Exploring the efficacy of traditional and alternative funding mechanisms to provide transportation revenue during the COVID-19 pandemic

Abstract

Steep reduction in motor vehicle travel during the COVID-19 pandemic has plummeted the fuel sales affecting the revenue streams of state Departments of Transportation (DOTs) across the US. The objective of this study is to investigate the effectiveness of a number of user-based and general revenue generation mechanisms in reducing the transportation revenue shortfall or providing more stable revenue during a pandemic. State policies and pilot programs as well as public perception studies are reviewed to develop reasonable scenarios of tax and fee schemes, and price elasticity estimates are used to account for the effect of higher travel cost on demand for travel. We specifically focus on the adverse impacts of the COVID-19 pandemic on the transportation revenue in North Carolina (NC) using data from January to October 2020. The results indicate that monthly transportation revenue in NC could not have been sustained by increasing the state motor fuels tax up to 50% or motor vehicle fees up to 100%. On the other hand, increasing the highway use tax (state vehicle sales tax) from 3% to 8% would have eliminated the monthly shortfall in the state transportation revenue. Replacing the state fuels tax by mileage-based user fees could not bridge the gap between the monthly collected and projected state transportation revenue, even for high per-mile charges for passenger vehicles and trucks. Promising results are found for instituting an additional 0.75% state sales tax dedicated to general transportation use which could have provided adequate funding to eliminate the monthly shortfall in transportation revenue in NC during the COVID-19 pandemic. Dependence on state sale and use tax for transportation revenue is preferred and would lead to a lower shortfall compared to the motor fuels tax in a pandemic.