Alternative Funding Mechanisms for State Transportation Systems in Predominantly Rural States

® The contents of this report reflect the views of the authors, who are responsible for the facts and the accuracy of the information presented herein. This document is disseminated under the sponsorship of the Department of Transportation University Transportation Centers Program, in the interest of information exchange. The Transportation Research Board of the National Academies has identified a number of research needs related to alternative transportation finance systems. Alternatives are needed because motor fuels taxes are proving to be insufficient to fund operation and maintenance costs of the transportation system. The long-term trend is likely to be continuing use of motor fuel taxes, supplemented by, or transitioning to, use-based fees. Current research 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 areas (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). The researchers' approach 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.