The gas tax is running out of gas

By Bruce Siceloff, News and Observer, August 26, 2013.

North Carolina leaders came together with surprising ease this spring – Democrat and Republican, rural and urban – to agree on a new formula for making smarter use of state road-building dollars.

Next comes the hard part: Agreeing on new ways to raise the transportation dollars we’ll need to keep up with North Carolina’s relentless growth. This is a conversation that will start, eventually, with a brave soul proposing some kind of tax hike, or some kind of new tax.

Mark Foster, the state Department of Transportation’s chief financial officer, recently gave Board of Transportation members a sober briefing on transportation revenue prospects.

Tax collections generally rise as the population grows and the economy expands. So, with North Carolina’s head count expected to climb 35 percent higher between 2001 and 2025, state personal income tax collections will more than double, growing by 143 percent, according to the legislature’s fiscal forecasters.

But our chief source of transportation funding – the tax collected on every gallon of gas and diesel fuel – is heading the other way. That’s because motor fuel use peaked in North Carolina at 5.6 billion gallons in fiscal year 2006-07, and it has fallen since then to 5.1 billion gallons this year.

Blame it on the Prius. For good reasons, of course, we’re trading our old gas guzzlers for newer models that burn less gas per mile – and for plug-in cars that don’t burn any gas at all.

But good fuel economy is bad for a transportation system that needs the gas tax for 70 percent of its funding ($1.87 billion in state gas taxes for the fiscal year that ended June 30).

“If you were thinking of this as your stock portfolio,” Foster told transportation board members, many of them developers and business executives, “you would essentially have 70 percent of your portfolio invested in one stock. If I’ve got 70 percent of my stock in a company that I think is not going to do well, then I’ve got problems.”

How poorly will the gas tax perform? The forecasters at DOT and the legislature are counting on a slight upturn in the next five years, as a recovering economy puts more trucks on the road.

“But by 2018, fuel efficiency will have finally taken its last turn, and we’ll be on a downward slide,” Foster said.

Drivers pay higher gas taxes in North Carolina (37.5 cents a gallon) than in nearby states, Foster acknowledged. But most of our neighbor states collect a higher highway use tax on car sales – the state’s second-highest source for road money ($555 million last year).

Our car tax has remained for years at 3 percent of the sale price, minus the value of a trade-in car. That’s a testament to the political clout of North Carolina’s car dealers. Tennessee’s tax is 7 percent, with no trade-in allowance, and Georgia’s is 6.5 percent. South Carolina has a higher nominal rate, 4 percent without a trade-in allowance, but the state caps its tax bill at $300 per car.

A number of states, including Virginia, are increasing general sales taxes to help pay for transportation. In Washington, where the federal gas tax has held steady at 18.2 cents since 1992, Congress has taken money from other parts of the budget to help cover transportation needs.

That’s the opposite tack from the trend in North Carolina, where $261 million of the $2 billion Highway Fund is being diverted this year to the General Fund, to cover non-transportation expenses.

A few states are experimenting with some kind of odometer fee – also known as a VMT or vehicle-miles-traveled tax – that charges drivers by the miles they travel. A VMT tax involves unproven technology and raises privacy questions, and it carries its own issues of fairness.

Our legislature empanels a study commission every couple of years to explore these issues rather than act on them. There are occasional mutterings in Raleigh that North Carolina’s cities and counties should volunteer to help out with state transportation costs, but our governors and legislators have avoided unpleasant discussion about the declining gas tax.

Transportation board members said they hope that will change in the coming year.

“This needs to be pounded home to the folks that are making decisions,” board member John Collett of Charlotte told Foster.

“This is a big problem, and we need to educate the citizens that a change has to take place,” board member Cheryl McQueary of Greensboro said.

The legislature this year enacted the Strategic Mobility Formula, a new way of setting priorities for transportation construction spending at state, regional and local levels. It will be the subject of a daylong meeting planned Sept. 10 for members of a joint House-Senate committee that oversees transportation.

Maybe they’ll plan a future meeting for what Foster calls “rebalancing the stock portfolio.”