As we stated last month, West Virginia, like most states, is finding it increasingly difficult to pay for construction of its road and bridges because its gas tax can’t keep up with the growth of fuel-efficient vehicles and the increasing number of miles driven on state roads. And while a vehicle miles traveled (VMT) tax might be a better option in the long-run for the state, in the short-run we will need to find additional sources of revenue if we want to maintain our roads and bridges. As the chart below illustrates, total State Road Fund revenue is projected to decline over the next several years from $698.2 million in 2014 to $662.2 million by 2016. (The good news is that the projections from the Department of Revenue tend to be conservative.)
According to the WV Department of Revenue, the decline in revenue collections is driven primarily by a predicted decline in fuel consumption over the next several years. This is because the flat rate of the gas tax, 20.5 cents per gallon, will decline as consumers purchase less gas over the coming years. Meanwhile, the variable gas tax rate, which is equal to five percent of the average wholesale price, will become a larger share of motor fuel tax collections but will not be large enough to offset the declining power of the flat rate.
As mentioned in the previous post, WVU economist Tom Witt studied the financing of West Virginia highways back in 2010 and recommended several options, including raising the motor fuel flat tax rate by 1.6 cents, increasing the variable gas tax rate and the sales (privilege) tax rate from five to six percent, and indexing registration fees to inflation. Witt also recommended looking at bonding, Public-Private-Partnerships (P3s), and the transfer of more authority over the local government. All of these are sensible options, but, of course, face many political barriers.
While there are several options the state could pursue, the best approach might be a combination of smarter investments, efficiency, new revenue, and enhanced partnerships.
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