gas-revenues-fall-with-gas-priceStates try many schemes when it comes to raising revenue through taxes. Back when it seemed as though oil prices would keep rising — and bring gas prices up with them — some states decided to tie gas taxes to price. Kentucky is a state that ties gas taxes to the price of gas, and as oil and gas prices fall, Kentucky is starting to feel the pinch.

Revenue Problems and Gas Taxes

According to Kentucky state law, every three months gas prices are reviewed and the gas tax rate is adjusted. The gas tax is based on the average wholesale price of gas. However, says USA Today, this system isn’t working out too well in the current climate of rapidly falling oil prices.

Like many states (there are 15 total that tie gas tax rates to gas prices in some way), Kentucky uses gas taxes as a way to fund road maintenance and highway projects. A lot of the infrastructure related to driving is funded with the help of gas taxes. Many taxpayers don’t think about that when they go to the pump. However, the reality is that the roads that many of us drive on are built and maintained with the help of taxes, and gas taxes play a big role.

As oil prices fall, and ga prices follow suit, many states find themselves facing budget shortfalls. This can be disappointing, since it’s been decades since road infrastructure across the country has had a significant facelift. With infrastructure crumbling, it’s hard to fix the problem when there isn’t revenue from gas taxes and other sources to help. The result is that many states are scaling back on their efforts.

Looking for Gas Tax Alternatives

As revenue from gas taxes fall, states have to look elsewhere for income. It’s important to note that it’s not just states with gas taxes tied to gas prices that are struggling, either. Some states are seeing a drop in revenues just because it people need fewer trips to the pump. Increased gas efficiency for cars, as well as an increasing number of hybrids, combine to mean that people fill up less often. This can have an impact on state revenues as well.

Washington is trying a program that focuses more on road usage than on gas consumption. A pilot program is getting under way that looks at how many miles someone drives on the road as a basis for taxation. This puts less emphasis on gas, and more emphasis on how often someone actually drives on the roads.

States are looking for ideas that can help them keep up the revenues needed to maintain roads for the long haul. It can be difficult for them, however, since many people don’t like the idea of taxes. They are happy to drive on the roads — and complain about the state of them — without really thinking about how these roads are to be paid for.

It’s an interesting conundrum, and one that illustrates the importance of flexibility when it comes to taxation. Relying too heavily on one way of doing things can come back to bite states, especially as changes are made to car technology and energy usage.