Rep. Dan Howell
State Rep. Dan Howell told members of the Pachyderm Club on Monday that the days have passed when the state could just rely on the gasoline tax for its transportation needs.
Rep. Howell, who serves as chairman of the transportation committee and represents Bradley, Meigs and Polk counties in District 22, outlined the historical context of Tennessee's road funding and the current fiscal pressures facing the state's transportation system.
He said Tennessee's transportation infrastructure has undergone dramatic transformation since 1923, when the state had only 244 miles of paved roads. At that time, Governor Austin Peay pushed through legislation establishing a two-cent gas tax that cost 14 cents per gallon, representing a 14 percent tax rate. This funding mechanism has served as the primary source of transportation revenue for nearly a century, but is now facing significant challenges.
The current gas tax stands at 26 cents per gallon for gasoline and 27 cents for diesel. However, adjusted for inflation, the original two-cent tax from 1923 would be equivalent to 37 cents today, indicating that the current tax rate has not kept pace with inflation.
More critically, gas tax revenue has been declining since the 2022-23 budget year, with collections down $4 million annually and May 2025 figures showing a 5.3 percent year-over-year decrease.
He said several factors contribute to this revenue decline. Federal Corporate Average Fuel Economy (CAFE) standards have pushed automakers to produce more fuel-efficient vehicles, reducing overall gas consumption. Tennessee gasoline consumption has dropped by 183,000 gallons daily since 2016, with residents purchasing 9.3 million gallons daily in 2021, representing a 1.9 percent decrease in per-person consumption.
Additionally, the state has experienced significant population growth which increases infrastructure demands while the funding mechanism weakens.
The speaker said the Tennessee Department of Transportation (TDOT) operates under a unique funding structure compared to other state agencies. While most departments receive general fund appropriations, TDOT pays for employee salaries, benefits, and operations entirely from gas tax revenue. The department receives approximately $2.8 billion annually from gas tax collections. After accounting for employee costs, the 28 public transit systems, short-line railroad subsidies, and operational expenses, TDOT has roughly $1.9 billion remaining for maintaining 100,000 miles of roads and more than 20,000 bridges.
Additionally, the state faces a $38 billion deferred maintenance backlog across its transportation infrastructure. This figure includes both interstate and state roads, representing projects that have been identified but not yet funded.
In response to these challenges, Governor Bill Lee proposed the Transportation Modernization Act in 2023, which Rep. Howell carried through the legislature. This legislation aims to reduce project timelines from 15 years to five years and introduces public-private partnerships (P3s) as a funding mechanism.
The state has invested over $5 billion in transportation infrastructure since 2019, drawing from budget surpluses rather than recurring revenue sources. However, these one-time investments cannot provide the sustainable funding needed for long-term infrastructure maintenance and expansion, Rep. Howell said.
He emphasized that non-recurring funds make it impossible to plan effectively for future projects. Various funding approaches have been implemented or considered.
Tennessee raised vehicle registration fees in 2017 by $26.50, though this amount is significantly lower than fees in other states.
The state has also implemented higher registration fees for electric vehicles, which use roads but contribute less to gas tax revenue, and hybrid vehicles face moderate fee increases.
A recent measure redirected $80 million annually from tire sales tax to transportation funding. However, looking ahead, vehicle miles traveled nationally are projected to increase from 3 trillion miles in 2025 to 3.7 trillion miles by 2050, while fuel consumption is expected to decrease from 130 billion gallons annually to 135 billion gallons.
He said these trends suggest that traditional gas tax funding will become increasingly inadequate for infrastructure needs.
Additionally, out-of-state drivers contribute approximately 40 percent of Tennessee's gas tax revenue through tourism and commercial truck traffic, with Chattanooga serving as the nation's top crossroads for semi-truck traffic.
Rep. Howell said this external revenue source provides some stability but cannot offset the overall decline in fuel consumption.
He said the transportation infrastructure discussion reflects broader challenges facing states nationwide as vehicle technology evolves and travel patterns change. Tennessee's approach of combining traditional funding sources with innovative public-private partnerships and strategic use of surplus funds represents one model for addressing these challenges while maintaining fiscal responsibility, he noted.