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Only One Third of a Gas Tax Increase Passed on at the Pump
A penny increase in the gas tax doesn’t result in a penny increase in the retail price motorists pay at the pump according to a new report.
The analysis conducted by Dr. Alison Black, chief economist for the American Road & Transportation Builders Association, determined that on average, the price per gallon of gas reflected approximately 22 percent of a new tax the day after enactment. One month later, only about one third of the levy shows in the price at the pump, and in the longer-term, it is really not a retail price factor.
How are Gas Taxes Collected?
Many consumers, members of the media and policymakers do not understand how gasoline taxes are collected. While the tax is wrapped into the total price at the pump, it is not collected by retail sales outlets. The federal and most state gas taxes, including Wisconsin’s, are collected when the fuel is removed from the bulk storage terminal or at the distributor level.
What Drives the Price of Gas?
According to the U.S. Energy Information Administration, four factors contribute to the retail price motorists pay at the pump: 1) the price of crude oil, 2) refining costs, 3) distribution and marketing costs and 4) taxes. Volatility in retail gas prices is caused primarily by the price of crude and refining costs.
Nationally, the average weekly price of gas has fluctuated 5 cents per gallon since 2005 the study found.
Case Study: Wyoming
The Wyoming Legislature passed a 10 cent gas tax increase with an effective date of July 1, 2013.
The state estimated that the increase would cost the average Wyoming family $114 per year, assuming the entire per gallon increase would be passed on at the pump.
However, Senate Majority Floor Leader Phil Nicholas and others contended the regional nature of the gasoline market meant that by having lower fuel taxes than its neighboring states, Wyoming had subsidized lower prices in those states. As an indicator of this, Nicholas pointed out Wyoming’s lower tax rate had not been reflected in lower pump prices.
The analysis points to a small increase in the price of gas the day after implementation. One year later, the average price of gas was the same as the day before the hike in the gas tax, while the average price nationally had increased 18 cents.
Budget Stalls, Legislature Debates which Projects to Delay
The state budget continues to languish, largely because of an inability to come to agreement on the transportation portion, and emotions are running high. Quite frankly, they should be.
As legislators in different parts of the state understandably try to stand up for their districts and the people they represent, we devolve into an "us vs. them" scenario in which nobody wins.
If we look at the transportation budget from a statewide perspective, it becomes apparent why agreement is so difficult.
The legislature is right to reject the level of bonding Governor Walker proposed. When he was running for re-election, Governor Walker indicated the way we finance transportation in Wisconsin is “broken” and not sustainable. At that time, he even gave his DOT Secretary Mark Gottlieb a “broad mandate” to solve the growing problem of paying for transportation infrastructure, saying he hoped to find a breakthrough solution that could lead the nation.
Unfortunately, when the DOT submitted its budget proposal, a bold solution to put Wisconsin on a sustainable path for transportation financing, the governor rejected it. Instead he took a system that was “broken” and proposed to plunge it even further into debt.
Legislators have offered their own solutions to start addressing needs across of Wisconsin in a sustainable manner, but the governor has indicated he would veto those solutions. He has said, however, that he would sign a budget that reduced the borrowing by cutting spending.
So, now legislators are trying to figure out how to do the impossible – mete out $800 million of cuts in Wisconsin’s transportation budget without impacting the economy or safety of their citizens.
Over 30 Republican members of the State Assembly recently sent a letter to the governor, Senator Fitzgerald and Senator Darling stating if cuts are the only way forward, they need to be administered evenly across the state. The clear implication is that keeping the Zoo Interchange on schedule while delaying and cutting virtually every other project across the state is not going to fly.
Senator Darling has been outspoken in defense of keeping the Zoo Interchange on schedule. She issued a statement saying, “Delaying the completion of the core of the Zoo Interchange could jeopardize safety and would harm our state's economy.” She is, of course, correct. I actually would change the word “could” in her statement to “will.”
The problem is you could use that same statement to argue against delaying the long-awaited I-39/90 project through Beloit and Janesville as business representatives from that region promptly pointed out.
Businesses trying to weather the disruption brought by the reconstruction of Verona Road in Dane County are at their wits end. According to the DOT under even a $500 million cut, that project will now linger for an additional two years, pushing the completion date from 2018 to 2020. Some businesses are questioning if they will survive the delay.
The communities surrounding the 441 project in the Fox Valley certainly do not believe their economy will be unharmed by what appears to be an imminent delay.
As pavement conditions on Wisconsin’s highways have embarrassingly fallen into the bottom third of the country, we may want to remember that the vast majority of traffic fatalities occur on our non-interstate rural roads – 347 of them in 2013 to be exact.
If you stand back and look at Wisconsin as a whole, we really are forcing our legislators into a Sophie’s Choice scenario. The Zoo interchange needs to continue on schedule. It is the busiest intersection in the state. It carries the most commerce every day. The Medical College of Wisconsin, Children’s Hospital and Froedtert Health all sit just off this interchange and are impacted tremendously by this decision.
But the Zoo Interchange isn’t a one-off. We still have decades of interstate reconstruction in Southeast Wisconsin. Similar arguments can and will be made for I-94 East West, I-94 North/South and I-43 North etc. If we are going to “prioritize” these vital projects over the needs of everywhere else in Wisconsin, we might as well tell the rest of the state they will have to wait a generation before any of their transportation needs are met.
Lest we forget, we are in this position because apparently we are unwilling to do what many other states across the country are doing and ask the users to pay $30 or $40 a year more in order to preserve the system – for all of us.
Surface Transportation Reauthorization
With only a little more than a month until the current extension of surface transportation programs expires July 31, there is some progress. However, the betting money would still have to be on another short-term extension.
The Senate Environment and Public Works Committee recently approved S. 1647, a six-year highway funding authorization bill. The bill would provide $278 billion in Highway Trust Fund contract authority over six years (FY 2016-2021). This amount is approximately $16 billion more than the Congressional Budget Office inflation-adjusted baseline spending level over the period.
Most of the $16 billion increase over baseline is attributable to two new programs – the National Freight Program and the Assistance for Major Projects Program.
The bill still needs a transit title (Banking Committee) and a safety tile (Commerce Committee). And, of course, approximately $100 billion to support the Highway Trust Fund over the life of the bill (Finance Committee).
The House Transportation and Infrastructure Committee has not yet put forth a reauthorization proposal.
This month, both the House and Senate committees responsible for finding money to replenish the Highway Trust Fund have held hearings on the issue. While no concrete funding ideas were unearthed, Chairman Ryan of the House Ways and Means Committee, once again ruled out a gas tax increase.
Congress will need to pass a new authorization bill or a continuing resolution by the end of July. House leadership has consistently expressed their preference for an extension of HTF spending through December 31 of this year, which would require an infusion from the general fund to the HTF of somewhere between $8 and $11 billion.
The House passed a fiscal year 2016 transportation appropriations bill earlier this month. The bill includes cuts to programs routinely targeted by the House.
The major reductions from FY 2015 occur primarily in three capital accounts: TIGER Grants ($400 million), grants to Amtrak ($242.5 million) and Transit New Starts ($198.6 million).
The amount appropriated for the Federal Highway Administration is the same as in FY 2015 as is the amount for transit formula grants.
The Airport Improvement Program (AIP) receives the same amount as the prior year, while the Federal Aviation Administration account for facilities and equipment is reduced just shy of $100 million.
The Senate Appropriations Subcommittee approved a transportation appropriations bill for FY 2016 earlier this week.
The Other Side of the Cuts to Bonding
During the last month, there has been a story a day about the budget stalemate and the legislature’s debate about how much to reduce transportation bonding, $500 million or more.
On the other side of the financial decision to cut the bonding, there are projects that will be delayed and communities and industries left on hold.
Already Janesville and Beloit have spoken up about the likely delay to the I-39/90 project and the impact to commerce and safety. The Fox Valley is concerned about the delay of the Highway 10/441 project and wondering if it makes sense to stop or slow down a project when costs will only be higher in the future. The mayors of Madison, Fitchburg and Verona have asked the State of Wisconsin to honor its commitment to complete the U.S. Highway 151/Verona Road Project as planned, fearing businesses in the affected area may not survive a 2-year delay.
While the story has been about the delays to the larger projects, that is not the entire story. Many rehabilitation projects will likely be delayed, and the locals face a growing challenge to maintain transportation infrastructure and services. Douglas County leaders are considering a wheel tax and additional bonding for transportation needs as prospects of additional dollars from the state or the ability to raise money locally don’t look promising. And the City of Marshfield, facing competing demands for levy dollars and stagnant state funding, is cutting back on street repairs.
In an acknowledgement that an efficient transportation system is essential to bringing tourists to Wisconsin and their attractions, the Association of Wisconsin Tourism Attractions (AWTA) went on record in support of new funding to maintain Wisconsin’s transportation infrastructure.
Local officials, policymakers, and the public are just getting their heads around the potential impact of this budget.
TDA is working with the League of Municipalities, the Wisconsin Counties Association, the Wisconsin Towns Association, and others to find and tell these stories so people know what is coming.
Take a look at the plan DOT provided earlier this year for a $500 million reduction in bonding. While this may not be the final amount of the cut, the plan does give a good idea of DOT priorities and likely delays for Major and Rehab projects. If you see a story in any of these delays, contact the TDA office.
Troubling Ranking for Wisconsin's Rural Roads
Approximately, one in five miles of Wisconsin’s rural roads is in “poor condition,” according to a recent report from TRIP – a national non-profit transportation research group.
Compared to other states, Wisconsin has the 19th highest percentage of rural roads in poor condition. And among Wisconsin’s neighbors, only Michigan ranks higher.
Wisconsin has over 115,000 miles of roads, the vast majority of which are classified as rural. These rural roads provide important connectivity and are critical to many transportation-dependent business sectors. In addition, many jobs in urban areas depend on inputs from rural communities.
“Wisconsin’s economy is a three legged stool comprised of agriculture, tourism, and manufacturing that stands on the foundation of a quality rural transportation system,” said Mike Koles, executive director of the Wisconsin Towns Association. “The businesses that fuel Wisconsin’s quality of life continue to ask more of our rural roads and highways as part of their business model’s success. Unfortunately, because of what the report shows, our answer is increasingly one that causes them to avoid the quickest routes due to deficient roads and bridges. We must maintain and grow our rural infrastructure to match business and citizen needs or the foundation of our economy is at risk.”
The TRIP report finds that traffic crashes and fatalities on rural roads are disproportionately high, occurring at a rate over two times higher than all other roads in the state. Wisconsin had 347 non-Interstate, rural road fatalities in 2013.
Recent news reports indicate the 2015-17 budget may result in the delay of many road projects and the doubling of the number of miles of state roads rated “poor and below” over the next decade.
Interesting News Coverage
Seattle PI, June 28, 2015 – "Gas tax increase gains momentum in Washington Legislature"
Janesville Gazette editorial, June 20, 2015 – "Our Views: For safety reasons, please keep I-90/39 project on schedule"
Beloit Daily News editorial, June 20, 2015 – "Could it be? A bipartisan deal? Transportation is not a partisan ideological issue. Work together."
Racine Journal Times editorial, June 10, 2015 – “A road compromise should include raised taxes or fees”
Milwaukee Journal Sentinel editorial, June 9, 2015 – "State needs to start thinking creatively about road funding"
The Wall Street Journal, June 4, 2015 – “How a decaying infrastructure hurts U.S. manufacturing”
Wisconsin State Journal editorial, June 3, 2015 – “Override veto if Scott Walker won't pay for roads
Beloit Daily News editorial, June 3, 2015 – “Political threat to local project: Governor, legislators need to settle differences on highway funding”
The New York Times, May 28, 2015 – “New Jersey faces a transportation funding crisis, with no clear solution”
Mark these Dates
- TDA Annual Meeting: Thursday, September 17th. Please note the new date.
- TDA Fly-in 2016: April 6-7th
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