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Raising the gas tax, the conservative thing to do 1/8/2016

01/08/2016, Montgomery Advertiser – As is the case in so many states, Alabama’s transportation infrastructure (its roads and bridges) is in dire need of new investment and a consistent and dependable program of maintenance and repair. Through inflation and increased fuel efficiency, revenues from federal and state gas taxes – the usual sources of transportation funding – have fallen far below the amount needed. In fact, the purchasing power of Alabama’s transportation budget is currently equivalent to what it was in 1983. Consequently, it is sufficient only for upkeep with little or no prospect for much needed new investment.

Past years’ efforts to raise the state’s gasoline tax rate have met with voter disapproval. This month the Joint Transportation Committee of the Alabama Legislature will conduct a series of five meetings to gauge if public sentiment has shifted toward raising this user fee. In addition, the Association of County Commissioners of Alabama is initiating “Drive Alabama,” a campaign supporting an increase of five cents per gallon in the current levy on fuel consumption.

Politicians usually prove their “conservative” credentials by opposing all forms of taxes, arguing that such constraints on revenue are necessary to control the size of government. Unfortunately, this “no new taxes” posture violates another conservative principle: “people should pay for what they use.” At present, our transportation budget suffers from the fact that drivers are using these public assets without paying the costs they impose on the system. As we will argue, the increase being sought by the County Commissioners is a very appropriate fiscally conservative step to take. Let us explain.

In a competitive market for private goods and services, consumers consider price when deciding on the quantity to purchase. When it comes to public goods and services, such as the usage of a transportation system, gas taxes play the same role as prices do in private sector markets. Because the total user charge that drivers pay is in proportion to miles driven, it imposes incentives on them to adjust their driving to be more efficient in their use of the roads.

It is a standard fiscally conservative public management principle to “use market solutions whenever possible, and when not possible, to try to mimic market solutions as closely as practicable.” This implies a preference for market solutions, and explains the rationale for why economists prefer user charges when applicable to pay for public goods. In the coming years, it will help public discussion if people have a firm grasp of the advantages of user charges and why they should not be included in “no new taxes” pledges.

In the absence of raising the gas tax rate, our roads and bridges will either continue to deteriorate or their maintenance and repair will be funded from revenue sources other than gas taxes, such as borrowing or general taxes. If revenues from other tax sources or from increased state indebtedness are used for this purpose, then general taxpayers will be forced to subsidize drivers. Unfortunately, this subsidy reduces the cost to drivers below the full cost per mile that they impose on the system, encouraging more total driving than would otherwise occur. This increased use of roads results in increased maintenance and repair costs for the state’s taxpayers.

With gas prices as low as they are today, motorists can easily adjust to a requirement that they pay for what they use. To avoid a repeat of inadequate funding, a new law should provide for automatic inflation adjustments. The inflation adjuster assures a reliable flow of funding from users, enabling the State to steadily keep the roads in good repair. Because regular maintenance costs less than emergency repairs, the total cost to the system would then be lower. Finally, using the gas tax to pay for repair and maintenance of the transportation infrastructure allows the state to reserve its debt capacity for pro-growth capital investments rather than for road consumption. A competitive advantage awaits those states that get out ahead of the nation on fixing their roads. Raising the gas tax rate would enable Alabama to demonstrate leadership and say: “Alabama is Open for Business.”

Charles O. Kroncke is former dean of the College of Business at Auburn University. William L. Holahan is emeritus professor and former chair of the Department of Economics at the University of Wisconsin-Milwaukee. They are co-authors of “Economics for Voters.”