Highwayengineers.org

Planning and Development: Financing and Public Consulting

When highway planning, development and construction requires funding, where does it come from? Fuel taxes are most often part of the revenue used. State highway revenues do not do well when generated by “general” taxes such as income tax, property tax, or other forms of “regular” funding. This is predominantly because these types of funding options have no direct link to highway maintenance upkeep. Even so, roughly one-quarter of these total revenues are used for highway-related purposes.

General taxes do not do well when applied to roadway needs for a number of reasons, including the fact that it makes planning and developing difficult when there is a need for long-term projects that come at a higher cost. Because it requires the shifting of tax dollars, this is not a viable option. General taxes do not show the costs associated with use for highway projects. This includes emissions from vehicles which can adversely affect air quality.

Over the past several years, many places have enacted specialized taxes. For example, California utilizes local sales taxes to fund road improvements. It has long been a practice for Federal and State Government to consider fuel taxes as a lucrative source for maintenance programs and highway construction. There are a number of reasons for this. Revenue generated from fuel taxes have historically been fairly predictable and had a degree of stability. This is why elected officials have always been quick to increase fuel taxes whenever necessary in order to raise funds for needed roadwork or projects. Revenue from fuel taxes is linked (either directly or indirectly) to those types of needs. Also, revenue generated by fuel taxes in the majority of states and from the federal Government are generally shielded from any effects of annual budgeting activities.

One concerning development, however, is the increasing disparity in the economy related to vehicle fuel, as this has a tendency to reduce the equity of fuel taxes. Another concern is the fact that an increase in the fuel economy of the future is being predicted, which will in turn decrease the amount of fuel tax revenue per mile of travel.

Alternate Methods of Funding

Another type of financing which has been used to pay for roadway improvements is a fee that developers are required to pay. This fee is levied in order to help cover a portion of the costs of the creation and/or maintenance of the roads which will serve their housing/business developments. These “developer fees” are eventually passed to the businesses and households that buy or rent properties in the development. This practice is similar to increases in tax increment financing, in which property values are used in part to help cover the cost of improvements to local roads when they are needed.

A potential future source of roadway revenue which has been used in several places over the years is “direct user charges”, more commonly known as tolls. These are small fees charged directly to drivers at “toll booths” along specific areas of roadways. While these tolls are a simple means of collecting funds for highway improvements, there are a number of undesirable aspects to this type of funding. In many cases, the toll charge remains in place long after the necessary amount of revenue has been raised, making this method quite unpopular with the public, particularly those motorists who utilize the tolled expanses of roadway on a regular basis.

Toll charges also tend to be higher than the fuel taxes which fund highway development and maintenance projects. For this reason, fuel taxation has historically been a more popular choice with the public than toll charges. There is also the fact that, in many cases, roadways charging a toll can be avoided by traveling an alternate route, thereby decreasing the amount of revenue collected via toll fees.

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