The Potential of Vehicle Mileage Road User Fee as Alternate Financing Option for State Highways

Building and maintaining an effective highway system is extremely important to the quality of life of the citizens and the local economy. Projections of decreased revenue for highways in many states come at a time when current revenue sources are already strained. This creates a need for innovative ways to be considered to secure funding for highway projects. As a case study, this paper investigates current and future options for financing highway-related projects in the state of Alabama. Currently, approximately 70 percent of income for Alabama’s Highway Fund is generated through the gasoline and motor fuels taxes. However, changes to the present system may be required to account for the increase in fuel efficient vehicles on Alabama’s roadways. As the number of these vehicles increases, revenue collected by the state from gas taxes is expected to decrease, which may further hinder the ability of the state to finance the construction or maintenance of roadways. Therefore, it is imperative that the state identifies, evaluates, and adopts alternative financing solutions to ensure sustainability of highway funding. The objective of this research is to determine alternative and innovative solutions to fund Alabama’s highways in the near- and long terms. In this paper, the vehicle mileage road user fee is evaluated as an alternative revenue source, based on its revenue potential, equity, efficiency, and political acceptability to the tax payers and decision makers in Alabama. The findings from the case study can be very useful to local officials as well as to decision makers in other states that are seeking alternative sources of highway financing.