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Talking Transit: New fuel economy standards reinforce need for a more sustainable approach to transportation funding

Photo courtesy of Chris Keating

Nations around the world are heightening their fuel efficiency standards.

Published twice a month, MPC’s Talking Transit provides updates about transit-related activities around the world.

Get In the Loop on all the latest local, national, and international transit headlines. >>

Did you Know? Germany, which will have a fuel economy standard of 60.6 miles per gallon by 2020, funds transportation infrastructure through a mix of sources including “heavy goods vehicles” or trucks tolling. Instituted in 2005, a total of $7.72 billion (U.S.) in revenue was collected the first two years the system was in place.

The Obama administration has finalized landmark vehicle fuel efficiency standards that will curb demand for oil by two million barrels per day, encourage changes in consumer behavior that reduce household transportation costs by $8,000 per vehicle, and benefit the environment. It is good policy to reduce fuel consumption, but a side effect of fewer trips to the pump will be less revenue generated by the Motor Fuel Tax that funds our nation’s transportation infrastructure—a decline that only reinforces the nation’s need for a more sustainable approach to transportation funding. 

Enacted by Congress in 1975, the CAFE standard, or Corporate Average Fuel Economy standard, require automakers to produce passenger vehicles that achieve a minimum number of miles per gallon, with the goal of reducing carbon emissions and conserving energy. This standard applies to all light duty vehicles including cars, sport utility vehicles, pickup trucks, minivans, and crossover utility vehicles. The new rule raises the average to 54.5 miles per gallon by 2025, from 29.7 mpg now and 35.5 mpg in 2016. It will nearly double the fuel efficiency of vehicles on the road by 2025, saving consumers more than $1.7 trillion at the gas pump and reducing U.S. oil consumption by 40 billion gallons.

While this fuel standard will be the norm in 10 years, many consumers already have begun the switch to more fuel efficient vehicles over gas guzzlers. This switch—combined with an 18.4-cent per gallon federal fuel tax that has not increased since 1993—has led to a decrease of $57 billion going into the nation’s bankrupt Highway Trust Fund and a significant loss in purchasing power. This unsustainable funding stream has forced a $35 billion bailout from the General Fund to the Highway Trust Fund over the past four years. When Congress in June passed MAP-21, the current two-year transportation authorization, they didn’t address the revenue shortfall; instead they diverted another $20 billion from the General and other funds to the Highway Trust Fund, relying on a number of unrelated revenue sources, such as pension fees, to replace those transfers. 

The Congressional Budget Office (CBO) projects that under today’s Motor Fuel Tax and transportation spending policies—not including the new CAFE standard, which will further depress these figures—the receipts credited into the federal Highway Trust Fund will be $147 billion less than the fund’s projected outlays over the next 10 years due to declining purchasing power of the federal fuel tax. Factoring in the new CAFE standard, fuel tax receipts will decline by another 21 percent, as people buy new vehicles. This will add another $57 billion to the shortfall, for a total gap of $204 billion—$141 billion in the highway account and $63 billion in the mass transit account. 

Most states also levy their own Motor Fuel Tax, meaning states and metropolitan regions will be hit with even further revenue declines. The Chicago Metropolitan Agency for Planning (CMAP) analyzed how the new CAFE standard will impact funds the Chicago region receives from the Illinois fuel tax, and the picture is grim: the analysis shows that state fuel tax receipts in the Chicago region may decline more than 36 percent through 2040, not including losses in federal tax receipts. Like the federal fuel tax, Illinois’ has lost significant purchasing power because it has remained at 19 cents per gallon since 1991.

While the new CAFE standard will further decrease transportation funding, those revenues have been on the decline. The U.S. needs a new, reliable revenue source to fund the transportation improvements commuters and employers desperately need. CMAP recommends and the Metropolitan Planning Council (MPC) supports increasing the Illinois fuel tax by eight cents per gallon and indexing it to inflation as a near-term solution. MPC also supports advancing user-based charges or allowing state and local governments to toll existing capacity, both of which could provide new, stable transportation revenues. Further, innovative financing tools such as public-private partnerships and value capture instruments can supplement these funding sources. Any funding enhancement must be linked with performance measures at the federal and state level that target investments to advance coordinated regional goals and a strong national vision that outlines clear priorities for our transportation system.

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