The transportation program in Tennessee is funded by state highway user taxes and fees, as well as federal funding. No money from the state’s general fund, which relies on the sales tax, is used in any of the programs of the Tennessee Department of Transportation.
Tennessee’s funding resource for transportation is called “dedicated funding,” because the funding resource is directly related to the service or product provided. That philosophy began in 1923 when Governor Austin Peay recommended to the state legislature the burden of highway improvements be transferred from property owners to motorists to fund faster work on state highways.
During the 1920’s, Tennessee had become known in the southeast as a “detour state” because it hadn’t kept up with road improvements like sister states. The first gas tax of two cents was passed and enacted in 1924 specifically for highway purposes.
Highway user taxes and fees are comprised of money collected from vehicle registration fees and taxes on gasoline and motor fuel, commonly known as diesel fuel. A portion of the gasoline tax also goes to cities and counties in Tennessee to fund local roads.
Since the mid-nineties, Tennessee’s highway program has been debt free, meaning there are no bonds on which to pay interest. The last bonds for highway purposes were sold in the 1960s, even though the agency still has bonding authority.
Tennessee’s conservative process of funding its highway program is often referred to as a “pay as you go” program. The agency only spends the funds that are available through its dedicated revenues, the highway user taxes and fees, and federal funding.
Tennessee’s federal funding has improved significantly in the last several years. The tax collected at the gasoline pump by the federal government is 18.4 cents per gallon. Prior to 1998, Tennessee only received about $0.78 cents for every federal dollar collected. When the current federal transportation bill passed in 1998, Tennessee began receiving about $0.90 cents for every federal dollar sent to Washington from Tennessee motorists.
Even though the highway program comprises a large portion of the transportation in Tennessee, funding for other modes, including aeronautics and rail and transit, are included in the budget. Funding for those modes comes from a combination of state and federal resources that also rely on fuel taxes and fees.