Will states finally endorse fuel tax increases?

By Keith Goble, Land Line state legislative editor | Friday, December 21, 2012

States around the country have struggled for years to come up with money to address transportation funding needs. Despite even dire straits in many states, officials have shown little willingness to push for fuel tax increases to help bail them out.

The reluctance to act could finally be changing. For many, the shift in attitude is long overdue.

A 2011 study revealed that states are missing out on hundreds of millions in fuel tax revenue. The Institute on Taxation and Economic Policy’s analysis blamed state lawmakers for a reluctance to update fuel taxes that have cost their states, on average, $201 million in annual revenue.

Among the recommendations by the nonprofit tax-policy group is for states to increase their rates.

In Virginia, one state lawmaker is preparing a bill that would nearly double the state’s 17.5-cent-per-gallon fuel tax rate. Unchanged since 1986, the 14-cent increase sought would generate about $735 million each year.

Gov. Bob McDonnell has called for lawmakers to act now to address transportation funding challenges.

“We cannot continue kicking the can down the road,” he stated.

McDonnell advocates charging tolls to boost revenue. He appears reluctant to endorse a fuel tax increase. However, he has indicated that indexing the fuel tax to inflation is on the table.

The Owner-Operator Independent Drivers Association remains committed to the fuel tax as the primary way to fund highways.

Ryan Bowley, OOIDA’s director of legislative affairs, said the fuel tax is the most efficient option to address funding needs.

“The fuel tax has been shown time and again to be the most efficient system to pay for highway maintenance and improvements based on its low cost of collection,” Bowley said.

Pennsylvania Gov. Tom Corbett is expected to soon announce his long-term transportation plan. His office suggested that the recommendations from a governor-appointed task force will be included.

Among the panel’s proposals is to lift a cap on the oil company franchise tax. The action would increase the per-gallon tax on diesel by about 19 cents and the tax on gas by about 14 cents over five years. Currently, the tax applies only to the first $1.25 per gallon of the wholesale price.

Eliminating the cap in stages would raise about $1.36 billion in five years.

Earlier this year in Maryland, Gov. Martin O’Malley failed to garner support for a 6 percent sales tax on fuel purchases to help address transportation needs. The change would increase the fuel tax by 18 cents and raise more than $600 million a year.

O’Malley said he has not given up on additional funding. He could back a similar bill during the upcoming session.

Other governors to show interest in increasing fuel tax rates are in Massachusetts, Washington and Wyoming. Tax proposals in these states range from a 10-cent-per-gallon increase to a nearly 20-cent hike.

In Wyoming, Gov. Matt Mead recommended that the tax rate be increased to help provide a long-term funding source for transportation work.

“Every part of Wyoming’s economy relies on an effective, well-maintained and continually improved highway system,” Mead stated. “Good planning, reasonable costs and effective management can only be achieved through reliable, long-term funding.”

A transportation advisory panel created by Minnesota’s governor recommended multiple proposals to increase the fuel tax rate by as much as 38.5 cents over two decades.

Another governor-appointed group in Wisconsin is working on a list of recommendations for lawmakers to boost funding for the next decade. Options under consideration include applying a sales tax on fuel and indexing the state’s fuel tax rate.

Lawmakers across the country are expected to spend the next several months discussing funding methods. A lot more than usual are likely to take a long look at increasing their fuel tax rates.

Editor’s Note: Please share your thoughts with us about the story topic. Comments may be sent to state_legislative_editor@ooida.com.

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