You Decide: How should North Carolina fund roads?

Apr 29, 2013



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

taxing driving.


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

to decide!


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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.