Pub 3 2020-2021 Issue 1

32 REVAMPED ROAD FUNDING WILL PAVE THE WAY TO A SUSTAINABLE FUTURE OF FUELING W ith COVID-19 having such a dramatic impact on fuel demand in 2020, an important public policy vulnerability has resur- faced: Fuel supply and demand is subject to fluctuation, and relying on this inconsist- ent model to pay for roads leads to unsteady levels of funding. It would be all too easy for petroleummar- keters to view this dilemma as a problem to avoid rather than to address. After all, most infrastructure funding is generated through fuel taxes, andwhat level-headed petro- leummarketer wants to start raising ques- tions that might make fuel taxes—and by association, fuel prices—go up? But make nomistake, how the United States generates road funding is fundamentally flawed and, consequently, it is jeopardizing the very live- lihood of petroleummarketers. Here’s a look at the reasons behind this. 1. Themodel for road funding is not sustainable, and it hasn’t been for some time. Prior to 2001, increasedmotor vehicle use and occasional increases in fuel tax rates were enough to cover federal surface trans- portation spending. But in 2001, federal HighwayTrust Fund (HTF) revenues stopped growing faster than spending, even with increasing fuel consumption. The federal fuel tax has not increased since 1993. As a result, states have passed fuel tax increases and explored other funding measures to buoy infrastruc- ture spending. Several states, includ- ing California, Illinois, Indiana, Nebraska, South Carolina and Virginia, have enacted fuel tax increases as recently as July 2020. 2. Low fuel consumptionmeans low fuel taxes collected. According to a 2017 policy brief, “Fixing America’s Roads & Bridges, The Path Forward,”more than half of highway spend- ing at all government levels depends on fossil fuel taxes. Unfortunately, there is a fun- damental misconception that the volume of fuel moving through the supply chain — fromextraction to utilization—remains constant. As this year’s steep decline in fuel demand has illustrated, this is simply untrue. As a result, fuel taxmonies have dropped proportionately. By Jon O’Brien, Source North America