What a difference eight years makes in the world of fleet fuel. In May 2002 the average diesel fuel price was $1.30 a gallon and the percentage of that price collected in federal and state fuel taxes was 37%. At that price, many of us complained about the high cost and the high tax rate. As the price of fuel rose through the years, taxes remained relatively stable in most states based upon a “cents per gallon” tax rate. Throughout the subsequent years, as the price of fleet fuel increased the tax rates as a percentage shrank to less than 10% of the total cost of fuel in July 2008 when diesel fuel prices hit its all time high of $4.70 a gallon, to the current rate of 15% in May, when the average national price was $3.06.

Legislators, both at the federal and state levels, were always reluctant to increase these fleet fuel taxes to protect their electability. After all, they would be vilified if they were to even suggest such increases when the cost of fuel was skyrocketing. This inaction, combined with more fuel efficient vehicles (hybrids and electrics), has lead to a dilemma: substantially decreased revenue to fund highway and public transportation programs. Federal, state and local governments are not immune from the affects of high fleet fuel costs. Like any fleet operation, large or small, their diesel fuel prices have substantially increased along with everybody else's. The high cost of fuel, in conjunction with a reduction in tax revenue due to reduced fuel consumption has meant cuts need to be made in order to remain solvent, if there is such a thing as solvency for a government entity.

Discussions are now focused on a fair and equitable way to insure that enough tax revenue is collected, given that the cents per gallon fuel tax model may be a thing of the past. The increased fuel efficiency of both cars and trucks has meant more miles travelled on highways with less tax revenue for the governments who need revenue to maintain those same highways. With fuel efficiency expected to continue improving, unless drastic changes are made in the taxing structure, the problem will only get worse.

Department of Energy (DOE) Chairman Chu announced in January awards totaling more than $115 million to Cummins, Navistar and Daimler Trucks of North America for 3 projects that will focus on measures to improve the efficiency of Class 8, long-haul freight trucks by 50 percent. An additional six awards were made to improve automobile fuel efficiency by 40 to 50% by 2015. Considering all of these factors, we clearly see the fuel tax revenue pot continuing to shrink.

We've looked back, looked at the present; now let's take a glimpse into the future. What is the most fair and equitable way to collect enough fuel tax to fund all of the highway and public transit projects? How do you tax alternative fuels such as electricity or hydrogen? Hydrogen is easy, since it would be doubtful anyone could refuel their car at home so it could be taxed at the pump the same way fuel is currently taxed. Electricity presents a different problem since it is readily available almost anywhere. Do you equip the car so it can only be fueled through a specific charger and meter so that it could be taxed by kilowatt hours used? Should fuel be taxed on a percentage basis rather than a cents per gallon basis? Another option that is on the table is the Vehicle Miles Travelled (VMT) tax which would track miles travelled using on-board GPS and tax according to class, type of road and when they drive. Regardless of the system chosen, we know something must be done to make up for the revenue shortfall. If its not, be prepared for continued bad highways, falling bridges and delayed projects.

I don't think any of us want to pay more in diesel or gas prices, but if road conditions were better (meaning wider roads, less bottlenecks, less potholes, etc) how much fuel, labor time and truck repair costs would we save?