How Much of Texas’ Motor Fuels Tax Funds Transportation?

As the debate over how to fund transportation continues to brew after Texas’ 2013 Legislative Sessions, it is important to understand what revenue sources are currently funding the state’s transportation system. Especially since, according to some estimates, transportation may be underfunded by about $4 billion in the near future.

One major source of revenue for the State Highway Fund—otherwise known as Fund 6—is the state’s motor fuels tax.

In April of 1923, the legislature established a 1-cent per gallon tax on gasoline and, over the years, has steadily transformed to a motor fuels tax of 20-cents per gallon on gasoline and diesel and 15-cents per gallon on liquefied gas. When it was created, 75 percent of the revenue was designated to Fund 6 and the remaining 25 percent was deposited into the Available School Fund, also known as Fund 2.

In 1946, the Texas Legislature took this a step further and added Article VIII, Section 7-a, to the Texas Constitution that put these 75 percent and 25 percent criteria from the motor fuels tax into law. Despite this statute, the allocation criteria have loosened over the years and have consequently had more funds diverted from transportation to other areas.

The graph below shows that less than 75 percent of the $2.84 billion in 2003 to $3.17 billion in 2012 of the motor fuels tax revenue was appropriated to Fund 6 and the rest was diverted to Fund 2 and other funds. With a looming transportation funding crisis, this alarming revelation should trigger concern among legislators and taxpayers.

One potential solution to substantially diminish the projected $4 billion financial gap is to direct 100 percent of the motor fuels tax revenue to transportation.

If this approach was implemented in 2012, transportation funding would have increased by $858 million from the motor fuels tax revenue. Although this idea was pitched in HJR 17 and HB 52 during the first special session of the 83^rd Legislature, these bills were held up in committee. Ultimately, the legislature passed a constitutional amendment during the third special session that will be on the November 2014 ballot and if passed by the voters will divert part of the revenue stream flowing into the rainy day fund to transportation.

If legislators had acted to stop the diversions from the motor fuels tax revenue, this would have enhanced the state’s transportation funding without having to divert funds flowing into the state’s rainy day fund this year or raise taxes in the future.

Transparency and accountability are key features to the success of funding Texas’ transportation system. With a rising population and more people driving on Texas’ roads, more information about the sources of transportation funding, such as the motor fuels tax, can help legislators determine how transportation should be funded in the future without raising taxes and reducing the economic competitiveness of the Lone Star State.