The user pays model of financing highway and road construction and maintenance has served our nation well since the early 20th Century. In 1956, Congress further embraced this model when it created the Highway Trust Fund, financed by the gas tax, to pay for the creation of the interstate highway system. Even then, the user pays model was not a new concept. In fact, the wisdom of this approach can be traced back even farther, to Adam’s Smith’s Wealth of Nations, where he expounded on the important role of government in supporting public infrastructure provided that the primary source of revenue came from those who used the roads, bridges and ports.
While the gas tax is not a straight form of a user fee, it shares many commonalities. In particular, those who drive more tend to pay more. For example, the long-haul trucking industry pays a significant portion of all fuel taxes. Additionally, drivers of less fuel efficient vehicles pay a higher share of the gas tax than those who drive more fuel efficient or hybrid vehicles.
When government services are financed by a user pays model instead of general appropriations we get a clearer picture of true demand. Properly priced fuel taxes encourage more optimal use of the transportation system, better coordination of trips and use of other forms of transit when appropriate. By contrast, funding transportation out of general revenue sources makes roads appear “free.” Consequently, there is a greater tendency for the system to become overused and congested.
Arizona enacted a user pays model in 1921, when the legislature levied a 1¢ per gallon gas tax. The rate has been modestly increased over time. Arizona’s current gas tax is 18¢ per gallon, which puts it 13% below the average state gas tax of 20.64¢. Arizona’s diesel fuel tax is 27¢ per gallon, whereas the national average is 35.4¢. Arizona’s gas and diesel taxes are excise taxes which means they do not fluctuate with the price of fuel. They are also not indexed to inflation. Arizona has not increased its gas tax since 1991. Since that time the tax has lost 44% of its purchasing power.
Revenues from the gas and diesel taxes are deposited in the Highway Users Revenue Fund (HURF). In 2014, the state gas tax generated $457.4 million while the diesel tax brought in $176.4 million. The HURF provides the main source of state funding to maintain and expand roads and highways. The biggest expenditure of the HURF goes towards the State Highway Fund, followed by formulaic distributions to cities, towns and counties.
As we look towards our future funding needs to sustain and advance our transportation system, many options exist. Guiding principles of efficiency, equity, sufficiency and sustainability must all be taken under consideration. The wisdom of the user pays system continues to meet these criteria and can be an important part of our funding models both at the state and national levels.