Gas prices are soaring. That's the bad news.
But as they soar, motorists drive less, and that produces some benefits: less air pollution and less congestion. That's the good news.
And then there's the bad news about the good news. The federal gas tax is levied on a per-gallon basis. So the less people drive and the less gas they use, the less the federal government collects from gas taxes.
So it is that recent record high gas prices have produced record low gas tax collections. Because federal gas taxes are deposited in the Highway Trust Fund and are used to fund highway and mass transit infrastructure projects across the country, the slowdown in driving has produced a big hole in the fund. That means less money to build and repair highways and other transportation facilities.
That has the government and the construction industry in something of a panic. As the Los Angeles Times reported this week, the federal government has collected $2 billion less in gas taxes over the first five months of 2008 than it did over the same period last year. States, including California, that depend on federal dollars to repair and improve roads will feel the impact.
In a recent letter to California's congressional delegation, Caltrans director Will Kempton warned that our state stands to lose $930 million or almost one-third of its federal highway funds.
In an election year, with gas prices already painfully high for many consumers, raising the gas tax is not politically palatable. Still, recognizing that it would hurt the construction industry and an already faltering economy, Congress has effectively shelved the gas tax holiday proposal pushed by both Sens. John McCain and Hillary Clinton in the heat of the presidential primary season. The construction industry lobbied heavily against the proposal, predicting that it would cost $9 billion and 310,000 construction jobs nationwide. Road builders say the 90-day summer suspension would have cost California alone $664 million and 24,000 jobs.
Meanwhile, the question of what to do about the deepening Highway Trust Fund shortfall remains. Steps are being taken in Congress to shift $8 billion from the general fund to the highway account, but that faces resistance from Republicans and the White House, and it is not a good permanent solution anyway.
As painful as it may be, eventually something will have to be done to change the current equation. One obvious solution: Index the gas tax to inflation.
The federal gas tax stands at 18.4 cents per gallon and hasn't been raised since 1997. Even before the current runup in gas prices and slowdown in driving, the federal gas tax was unable to keep pace with the rising cost of labor and construction materials, particularly asphalt and steel. When many were driving gas- guzzling SUVs and pickup trucks, the problem was less acute, but those days are gone and unlikely to return.
Today, with gas well above $4 a gallon, Americans are trading in their gas guzzlers for more fuel-efficient models or they are driving less. The economy depends on our ability to keep goods and people moving. Maintaining that ability calls for a new approach to paying for highways.
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