Tennessee Transportation Funding:
Challenges and Options
Susan Mattson, Principal Legislative Research Analyst
Offices of Research and Education Accountability
[email protected]
To view the full report and presentation online, go to:
http://www.comptroller.tn.gov/OREA/
Scope
 Does not include recommendations
 Resource document with objective analysis
 Presents strengths and concerns for different
options
 Does not address
 Level of funding needed
 How funds are or should be spent
 Transportation modes other than highways
Background – State Road Funding
Other/Local,
2%
Sales and Use
Gross Receipts 7%
Beer
<1%
1%
Motor Vehicle
Registration
26%
State,
42%
Gasoline
47%
Federal ,
56%
Special
Petroleum Tax
4%…
Total Revenue = $1.83 billion
FY2014
Motor Fuel
15%
State Revenue = $788 million
Local Funding
Local User Fees
4%
State
48%
General Fund
Revenues
41%
Bond Proceeds
2%
Miscellaneous
5%
Total Revenue = $605.3 million
2012
Comparison to Other states
 Tennessee revenue per capita to highways in
2010 ($325.71) lowest in U.S. (Average =
$620.59)
 Tennessee relies more heavily on highway user
taxes than other states
 Tennessee does not use debt financing, tolls, or
general fund revenues for highways
 Tennessee roads generally rated as being of
good quality
Challenges
 Transportation revenues in Tennessee are not
expected to be sufficient to maintain existing
highways and meet long-term transportation
demand
 User fee revenues have stagnated and are not
expected to increase without changes
Tennessee Highway User Tax Revenues,
1989-2015
$700.0
Gasoline Tax
$600.0
$400.0
$300.0
Motor Vehicle Registration Fees
$200.0
Diesel Fuel Tax
$100.0
Special Petroleum Tax
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
$0.0
1989
in millions
$500.0
Tennessee Taxable Fuel Consumption, in gallons,
1989 through 2013
4.5
Total Motor Fuel
4.0
3.5
in billions
3.0
Gasoline
2.5
2.0
1.5
1.0
0.5
0.0
Diesel Fuel
Percent Change Tennessee Highway-User
Revenue Compared to Population and Economic
Growth, 2000 through 2014
Highway User Revenue
9%
Gross Domestic Product
64%
Per capita Income
48%
Population
15%
0%
10%
20%
30%
40%
50%
60%
70%
Tennessee Fuel Tax Revenue, Nominal and Inflation-adjusted
Dollars, 1989 through 2014
$1,000,000,000
Nominal $
$900,000,000
$800,000,000
National Highway
Construction Cost
Index
$700,000,000
$600,000,000
$500,000,000
$400,000,000
Consumer Price Index
$300,000,000
$200,000,000
$100,000,000
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
$0
Tennessee Vehicle Miles of Travel,
1989-2013
75,000
12,500
70,000
12,000
65,000
11,500
60,000
11,000
Vehicle Miles per Capita
55,000
10,500
50,000
10,000
45,000
9,500
40,000
9,000
Vehicle Miles of Travel
Vehicle Miles per Capita
Vehicle Miles per Capita
Vehicle Miles of Travel (millions)
Vehicle Miles of Travel
Estimated Average Fuel Economy of Light-Duty
Vehicles under CAFE Standards, 2010 to 2025
Uncertainty of Federal Funding
 Shortfalls in federal HTF in recent years funded
with General Funds
 No long-term solutions passed by Congress to
address shortfalls in Highway Trust Fund
Local Government Highway Funding
 Face same challenges as state with stagnating
revenue and increasing costs
 Local governments rely heavily on state-shared
fuel taxes
 Locals also use other local revenues for
highways and some borrow funds to varying
degrees
Possible Revenue Options
 Current Tennessee highway taxes and fees
 Increase fuel tax rates
 Index fuel tax rates to inflation or price or fuel
efficiency standards
 Increase motor vehicle registration fees
 Add a use tax for alternative fuel or high-mileage
vehicles that pay little or no fuel taxes that
support the up keep of roads
Options – cont.
 Used by other states
 Apply sales tax to fuel purchases
 Transfer General Fund revenue to highways
 Use debt financing
 General Obligation bonds
 Public-private partnerships
 Add weight distance taxes
 Local Option highway taxes
Options – cont.
 Addressing structural issues with current taxes
 Use of tolls
 Mileage-based tax systems
Motor Fuel Taxes
 Strengths
 “User pays” tax




Dedicated taxes are stable source of revenue
Low administrative costs
Out of state motorists pay
A small change produces substantial revenue at a
small cost to users
 Supports local roads under current distribution
formulas
Motor Fuel Taxes
 Concerns
 Variation in fuel efficiency so taxes not tied
as closely to road use
 Unless increased on regular basis do not
grow with economy
 Not directly tied to pavement damage of
vehicles
Other Considerations
 Tennessee gas tax last raised in 1989
TN gas tax 21.4 cents per gallon
 Tennessee diesel tax last raised in 1990
TN diesel tax 18.4 cents per gallon
Tennessee Gas Tax Rates (cents per gallon)
Compared to Other States, 2015
Alaska
New Jersey
South Carolina
Oklahoma
Missouri
Mississippi
New Mexico
Arizona
Texas
Louisiana
Alabama
Tennessee
Arkansas
Colorado
Virginia
North Dakota
Delaware
New Hampshire
Wyoming
Kansas
Utah
Kentucky
Massachusetts
Nebraska
Montana
Ohio
Minnesota
South Dakota
Maine
Vermont
Oregon
Iowa
Idaho
Maryland
Georgia
Wisconsin
Nevada
Rhode Island
West Virginia
Indiana
Michigan
Illinois
North Carolina
Florida
Washington
Connecticut
California
Hawaii
New York
Pennsylvania
12.25
14.50
16.75
17.00
17.30
18.78
18.88
19.00
20.00
20.01
20.87
21.40
21.80
22.00
22.33
23.00
23.00
23.83
24.00
24.03
24.51
26.00
26.54
27.00
27.75
28.00
28.60
30.00
30.01
30.81
31.07
32.00
32.00
32.10
32.62
32.90
33.85
34.00
34.60
35.64
35.99
35.99
36.25
36.42
37.50
0
10
20
30
40
Tennessee gas tax is 12th
lowest in U.S.
9.08 cpg below U.S.
Average
40.86
42.35
45.10
45.99
51.60
50
60
Tennessee Diesel Tax Rates (cents per
gallon) Compared to Other States, 2015
Alaska
Oklahoma
South Carolina
Missouri
New Jersey
Tennessee
Mississippi
Texas
Louisiana
Colorado
Alabama
Delaware
Arkansas
New Mexico
North Dakota
Kentucky
New Hampshire
Wyoming
Utah
Virginia
Kansas
Nebraska
Massachusetts
Arizona
Ohio
Montana
Nevada
Minnesota
South Dakota
Oregon
Maine
Michigan
Vermont
Idaho
Maryland
Wisconsin
Iowa
Florida
Rhode Island
West Virginia
Georgia
North Carolina
Illinois
Washington
California
Hawaii
Indiana
New York
Connecticut
Pennsylvania
12.75
14
16.75
17.3
17.5
18.4
18.4
20
20.01
20.5
21.85
22
22.8
22.88
23
23
23.83
24
24.51
26.03
26.03
26.4
26.54
27
28
28.5
28.56
28.6
30
30.34
31.21
31.38
32
32
32.85
32.9
33.5
33.67
34
34.6
36.18
36.25
36.63
37.5
39.38
41.96
42.89
45.1
0
10
20
30
40
50
Tennessee diesel tax is 6th
lowest in U.S.
11.71cpg below U.S.
Average
50.3
65.3
60
70
Annual Gas Tax Paid – Common Passenger
Vehicle
 Assumptions: 15,000 miles driven per year/
20 miles per gallon = 750 gallons of gas
 State Gas Tax
 750 gallons X 21.4 cents per gallon = $160.50
1.1 cent per mile
 Federal Gas Tax
 750 gallons X 18.4 cents per gallon = $138.00
1 cent per mile
 Total State and Federal Gas Tax = $298.50
 One cent increase = $7.50 per year
Revenue projections
 Gas Tax
 1 cent increase = $30.9 million (+ 5%)
State Highway Fund (60%) $18.54 m
Local Highways (38%)
$11.74 m
General Fund (2%)
$ 0.62 m
Revenue projection
 Diesel Tax
 1 cent increase = $ 9.6 million (+ 6%)
State Highway Fund (60%) $ 6.91 m
Local Highways (38%)
$ 2.5 m
General Fund (2%)
$ 0.19 m
Variable Rate or Indexed Fuel Taxes
 Strengths
 Allows fuel taxes to better adjust to changes
in the economy and purchasing power over
time
 “User pays” tax
 Retains lower administrative costs if tied to
current taxes
 Requires less frequent legislative action to
change the rates
Variable Rate or Indexed Fuel Taxes
 Concerns:
 Volatility of index measures
 Can include floors, ceilings, and change
limitation to reduce volatility
 Limits public debate on changes
 What index to use to best reflect highway
costs
 Still tied to fuel consumption
Variable Rate options
 Indexed to CPI from 1989
 Gas tax = 20 to 38 cpg ($556.2m FY15)
 Diesel tax = 17 to 30 cpg ($124.8m FY15)
 Index to Wholesale or Retail Price of Fuel
Variable Rate options
 Add current sales tax rates (9.5% average) to
fuel
 State $1 billion (+186 %)Local $368 million
(+127%)
 Add 1% sales tax to fuel
 $147.1 million (+17.5%)

Based on average fuel prices of $3.453 per gallon for gasoline and $3.77 for diesel
fuel; sales tax revenue would fluctuate with the price of fuel.
Vehicle Miles Traveled Tax
 Strengths
 Enhances the “user pays” principle – tax
based on miles driven, not fuel used
 Can use to address other policy goals such
as reducing traffic congestion and vehicle
pavement damage
 More feasible administratively with new
technology
Vehicle Miles Traveled Tax
 Concerns
 Public acceptance low
 Concerns with privacy protection
 Increased administrative costs
 How to account for non-resident driving
Debt Financing
 Requires a commitment of dedicated recurring
funds to repay any debt issued
 Questions or comments?
To view the full report and presentation online, go to:
http://www.comptroller.tn.gov/OREA/