Transportation Funding Via The Taxing of Alternative Fuel Vehicles

Just as a state’s economic development and growth is impacted by its ability to build and maintain its highways and bridges and improve its transportation systems, so too is its air quality.  After all, transportation conformity is a requirement of the Clean Air Act, specifically for those states that struggle with attaining the National Ambient Air Quality Standard (“NAAQS”) for one or more criteria pollutants.  Intent on resolving this issue of a growing transportation funding deficit interfering with Arizona’s ability to address its critical infrastructure needs, the Arizona Legislature introduced ambitious legislation earlier this year.

Traditionally, funding for infrastructure projects is collected at the fuel station pump via federal and state motor and use fuel taxes.  Fuel combustion vehicles pay this tax; but Alternative Fuels Vehicles (“AFVs”) do not.  As AFVs are increasingly more present on the roads, the more urgent the need for states to determine how best to account for them in their transportation funding mechanisms.

While many States have implemented annual fees on AFVs to reduce this funding disparity, Arizona’s House Bill 2536 (“HB2536”) attempts to gradually and perpetually increases the motor and use fuel rate per gallon tax on fuel-combustion vehicles, while additionally introducing a similar rate per gallon tax structure on AFVs.  Supporting this legislation are transportation associations; Arizona counties, cities and towns; trade associations (i.e aggregates, trucking, engineering and contractors); and local business chambers.  Among those opposed to HB2536 are the Arizona Petroleum Marketers Association, Americans for Prosperity Arizona, the Arizona Free Enterprise, and many individuals that are simply not in favor of the tax increase.

HB2536 sailed through the House Transportation Committee; was amended with unanimous support; and the House Ways and Means Committee further amended on a 7-3 vote.  The amendment adopted in each committee further decreased the tax burdens from the initial rates proposed.  Even though HB2536 was steadily moving through the process, it has since stalled and not been given consideration by the House Rules committee.

Finding the best solution to Arizona’s transportation funding deficit is an ongoing effort.  Arizona’s air quality, specifically in Maricopa and Yuma Counties which are struggling with attaining the ozone NAAQS, may benefit from infrastructure improvements and ongoing maintenance, as well as the increase of AFVs on the road.