Senate plan would cut NC gas taxes

by Bruce Siceloff, News and Observer, February 9, 2015.

Senate Republicans proposed Monday to make a quick 2.5-cent cut in the state’s chief source of transportation money, the gas tax, and add a new minimum rate that would keep it from falling even lower.

The proposal comes as North Carolina  business leaders are calling for more transportation spending to repair roads and support the state’s growing economy,

The gas tax would be reduced on March 1 from the current 37.5 cents per gallon to 35 cents, which would become the new minimum rate.

Two senators pushing the change said they wanted to make the state Department of Transportation’s primary revenue source less volatile and more reliable. Under current law, the tax would remain at 37.5 cents until July 1 – and then it would be expected to fall by as much as 6 to 8 cents because of a formula pegged to wholesale fuel prices, which have fallen sharply in recent months.

“There’s an immediate tax cut” in the new proposal, said Sen. Kathy Harrington, a Gaston County Republican who co-chairs one of the Senate’s budget-writing committees. “And it freezes it by putting a floor in place – and provides stability going forward, (to guarantee funds) for road projects that are already in the queue.”

The proposed change was filed Monday night in a draft committee rewrite of an earlier Senate bill.

“We think it is very noteworthy that we are making a 2.5-cent gas tax cut when our neighbors (in other states) are all raising their gas tax or trying to,” said Sen. Bill Rabon, a Brunswick County Republican who co-chairs the Senate Transportation Committee.

Under current law, the tax is adjusted every six months to reflect the ups and downs of fuel prices. The current formula sets it as the sum of 17.5 cents plus either 3.5 cents or 7 percent of the average wholesale price, whichever is greater.

The Senate legislation would change the formula, setting the tax at 17.5 cents plus either an additional 17.5 cents (to make the minimum rate of 35 cents) or 9.9 percent of the average wholesale fuel price, whichever is greater.

Rabon said fuel prices are not projected in the coming year to rise so high that they would push the tax rate above 35 cents.

Without action to keep the tax rate from falling well below 35 cents later this year, Rabon said, the state might not be able to depend on enough revenue to repay the  $1.2 billion in transportation bonds Gov. Pat McCrory proposed last week. DOT would have to reduce spending for road and bridge construction and maintenance, he said.

Telegraphed in advance

“If we do nothing, it would be devastating,” Rabon said. “It would be a disaster.”

The proposal was telegraphed in advance Monday when Carolina Partnership for Reform – a Raleigh-based advocacy group with ties to Senate Republicans – tweeted that a new poll showed support from North Carolinians for exactly the tax change prescribed in the new Senate bill filed Monday evening.

The group  said the March 1 tax cut, “viewed as nonpartisan common sense,” was favored by 47 percent and opposed by 42 percent. It provided no details on polling methods, findings or margin of error.

Even if the tax rate stays unchanged, it is expected to generate less money in future years as fuel economy continues to improve – meaning that cars and trucks in North Carolina use less gasoline per mile.

DOT says it will need $94 billion over the next 25 years to keep roads and bridges from deteriorating further – and more money than that to improve transportation conditions – but it expects to take in only $60 billion from current state and federal revenue streams.

A recent  N.C. State University study for the N.C. Chamber, a statewide business lobby, endorsed three sources of possible new transportation revenues: higher fees on heavy trucks, an increase in the highway use tax collected on automobile sales – which are lower in North Carolina than in neighboring states – and, eventually, a fee based on the miles traveled by each vehicle.

Although McCrory had pledged last year to recommend new taxes or other sources of additional transportation revenues, he  changed course last week and said instead that he would wait for legislators to take the lead.

Rabon said officials in McCrory’s administration have been briefed on the new gas tax proposal. The governor may have been referring to the new legislation when he said in his State of the State speech that he will support “any efforts to protect and stabilize” transportation revenues.

The legislature has moved twice over the past decade to put an upper limit on rising gas tax rates. But in 2009, a tax ceiling that had been enacted two years earlier was converted to a floor to close a gap in the DOT budget. Without that action in 2009, the tax rate would have dropped from 29.9 to 27.9 cents.

North Carolina’s gas tax is one of the highest in the nation. The highway use tax collected at the time of car sales, another major source of road money, is lower in North Carolina than in neighboring states.