A COMPREHENSIVE ASSESSMENT OF ALABAMA’S FUEL TAX ADJUSTMENT MECHANISMS AND ITS IMPACT ON TAXPAYERS’ FINANCIAL CAPACITY

Abstract

This thesis presents a comprehensive evaluation of fuel tax adjustment mechanisms intended to address Alabama's transportation demands without exceeding taxpayers' financial capacity. The study focuses on assessing the effectiveness of current and proposed methodologies for adjusting fuel tax rates, and ensuring sustainable and equitable funding for transportation infrastructure. The research addresses the growing funding gap in transportation infrastructure, driven by rising construction costs and evolving fuel consumption patterns. To promote a sustainable funding approach, this thesis developed the Alabama Department of Transportation Construction Cost Index (ALDOT_CCI), a robust tool designed to reflect average construction cost growth. This index serves as a critical resource for budgeting and financial planning within ALDOT. The study then employed a risk-based forecasting methodology, using Monte Carlo simulations to project future trends in construction costs, fuel tax revenues, and taxpayers' financial capacity over a 20-year period. This approach provides a probabilistic perspective on these key variables, highlighting their potential variability and implications for long-term sustainability. A comparative analysis of the predicted values of the ALDOT_CCI, Gasoline Revenue Index (GRI), and Gasoline Tax Rate Index (GTRI) with the Taxpayer Financial Capacity Index (TFCI) was performed to assess the potential impacts of tax rate adjustments on ALDOT’s financial capacity and taxpayers. The analysis underscores the importance of aligning tax rate adjustments with ALDOT’s financial needs and taxpayers’ ability to absorb these changes. The study proposes two innovative methodologies for adjusting fuel tax rates: a fixed annual percentage adjustment based on the ALDOT_CCI, and a modified adjustment cap and frequency based on the National Highway Construction Cost Index (NHCCI). These methodologies aim to provide a balanced and equitable framework for future transportation funding policies, ensuring that tax rate adjustments are responsive to economic conditions and taxpayer capacity. The findings reveal a growing disparity between rapidly increasing fuel taxes and slower growth in taxpayer financial capacity, particularly since the implementation of the Rebuild Alabama Act. The study highlights the need for periodic tax rate reviews and adjustments, improved data collection and analysis, stakeholder engagement, and the development of risk mitigation strategies. It further highlights the importance of exploring alternative funding mechanisms and assessing the impact of technological advances on fuel tax revenues and infrastructure needs. The study concludes with several recommendations for improving Alabama’s transportation funding mechanisms. These include periodic tax rate reviews, improved data analysis for decision-making, and stakeholder engagement to foster public support. The research also calls for exploring alternative funding mechanisms, such as public-private partnerships and electric vehicle fees, to diversify revenue streams as fuel consumption patterns evolve. By implementing the proposed strategies, Alabama can meet future challenges and opportunities while maintaining a strong and resilient transportation infrastructure that supports economic growth and public well-being.