As the Tax Restructuring and Equalization Task Force moves toward the finishing line of recommending what Utah’s tax reform should look like, in September, they took a deep dive into Utah’s transportation budget and how it is funded.
With $1.74 billion appropriated in FY 2020 to statewide transportation, it’s important to understand how roads and other modes of transportation are funded.
Interestingly, Utah’s Constitution mandates that the proceeds of any tax, fee, and other charges related to the operation of motor vehicles on public highways must be used for highway purposes, with few exceptions. These taxes and fees include the motor fuel tax (gas tax), the special fuel tax (mostly diesel fuel), and motor vehicle registration fees.
Utah’s Department of Transportation (UDOT) receives funding from two primary funds, the Transportation Fund (TF) and the Transportation Investment Fund (TIF).
First, The Transportation Fund (TF) revenue is used exclusively for highway purposes, as prioritized by the Utah Transportation Commission. This commission meets regularly to determine and order the greatest transportation infrastructure needs in the state. The Transportation Fund primarily funds maintenance projects on state highways. This fund is financed heavily by the gas taxes paid at the pump.
UDOT told the Task Force that the Transportation Fund, which is used primarily for maintenance and operation of existing state roads and is roughly $534 million in FY 2020.
Meanwhile, the TIF is used to pay for the creation of new state roads, as deemed by projects prioritized by the Transportation Commission. The TIF has appropriated $622 million in FY 2020.
However, UDOT told the Task Force that the 2019 Unified Plan for Transportation, which is created by UDOT, the Wasatch Front Regional Council, and Mountainland Association of Governments, shows from 2019 to 2050, Utah will need to invest a total of $109.7 billion into transportation in order to keep up with population growth and expanding housing across the state.
Based on current revenue projections and funding sources, roughly $74 billion of that would be funded, leaving a gap of $35.4 billion from now until 2050. Keep in mind, Utah’s sales tax already funds transportation projects to the tune of more than $600 million each year. Generally, using sales tax to pay for roads is poor fiscal policy. Your Taxpayers Association has long held that it is best to keep the connection between the items being taxed and how government uses the tax as close as possible. In prior years, the Legislature has created sales tax earmarks for transportation, without regard to possible consequences of such actions. Placing sales taxes into road funding is an easy out to increasing road funding without technically calling for a direct tax increase.
All in all, there are earmarks for transportation that total $644 million for FY 2020.
In addition, the Task Force examined the possibility of raising the gas tax in order to make the sales tax available for General Fund purposes.
Raising the gas tax, while sound tax policy, cannot be entirely relied on, the Task Force was told. As vehicles become more fuel efficient, they are consuming less gas, therefore paying less into the system.
Construction costs for transportation are also increasing, according to UDOT. The average annual growth rate for the gas tax from 2003 is 1% per year. Compare that to the 7% annual growth rate in construction cost over that same time period.
If the Legislature opted to raise the gas tax, which is tied to the consumer price index currently, revenue would increase by $90 million for every 5 cents that it was increased by.
Another option that was presented to the Task Force, perhaps in tandem with increasing the gas tax, was Utah more fully adopting a road usage charge (RUC). RUC is essentially paying for the mileage you drive within the state, rather than the gas tax. The Utah Taxpayers Association’s Vice President Rusty Cannon serves as a member of the Road Usage Charge Committee, organized by UDOT. This committee is investigating ways to implement RUC statewide over the coming years.
Utah is already implementing a voluntary RUC program, geared towards vehicles that do not pay into the transportation system (electric vehicles, primarily). In fact, according to UDOT, electric vehicles only pay a total of $595 in annual costs, which includes electricity and a $20 hybrid fee. Compare that to a vehicle that averages 20 miles per gallon (the statewide average), which pays $376 annually into the transportation system, plus all the additional costs associated with vehicle ownership, for a total of $2,331.
RUC does have its challenges, even though it would directly tie the user of the system into paying for it and is significantly more sustainable than other methods. The Task Force noted that concerns over privacy and technology may not make RUC widely available in the near future, but ought to be looked into as being part of the long-term plan for funding roads.
If Utah were to move entirely to a RUC-funded model, it could generate 1.7 cents per mile, or $363 million for all state highways, $200 million for interstates, and $131 million for urban interstates.
The Task Force discussed other options including tolling on state roads (generate $1 billion if implemented on all state roads), enacting a carbon tax (your Taxpayers Association remains firmly opposed to this option), and increasing registration fees for vehicles.
Expect conversations to continue on transportation funding, considering Utah’s growth and the strong earmarks and funding gaps associated with it.