As of 2023, the Maine legislature has chosen to divert just over $100 million annually on an ongoing basis from the state’s general fund by dedicating 40 percent of the sales tax collected on new and used cars and trucks to the highway fund. This was intended to address a long-standing shortfall in the highway fund, which has hampered the Maine Department of Transportation’s ability to fix roads and bridges. However, lawmakers’ chosen solution endangers other non-transportation related funding needs, and shifts the responsibility of road funding from visitors and corporations towards Mainers. There are longstanding alternative means of funding highways that legislators should take advantage of and reclaim sales tax revenues for other pressing needs.
Bonding is a good way to fund infrastructure projects
Some legislators supported the diversion of the state’s sales tax revenues as a means to end the practice of transportation bonding, where the state borrows money to pay for highway funding, repaying the money with interest from general fund revenues, usually over a ten year time period. Yet doing so fundamentally misunderstands the purpose of bonding. Highway and other infrastructure projects are appropriate uses of the state’s bonding authority, because they allow lawmakers to spread the cost of projects with a long lifespan (like highways and bridges) over a number of years. By paying the bonds back over a 10-year period, Mainers in the future are paying for the roads they are still using. Additionally, infrastructure such as road construction creates economic growth, making the future payments more manageable than up-front investment. That’s why the Maine legislature has issued highway bonds regularly for decades, which have been approved by voters at every opportunity since at least 1981. Even with interest rates today higher than they have been for some time, bonding remains a good choice for lawmakers.
Filling the $100 million highway fund deficit with a regular annual bond is sound fiscal policy and would free up that money to be used on many of Maine’s other pressing needs.
The gas tax asks road users, including people from out of state, to pay their share
Traditionally, the primary source of funding for the highway fund has been the fuel tax — more commonly called the “gas tax” — which is paid by drivers. While not without flaws, this tax should remain an option for filling the highway fund deficit. Maine’s gas tax receipts have suffered since 2011, when the legislature decoupled the gas tax from the consumer price index. Before this, the gas tax had automatically increased each year to keep pace with the increased cost of living and the rising cost of road repairs.
If legislators chose to continue indexing Maine’s gas tax, it would be 41.7 cents per gallon in 2024, instead of 30 cents per gallon, and would raise an additional $95 million per year for the highway fund — very close to the $108 million transfer from sales tax receipts authorized by the legislature last year. In total, the legislature will have forfeited almost $600 million over between 2012 and 2025 by not restoring indexing.
One argument against continued reliance on the gas tax has been that as Mainers shift away from gas-powered vehicles, the share of road users who pay the gas tax will decline. While this is true over the long term, declining revenues from the gas tax appear to still be some way off. Between 2013 and 2019, the total number of taxable gallons of fuel sold each year increased steadily, and after a decline during the pandemic, sales have continued to climb. Even the most aggressive proposals to phase out internal combustion engines in new passenger vehicles do so over a decade or longer.
Another, more substantial criticism of the gas tax is it tends to be regressive. Generally, households in the United States with lower incomes spend a larger share of their income on gas than households with higher incomes. However, the same is true of vehicle sales taxes. Households with lower incomes also spend a larger share of their income on vehicle sales than those with higher incomes.
One advantage a gas tax has over the vehicle sales tax is the vehicle sales tax is almost exclusively paid by Maine residents, while just under 43 percent of the gas tax is paid by tourists or commercial trucking and busing companies.1 A 13-cent per-gallon increase to the gas tax would raise roughly the same amount as the current vehicle sales tax diversion — $105 million each year — but only around $60 million would be paid by state residents.
Furthermore, allowing the $105 million of sales tax revenue to remain in the general fund will allow that money to have greater positive impact on the most vulnerable Mainers, if it is allocated towards initiatives such as increased provision of food assistance, housing support, or health care, which are currently being debated by the legislature.
If lawmakers want to use the gas tax as a funding source, there are ways to make it more equitable for Mainers. The legislature has previously considered a seasonal gas tax which would increase in the summer (and draw more revenue from tourists) or pairing an increase to the gas tax with a tax credit for Mainers with lower incomes to balance out the impact, as they have already done with the sales tax fairness credit.
Lawmakers could also reduce the saliency of any gas tax increase on Mainers’ pocketbooks with a mechanism that gradually increases the tax as the retail price of gasoline declines. For example, if the tax had increased by 1 cent per gallon every time the retail price fell by 10 cents, a 13-cent increase to the gas tax could have been phased in over the past two years even as consumers still saw savings at the pump.
Restoring traditional funding mechanisms means more funding for critical priorities
Regardless of how lawmakers ultimately choose to do so, they have an obligation to Mainers to provide the funding necessary to ensure our roads and bridges are safe and well-maintained. Diverting money from the General Fund is not a long-term fix. Instead, it means forgoing other spending priorities to support Maine people and communities, whether that be investing in schools, increasing access to health care, or addressing the ongoing crisis in housing affordability. Lawmakers need to recognize this and revisit funding methods that keep up with the costs of building and maintaining Maine’s infrastructure.
