You Decide: How should North Carolina fund roads?
YOU DECIDE: HOW SHOULD NORTH CAROLINA FUND ROADS?
By Dr. Mike Walden
North Carolina Cooperative Extension
My father was born in 1922 on a farm in rural Ohio. Horses and
carriages were as common as cars. When the first road was built it was
tolled, meaning only those who paid the gatekeeper at the entrance to
the road could use it.
This is how early roads were financed. If you used a road, you paid
for it, on the spot! In economics, we call such payments user fees.
But as car ownership expanded and road usage boomed, stopping drivers
at every entry point to a road became costly, in terms of the expense
for the gatekeeper but also in the down time to drivers stopping,
waiting, paying the toll and then re-starting their trip.
The solution was to pay the user fee in another way, which led to the
birth of the gas fee. At the time, drivers only used gasoline as fuel,
so paying a fee per gallon of gas was a convenient -- and most
considered fair -- way to fund roads. By this time governments had
taken over the construction and maintenance of roads, so the gas fee
became a gas tax.
This way of paying for roads has largely remained in place for 70
years, but today there are cracks appearing in the system.
One crack is that gasoline no longer is the only fuel for vehicles. An
increasing number of vehicles are now hybrids, meaning they use a
combination of gasoline and battery power. All-electric powered cars
are also more widely available and used. Also, with the country’s
growing abundance of natural gas, there’s more interest in developing
vehicles powered by this fuel. If a vehicle doesn’t use gas, then no
gas taxes are collected.
A second crack is the increasing fuel efficiency of vehicles, meaning
more miles can be driven per gallon of gasoline. While this is a
welcome result (as an aside, improvements in living standards are
closely linked to gains in economic efficiency), it has created
problems for road funding. If drivers get more miles out of each gas
gallon while keeping the gas tax per gallon the same, then gas tax
revenues per mile fall.
And this is exactly what has happened. The gas tax is perhaps the most
visible tax we pay. Many (most?) drivers understandably oppose
increasing the gas tax rate, and they communicate this opposition to
elected representatives. As a result, many states have actually seen
declines in gas tax revenues in recent years. Less gas tax money for
roads makes it tougher to build new highways and maintain existing
These challenges to the traditional way of financing roads have moved
some states to totally revamp their highway funding methods. Recently,
Virginia approved one of the most far-reaching plans. Virginia will
eliminate its state gas tax and replace those revenues with new fees
on alternative-fuel vehicles and with money from an increase in the
general sales tax.
Virginia’s shift from the user-fee gas tax to the general sales tax
has sparked some debate. Supporters of the notion that drivers who use
roads should directly pay for them don’t like the switch. Yet others
reply that virtually every product bought today has a transportation
component in its delivery and sale, meaning that taxing sales is also
There’s also a decade-old proposal that some argue is the ultimate
solution to our road financing problem; charge drivers a fee per mile
driven. Then it wouldn’t matter what kind of fuel is used or how many
miles per gallon are achieved. However, to implement this proposal,
some kind of calibrator or tracking device would need to be installed
or applied to vehicles, and this has raised concerns about personal
Yet another option in financing today’s roads is to go full circle
back to tolls. Technology has helped renew the interest in toll roads.
Gone are the gatekeepers of my father’s era and the toll booths of
more recent years.
Instead, users of toll roads today don’t even need to slow down when
entering such highways. Cameras record the time of entry to and exit
from the toll road, and drivers later receive a bill based on the
number of miles driven on the road.
North Carolina is in the same predicament as most states; road needs
are high, yet road revenues are limited. Our state has historically
relied on the state gas tax to build and maintain highways. But is it
time for a change? You -- and our elected representatives -- will have
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Dr. Mike Walden is a William Neal Reynolds Professor and North
Carolina Cooperative Extension economist in the Department of
Agricultural and Resource Economics of N.C. State University’s College
of Agriculture and Life Sciences. He teaches and writes on personal
finance, economic outlook and public policy.