How Gasoline-Use Drop May Raise Taxes in Delaware: Muni Credit

An unprecedented drop in gasoline use as more Americans drive fuel-efficient vehicles and choose mass transit is undermining a revenue stream for repairing crumbling roads and bridges.

Lawmakers from New Hampshire to Wyoming are moving to either raise fuel taxes or overhaul them as Congress is stalled on how to fund a federal pot for highway projects. Delaware may raise a rate that has been flat for almost two decades.

Declining fuel consumption is a caution flag for $36 billion in state gasoline-tax debt, Moody’s Investors Service says. The challenge of finding ways to pay for commuting arteries is only going to increase, said Paul Mansour, head of municipal research at Conning, which oversees $9 billion in local-government debt in Hartford, Connecticut.

“The needs are growing at or above the rate of inflation for new projects and to repair existing projects,” Mansour said. “Where’s the money going to come from for growth? It’s very concerning.”

The U.S. Energy Information Administration has ratcheted down its forecast for motor-fuel usage. This month it said consumption will fall about 1.2 percent annually through 2040, compared with a projection last year of a 0.9 percent average drop, said Moody’s analysts led by Julius Vizner in New York. A drop that size would be unprecedented, Vizner said in an e-mail.

Less Traveled

The annual distance a licensed resident drove in a personal vehicle fell to about 12,500 miles (20,100 kilometers) in 2012 and may sink to 12,200 miles in 2020, which would be the lowest since 1996, said Patricia Hutchins, an analyst at the EIA.

Fuel-efficiency gains, inflation and higher construction costs have eroded the ability of state gasoline taxes to keep pace with needs, said Carl Davis, an analyst at the Institute on Taxation and Economic Policy, a Washington-based research group.

States received $38 billion from those taxes in 2012, down from $51 billion a decade earlier, according to inflation-adjusted data from Pew Charitable Trusts.

Voters Decide

Officials will increasingly turn to voters with requests to raise taxes, said David Goldberg, a spokesman for Transportation for America, a Washington-based group that supports changing federal funding to better reflect inflation. The federal gasoline levy hasn’t increased since 1993.

“They’re going to have to go to voters much more frequently and with much more specific plans,” Goldberg said.

That’s already happened in Missouri, where the legislature this month passed a bill that would ask voters in November to raise the state sales tax by 0.75 percentage point for 10 years, with proceeds going toward transportation.

In Delaware, Governor Jack Markell, a Democrat, is pitching a 10-cent-per-gallon hike in the state motor-fuels tax to pay for road projects. The levy hasn’t risen since 1995. Michigan legislators are considering whether to replace a fixed-rate gasoline tax with one that depends on the average wholesale price.

“We must act to make our roads safer, put thousands of Delawareans to work and promote economic development,” Kelly Bachman, a spokeswoman for Markell, said in an e-mail.

Northeast Decisions

This year, New Hampshire approved its first fuel tax increase since 1991, dedicating an additional 4.2 cents per gallon for infrastructure starting in July. Last year, six states and the District of Columbia enacted legislation overhauling gasoline taxes, according to Jaime Rall, senior policy strategist at the National Conference of State Legislatures.

While Wyoming raised the tax by 10 cents a gallon, the others -- Maryland, Massachusetts, Pennsylvania, Vermont and Virginia -- have implemented or adjusted levies that track the economy through inflation or fuel prices, she said. Maryland, for instance, pegs its tax to the consumer price index.

While drivers have seen higher costs, “over time, such increases are absorbed and prices at the pump level out,” Jana Tidwell, a spokeswoman for AAA Mid-Atlantic, said in an e-mail.

Fuel economy and alternative commuting methods are on the upswing. Fuel-efficiency standards adopted by the Obama administration will achieve 54.5 miles per gallon by 2025, from 35.5 miles in 2016. Meanwhile, the number of U.S. workers traveling by bicycle swelled by about 60 percent over the past decade, the largest increase among commuting modes tracked by the Census, the agency said this month.

Capital Corral

As driving declines, states may need to tap general funds to pay for transportation projects, said Conning’s Mansour.

The new landscape can be seen even in Washington, where Congress is working on a plan to keep the U.S. Highway Trust Fund solvent at least through year-end. The fund, which pays for projects through gasoline and diesel-fuel taxes, may dip below $4 billion by July, which means slower reimbursements to states and a halt in some construction.

Fifty-five percent of commutes into downtown from the Washington metropolitan region don’t rely on autos, according to the DowntownDC Business Improvement District. The agency aims for 75 percent of commutes to be non-auto by 2032. This year, officials plan to remove five parking spots to create corrals that could hold 50 bikes, said Ellen Jones, the district’s director of infrastructure and sustainability.

At Risk

Municipal bonds that are most at risk depend entirely on a gasoline tax or have low levels of debt-service coverage, such as Rhode Island motor fuel-tax revenue bonds, Moody’s Vizner said. Moody’s grades those bonds A3, four levels above junk.

Rhode Island bonds due in June 2021 that are insured by Ambac Assurance Corp. and backed by fuel taxes traded May 5 at an average yield about 1.4 percentage points above benchmark munis, data compiled by Bloomberg show.

Thomas Mullaney, the state’s budget officer, said if funds for debt service fall below required amounts, officials could allocate more gasoline taxes to cover the obligations.

“I don’t have any concern making the payments,” he said. The state doesn’t plan to issue new debt for highways, he said.

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