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The Fuel Tax: An Unsustainable Transportation Revenue Source

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Presentation on theme: "The Fuel Tax: An Unsustainable Transportation Revenue Source"— Presentation transcript:

1 The Fuel Tax: An Unsustainable Transportation Revenue Source
Provide quick overview of the FTC. Northwest Florida Regional Transportation Planning Organization March 16, 2015 By Mark Reichert Florida Transportation Commission

2 TODAY’S OBJECTIVE Overview of transportation funding in Florida
What’s staring us in the face Become an advocate My goal this afternoon is to provide you with enough information on how transportation infrastructure is funded in Florida and about the fiscal challenges we are facing so that you can become informed advocates and help spread the message that if we don’t at least acknowledge there is a problem and begin the discussion of replacing our primary source of transportation revenue with a more sustainable option, our economy, along with our quality of life, will decline.

3 State Transportation Trust Fund Receipts by Category
First, I’d like to spend a little time describing how we fund transportation infrastructure in Florida. It is funded by a combination of federal, state, and local fuel taxes; fees on annual vehicle registrations, the initial registration, and vehicle titles; a $2.00 per day rental car surcharge, and a share of documentary stamp taxes. The state’s toll facilities are primarily supported by tolls and concession earnings. Taxes on the sale of motor-fuel accounted for approximately two-thirds of the transportation revenue receipts in FY 13/14. This chart is fairly typical of annual receipts, though the share of federal funds is larger than normal as the Department was building up a cash reserve in response to the federal highway trust fund debacle. Federal fuel taxes typically account for approximately 32% of the non-toll receipts. This is important to note as I’ll explain later. (Pause – then ask what the current total fuel tax is in Florida.) *This chart does not include approximately $1 billion in Constitutional, County, Municipal, and Local Option fuel taxes which are distributed directly to local governments nor $851 million in Toll Revenue receipts.

4 CALENDAR YEAR 2015 FUEL TAX RATES (cents per gallon)
That’s a trick question, because the answer depends on which county you’re in when you purchase your fuel. When we go to the gas station to fill up our tanks we are paying the same federal, state, and local fuel taxes on each gallon of fuel we pump, regardless of the price of the fuel. Federal highway fuel taxes are 18.4 cents per gallon on gasoline and gasohol and an additional 6.0 cents per gallon on diesel cents of this is transferred into the federal mass transit account and one-tenth of a cent goes towards LUST (the Leaking Underground Storage Tank Trust Fund). (Federal tax has not been raised since 1993.) There are 2 fuel taxes that compose what we refer to as the State Fuel Tax. There is the State highway fuel tax which is applied to each gallon of motor fuel, at 13.3¢ per gallon. The State Comprehensive Enhanced Transportation System Tax (or SCETS tax) is 7.3 cents per gallon. All counties impose the 7.3¢ rate except Franklin, which imposes a 6.0¢ rate. The state and SCETS fuel taxes are the only fuel taxes indexed to inflation. They are adjusted annually on January 1st. (13.1 and 7.2 previously.) There are 3 State imposed Local fuel taxes: the Constitutional Fuel Tax went into effect in 1943 and is imposed on all motor fuels at 2.0¢ per gallon; the County Fuel Tax went into effect in 1941 and is imposed on all motor fuels at 1.0¢ per gallon; and the Municipal Fuel Tax became law in 1971 and is imposed on all motor fuels also at 1.0¢ per gallon. None of these 3 fuel taxes flow through the STTF. None have ever been increased. There are also 3 locally imposed local option fuel taxes: There is the 1 to 6 cents County Local Option Fuel Tax that’s been around since 1985, which may be authorized by a majority vote of the governing body or by voter approval in a countywide referendum (it’s mandatory that all counties levy this tax at the full 6.0¢ on diesel fuel). There is another County Local Option Fuel Tax of 1 to 5 cents per gallon that went into effect in Diesel fuel is not subject to this tax. This additional tax can be levied by a majority plus one vote of the membership of the governing body or by voter approval in a countywide referendum. And there is the Ninth-cent Fuel Tax that’s been around since 1972, which is a penny tax assessed on every gallon of motor and diesel fuel sold within a county. The tax may be authorized by an extraordinary vote of the governing body or by voter approval in a countywide referendum. (It is mandatory that all counties levy the tax on diesel fuel.) None of these local taxes flow through the STTF.

5 Locally Imposed Fuel Taxes Fuel Tax Rates as of January 1, 2015
Of the 12 cents of locally imposed fuel taxes available, only 23 counties have implemented the 3 local option fuel taxes to their fullest extent and 23 counties have implemented only 7 cents of the locally imposed fuel taxes. (Okaloosa County has implemented 10 cents.) So, the maximum tax that can be levied on a gallon of gasoline or gasohol in the state of Florida is 55 cents per gallon; 56 cents on diesel fuel. By the way, if every county imposed every local option fuel tax available to them, approximately $223 million in additional transportation revenue would be raised annually at the local level.

6 Federal Aid Transportation Apportionments: Actual and Forecasted (in Millions of $)
As I noted earlier, federal aid normally accounts for about 1/3 of the STTF receipts. This chart shows the annual federal apportionments received by Florida from FFY 2002 through 2012 under SAFETEA-LU, the previous Federal Transportation bill. The 2013 and 2014 apportionments are based on MAP-21, which is the current two year federal transportation bill. Even though it’s just a two year bill, FDOT executive leadership has decided that for forecasting purposes, 2015 and out will be held constant in regards to federal apportionments. The federal highway trust fund is currently being supplemented by general revenue transfers ($61.9 Billion since 2008) and transfers from the LUST fund ($3.4 Billion). About $35 Billion now flows into the HTF each year while $54 Billion flows out. It was projected to run dry in August 2014 unless Congress came to the rescue which would have resulted in almost no new federal obligations in FFY 15. However, at the last possible minute Congress passed and the President signed HR 5021 which transferred $10.8 Billion in GR funds using Pension Smoothing, Customs User Fees another LUST Fund transfer. (click mouse) This action made the HTF solvent through May of 2015 when the whole circus starts all over again at which time, if Congress fails to address the transportation funding issue (click mouse) we will once again be faced with an almost non-existent federal transportation program in FFY 2016. The federal HTF is in this position for two reasons: 1). as I mentioned earlier, the federal fuel tax has not been increased since 1993 and inflation has steadily eroded its purchasing power and 2). because of the increasing fuel efficiency of the national fleet of vehicles.

7 Fuel Consumption in Florida (in Millions of Gallons)
Now, just looking at Florida, over the past few years, transportation revenue generated from fuel sales has declined as a result of impacts from both an economy in recession and the introduction of more fuel efficient vehicles. Between 1990 and 2005, fuel consumption in Florida increased an average of 3.4% each year. Consumption dropped over 5% in FY 08/09, and over the last nine years it’s decreased an average of 0.6% each year, though the most recent figures are finally showing a slight increase in fuel consumption. However, we attribute this more to the increase in our population and tourist than from anything else. Fuel consumption today is equal to the amount of fuel we were consuming in 2003.

8 Per Capita Weekly Fuel Consumption in Florida (in Gallons)
One would assume that as the economy continues to recover from this recession the demand for gasoline and diesel fuel will increase, therefore, transportation revenue generated from the sale of fuel will also increase. However, there are changes in personal driving habits, federal regulations and the automobile manufacturing industry which have had and will continue to have a profound effect on the state’s ability to raise sufficient revenue from the sale of fuel to support the state’s transportation infrastructure. This chart illustrates the number of gallons of fuel consumed on a per capita basis in Florida. You can see the dramatic drop associated with the recession, but you can also see what the Revenue Estimating Conference is forecasting for the future.

9 Daily Vehicle Miles Traveled in Florida (in Thousands of Miles on all Public Roads)
This chart is what’s really remarkable. It graphically illustrates the drop in vehicle miles driven and what is believed to be a permanent change in personal driving behaviors. Not only are we driving less, but when we drive, we are using vehicles which are much more fuel efficient than they were just a few years ago. On April 1, 2010, the U.S. Department of Transportation and the U.S. Environmental Protection Agency jointly established new federal rules that significantly increased the fuel economy requirements of all new passenger cars and light trucks sold in the United States. Starting with the 2012 model year vehicles, the rules required automakers to improve fleet-wide fuel economy by approximately five percent every year; reaching a combined industry-wide fleet average of 35.5 miles per gallon by the 2016 model year. This was the first increase in the Corporate Average Fuel Economy (CAFE) standards in 25 years.

10 To compound the situation, the U. S. DOT and the U. S
To compound the situation, the U.S. DOT and the U.S. EPA subsequently raised the CAFE bar again requiring automobile manufacturers to attain a fleet-wide average of 54.5 MPG by There was a time when the automobile industry fought any increase to the standards. This isn’t the case anymore. Automobile manufacturers are working hard to be able to meet this new standard. According to the most recent data I could find, 2013 model year passenger cars were averaging 36.0 miles per gallon. Innovative technology continues to improve the efficiency of internal combustion engines and more hybrid (gas/electric) and alternative fuel vehicles continue to enter the market. And to further compound the situation, the Obama Administration recently announced it is working on increasing the fuel economy standards for the commercial trucking industry. Laudable goals, of course, but not for a revenue stream that’s based on the amount of fuel consumed.

11 Super High Mileage Vehicles
There are currently 68 hybrid and all electric vehicles on the market rated for highway travel. Here are just a few examples… They include hybrid vehicles which combine an internal combustion engine and one or more electric motors, and all-electric vehicles which use no fuel. Since these vehicles use little or no fuel, they pay little or no fuel taxes in support of the transportation utility, yet still contribute to congestion and wear and tear on the system. Driving an EV is synonymous with splicing into your neighbors cable so you can have free access to cable TV. You’re taking full advantage of the utility without paying for that utility.

12 REC Fuel Tax Revenue Forecast
Gap between 06 REC and actuals/14 REC= ($4.1 billion) Forecast in Millions of $ So where does all of this get us? (Talk about issue with the way RECs are done.) The blue trend-line on this graph represents estimated fuel tax receipts based on the March 2006 Revenue Estimating Conference. That was the last positive REC before the recession started. The red trend-line is a combination of actual fuel tax receipts through FY 13/14 and estimated fuel tax receipts based on the latest REC from this past December. (Click Mouse) If I highlight the 11 common fiscal years between the two RECs, the difference between the estimated receipts from 2006 and the actual and estimated receipts in those common fiscal years is (click mouse) more than $4.1 billion dollars. What’s really remarkable about the December 2014 trend line is that the REC uses data provided by Global Insight, a global economic forecasting firm. The data provided does not take fully into account the impact that the new Federal CAFE standards will have on future fuel tax receipts. My point is the red trend line will most likely be further south than is represented on this chart.

13 Impacts of Fuel Efficient Vehicles on State Fuel Tax Revenue (in Billions of $)
Note: Graph only illustrates the impact to State Fuel Tax Revenue. Federal and Local revenue base-line data is not available. FDOT recently revised an analysis it conducted for us 4 years ago that shows the impact of just what the new CAFE standards will have on fuel tax receipts. The trend lines on this slide illustrate the impact to just the state fuel tax collections through FY 24/25. The blue line shows what the Revenue Estimating Conference in December of 2014 predicted we will receive in state fuel tax collections and the red line shows what is estimated we will actually receive in state fuel taxes as more fuel efficient vehicles enter the statewide fleet. The impact caused by more fuel efficient vehicles entering the market is more than $3.3 billion in unrealized state fuel tax collections through FY 24/25. One can assume, since annual federal fuel tax receipts are about the same as the state fuel tax receipts, that an additional three plus billion dollars will be lost in future federal fuel taxes, as well. This graph also doesn’t include the impact more fuel efficient vehicles will have on local fuel tax collections.

14 By the way…a dollar just doesn’t buy what it used to
By the way…a dollar just doesn’t buy what it used to. This slide illustrates the decline in the purchasing power of the federal motor fuel tax since 1993 based on an analysis by AASHTO, the American Association of State Highway and Transportation Officials. Basically, what a fuel tax dollar bought in 1993 is expected to only purchase 52% of the same item by 2023.

15 Average Driver Investment
The average driver in Florida contributes just $ annually towards the State’s transportation infrastructure (highways, public transportation, rail, seaports, airports) in tag fees and federal, state, and local fuel taxes Monthly contribution equals $27.90 Methodology developed jointly by FDOT and the Commission indicates that the average driver in Florida contributes just $ each year towards maintaining and expanding the state’s transportation infrastructure. This works out to only $27.90 per month. We spend more on our cable TV and our cell phone bills than we do on the utility that provides us the freedom of movement and allows our economy to function. I just want to be clear on this point. The average driver in Florida contributes less than $30 a month in state, federal, and local fuel taxes and tag fees towards the upkeep and expansion of Florida’s roadways, bridges, transit systems, airports, seaports, and railways.

16 The 2040 unfunded needs on just the Strategic Intermodal System (SIS) is estimated to be $131.2 billion in 2010 dollars. So, how high is this cliff we need to scale? The difference between the investments that are needed to address the mobility needs of the state and the available funding on just the Strategic Intermodal System portion of the state’s transportation infrastructure, through 2040, is estimated to be $131.2 billion in 2010 equivalent dollars. Obviously, continuing to rely on the fuel tax as our primary transportation revenue source will not close this unfunded gap. Right now, only 43% of the Department’s budget is dedicated to Capacity Improvements to the state’s highway, aviation, rail, seaport, transit and intermodal systems. The rest is dedicated to operations and maintenance, product support, and debt service, in other words, the care and feeding of the existing transportation system. Since the Department’s top priorities are safety and preservation of the system, the percentage dedicated to capacity improvements will only get smaller as fuel tax receipts continue to decline. So… what happens when the transportation system can’t keep pace with economic growth?

17 This is what happens when the economy grows faster than the
transportation system’s ability to accommodate it. You get grid-lock. I readily admit this is an extreme example. This is a picture of a traffic jam on one of China’s major expressways. The traffic jam was 60 miles long and lasted 11 days. This type of situation is not in our foreseeable future, but if we don’t at least start talking about finding a suitable alternative for funding our transportation infrastructure, we may be headed down this roadway (pun intended). 60 mile long traffic jam in China.

18 Thank You! 850-414-4103
Speaking point: Not Chicken Little saying the sky is falling. Florida is in a much better financial position for funding its infrastructure than almost all of the other states in the country. We have been adjusting our state fuel taxes based on the CPI since 1992. This indexing of the State Fuel Taxes has resulted in an additional Billion since the indexing began. We have used tolling to a larger extent than most states. We are growing again. Over 250,000 moving to the state each year. Almost 100 million tourist last year. (double edged sword) We have a record transportation budget this year. $10.1 billion. But it was $9.1 billion in FY 06/07.

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