The Senate's miraculous - or not - gas tax plan

by Patrick Gannon, the Insider, February 16, 2015.

If you could devise a way to bring in more than $1 billion in new government revenue over a few years, while cutting taxes simultaneously, you might be a miracle-worker.

Yet that's what several high-ranking Republicans in the state Senate claim to have done with their new state gas tax plan, which passed the Senate last week and was sent to the House for debate.

Someone call the pope.

Or maybe hold off.

The gas tax provides the main revenue source for road and bridge work, not to mention ferries, bike paths and other amenities. Because of more fuel-efficient cars and other forces, the revenue isn't keeping up with demands.

For years, transportation officials have sounded the alarm that more cash is needed to maintain infrastructure and build more to accommodate millions of new residents moving to North Carolina. And because it's based in part on the price of gas, which has been falling, the tax rate would be expected to decline steeply this year if nothing is done. That would mean much fewer transportation dollars, compounding the problem.

Today's state gas tax rate is 37.5 cents a gallon. The Senate plan would reduce it by 2.5 cents a gallon to 35 cents for the rest of 2015, beginning March 1.

It also would put a new formula in place to calculate the gas tax in the future and set a floor – the lowest the tax can go – at 35 cents a gallon moving forward. That formula would result in estimated rates of 35 cents in 2016, 36.4 cents in 2017, 40.5 cents in 2018 and 41 cents in 2019, according to the General Assembly's Fiscal Research Division.

If lawmakers do nothing, the tax would remain at 37.5 cents until June 30. Then, because it is based on the average wholesale price of gasoline, it would go to 30.4 cents on July 1, 31.3 cents in 2017, 33.8 cents in 2018 and 34.2 cents in 2019.

Yes, those projected rates are lower than what the tax rates would be under the Senate plan.

Thanks to the 2.5-cent cut, the plan would result in a $33 million decrease in gas tax revenues through the end of June. But the formula change would bring in an additional $1.2 billion to transportation coffers over the next four years, estimates show.

Several Republicans, including Senate leader Phil Berger, insisted in committee discussions, floor debates and press releases that their plan cuts taxes because it immediately lowers the tax by 2.5 cents. They argued that they don't have a crystal ball to say exactly what will happen to gas prices – and thus the gas tax rate – in future years.

Democrats didn't buy it, as the price of gas should be expected to increase.

"If this is a tax increase, just say it for what it is," said Sen. Erica Smith-Ingram of Northampton County.

Republicans pointed out that lawmakers tinker with the gas tax nearly every year, so assuming that they won't do it again in the near future is unfair. And as Democrats questioned the tax-cut claims, Republicans changed the subject, asking their counterparts across the aisle whether they wanted fewer transportation projects built in their districts because of declining transportation dollars.

So how can more projects get built with lower taxes?

Perhaps the Senate can work miracles. But no need to phone the Vatican about this one.