Alabama Gasoline Tax Revenue Continues to Decline

Revenue from the gasoline tax, the money that goes into building and maintaining roads, continues to decline in Alabama. Cars are using less gas, and Alabama’s state gas tax is collected on a per gallon basis.  That means Alabama is collecting less for every mile driven. image

Compounding the shortfall is the fact that that the 16 cents per gallon collected by the state (18 cents per gallon if you count the 2 cents per gallon pump inspection fee) is worth less than it was in the early 1990s, the last time the tax was raised.

The Institute on Taxation and Economic Policy counts Alabama as one of 10 states where the gasoline tax rate is at an all-time low in terms of its purchasing power.   For a further exploration of the issue, see PARCA’s 2013 report, How Alabama Roads Compare.  ITEP Gas Tax

At the same time, the national highway fund, fueled by the federal gas tax, is also headed toward empty. The U.S. Department of Transportation announced last week that the fund is expected to run out of money before the end of the fiscal year. In recent years, Congress has had to infuse the highway fund with general revenues on several occasions.

If the fund runs out of money, it could bring road construction projects around the country to a halt.

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States around the country have made adjustments to their gasoline taxes to deal with the issue. Some have moved from the per gallon approach to a gas tax that operates more like a traditional sales tax. Others are experimenting with systems that tax drivers according to how much they drive rather than how much fuel they purchase. ITEP’s 2011 publication, Building a Better Gas Tax, explores the issue further. For a comparison of gas taxes around the country, try the American Petroleum Institute’s interactive map of gas tax rates. 


Alabama’s Tax Bargain

Tax Foundation Tax Freedom MapApril is traditionally the month we think about taxes. National tax comparisons are published, and we were reminded again this year that Alabama has among the lowest taxes in the U.S.

In this month’s edition of The Alabama Baptist, PARCA executive director Jim Williams points out that while our state’s taxes are low, we may not be getting a great bargain.

The questions we should be asking are these:  Are we getting our money’s worth? Are the tax dollars we send to Montgomery being spent efficiently and effectively? Unfortunately, Alabama’s budgeting and management process doesn’t ask those questions.  And until it does, we won’t know the answer.

Each year, The Tax Foundation, a Washington-based think tank, calculates what it calls “Tax Freedom Day.” This is the calendar day when total personal income is sufficient to pay all taxes – federal, state, and local, freeing the balance of the year for other pursuits. This year’s Tax Freedom Day came on April 21st for the nation as a whole.

In Alabama it arrived two weeks earlier, on April 7th, due to our low tax burden. Only four other states finished paying for their taxes sooner.

The latest figures from the U.S. Census Bureau show that Alabama’s state and local governments collected $2,904 in taxes per resident for fiscal 2011, a lower amount than in any other state. South Carolina ranked second-lowest. Alabama’s taxes were $324 million lower than they would have been if collected at the same per-capita rate as in South Carolina.

However, taxes are a bargain only when taxpayers get more than their money’s worth from the services produced. This can’t happen without control over the use of revenue and budget procedures that focus on performance. The State of Alabama, which spends over 10 billion taxpayer dollars each year, has neither.

Most of that money flowing into Montgomery is earmarked. It will be spent for a specific-purpose, whether or not that purpose is determined to be an important priority or pressing need. About 88 percent of Alabama tax revenue is earmarked, a proportion far higher than in any other state. That’s a problem: guaranteed budgets provide no incentive to efficiency.

As a result, there is relatively little effort put toward measuring the performance of state agencies. Instead of being a careful examination of spending and the results of that spending, budgeting in Alabama is largely a matter of determining how much is available to spend and then spreading it out among the various agencies.  Alabama has a sound Budget Management Act that has been on the books for many years, but in current practice, Alabama has no systematic process for linking appropriations to performance measures or budgeting according to priorities.

Compare the budget documents produced in Alabama with those produced in other Southeastern states. Look at what Georgia and Tennessee do when it comes to making budgets and evaluating the performance of agencies. Compare the budget produced by South Carolina’s Governor  or by Mississippi’s executive budget and performance measures 

As every shopper knows, low prices are only half of what makes a bargain. We also need to know why we’re spending, if we are spending wisely, and whether we are getting quality government services in return.