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Mid-America Transportation Center

Alternative Funding Mechanisms for State Transportation Systems in Predominantly Rural States

Final Report
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Researchers

  • Principal Investigator: John Anderson (janderson4@unl.edu (402)472-1190)
  • Co-Principal Investigator: Eric Thompson (ethompson2@unl.edu (402)472-3318)
  • Project Status
    Complete
    About this Project
    Brief Project Description & Background
    Motor vehicle taxes are proving to be insufficient to fund the operation and maintenance costs of transportation systems. Alternative approaches are needed to fund the transportaton system. In urban settings, research efforts have focused on designing variable fees such as tolls that will internalize congestion externalities in urban areas. In predominantly rural states, where congestions is not the problem, other approaches may be necessary. The research project will consider an optimal two-part tariff for use in predominantly rural states which incorporates a flat fee with a variable charge. The approaches considered will utilize highway funding mechanisms that are already in place. Such an optimal tariff would set variable changes (motor fuel taxes) equal to marginal costs imposed by vehicles, and then a flat fee required to meet funding needs.
    Research Objective
    Trucks and automobiles are already charged both flat fees and variables charges. Currently, car and truck operators pay both annual licensing fees (or taxes) and motor fuel taxes. The licensing fee is a flat charge and the motor fuels tax is a variable charge based on road usage. Our approach is to consider alternative configurations of these two existing mechanisms, which in combination may be capable of mimicking an optimal two-part tariff.
    Potential Benefits
    This research will make evident whether an optimal two-part tariff is feasible for predominantly rural states to use in providing a better financial base for operation and maintenance of their road networks. Policy analysis of current and potential new two-part tariff financing mechanisms will be produced. This analysis can then be used by state road departments to redesign their taxes, charges, and fees in order to have a sustainable funding mechanism.
    Abstract
    The Transportation Research Board of the National Academies has identified a number of reserach needs releated to alternative transportation finance systems. Altneratives are needed because motor fuels taxes are proving to be insufficient to fund operation and maintenance costs of the transportation sytem. The long-term trend is likely to be continuing use of motor fuel taxes, supplemented by or transitioning to use-based fees. Current reserch in progress in this area is focused on designing variable fees that will internalize congestion externalities in urban areas. These approaches are particularly well suited to highly urbanized areas but other approaches may be required for predominantly rural states. One possible approach is to implement an optimal two-part tariff which incorporates a flat fee with a variable charge. Such a two-part tariff is an efficient solution in markets with increasing returns to scale and falling long-run average cost curves. Efficiency requires pricing at the marginal cost of travel, and given low marginal costs in rural reas (with limited congestion), a flat fee is needed in combination with the variable charge in order to make the financing mechanism sustainable. The current transportation funding system already includes flat fees (licensing and registration fees) and variable fees (gasoline and diesel taxes). Our appraoch is to consider alternative configurations of these two existing mechanisms, which in combination may be capable of mimicking an optimal two-part tariff. The research will be carried out utilizing data from the state of Nebraska on licensing and registration fees and taxes by type of vehicle, motor fuels tax revenues by source, and data on average annual daily travel (AADT) as well as engineering estimates of road maintenance costs associated with automobile and truck travel.
    Project Amount
    $ 60,000