Highway Funding in Missouri: The Fuel Tax Option

The failure of Amendment 7, the proposed transportation sales tax, in August has left the Missouri Department of Transportation (MoDOT) in a financial bind. In the next few years, the department will no longer have the funds necessary to maintain the quality of the state highway system, much less improve it.

Former proponents of Amendment 7 claim that sales taxes are the best solution for MoDOT’s problems because they are the most politically feasible method of raising large amounts of money. Raising the state gasoline tax (currently 17 cents per gallon)—MoDOT’s principle revenue stream, they say—is not good policy because it is a declining source of funds and it does not poll well. But as we have shown before, fuel consumption has been declining very slowly, and it actually increased in the last year. The erosion in the gas tax’s purchasing power is mostly the result of inflation; Missouri last increased its fuel taxes in 1996, since which time prices have increased an average of 34 percent.

Far from being politically unfeasible, raising the gas tax is actually the simplest method for the state legislature to raise more money for MoDOT. That is because the provision that forces tax increases to go to the voters, the Hancock Amendment, has exceptions for small increases of existing revenue streams. Under the amendment, the legislature can increase revenue in any given year as long as new revenue does not exceed $106 million ($50 million in 1980 indexed to personal income growth) or 1 percent of state revenue looking back two years ($84.2 million for last year), whichever is lower.

Using 1 percent of previous state revenue as a cap, the legislature can collect around an additional $84 million in fuel taxes next year. Missouri currently generates about $29 million per cent from fuel taxes, meaning the state could raise fuel taxes by more than two cents without triggering Hancock requirements. Or, if Missouri followed the example of the federal government and many other states in charging diesel at a higher rate than regular gasoline, the state could raise the diesel fuel tax rate by five cents and the regular fuel tax by one cent and remain under the cap. That would generate an addition $78 million for MoDOT next year.

What’s more, because state revenue has been growing and per-cent fuel receipts have been declining recently, the state legislature could raise the fuel tax in successive years, which could give MoDOT the needed funds to maintain and make necessary improvements to state highways. In fact, this is precisely how Missouri last increased its fuel taxes in the 1990s.

Fuel taxes, as indirect user fees, are a preferable and possible way of funding highways in Missouri. If more money truly is required, the legislature has the option to raise fuel taxes without sending the issue to a ballot and without resorting to new, inappropriate funding mechanisms.