Constitutional Amendment Dedicating the Sales Tax on New and Used Vehicles to the Highway Fund

Written by  Senator Robert Nichols


As we enter the 83rd Regular Session, there is general consensus among legislators that infrastructure funding is a top priority. As automobiles become more fuel efficient and new alternate fuel technologies are introduced, our traditional funding sources have become increasingly unstable. In order to keep up with a growing number of cars and the cost of inflation, a new funding source must be identified. In my opinion there are five critical elements we should look for when identifying a new funding source for transportation. To be effective, transportation revenue should be (1) predictable, (2) constitutionally dedicated, (3) transportation-related, (4) independent of fuel source and (5) able to adjust with inflation. We can no longer rely solely on unit-based financing, such as the fuel tax or registration fee, going forward.

For the past decade, Texas has relied on a series of one-time financing solutions to address its growing transportation needs. Though various programs (such as the Texas Mobility Fund, stimulus dollars, Propositions 14 and 12) have been helpful they are anything but predictable. The bonds are typically sold over the course of one or two biennia, leaving transportation forecasts woefully shortsighted. The bonding approach further degrades the stability of future forecasting by consuming hundreds of millions of dollars in debt service over the life of the bonds.

Our traditional funding methods are made up of vehicle registration fees, federal motor fuel tax, and state motor fuel tax. These revenues are constitutionally dedicated and transportation- related, but they do not adjust for inflation. Registration fees and fuel taxes are unit-based and frozen until the Legislature votes to raise them. This is the primary source of the quandary we are in now: registration fees have largely remained unchanged since 1987, state fuel taxes since 1991, and federal fuel taxes have been frozen since 1993. In those twenty-plus years, inflation has reduced the buying power significantly. Fuel efficiency, even with its obvious advantages, also tends to allow drivers to use the system while paying less than their share in fuel taxes on a per mile basis.

There is one revenue source that can provide all the qualities necessary to be an effective revenue stream. I have proposed a constitutional amendment which would dedicate the existing sales tax on new and used automobiles to the state highway fund. Approval of this constitutional amendment will give TxDOT a predictable revenue stream which they can use to implement long-range transportation plans.

The existing sales tax rate is 6.25% of the sale price of all new and used vehicles. Conservative forecasts for this revenue stream come in at around $3 billion annually.

We all know there is a significant funding challenge with regard to school financing and Medicaid, and those must be addressed for the sake of the state and its residents. That’s why legislation for this proposal would incrementally transfer the vehicle sales taxes by 10% per year, and would not begin until the next biennium. That should provide adequate time for lawmakers to fill in the gaps in general revenue.

This is a common sense solution to a major problem. If the Legislature is determined to find additional revenue for transportation, this, or some variation of this, is an option that will give the department the revenue it needs to alleviate congestion statewide.

Transportation infrastructure is a core function of government and must be addressed. What could make more sense than to dedicate the tax on a vehicle to the infrastructure on which it depends upon?

Editor’s Note: Senator Robert Nichols, recently appointed by Lieutenant Governor David Dewhurst to chair the Senate Transportation Committee, joined AGC members at the October letting to discuss his plan for increasing revenue for highway funding. Nichols, formerly a Texas Transportation Commissioner, is uniquely well-suited among senators to lead this committee. The Chapter looks forward to working with the chairman and his staff to fulfill his goal of infusing Texas’ depleted highway funds with a stable, predictable revenue stream. The following article outlines his funding proposal for the upcoming session.

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