North Carolina Struggles to Prevent Deep Gas Tax Cut

The News & Observer's "road worrier" (not a typo!), Bruce Siceloff, provides ongoing coverage of the sad saga of North Carolina's gas tax, set to be adjusted downwards by statute.
March 23, 2015, 6am PDT | Irvin Dawid
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Planetizen has covered this issue before—decreasing oil prices affect gas tax revenue where states use wholesale oil or gasoline taxes, as opposed to excise, or per-gallon taxes. In North Carolina, Siceloff writes that the required adjustments are based on "a statutory formula that makes the tax rise and fall with the ups and downs of wholesale fuel prices – which have plunged in the past six months." It is very similar to the Kentucky case discussed here in January.

The adjustment is somewhat similar to the six-cents gas tax decrease due to take effect in California on July 1 due to a February vote by the Board of Equalization that is required to annually adjust gas taxes as explained last month.

Siceloff begins his piece with a traveler who enjoys filling up in South Carolina rather than the Tar Heel State because of their lower gas prices resulting in part from a 21-cents lower gas tax. Lower gas prices in neighboring states led New York State Sen. Jim Seward to propose a gas tax reduction. Some legislators want to 'cap' future increases or replace the gas tax with a $201 annual fee.

South Carolina's 16.75-cents gas tax is the nation's third lowest [see (PDF) based on API]. North Carolina's 37.75-cents gas tax is the sixth highest.

How bad is the decrease the North Carolina DOT is looking at?

NCDOT warns of "a precipitous drop in the gas tax rate later this year, which would cut a few hundred million dollars from the state Department of Transportation budget," writes Siceloff. However, even if the gas tax wasn't adjusted downwards, there would still be a problem due to the basic unsustainability of a (stagnant) gas tax, resulting in a projected loss of almost 50% by 2028:

Gas and diesel fuel consumption are expected to decline even as North Carolina adds an expected 3.5 million residents over the next 25 years. Federal automobile fuel efficiency standards will rise from 27.5 miles per gallon in 2010 to 51.3 mpg in 2025. As a result, DOT planners say, fuel tax collections could fall below $1 billion a year after 2028 – down from $1.9 billion this year.

Solutions proposed or considered

Most immediate is legislation to prevent the gas tax from slipping below 35 or 36-cents per gallon. A bill passed the House on March 4 to prevent the tax from slipping below 36-cents per gallon, wrote Siceloff then. "The Senate approved a more complicated package that would cut the tax to 35 cents for the rest of 2015, then make changes in the statutory formula to push the tax rate a projected 5 to 7 cents higher in future years than would be expected under current law."

Siceloff goes on to write about other revenue options, such as mileage-based-user fees (mentioned here last year), higher vehicle sales taxes, and "(h)eavy truck fees: The federal government and several states tax heavy trucks by weight and annual mileage. In Oregon, this weight-mile tax generates $300 million a year." In Oregon, there is a "requirement that trucks with a combined weight over 26,000 pounds must pay a weight-mile tax for road use in Oregon," according to ODOT.

See Iowa's "Summary of State Use of Weight-Distance Tax (in U.S.)", including "Status of Electric Vehicle Registration Fee Proposals", dated 6/24/11 [PDF].

"Even South Carolina is looking to end its cheap-gas status, with competing proposals to raise a tax that has not changed in 25 years," writes Siceloff. "Gov. Nikki Haley wants to levy an extra 10 cents on every gallon, to bring South Carolina’s gas tax even with Georgia’s."

Hat tip to Pat Carstensen of Sierra Club Chapter Transportation Chairs Listserv.

Full Story:
Published on Saturday, March 21, 2015 in The News & Observer
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