YOU DECIDE: How should North Carolina fund roads?

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

My father was born in 1922 on a farm in rural Ohio. Horses and carriages were as common as cars. When the first road was built it was tolled, meaning only those who paid the gatekeeper at the entrance to the road could use it.

This is how early roads were financed. If you used a road, you paid for it, on the spot! In economics, we call such payments user fees.

But as car ownership expanded and road usage boomed, stopping drivers at every entry point to a road became costly, in terms of the expense for the gatekeeper but also in the down time to drivers stopping, waiting, paying the toll and then re-starting their trip.

The solution was to pay the user fee in another way, which led to the birth of the gas fee. At the time, drivers only used gasoline as fuel, so paying a fee per gallon of gas was a convenient — and most considered fair — way to fund roads. By this time governments had taken over the construction and maintenance of roads, so the gas fee became a gas tax.

This way of paying for roads has largely remained in place for 70 years, but today there are cracks appearing in the system.

One crack is that gasoline no longer is the only fuel for vehicles. An increasing number of vehicles are now hybrids, meaning they use a combination of gasoline and battery power. All-electric powered cars are also more widely available and used. Also, with the country’s growing abundance of natural gas, there’s more interest in developing vehicles powered by this fuel. If a vehicle doesn’t use gas, then no gas taxes are collected.

A second crack is the increasing fuel efficiency of vehicles, meaning more miles can be driven per gallon of gasoline. While this is a welcome result (as an aside, improvements in living standards are closely linked to gains in economic efficiency), it has created problems for road funding. If drivers get more miles out of each gas gallon while keeping the gas tax per gallon the same, then gas tax revenues per mile fall.

And this is exactly what has happened. The gas tax is perhaps the most visible tax we pay. Many (most?) drivers understandably oppose increasing the gas tax rate, and they communicate this opposition to elected representatives. As a result, many states have actually seen declines in gas tax revenues in recent years. Less gas tax money for roads makes it tougher to build new highways and maintain existing ones.

These challenges to the traditional way of financing roads have moved some states to totally revamp their highway funding methods. Recently, Virginia approved one of the most far-reaching plans. Virginia will eliminate its state gas tax and replace those revenues with new fees on alternative-fuel vehicles and with money from an increase in the general sales tax.

Virginia’s shift from the user-fee gas tax to the general sales tax has sparked some debate. Supporters of the notion that drivers who use roads should directly pay for them don’t like the switch. Yet others reply that virtually every product bought today has a transportation component in its delivery and sale, meaning that taxing sales is also taxing driving.

There’s also a decade-old proposal that some argue is the ultimate solution to our road financing problem; charge drivers a fee per mile driven. Then it wouldn’t matter what kind of fuel is used or how many miles per gallon are achieved. However, to implement this proposal, some kind of calibrator or tracking device would need to be installed or applied to vehicles, and this has raised concerns about personal privacy.

Yet another option in financing today’s roads is to go full circle back to tolls. Technology has helped renew the interest in toll roads. Gone are the gatekeepers of my father’s era and the toll booths of more recent years.

Instead, users of toll roads today don’t even need to slow down when entering such highways. Cameras record the time of entry to and exit from the toll road, and drivers later receive a bill based on the number of miles driven on the road.

North Carolina is in the same predicament as most states; road needs are high, yet road revenues are limited. Our state has historically relied on the state gas tax to build and maintain highways. But is it time for a change? You — and our elected representatives — will have to decide!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/