The Average Wholesale Price of Fuel - Not the Only Challenge to Our Road Fund

There were lots of news reports this week regarding  State Budget Director Jane Driskell's report about the state of Kentucky's General Fund and the Road Fund. According to the release, "motor fuels collections have declined sharply due to a drop in the tax rate."

For those of us in the transportation industry, this news is not unexpected. We knew that a decrease in the tax rate would result in a decrease in revenues. That makes sense.

My concern is that future news releases regarding Kentucky's road fund will read similarly - if not worse than this one.

And they could. The revenues for the road fund are tied to the average wholesale price of fuel (AWP). As the AWP decreased, our road fund revenues decreased due to the change in the tax rate. While no one really knows when or if fuel prices will increase, there are several forecasters who believe prices will remain at or near current levels until at least 2020. If so, our road fund revenues could remain at the current level for years to come.

But the AWP is not the only challenge that our road fund faces in the future. There are other changes in the marketplace that can impact our current funding mechanism - and our ability to fund infrastructure improvements.

As you've probably already experienced, our cars are becoming more and more fuel efficient with every new model year. Corporate Average Fuel Economy Standards - or CAFE Standards - require our auto manufacturers to increase energy efficiencies, "reduce petroleum consumption, increase availability of alternative fuel vehicles, promote the advancement of innovative technologies" among other things. These requirements scale upward each year. In 2017, the CAFE requirement for fleets is 34.3 mpg. In 2025, the requirement is 48.7 mpg.

When you hear this for the first time, it sounds great. People automatically think of the savings they will experience from having a more fuel efficient car. What most people fail to see is that this will have a negative impact on how we fund our state and national infrastructure. As we all fill up our tanks less, we will all contribute less to our state and federal road funds.  That means less money available for our counties and cities to make improvements, less money for our state to build new connections, and less money available for large federal projects. There will be less money overall to divide between all these existing - and growing needs.

But that isn't the only threat to our current funding mechanism. More and more people are purchasing alternative fuel vehicles like all electric cars. In 2012 there were 83 registered all electric vehicles in Kentucky. By 2014 that number grew to 229. That is an incredible increase in just two short years. As newer, more affordable electric vehicles come into the marketplace we can only assume that more and more people will purchase them. Since drivers of all electric vehicles don't purchase petroleum products, they don't contribute to the road fund like other users. If the number of users does continue to grow, without any action to assess these drivers for the usage, we'll see continued declines in road fund revenues.

Electric cars, CAFE standards and changes in the fuel market aren't futurist, far-fetched ideas. These changes are already happening. As a state, we can't sit idly by and hope that they won't really have an impact on how we fund infrastructure improvements. We have to develop proactive solutions that fund the infrastructure improvements we need. And we have to develop these solutions now.

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