Financing Local Roads: Current Problems and New Paradigm

Local governments are changing the ways that they finance streets and roads. As the motor fuel tax becomes less productive, the states and the federal government have been devolving the responsibility for financing these vital facilities to local governments, which in turn have relied on general fund revenue and have increasingly adopted local option taxes. Generally, these local taxes have no direct relationship to actual road use and thus tend to be inequitable and inefficient. Without policy innovations, the dependence on non-use-related financing of local roads will increase as new vehicle propulsion systems such as electric hybrids and hydrogen fuel cells penetrate the market. Several possible policy directions to increase the role of direct road user charges are evaluated. A mileage-based user charge is found to have considerable potential both as a financing mechanism and as a means for implementing road pricing. Among the policies that can be supported are congestion pricing, privately operated to...