Drastic changes to travel behavior during the pandemic have decreased fuel tax revenue in many states, but the extent and timing of financial recovery in the years to come remain uncertain. New research from the Mineta Transportation Institute (MTI), "The Impact of the COVID-19 Recovery on California Transportation Revenue: A Scenario Analysis through 2040," estimates the impact the COVID-19 pandemic would have on state-generated transportation revenue under six potential economic recovery scenarios, projecting the state’s future transportation revenue through 2040.
The six scenarios vary by several variables, including the length of the economic downturn and differences in transportation trends such as vehicle miles traveled (VMT), light-duty fleet size, and the mix of internal-combustion engine (ICE) vs. zero-emission vehicles (ZEV). The study used a tested spreadsheet model and well-known data sources to project transportation revenues generated by California’s Senate Bill 1 (2017) package of taxes and fees. These are taxes on gasoline and diesel fuel, plus two annual fees levied on vehicles.
While there is no certainty that the future will resemble any of the chosen scenarios, they nevertheless help state leaders assess and design policies to achieve desired outcomes.
The study’s revenue projections under these six scenarios found that:
- The projections demonstrate that annual California transportation revenue by 2040 could range from as little as $6.5 billion to as much as $10.9 billion.
- The projected cumulative revenue raised between 2020 and 2040 varies across the scenarios by more than $40 billion.
- In 2020, taxes on fuels will generate roughly three-quarters of state generated transportation revenue but will likely generate a much smaller percentage of overall revenue by 2040 (in four of the six scenarios, they generate less than a quarter of revenues).
“The findings highlight the need for California’s policy leader to prepare a long-term strategy for raising adequate transportation revenues that take into account the wide variation that will arise,” says Principal Investigator Dr. Asha W. Agrawal.
Researchers suggest that in order to achieve its policy goals of reducing carbon emissions from the transportation sector, California’s policymakers may wish to change the structure of taxes to replace the revenue lost from fuel taxes. For instance, the research team suggests supplementing the existing tax structure with a new road-user charge of one cent per mile.