September 12, 2007

Motor Fuels Tax Revenues

A presentation to the joint subcommittee of the General Assembly

Fuel-efficient vehicles and transportation funding

John R. Layman
Director/Chief Economist
Office of Revenue Forecasting
Virginia Department of Taxation
(804) 371-4370
john.layman@tax.virginia.gov
Components of Virginia’s motor fuels consumption…

Components of Motor Fuels Consumption -- FY07

Percent Share of Total
Alternative
0%

Diesel
34%

Gasoline
66%

• Most diesel fuel consumption is by non-passenger carrying vehicles.

1
Virginia’s motor fuel demand is impacted by many
different parameters including…

• Population growth
– Since 2000, Virginia has been on a trend toward slower growth.

• Economic growth
– The demand for motor fuels, particularly diesel, is driven by economic activity.
– The Commonwealth has begun the phase of decelerating growth in the
economy.

• Fuel prices
– Since January 2004, gasoline prices have increased 89%.
– Retail motor fuel prices follow prices of crude oil. The Energy Information
Administration estimates gasoline prices will steadily decline over the next
decade.

• Vehicle mix and driving habits

– There has been a broad, long-term, but gradual, movement to smaller
vehicles.
– Sales of large SUV’s down 19% in 2005 and 26% in 2006.

2
The demand for gasoline is relatively inelastic over the
short-term…
Growth in Avg Price of Gasoline/Consumption
2002q2 – 2007q2
Avg Price Consumption
50% 10%

40%

5%
30%

20%
0%

10%

-5%
0%

-10%
-10%

-20%

-30% -15%
00q2 00q4 01q2 01q4 02q2 02q4 03q2 03q4 04q2 04q4 05q2 05q4 06q2 06q4 07q2

Price Consumption

• Research suggests it takes years for higher gas prices to meaningfully damp
consumption. Prices would have to be considerably higher and stay high for a
long time to significantly curb gasoline consumption.

3
Motor gasoline demand is generally correlated to highway
demand…
Growth in Highway Demand v. Gasoline
Consumption, CY95-05

6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
96 97 98 99 '00 '01 '02 '03 '04 '05

Highway Demand Gas Consumption

• Highway demand is the ratio of vehicle miles traveled (VMT) to average fuel
efficiency.
• Over the last 10 years, VMT and gasoline consumption have averaged 1.5%
average annual growth in Virginia.
4
Components of Commonwealth Transportation Fund
Revenues…
Components of CTF Revenues -- FY07
Percent Share of Total
All Other
Motor Vehicle 6%
Registrations
7%

Motor Fuels
38%

State Sales
22%

$2,314.9 million
Motor Vehicle Sales
27%

• Motor fuels tax collections represented 38% of total CTF revenues in FY07.
– Over the last 20 years, motor fuels tax collections have represented 44% of
total CTF revenues on average. The share has steadily declined since FY98.
5
Motor Fuels Tax Collections Have Increased at a Steady
Pace…
Motor Fuels Tax Collections, FY89-07
Millions of Dollars
900

850

800

750

700

650

600

550

500
89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07

• Since FY90, the average annual percent change in motor fuels tax collections is
1.9%. Over the last three years, the average annual growth has been 0.5%.

6
Adjusted for Inflation, Motor Fuels Tax Collections Are at
Levels Seen in the Early 1990’s…
Motor Fuels Tax Collections, FY89-07
Adjusted for Inflation – FY90=1.0
Millions of Dollars
650

640

630

620

610

600

590

580

570

560
89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07

• Adjusted for inflation, motor fuels tax collections have declined for three
consecutive years.
• FY07 collections were 6.7% below the level recorded in FY90.
7
The Official Forecast for Motor Fuels Tax Collections
Anticipates Trend Growth Over the Forecast Horizon…

August Interim CTF Revenue Forecast

Annual Percent Change

Actual Forecast
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Motor Fuels Tax -1.3 4.4 3.0 3.3 2.8 2.2 0.1 0.0

Total CTF State

0.8 7.4 13.1 3.4 2.4 2.4 1.1 0.5
Taxes and Fees

• The transportation funding and reform included in HB 3202 drives the above-trend
growth in CTF revenues in FY08 and FY09.

8
Long-term trends in motor fuel demand are difficult to
predict…

• Energy prices
– Crude oil prices estimated to be $95 a barrel by 2030.

• Worldwide economic growth

• Technological advances
– Sales of alternative vehicle technologies (including diesel) are expected to
account for 28% of new light duty vehicle sales in 2030, up from 8% in 2005.

• Changes in weather patterns

• Geopolitical events