State Politics

Legislature drops NC gas tax 1.5 cents, starting Wednesday

The lawmakers’ new gas tax formula will give North Carolinians a quick tax cut this year – but it wards off a bigger tax cut.
The lawmakers’ new gas tax formula will give North Carolinians a quick tax cut this year – but it wards off a bigger tax cut. Raleigh

North Carolina’s gas tax will drop by a few pennies over the next 15 months – starting Wednesday with a reduction of 1.5 cents a gallon – under a law enacted Tuesday to ward off a larger tax cut that was expected to cost the state $800 million in transportation money over the next four years.

House Democrats protested that the measure will put an unfair tax burden on working families, but both chambers gave final approval by comfortable margins Tuesday afternoon. Gov. Pat McCrory quickly signed it into law.

The old tax rate, 37.5 cents a gallon, will be reduced to 36 cents Wednesday and stay there through December. Then the tax will fall to 35 cents in January and 34 cents in July 2016.

Starting in 2017, the gas tax will be adjusted once a year according to a new statutory formula based on population growth and energy cost inflation. It is expected to rise slowly in future years to about 36 cents in 2019. The law gets rid of a volatile formula that produced wide swings in the tax rate, moving with the ups and downs of global fuel prices.

“This bill will allow us to build roads, strengthen bridges and fix potholes so people can get to their jobs, go to school, see their doctors and drive to the mountains or the beach,” McCrory said in a statement. “We now have a gas tax that is based on North Carolina’s transportation needs instead of the unpredictability of the world oil market.”

6.4 cents higher

It’s a clear tax cut for the remaining three months of this fiscal year, whch ends June 30. But the new 36-cent rate is 6.4 cents higher than the tax would have been starting in July if the law had not been changed.

Fiscal researchers for the legislature estimated that the new law will boost DOT revenues by $266 million during the fiscal year that starts in July, and an average $181 million annually for the three years after that.

“This bill is important,” Rep. David Lewis, a Republican from Dunn, said during House debate. “We need to provide the stability that this bill provides to make sure that we can meet our obligations to keep safe roads and safe bridges, and our communities can have the funding they need for the infrastructure projects they have.”

Rep. Paul Luebke, a Democrat from Durham, chided Republicans for avoiding mention that the bill will increase the gas tax.

“This matters, because people need the money in their pockets,” Luebke said.

Rep. Joe Sam Queen, a Democrat from Waynesville, said the state would have more money for transportation if the legislature halted the transfer of gas tax receipts to the General Fund – about $255 million a year – where it is spent for non-transportation needs. He noted that Republican legislative leaders are pushing for income tax cuts that would reduce money for the General Fund.

“We’re paying for tax cuts out of the General Fund with tax hikes in the gas tax, and that’s my objection to this bill,” Queen said.

Much of the debate focused on a separate section of the same bill that settles some differences between state and federal income tax rules. The result protects a tax credit for teachers who buy their own classroom supplies, but dissenters were unhappy about a mortgage provision they said would penalize some North Carolinians unfairly.

The Senate approved the gas and income tax changes without debate, in a 41-8 vote. Democrats were split almost evenly, with 7 yes and 8 no votes. Sen. Tamara Barringer of Cary was the only dissenting Republican.

The House vote was 79-39. Nine Republicans voted against the bill, and 15 Democrats voted for it.

Rep. Gary Pendleton, a Republican from Raleigh, said the gas tax change provides “just one big old Band-Aid” for the Department of Transportation budget. He challenged legislative leaders to make good on a promise that they will pursue more sweeping changes later this year, to strengthen transportation money sources for the future.

“Now in the interim, it hurts to know the average citizen is going to be paying more than they would if we had just left it alone,” Pendleton said.

Related stories from Raleigh News & Observer