State/Federal Response to COVID-19 States Concerned About Gas Tax Revenue Declines As Congress Considers Infrastructure Investment

By Sean Slone, CSG Senior Policy Analyst

With Americans being advised to stay at home during the coronavirus outbreak, travel on the nation’s roads has decreased significantly in recent weeks, as have gasoline sales. That has many states concerned about the impact to state and federal gas tax revenues, which are used to fund both infrastructure maintenance and new projects. But some in Congress and the Trump administration appear keen to move forward quickly on another coronavirus relief bill that could center around infrastructure investment.

Reduced Traffic, Reduced Revenues

According to traffic data analytics company Inrix, personal travel nationwide for the week of March 23 had decreased by 44% compared to the week of Feb. 22. Trucking has not seen as precipitous declines since many businesses have scrambled to keep grocery store shelves stocked with in-demand supplies. Even with that, Inrix says road traffic experienced an overall decline of 38% during the period.

As the Tax Foundation noted in a post this week “Such a decline will lead to a dramatic decline in gas tax revenue.” Just how much of a decline is difficult to predict. The last recession in 2008-09 saw an estimated 30% drop in gas tax revenue, according to the American Association of State Highway and Transportation Officials. But many Americans were still driving through that period and still paying some gas taxes. The impact of the significantly reduced travel prompted by the current crisis could be much more profound, particularly if it extends for a long period of time.

States Feeling the Pinch

That could put a significant strain on state transportation budgets and create delays even in long-in-the-works infrastructure projects, many state ofticials have begun to fear.

Among the states already expressing concern:

  • Iowa: While noting it’s too soon to know the full impact on gas tax revenues, Senate Transportation Committee Chairman Tim Kapucian told The Waterloo-Cedar Falls Courier this week “Hopefully, this is just a blip, but for right now it could be a pretty big blip.” The state’s Road Use Tax Fund relies on fuel taxes for 40% of its $1.7 billion. State department of transportation officials expect to have a better sense of any reduction in funding when the department receives its May allocation from the fund, which will show the impacts of March and April. In the meantime, they are considering whether to accelerate some road projects. Officials are also optimistic that Congress could take up an infrastructure package.
  • Missouri: “Of course we anticipate a decrease (in gas tax revenue),” Missouri Department of Transportation Director Patrick McKenna told the St. Louis Post-Dispatch this week. While Missouri won’t have a sense of the full impact for another couple of months either, transportation officials are concerned they could have to delay millions of dollars in road construction projects. Several projects were already listed as “potentially endangered” in the department’s latest construction program if Congress fails to pass a new federal highway bill on time by September, when 2015’s Fixing America’s Surface Transportation (FAST) Act expires. Some of those projects could be some of the same ones cut from the program if state gas tax revenue declines are significant.
  • Washington: Due to a court challenge to a 2019 ballot initiative that raised licensing and vehicle fees in the state, Gov. Jay Inslee had already hit pause on a number of projects that were due to be funded by the increases. Legislators were able to move money around in the state budget, which they hoped would prompt the governor to lift the pause. But with a stay-home order in place as he signed the budget this week, Inslee said he would keep the pause in place and lift it “once we can resume construction.” Lawmakers would likely need to address the ongoing drop in revenue next year, The Spokesman-Review reported.
  • New Mexico: Two weeks ago, Senate Finance Committee Chairman John Arthur Smith was already predicting that state revenue could fall short this year by around $1 billion. But he told the Santa Fe New Mexican this weekthat low oil prices and a gloomy tax revenue outlook mean the number could be closer to $1.5 billion to $2 billion. Gov. Michelle Lujan Grisham and lawmakers have suggested that a special legislative session might be necessary this year to shore up the budget. New Mexico relies heavily on oil and gas revenues.

Next Coronavirus Relief Package

Politico reported this week that House Democrats are hoping to move quickly on a fourth coronavirus relief package that could come to a vote in the coming weeks and that could include “substantial investments in infrastructure.” President Trump this week called for a “VERY BIG & BOLD” $2 trillion infrastructure package to create jobs and help blunt the economic damage caused by the response to the pandemic.

The World Economic Forum hosted an essay this week that argued that with a recession underway or soon to be and the Federal Reserve having already used all its monetary tools, “reviving the lagging U.S. infrastructure sector may be the best approach” to helping the nation recover.

“Infrastructure creates economic growth,” writes Shai Kivity. “5G cellular infrastructure will allow for faster data rates, a better electric grid allows us to drive electric cars and new roads reduce congestion and commute times.”  

Not everyone is a fan of infrastructure investment as a potential savior, however. “This is a recipe for some of the most wasteful log rolling we would ever see, Marc Scribner, senior fellow at the conservative Competitive Enterprise Institute, told Politico this week. Scribner questioned whether infrastructure investment works as a short-term economic stimulus and whether we can rely on travel and infrastructure use to rebound quickly following the crisis.

It should also be noted that a previous federal effort to deploy infrastructure investment as stimulus, the 2009 American Recovery and Reinvestment Act, received criticism in some circles for its design and for the projects it enabled. Some in Congress will likely have mixed memories of that effort in mind as they contemplate a new infrastructure bill this time.