A new gas tax formula proposed this week by Senate Republicans would give North Carolinians a quick tax cut this year – followed by years of substantially higher gas taxes, which prompted criticism from both ends of the political spectrum.
A consensus forecast provided by economists for the legislature and the administration of Gov. Pat McCrory predicts the change would generate about $1.2 billion in additional revenue over the next four years for the state Department of Transportation, where officials have warned of a widening gap between North Carolina’s needs and its ability to pay for them.
The proposed new law would cut the gas tax rate by 2.5 cents per gallon on March 1 for the rest of 2015, and set a new minimum rate of 35 cents for future years.
The measure also would make changes in a legislative formula to push the gas tax almost 5 cents higher in 2016 than it would be under current law, government economists say – and almost 7 cents higher in 2018.
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“With all due respect, it’s a motor fuels tax increase,” Sen. Joel Ford, a Mecklenburg County Democrat, said Tuesday at a meeting of the Senate Appropriations Committee, where the gas tax bill was approved and sent to the Senate floor.
“You call it a tax increase,” replied Sen. Jerry Tillman, a Randolph County Republican. “It may, in time, end up being that. But when you’re bleeding, you’ve got to stop the bleeding.”
Sen. Bill Rabon, a Brunswick County Republican sponsoring the changes, spoke of cutting tax rates now and making the gas tax a less volatile and more predictable source of transportation funds in the future. He emphasized that the rate would not be allowed to fall below 35 cents a gallon.
“We’re going to cut, freeze and stabilize the gas tax,” Rabon said Tuesday morning at a meeting of the Senate Finance Committee. “It’s mainly a bill that corrects things.”
Current law prescribes a formula used to adjust the gas tax rate every six months: Either a flat 21 cents or a combination of 17.5 cents plus 7 percent of the average wholesale price, whichever is higher.
The new proposal would update the tax only once a year under a revised formula: A flat 35 cents or a combination of 17.5 cents plus 9.9 percent of the average wholesale price, whichever is higher.
Business groups and transportation advocates have warned that North Carolina’s roads and bridges will deteriorate unless the state finds dependable alternatives to the gas tax, which has weakened as automobile fuel economy has improved over the past decade.
The N.C. Chamber, the state’s main business lobby, said the Senate proposal “takes an important step to relieve immediate stress on current transportation infrastructure needs.”
But the anti-tax Americans for Prosperity said the legislation “keeps the gas tax artificially inflated over time.” A liberal group, Progress N.C. Action, called the move a “bait-and-switch” that would hurt average residents by costing them more at the pump over the long haul.
The gas tax measure was added to Senate Bill 20, a measure that makes changes in state income tax laws and addresses questions from accountants about how certain types of income from 2014 should be reported. Sen. Bob Rucho, a Mecklenburg County Republican who co-chairs the Senate Finance Committee, said he hoped to move the bill through the Senate by Thursday and send to to the House.
State government economists took long-range fuel price forecasts from the U.S. Energy Information Administration, added their own projections for modest fluctuations in North Carolina fuel consumption, and produced twin predictions for gas tax rates and revenue production through 2019 – under the current law and under the Senate proposal.
The proposed March 1 cut from the current 37.5 cents to 35 cents could require DOT to eliminate as many as 500 jobs because of less funding.
State economists predict that the rate would stay at 35 cents in 2016 and then climb eventually to 41 cents in 2019 under the Senate proposal. Under current law, they say, it would fall to 30.4 cents in 2016 and rise to 34.2 cents in 2019.
“The assumption is that we’re going to be stuck with low prices over the next 12 months-plus, with only gradual increases as we move through that period,” Barry Boardman, chief economist for the legislature’s fiscal research staff, said in an interview. He added a qualifier: “It’s highly volatile when you try to forecast what those prices are going to look like in two or three years.”