According to this definition, the failure of the arrangement to raise revenue sufficient to fund any defined level of needs (for example, as identified in the highway needs studies of the states and the federal government) is not in itself evidence that the arrangement is not viable. Tax rates and total revenues generally reflect the judgments of legislators and voters about priorities, and the existing set of user fees would have been suitable for generating substantially higher or lower revenue in the past if legislators had chosen to do so. However, if the present funding arrangement had structural features that were causing it to become ineffective as a revenue-raising mechanism, its viability would be questionable.

The committee considered the gravity of two kinds of possible structural problems that may pose threats to the viability of the established funding arrangement. They are, first, that changes in automotive technology, rising fuel prices, or new energy or environmental regulations may greatly depress gasoline and diesel fuel consumption and therefore revenue from fuel taxes and, second, that the user fee finance principle that has been the basis of highway finance may be eroding in practice, as indicated by a proliferation of new applications of user fee revenues and growing dependence on revenue from sources other than user fees.

Loss of the Tax Base

A reduction on the order of 20 percent in average gallons of fuel consumed per vehiclemile by the light-duty vehicle fleet is possible by 2025 if fuel economy improvement isdriven by new regulations or large and sustained fuel price increases. Offsetting the revenue effect of a gain of this size would not require fuel tax rate increases that wereextraordinary by historical standards, although the willingness of legislatures to enactincreases may be in question. In the absence of new regulations, fuel price increases alone probably will stimulate only a small improvement in fuel economy in this period. After 2025, large market shares for hybrid electric and fuel cell–powered vehicles, and consequently greater reductions in gasoline consumption, are possible, if driven by government intervention or high fuel prices.

This assessment of prospects for fuel economy improvement may seem too modest in light of recent circumstances. Sharply higher fuel prices in 2005 added to concerns about energy supplies and the environmental cost of fossil fuel combustion. At the same time, promising technological developments, including commercially popular hybrid vehicles and progress on fuel cell power, create a potential for a substantial reduction in gasoline consumption in the long term. (For example, in the fuel economy projections and scenarios reviewed in Chapter 4, a 25 percent improvement in fleet average fuel economy is achieved sometime after 2025.) The committee based its conclusion on its review of projections from several sources that considered the state of automotive technology and the history of response of consumers to fuel price changes and technological advances. Three factors will constrain the rate of progress on fuel economy. First, consumers have

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