Fuel Taxes Back on the Table in Missouri

Recently, two Missouri House Bills (HB 995 and HB 738) proposed to increase fuel taxes in Missouri to fund the state highway system.

The Missouri Department of Transportation (MoDOT) has been ringing the alarm bell for years about the impending shortfall in the funds necessary to maintain Missouri’s state highway system. With the failure of Amendent 7 last year, MoDOT unveiled its 325 Plan, which shows how the state would prioritize its declining construction budget. While much of the vital portions of state highways could be maintained in the condition they are in today, more than 20,000 miles of state highways would fall into disrepair.

Much of the problem lies in the gradual deterioration of the user-fee funding base of MoDOT, specifically the state fuel tax. The fuel tax last increased in 1996, and Missouri now has the country’s fifth lowest regular gasoline tax and fourth lowest diesel fuel tax.

But now that could change. HB 738 would scrap the cent per mile fuel tax altogether and replace it with a per gallon tax equal to 10.6 percent of the wholesale per gallon price of gasoline, based on regular six-month averages. The result of moving to a percentage calculation is if the fuel price remains low, at say two dollars wholesale, the fuel tax would be about 21 cents a gallon. But at a price of three dollars, the fuel tax would be around 31 cents a gallon. At three dollars a gallon, MoDOT would have an extra $400 million to spend on the state highways over what the 17 cent gas tax currently raises.

HB 738’s method of calculating the fuel tax would, at higher gas prices, essentially wipe out MoDOT’s funding problems in one fell swoop and ensure that as input costs for MoDOT rise (because of higher fuel costs), so does funding. However, it also means that, as pain increases at the pump for the average Missourian, taxation piles on.

In contrast, HB 995 proposes to simply raise the fuel tax by two cents beginning next year. That would raise approximately $78 million in new revenue, 70 percent of which ($55 million) would go to MoDOT (the other 30 percent goes to cities and counties for their transportation needs). Because those funds can be used to match federal dollars on a 4:1 basis, that two cent tax increase could retain $230 million federal transportation dollars.

HB 995, while not immediately solving all of MoDOT’s problems, has its own advantages. The comparatively small increase in the fuel tax gives consumers time to adjust to the changes and would not increase taxation as fuel costs rise. Furthermore, the increase is small enough that it is likely not to trigger the state’s Hancock Amendment, meaning it could pass without going to a public vote. With the addition of tolling the state’s most expensive projects, small increases in the existing fuel tax rate could give MoDOT what it needs.

A fuel tax, unlike sales taxes, is a fair and economically sound way of funding roads. It is good that the legislature is looking into updating its user funding base, although it should also consider whether the response is appropriate to the need.