Shelter-in-Place Orders Hammer Gas Tax Revenue

Drop in miles traveled creates deep trench in states’ funding for roads
Photograph: Shutterstock

CHICAGO — The massive drop in driving thanks to states’ shelter-in-place orders during the COVID-19 pandemic is snowballing into a large revenue shortfall for road repair and construction.

In a study of U.S. traffic data, researchers with the Road Ecology Center at the University of California Davis (UC Davis) found that total vehicle miles traveled (VMT) had fallen 61% to 90% at the county and state level after local governments issued shelter-in-place orders.

Researchers calculated the change in daily VMT for every county from early March to mid-April using data from Streetlight, which applies algorithms to cellphone tracking data to estimate people’s daily vehicle mileage. According to Streetlight data, total VMT in the first week of March was 103 billion miles, compared to only 29 billion miles in the second week of April. This represents a 71% drop in total VMT.

The UC Davis researchers determined that daily travel in the first week of March was the equivalent to 4.6 billion gallons of fuel. By the second week of April, drivers were using only 1.3 billion gallons—a drop of more than 71%.

Assuming a national average retail price of $2.59 per gallon, this equated to $8.6 billion per week in vanished fuel sales, researchers found. After multiplying each state’s tax rate by the estimated fuel use per state, the analysis determined that fuel tax revenue fell from $1.6 billion per week in March to $424 million per week in April, or $1.18 billion less.

In California, VMT fell more than 75%. For the first eight weeks of the state’s shelter-in-place order, fuel tax revenues that support highway construction, maintenance and mass transit plummeted by an estimated $370 million.

One silver lining of the decreased driving: UC Davis researchers estimated that greenhouse gas emissions from transportation fell 13% in the nearly eight weeks after many states’ shelter-in-place orders were enacted. This would put the U.S. in a good position to meet its original annual emissions reduction goals under the Paris Climate Accord, despite President Trump’s plans to withdraw the country from the global agreement.

Road Revenue Dilemma

The decline in driving also has implications for the federal Highway Trust Fund, which even before the pandemic was expected to face a $74.5 billion deficit over the next five years, according to a 2019 analysis by the Congressional Research Service.

The dire need to raise revenue, combined with lower gasoline prices, could provide an opening to raise the federal gas tax, which has been set at 18.4 cents per gallon since 1993 and is not indexed to inflation. Because of this erosion in value over the last 27 years, the Tax Foundation estimates the federal gas tax would have to be 26.1 CPG today. That said, a gas tax increase during a pandemic “may be ill-advised,” the group said.

More than 30 states have increased their gas taxes in the last decade, with many hitching their rates to inflation, according to the Tax Foundation; however, many of them are still anticipating massive shortfalls in fuel tax revenue. The American Association of State Highway and Transportation Officials (AASHTO) estimates at least a 30% decline in transportation revenue for state departments of transportation in the next 18 months.

This includes California, which the UC Davis analysis found could lose $1.3 billion in revenue. Illinois is projecting a $560 million shortfall in 2020, the Chicago Tribune reported.

Should the pandemic trigger a long-term recession in the United States, it could be years before gasoline tax revenue rebounds; the Tax Foundation said that with the 2008 Great Recession, gas tax receipts did not return to pre-recession levels until 2011. 

Toll road revenues have also been hit hard by the reduced driving during the pandemic. In a March analysis, Fitch Ratings determined that toll receipts were down 50% to 60%.

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