Highway Robbery: why Californians shouldn’t trust the federal gas tax

Originally published on Fox & Hounds on election day, November 2018.

Today, California voters will have a chance to weigh in on Prop 6, which would repeal a 12 cent/gallon increase in the state gas tax which came into effect last November (as well as cutting associated spending on roads and other transportation infrastructure in California).

Nearly absent from the Prop 6 debate has been any discussion of the federal gas tax. Surprisingly so, since at 18½ cents/gallon, the federal gas tax costs California taxpayers 54% more than the portion of the state gas tax that’s up for repeal. Californians will have a real opportunity to weigh in on the federal gas tax when it comes up for reauthorization in 2020, but only if we start laying the groundwork now.


You get CalTrans either way

Federal gas tax money goes into the federal Highway Trust Fund, which is distributed to state and local government agencies through grants. The Highway Trust Fund does not typically hire federal employees to build roads, nor does it contract directly with private companies to do so.

So while we might wish California’s state and local government agencies used transportation money more efficiently, in this respect, the federal gas tax is no different from the state one. You get CalTrans either way.

Some states are more equal than others

However, the federal gas tax is not just allocated among levels of government; it’s also distributed on a state-by-state basis according to a formula. And this formula gives a massive advantage to small states.

How much of an advantage? See for yourself. In fiscal year 2016, the federal Highway Trust Fund spent an average of $127.01 per person.

Here are the five states who received the most spending per person:

  • Alaska ($702.13)
  • Wyoming ($462.00)
  • Montana ($406.65)
  • Vermont ($343.12)
  • North Dakota ($338.67)

Lest you think that this is all about vast, rural states, Rhode Island ($217.58/person) and Delaware ($190.68/person) also make the top ten.

Here are the five states that received the least per person:

  • Washington ($99.25)
  • California ($98.69)
  • Florida ($95.03)
  • Massachusetts ($91.66)
  • New York ($90.05)

In fact, while Washington, California, Florida, and New York have some of the nation’s highest gas taxes, Alaska boasts the absolute lowest. How do they manage that? Look no farther than your own wallet.

Small states are cheap dates

How did such small states end up with such a large share of gas tax money?

As recently as 2009, provisions in federal law guaranteed that each state would get 0.5% of spending from the Highway Trust Fund, regardless of any other factors This may sound okay if you subscribe to the theory that all states are equal, but the fact is, in 2009, twelve states (including the top five, above) had less than 0.5% of the population. These provisions have been aroundsince at least 1982, and originated, of course, in the Senate, where all states receive equal representation. Pretty clever, small-state Senators!

The Trust Fund is by no means an isolated case. In their book Sizing Up the Senate, political scientists Frances Lee and Bruce Oppenheimer how small-state Senators turn disproportionate representation into disproportionate money for their constituents. The key is that while every Senator has an equal vote, it costs the federal government a lot less to spend more money per person in a state with few people. So the smaller a state is, the less money it takes to entice that states’ Senators into voting for a bill. As one Senate staffer they quoted put it: “The small states are cheap dates…. they can just sit back and the money rolls in.”

Paving over an ugly decision

If you look at the current law authorizing the Highway Trust Fund, you won’t see a small-state minimum. Instead, there’s a curious provision which ensures that each state receives the same proportion of funds it received in fiscal year 2015. Look at a previous version of the law, and you’ll find that fiscal year 2015 allocations were based on fiscal year 2012. Essentially, Congress used the fiscal equivalent of grandfather laws to ensure that small states continue to make out like bandits, without the law saying so explicitly.

This is not just sneaky, it’s harmful to fast-growing states: their allocation stays fixed while their proportion of the U.S. population grows. California, whose proportion of the U.S. population has hovered at just over 12.1% over the last decade is unaffected, but taxpayers in large, fast-growing states like Texas (which grew from 8.3% of the population in 2012 to 8.7% in 2017) feel the double whammy of fixed allocations and small-state advantage.

A hell of a deal for California taxpayers

So is the Highway Trust Fund a good deal for California taxpayers or a bad one? At first glance, it looks like California taxpayers may have emerged from this flaming wreck of a federal program unscathed, possibly even better off.

Let’s take a look at the numbers. While Californians made up 12.15% of the U.S. in FY2016, we only received 9.44% of federal Highway Trust Fund. However, we also only paid in 9.41% of federal gas taxes. In fact, because the Trust Fund spent more than it took in, the $98.69 per person the fund spent in California beats the $86.66 we paid in federal gas taxes.

But the phrase “spent more than it took in” should light up a warning light on your dashboard. It turns out that while, in theory, the Highway Trust Fund is paid for by gas taxes, in reality, it’s insolvent, and is paid for by a combination of gas taxes and some $139.9 billion in bailouts from the general fund over the last ten years. About three-quarters of the general fund comes from income taxes, 14.86% of which came from Californians in FY2016 — not a great deal compared to our 12.15% of population, much less compared to our 9.44% of Trust Fund spending.

But even if the federal gas tax were a total wash for California taxpayers, we’d still be worse off, because all the fund does is hand back Californians’ own tax dollars with strings attached. And, as we’ve seen, the federal government is not a neutral system that residents of all states equally — in fact Californians have less say at the federal level than people in any other state. We’re perfectly capable of taxing ourselves, thank you very much!

Can we count on heroes to save us?

The federal Highway Trust Fund should make any fiscal conservative’s blood boil. It spends more than it takes in, it discards fairness or any coherent concept of national interest in favor of enriching small states, and it accomplishes absolutely nothing that states could not do for themselves. Far from being an enlightened compromise, it’s little more than constitutionally enabled theft.

If anyone could save us from this mess, it’d be the hard-working taxpayer advocates behind Prop 6, right? Well…

The Yes on Prop 6 campaign lists nine members of Congress as Gas Tax Repeal Heroes: Doug LaMalfa, Tom McClintock, David Valadao, Devin Nunes, Kevin McCarthy, Steve Knight, Ken Calvert, Mimi Walters, and Dana Rohrabacher. When the federal gas tax was up for reauthorization in 2015, 8 of the 9 voted in favor of it. Rep. Tom McClintock did not, though he did co-sponsor the bill.

Nice to have insurance

The Highway Trust Fund is expected to run out of money in 2021, just after the current law enabling it expires. Congress is expected to take action in 2020, when at least one of the following things will happen:

1. more bailouts from the general fund

2. less spending

3. higher gas tax

4. the Fund expires for good

#1 (bailouts) and #2 (less spending) are the most likely scenarios. #3 (higher gas tax) would probably be extremely unpopular; the last time the tax was increased was in 1993, when Al Gore cast the tie-breaking vote in the Senate.

But we shouldn’t discount the possibility of #4: no bill at all. Congress is currently late re-authorizing the farm bill, and in the past few years we’ve seen government shutdowns, fights over the debt ceiling, and a general breakdown in trust and ability to compromise.

The end of the Trust Fund would be somewhat disruptive to California; we would lose almost $4 billion of transportation funding a year in exchange for doing away with a tax which even 8 out of 9 Congressional Gas Tax Heroes are apparently okay with.

But it doesn’t have to be this way. California could set things up so that if the federal government cuts (or repeals) its gas tax, the state gas tax automatically increases by the same amount. Essentially, the state would take over the role of the federal government here (albeit a role which consists largely of disbursing funds to state and local government). This isn’t just some new, crazy idea either. The state government set up exactly that sort of trigger in 1990, and it’s still on the books, albeit with rates too old to matter.

And if California did pass such a law again… why on earth wouldn’t we want the Highway Trust Fund to expire?

The path to “fixing” the federal gas tax might lie not through Congress, but through state legislatures. If California and other large states like Texas, New York, and Florida set up their own state tax code to anticipate the end of the federal Highway Trust Fund, their House members can make it a self-fulfilling prophecy by refusing to reauthorize it in 2020.

And the beauty of this plan is, it doesn’t require a single vote in the U.S. Senate.

Methodology and sources:

Highway Trust Fund revenue and spending data come from the Federal Highway Administration.

Income tax data comes from the Bureau of Economic Analysis.

Population data comes from the U.S. Census.

All data is on a fiscal year basis (for example, FY 2016 runs from October 2015 through September 2016). Since BEA data is by calendar year, I used a weighted average (e.g. 25% of 2015 values plus 75% of 2016 values) to obtain fiscal year estimates. Similarly, I used a weighted average to transform the census’ mid-year (July 1) population estimates into mid-fiscal-year (April 1) estimates.