After months of travel and work restrictions due to the COVID-19 pandemic, drivers returning to the wheel may find that road conditions are not what they once were.

The sharp decline in driving during the early lockdownsThe sharp drop in driving volumeled to reduced fuel tax revenues for state and local governments, exposing a concern that transportation agencies and lawmakers have had for years: fuel taxes are no longer sufficient to support U.S. infrastructure financing.

Budget problems existed long before the pandemic, but new driving trends could accelerate discussions about innovative alternatives.

"We have always believed that the current model is unsustainable in the long term, and the pandemic has only exacerbated these issues," said Susan Howard, director of highway finance at the American Association of State Highway and Transportation Officials (AASHTO). "We all agree with the 'user pays' principle, where the amount paid is based on miles driven... but the pandemic has indeed highlighted some weaknesses of this approach."

Infrastructure funding woes

Facing budget shortfalls, state and local governments are making difficult decisions about how to address infrastructure issues, with some states considering cutting maintenance or suspending capital projects aimed at improving road travel.

Maryland, for example, has proposed cutting $3 billion from its six-year consolidated transportation plan budget,cutting $3 billionincluding postponing about $900 million in road projects and reducing some bus and rail services.

Meanwhile, a report from the California Legislative Analyst's Officereportprojects that the state's revenue for fiscal year 2020-2021 will be $1.2 billion lower than the initially projected $12.8 billion, mainly affecting transit projects and shared revenue for local streets and roads.

New Jersey even had to raise its fuel tax by more than 9 cents per gallon this fall,fuel tax increasea requirement of a 2016 law that automatically triggers a tax increase when state revenue falls short.

At the national level, the American Association of State Highway and Transportation Officialspredictsthat state transportation departments will face a $37 billion deficit over the next five fiscal years and is calling on Congress to fill the gap in future COVID-19 relief legislation.

Because states have different revenue structures and formulas for sharing with local governments, cities will be affected differently. Public transit agencies face particularly severe challenges: the American Public Transportation Associationsaysthat without federal aid, 60% of the nation's transit systems would have to cut services and furlough employees. A June survey by the National League of Citiessurveyfound that 65% of cities are postponing or canceling capital expenditures and infrastructure projects.

Overall, transportation departments are now more likely to focus on specific tasks like filling potholes and plowing snow—as well as restoring ridership—rather than more innovative long-term work.

Empty streets, empty coffers

The most obvious sign of the early pandemic lockdowns was empty streets. Closed offices meant no commuters, depressed downtowns reduced suburban traffic, and travel restrictions interrupted casual trips within cities.

According to Federal Highway Administration data, vehicle miles traveled (VMT) in March fell nearly 19% compared to March 2019;MarchApril saw a year-over-year decline of nearly 40%. Summer driving picked up somewhat, with a cumulative decline of about 15% through August.cumulative declineof about 15%.

Fewer drivers meant fewer people filling up at the pump, which in turn led to reduced tax revenue. Even as driving recovers, the Highway Trust Fund's revenue is still about 10% lower than the same period last year.revenueMore than 80% of that fund comes from fuel taxes, but it also includes tire taxes and heavy vehicle taxes. State transportation departments have their own revenue sources, including state fuel taxes that are higher than the federal level, but they still rely on Washington funding.

After economic recessions, VMT tends to recover slowly because people are slower to return to work or resume leisure travel. Federal data show that VMT declined during the 2008 recession and did not recover until 2015. States have faced years of potential losses due to suspended or reduced long-term projects.VMT declinedand did not recover until 2015. States have faced years of potential losses due to suspended or reduced long-term projects.

Pennsylvania Department of Transportation spokesperson Alexis Campbell said the state withdrew bid advertisements for 19 projects and canceled seven announced projects. Campbell said losses could reach as high as $550 million by the end of the fiscal year.

"Our funding challenges are not new, and COVID-19 has highlighted the fact that fuel taxes are insufficient to meet the needs of roads and bridges," Campbell said. "We have made significant progress in improving our transportation system, but we need more investment to address funding challenges, rising costs, and other financial impacts."

The slowdown in VMT also highlights the need for revenue diversification. For example, the Oregon Department of Transportation announced projected revenue losses of about $170 million for 2020 and 2021, and forecasts cumulative losses of $250 million by 2024 (compared to October 2019 projections).announcedprojected revenue losses of about $170 million for 2020 and 2021, and forecasts cumulative losses of $250 million by 2024 (compared to October 2019 projections). The department is funded by state and federal fuel taxes, DMV fees, and weight-distance truck taxes.

Travis Brouwer, assistant director of revenue, finance, and compliance at the Oregon Department of Transportation, said that last source has remained stable, helping the state avoid a more severe deficit.

"Truck taxes account for about 35% of our budget, much higher than other states with similar requirements," Brouwer said. "Our revenue sources are like a three-legged stool, and having that support makes the whole thing more stable. The other two legs are a bit wobbly right now."

Can Congress find a new path?

Despite the pandemic's impact, transportation financing issues have been shaky for over a decade. As vehicle fuel efficiency improves and electric vehicles become more common, the effectiveness of the federal fuel tax has been declining.effectivenesshas been declining. Since 2008, Congress has had to fill gaps in the Highway Trust Fund through Treasury transfers. Congress has not raised the tax since 1993, nor has it indexed it to inflation.

Even before the pandemic, the Congressional Budget Office projected that the federal Highway Trust Fund would run out of cash in 2021. Congress had planned to advance a long-term transportation reauthorization bill this year, but lawmakers ultimately passed a one-year extension, avoiding the funding debate.predictsprojected that the federal Highway Trust Fund would run out of cash in 2021. Congress had planned to advance a long-term transportation reauthorization bill this year, but lawmakers ultimately passed aone-year extensionavoiding the funding debate.

Now, the reauthorization debate will take place against the backdrop of states cutting projects and competing for funds, which could put more pressure on Congress to seriously consider alternatives to the fuel tax. The most frequently discussed idea is avehicle miles traveled (VMT) feewhich would charge drivers based on miles driven.

"The fuel tax is a relatively stable source, which is powerful, but its purchasing power is declining as we move away from fossil fuels," said Adie Tomer, a fellow at the Brookings Institution's Metropolitan Policy Program. "A VMT fee is more like a utility fee, similar to how we pay for water or electricity. It sends a price signal to users."

The American Trucking Associations supports the fuel tax and warns the government against policies targeting the trucking industry to raise funds. The organization particularly opposes a VMT tax on trucks only.opposes a VMT tax on trucks only。

Alternatives face technical hurdles in tracking and charging drivers, but a few states are already piloting their own programs. For example, Oregon has a voluntary VMT pilot program that is growing, but Brouwer has no data on the impact of lockdowns. Meanwhile, Washington state is actively exploring road usage charges. A coalition of states along the I-95 corridor is also considering implementing its own user fees.state coalitionis also considering implementing its own user fees.

"Discussions about long-term funding need to happen at all levels of government as well as in the private sector," said Brooks Rainwater, director of the Center for City Solutions at the National League of Cities. "We need to see more cooperation across levels to get there. Now that we have seen the consequences of relying on a few funding sources, it is time to study the best mix of funding."

Of course, VMT fees and congestion pricing schemes depend on normal driving habits, which may change after the pandemic as more companies allow remote work.

In a recent Bloomberg Intelligence webinar, tax policy analyst Andrew Silverman noted that the next administration and Congress may need to look beyond taxes—which could disproportionately affect low- and middle-income drivers—to meet the nation's infrastructure needs.look beyond taxeswhich could disproportionately affect low- and middle-income drivers—to meet the nation's infrastructure needs. This could include bonds and public-private partnerships, combined with taxes and tolls.

There have even been proposals to use a carbon tax to fund the transition away from single-occupancy vehicle use. Twelve northeastern and mid-Atlantic states participating in the Transportation and Climate Initiative are exploring a "cap-and-invest" program to support funding for public transit, zero-emission vehicles, and bicycle and pedestrian infrastructure.Transportation and Climate InitiativeTwelve northeastern and mid-Atlantic states are exploring a "cap-and-invest" program to support funding for public transit, zero-emission vehicles, and bicycle and pedestrian infrastructure.

Howard said that when lawmakers return to work on transportation bills, they should consider the lessons of the pandemic and look to more innovative states and cities for new funding strategies.

"A program so dependent on gasoline purchases creates forecasting challenges when something like this happens," Howard said. "Long-term forecasts assume a certain level of sustained use, and the long-term picture is changing. The whole situation continues to reveal that we have not modernized yet."