overhead wires because it works better in subway tunnels that have limited space. Most heavy-rail systems offer stops every 5 to 10 minutes during peak hours4 and have a maximum speed of 80 mph. Heavy rail requires larger stations, more infrastructure, and more separation for safety than other rail transit modes. This is because of their third-rail power distribution, frequent service, and high operating speeds.5
Heavy rail uses longer trains than light rail to move more passengers. Spacing between stations must be longer than with light rail as well. This is due to the distances required for accelerating and decelerating. Stations are usually spaced at least 3 miles apart.2
Issues
- Fuel tax revenues will likely decrease over time. The expected growth in population means more people traveling on the roadways and consuming more fuel. However, today’s fuel-efficient cars and trucks pay lower fuel tax per mile than they did when the tax rates were last 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 less pollution and the ability to travel farther per gallon are gained, the decrease in fuel use means less gas and diesel tax revenue to cover rising transportation needs.
- Implementation requires the passage of legislation and involves cooperation among a number of local officials.
- The local fee will only apply to fuel sold in the local area. An additional tax may deter new businesses and slow economic growth. Drivers may opt to fill up their tanks across county lines if adjacent counties do not have a similar local option.
- Permitted uses of the revenue and the authority responsible for oversight may vary from county to county depending on the enabling legislation.
- Agencies should be prepared to respond to legislative and public inquiries regarding such proposals.
For More Information
American Petroleum Institute. State Gasoline Tax Reports.
Legislative Budget Board. Texas Highway Funding: Legislative Primer. March 2013.
Legislative Budget Board. Transportation Funding Options: Legislative Policy Report. February 2015.
Texas A&M Transportation Institute. Transportation Revenue Estimation and Needs Determination System (TRENDS).
References
- State of Texas. Texas Tax Code Chapter 162: Motor Fuel Taxes. http://www.statutes.legis.state.tx.us/Docs/TX/htm/TX.162.htm.
- American Association of State Highway and Transportation Officials. Transportation Finance Clearinghouse. http://www.transportation-finance.org/.