Recently, the topic of devolution of the federal role in surface transportation has been actively discussed. The impact on state finances, however, has not yet been analyzed. The way in which a reduction in federal transportation funding (as envisioned by legislation recently proposed by Rep. John Kasich and Sen. Connie Mack) would affect state financing is examined in this paper. This is combined with an assessment of states' need for financing and their ability to make up any funding shortfalls. The results of this analysis indicate that, although most states would require smaller increases in their fuel taxes than the drop in federal taxes, many would have difficulty making up this shortfall. Many of these same states also have a great need to maintain their transportation infrastructure. Even if the specific issues were to change were devolution imminent, this research provides a useful analysis of the financial issues. A brief discussion of the possible environmental effects of devolution and reduced highway spending is included.