States Take on Gas Taxes and Infrastructure

by John Haughey // Jan 18, 2017 Uncategorized

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As far as many state legislators were concerned, the federal government’s failure to raise the federal gas tax allowed Congress to avoid biting an unpopular bullet while passing the buck onto them – again. Until Trump and Congress develop and adopt a new national infrastructure improvement plan, states will continue to shoulder most of the financial burden in maintaining and improving roads and infrastructure.

We know infrastructure is high on President-Elect Donald Trump’s agenda, when he made investing in the nation’s roads, airports, railways, waterways, energy technologies, water systems, hazardous/solid waste systems, schools and parks a campaign priority. His initial pledge to spend $1 trillion over 10 years in capital improvements, has since constricted to about $550 billion, a number substantially short of the $3.6 the American Society of Civil Engineers (ASCE) estimates it would cost to elevate the nation’s infrastructure to “a state of good repair.”

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In late 2015, Congress passed the five-year, $305 billion FAST Act, which included a 15 percent increase in highway spending, and an 18 percent boost in transit spending. But the FAST Act didn’t include raising the federal gasoline tax, which has remained at 18.4 cents per gallon since 1993. Gas taxes are a primary source of revenue for infrastructure improvements.

Since 2013, 20 states and the District of Columbia have increased overall state gas taxes and two states have altered their taxing structure to limit decreasing revenues. However, according to the ASCE, at least 20 states have not increased their gas tax rates in more than a decade.

After eight states passed legislation to increase fuel taxes in 2015, only one state – New Jersey – agreed to do so in 2016. Since it was an election year, such “wait-and-see” inactivity is not unusual. Ballot measures, not legislation, were the focus. In 2016, California voters approved Proposition 51, authorizing a $9 billion Public School Facility Bond; New Mexico voters approved four proposals to spend $189 million in public facilities improvements; Arkansas voters agreed to remove the cap on state-issued bonds; New Jersey voters agreed to dedicate all gas tax revenues exclusively to transportation projects; and Washington voters approved Regional Proposition I, a 30-year, $54 billion measure to “build out” the Puget Sound region’s transportation and public transit capacities.

Therefore, after a year of campaign-related inactivity, the ASCE predicts many state legislatures in 2017 will be discussing infrastructure improvements, with lawmakers in at least 12 states expected to propose bills raising gas tax rates.

Among states that will be likely discuss major transportation funding bills in the coming year:

— California AB1: Assemblyman Jim Frazier’s (D-Oakley) pre-filed 2017 Transportation Bill would raise an additional $6 billion a year for road and public transit projects. The proposal includes a 12-cent per gallon increase in motor vehicle fuel, a $38 vehicle registration increase, a $165 annual vehicle registration fee on zero-emission motor vehicles, and would create a State Transportation Inspector General position appointed by the governor.

As of Oct.1, Californians pay 41 cents per gallon of gas and diesel in state and local taxes and fees. Republicans are expected to oppose any efforts to raise the state gas tax to as much as 53 cents a gallon. Frazier’s proposal is a compromise of sorts between Gov. Jerry Brown’s $3.6 billion proposed road bill and a $7.4 billion package supported by many Democrats.

— Indiana: Indiana’s 18.4-cent per gallon gas tax hasn’t been raised since 1993. In 2016, state legislators were able to avoid imposing a tax increase by rerouting existing state revenues to provide $1.2 billion in revenues over the next two years for road improvements.

The Funding Indiana’s Roads for a Stronger Safer Tomorrow Task Force is expected by year’s end to issue recommendations for a long-term roads and infrastructure program. Among ideas the task force may propose: fuel taxes, alternative fuel vehicle levies, mileage-based user fees and tolling interstates.

— Montana: Montana’s 27.75-cent-per-gallon gas tax hasn’t been increased since 1994. A $144 million shortfall in the state’s highway revenue fund has led to delaying 30 highway projects.

Gov. Steve Bullock has proposed a 2017 bill calling for $200 million in cash and bonds to finance state infrastructure needs. His proposal would create an infrastructure trust fund, which could tap coal severance tax revenues. Some lawmakers say a fuel tax increase may also be necessary.

See what the two biggest issues facing 32 states are this year. 

— Wisconsin: Wisconsin’s 30.9 cent tax on a gallon of gas was last raised in 2006. The state faces a $1 billion transportation budget deficit.

State Republicans staged public hearings on transportation issues in anticipation of the 2017 session in early December. To get them in the proper frame off mind, Assembly Speaker Robin Vos distributed a document called “No Easy Answers.” Among possible funding options: vehicle registration fees, toll roads and gas tax increases — despite Gov. Scott Walker’s repeated vow to veto gas taxes or vehicle registration fees without tax cuts elsewhere.

— Mississippi: Mississippi’s 18.4-cent tax per gallon of gas has not increased since 1989. The state’s last major funding increase for roads and bridge improvements was 1987. Mississippi’s Americans for Prosperity chapter and the state Department of Transportation say an additional $526 million a year is needed to finance needed road project while the Mississippi Economic Council maintains another $300 million a year is needed for state roads and bridges and $75 million more is necessary for road work in cities and counties.

Among ideas being floated to address infrastructure needs in 2017: Repeal the largest tax cut in the state’s history approved during the 2016 session, business lobbyists suggest. Others say it’s time to raise the state’s gas tax. Either way,  Republicans aren’t likely to support repealing a tax cut or raising taxes.

— Alabama: Alabama charges 19 cents tax per gallon of diesel and 18 cents tax per gallon of gas. The tax rates have remained unchanged since 1992. Gov. Robert Bentley says Alabamans are willing to pay a higher gas tax if that money will improve the state’s roads and bridges.

Several 2017 proposals have surfaced: The Association of County Commissions is lobbying for a $1.2 billion bond issue that calls for a 3-cent per gallon increase in fuel taxes, while another plan calls for raising the fuel taxes by 4 cents per gallon, with 2 cents going to finance a $1 billion bond issue to fix bridges and 2 cents going to counties and municipalities to fix roads. House Speaker Mac McCutcheon (R-Monrovia) has suggested the state assess gas taxes as a percentage instead of by the gallon, like a sales tax, which would generate more revenue if gas prices  price of gas rises.

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— Minnesota: Minnesota’s 28.5-cents-per-gallon gas tax was last raised in 2008. According to state Department of Transportation projections, Minnesota has a 20-year funding deficit of $16.3 billion, which amounts to an annual funding deficit of $815 million.

Among plans legislators may consider in 2017 is Gov. Mark Dayton’s proposal to raise the state’s gas tax by 5 cents a gallon, increase license tab fees and dedicate some sales taxes revenues on auto parts to generate $600 million a year for road projects. Republicans have pledged to oppose fuel tax increases, such as the one they defeated in 2015.

— Arizona: Arizona’s excise tax on gas purchases of 18 cents per gallon and on diesel of 26 cents per gallon hasn’t changed since 1991. In early 2016, Gov. Doug Ducey created the Surface Transportation Funding Task Force (STFTF) to find ways to raise a projected $60 billion needed for road projects by 2035.

Among proposals the STFTF is expected to submit to state legislators in 2017 include a 10-cent hike in gas taxes to raise up to $2.3 billion over two decades; adding a 5-percent sales tax onto fuel purchases to generated up to $12.3 billion over the next 20 years; and, possibly, imposing a a VMT — vehicle-miles traveled — tax, although the Arizona Trucking Association has already expressed objections to such a levy.

— Colorado: Colorado’s 22-cent per gallon gas tax hasn’t been raised since 1993. Senate Republicans have proposed approving a $3.5 billion bond the last two years but Democratic Gov. John Hickenlooper favors a less traditional funding mechanism available through a “hospital-provider fee reclassification plan.”

Under the fee reclassification plan, the legislature would move this fee from the general fund to an enterprise fund, removing about $700 million from the state’s revenue cap on the general fund, triggering a transfer of more than $200 million annually to transportation funding for the next several years.

— Missouri: Missouri’s 17-cent-per-gallon fuel tax hasn’t been raised since 1996. The state’s construction budget for roads and bridges has fallen from about $1.3 billion annually in 2010 to a projected $325 million in 2017, the lowest since 1992. The annual shortfall in state funds for road and bridge repair is expected to reach $500 million in 2017.

Sen. Douglas Libla’s (R-Poplar Bluff) 2016 SB 623 called for a 5.9-cent per gallon gas tax hike but failed to move out of committee. Senate Joint Resolution 3 called for increasing the gas tax rate by 1.5 cents and the diesel rate by 3.5 cents. Any significant tax increase would then have to be approved by Missouri voters, who have been unwilling to support such increases in the past.

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— Tennessee: Tennessee’s 21.4 cents per gallon tax on gas has not increased since 1989. The state’s Department of Transportation says there is a $6 billion backlog in funding for transportation work.

Gov. Bill Haslam and Tennessee Transportation Commissioner John Schroer are expected to introduce a major transportation funding bill that will include proposed gas tax increases in 2017. Among potential sources of contention: If gas tax revenues could be used for mass transit in places like Nashville, where city officials say $6 billion is needed over the next 25 years.

— Louisiana: Louisiana’s 20 cents-per-gallon gas tax has not been raised since 1990 but there is momentum among residents and legislators to consider doing so in 2017 to address a $13.1 billion backlog of road and bridge needs.

A Governor-appointed task force has recommended that state funding for roads and bridges increase by $700 million annually. Among the ways to do so is by raising gas taxes, increasing registration and special permit fees for commercial trucks and by creating public-private partnerships to help finance large projects such as new Mississippi River bridge in Baton Rouge through tolls.

— Oregon: Oregon’s 30-cent per gallon gas tax was increased in 2011. In 2014, a governor-appointed panel estimated the state needs $964 million in additional funding annually to pay for needed road improvements. A 2015 proposed $343.5 million annual package was rejected by legislators.

A Joint Interim Committee on Transportation Preservation and Modernization has been gathering input for a transportation funding package for a year. An audit of the Oregon Department of Transportation requested by Gov. Kate Brown should be completed in March. These finding will set the table for legislators to consider a major roads funding bill in 2017. Among potential ideas: Adopting mileage-based user fees.

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