Aerial view of an Interstate Interchange

Redefining transportation funding: growing needs, receding fuels tax

Evan Burgstahler

Senior Director, Strategy & Transactions, EY-Parthenon, Ernst & Young LLP

2 minute read 26 Feb 2024

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Government and Public Sector

Governments need to be forward-thinking in reforming fuel-tax-focused transportation funding processes to meet needs of future projects.

For the last half century, roads and bridges in the United States have experienced chronic underfunding, leading to a continued and pronounced deterioration of system conditions. As of 2021, approximately 40% of the nation’s roads are in poor or mediocre condition, and over 231,000 bridges need repair and preservation work.1 The status of the nation’s road network frequently makes headline news — with 2021 headlined by a nearly three-month closure of the Hernando de Soto Bridge that carries Interstate 40 across the Mississippi River. As of 2014, the value of the investment backlog in roads and bridges was estimated at approximately $786 billion.2 This amount is on top of the nearly $2 trillion of additional transportation funding requirements projected through the mid-2030s.

How EY can help

Current funding is insufficient to cover today’s road funding needs, and further investment – even beyond the recently passed Infrastructure Investment and Jobs Act – will be necessary. Inflation has negatively impacted the spending power of motor fuel tax receipts. An accelerating shift toward hybrid and electric vehicles, increasing CAFÉ standards, and the potential for decreased commutes will impact collections outright in the coming years.

 

There is no “one-size-fits-all” approach to motor fuel tax reform. Even today, fuel tax structures vary from state to state, so it’s safe to say that it will continue to be the case through the EV transition and after. In fact, given the number of potential alternatives, it’s possible that tax structures will grow to be more varied than they are today. When undertaking an effort to modernize transportation funding, it is critical that lawmakers and state DOTs perform a wide-ranging and robust analysis of the potential options to identify the best fit for their respective situation.

 

Download the full whitepaper to learn more about the ever-increasing demands governments are facing on road maintenance and construction budgets, and how they need to be forward-thinking to meet the needs of transportation projects for decades to come.

Download here

Summary 

Governments need to be flexible and forward-thinking in how they reform fuel-tax-focused funding mechanisms for transportation construction and maintenance that can meet the needs of transportation projects for decades to come.

About this article

Evan Burgstahler

Senior Director, Strategy & Transactions, EY-Parthenon, Ernst & Young LLP

Advising clients on their most complex financial issues. Financial forecasting, liquidity management, scenario analysis – providing insights to answer the most complex questions objectively.

Related topics

Government and Public Sector

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.