T4America Blog

Two more states successfully raise taxes & fees to invest new dollars in transportation

With action taken by Indiana and Tennessee in the last week, we’ve passed the tipping point — more than half of all states have successfully raised new transportation revenue since 2012.

Because of the same declining revenue sources that required the federal government to beg, borrow and deficit spend to fund the FAST Act in 2015 through 2020, states are increasingly coming up with their own plans for raising additional transportation revenue, while hoping the federal government continues their historic role as a strong partner in their efforts. But unlike the federal government, states can’t deficit spend, requiring them to find actual dollars to invest and fill gaps in declining revenue sources.

In the last week, two more states successfully passed legislation to raise new transportation revenue, and though both bills raise new funds only for road projects, one state included a provision to allow their largest metro area to raise their own new dollars for transit.

In Indiana, the legislature passed a bill to provide new highway funding. HB 1002 will boost road funding by $1.2 billion per year when fully implemented by increasing the gas tax and other fees to raise new revenue and dedicating existing revenue to highway projects.

The legislation will raise the fuel tax 10 cents per gallon (to 28 cents per gallon), add a $15 annual vehicle registration fee and add a new $150 annual fee for electric vehicles and $50 fee for hybrids. Over the next eight years, revenue from the sales tax on fuel that’s directed to the general fund today will be redirected into the highway account. Additionally, the bill will allow Indiana DOT to pursue new tolls on interstate highways.

The final bill passed the Senate 37-12 and the House 69-29. The House and Senate passed competing versions of the bill earlier this year before reaching a compromise last week. Gov. Holcomb (R) has already voiced support for the bill.

All of the new funding will be used for road and bridge projects, with no money dedicated to transit. $340 million annually will be directed to local projects and the remainder will be for state highway projects.

By redirecting sales tax revenue to highway projects the bill will cut approximately $350 million in revenue out of the state’s general fund each year. An earlier version of the bill had included a new cigarette tax to offset this cut. The final version dropped the cigarette tax and instead phases the revenue shift over the next eight years.

The Tennessee legislature has also approved new revenue for road and highway projects, capping off a notable push by Governor Bill Haslam (R) over the last two years to build public support for raising new revenue.

Most notably, this bill (HB 0534) allows new local option revenue for transit projects, a provision cheered by Nashville Mayor Megan Barry. “This is a momentous day in Tennessee, as the General Assembly has voted to move our state forward on building the transportation infrastructure we need to remain competitive economically and improve the quality of life of our residents,” Mayor Barry said.

The local option provision allows the state’s four largest cities and the twelve counties that contain large cities to increase local sales tax, business tax, car rental tax, hotel/motel tax, residential development tax or wheel tax, with approval through a voter referendum. A local government must approve a detailed transit improvement plan before levying a local transit tax.

The bill raises the gas tax by 6 cents per gallon to 27.4 cents per gallon and raises the diesel rate 10 cents to 28.4 cents per gallon, increases registration fees, and adds a new fee for owners of electric vehicles, bringing in $350 million per year for road projects. From the new revenue, $250 million will go to state highway projects and $100 million will be directed to cities and counties for local road projects. The measure also cuts the sales tax rate on groceries from 5 to 4 percent, and cuts the franchise and excise tax on manufacturers, reducing general fund revenue by $400 million per year.

The bill passed the House 60-37 and passed the Senate 25-6.