Funding Techniques

Transportation Funding Techniques

There are a number of ways government at all levels use to raise the money needed to support transportation infrastructure capital investment programs and projects.  These include mechanisms that provide public funding and also those that involve private financing, or a mix of the two.  This section provides an overview of some often discussed approaches, as well as detailed information on the following: motor fuels excises; bonding; tolling; vehicle-miles-traveled (VMT) excises; cordon pricing; alternate motor fuel excises; and public-private partnerships (P3s).

Overview of Funding Approaches

Transportation infrastructure in the United States is paid for largely through user-related taxes and fees that are dedicated to construction and maintenance. The federal motor fuel excise tax is currently the main funding source for federal highway investment in the United States. These revenues are exclusively dedicated for the Highway Trust Fund, which Congress established in 1956. Because the federal gasoline and diesel fuel taxes are not indexed to changes in inflation, they have subsequently decreased in purchasing power over the past twenty years. State governments finance highway construction and maintenance through a broad set of taxes and fees, most of which are also user-related. Every state imposes taxes on gasoline and diesel fuel, from a low of eight-cents-per-gallon in Alaska to over 30-cents-per-gallon in a handful of states. Other revenue sources include vehicle registration fees, driver license fees, sales taxes on motor vehicles, heavy truck use taxes, traffic violation fines, and similar taxes and fees. In recent years, state governments have been expanding their use of general revenues to finance highway improvements, largely because of a political reluctance to increase gasoline tax rates, and many state governments also borrow money for highway construction by issuing bonds. A few states permit local governments to levy taxes and fees on highway users, but in most states, local expenditures are financed out of property tax revenues.