Tennessee Governor Poised to Raise Gas Tax by Six Cents per Gallon

Both chambers of Tennessee's General Assembly approved Gov. Bill Haslam's transportation plan on April 19, which hikes diesel taxes by 10 cents per gallon but lowers other taxes. Indiana appears poised to follow with a 10-cent gas tax increase.
April 23, 2017, 5am PDT | Irvin Dawid
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"The Tennessee General Assembly handed Gov. Bill Haslam (R) a major victory Wednesday, approving his plan to raise the tax on gas and diesel to help fund a $10 billion backlog in needed transportation projects, writes Joel Ebert, state government reporter for The Tennessean.

The last time the 21.4-cent gas tax was increased was 1989.

Unlike the highly partisan 12-cent gas tax increase in California that two weeks earlier also passed both chambers of the legislature on one day, a bipartisan coalition of legislators approved the Tennessee measure in the House a 60-37 vote, followed by a 25-6 vote in the Senate.

"To be sure, there are differences between the versions passed, but if either the House or Senate agrees to conform to the other, then the bill could avoid going to conference committee," reports Meg Garner for the Memphis Business Journal.

The bills, HB 0534, by Representative Glen Casada, R-Thompson Station and SB 1221 by Senator Mark Norris, R-Collierville, go by the acronym IMPROVE: Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy Act.

Unveiled by Gov. Haslam in January, it has proven to be very controversial, as are most bills that increase constituents' taxes, although the governor's webpage describes it as "the largest tax cut in Tennessee history."

Opponents, such as Rep. Jerry Sexton, R-Bean Station, pushed "an alternative plan to redirect $200 million in existing state sales taxes for road improvements but were thwarted at thwarted at the committee level," reported Andy Sher for the Times Free Press in March.

The argument against the Sexton plan was that fuel taxes are in effect a user fee and that general fund revenue from sales taxes, which helps pay for education and other general functions of state government, wasn't fair to non-drivers, went against decades of practice and was risky to boot.

[Correspondent's note: see tag, "tax diversions", and what Gov. C.L. "Butch" Otter (R-Idaho) had to say on the topic on April 11.]

Sausage making

For the California bill to get a few votes from reluctant legislators to attain the required two-thirds threshold for passage, Gov. Jerry Brown and legislative leaders agreed to $1 billion in side deals, plus added a generous loophole for the trucking industry that will set-back air quality improvements in the state that already suffers the worst air quality in the nation.

In Tennessee, all constituents will enjoy targeted tax reductions listed in the IMPROVE Act, including cutting "taxes on groceries, reductions to the franchise and excise tax, starting the phase-out of the Hall Income Tax on certain investments, and property tax relief for eligible disabled veterans and the elderly," writes Ebert.

However, reducing taxes that are directed to the General Fund in exchange for increasing gas taxes that only fund roads, known as a tax shift, can imperil other state programs, similar to the effect of tax diversions. That was the central issue in the debate between Gov. Chris Christie (R-N.J) and the legislature that delayed a 23-cents gas tax increase, approved last October.

Electric Vehicle (EV) Fee

Another similar to the California bill that passed April 6, the IMPROVE Act [HB 0534] includes a $100 annual fee on electric vehicles. In addition, the bill:

  • increases motor vehicle registration fees by $5.00; 
  • increases the registration fee for private and commercial motor vehicles operating for hire and transporting passengers by $10.00; and 
  • increases the registration taxes for freight motor vehicles by $20.00.

Fuel tax increases phased-in over three years

A four-cent increase occurs on July 1, 2017, followed by one cent a gallon on July 1, 2018 and July 1, 2019. The bill also includes an inflation adjustment for the taxes.

The bill includes an amendment that will prohibit local governments from further taxing gasoline which they currently can do.

Next up?

A January post indicated that Tennessee might increase its gas tax this year, along with AlaskaLouisiana, and possibly South Carolina and Mississippi. However, most likely is Indiana, according to an article by Kaitlin L Lange and Tony Cook published in The Indianapolis Star on Thursday.

Indiana lawmakers are poised to pass a much-talked-about roads funding plan that would increase gasoline taxes by 10 cents a gallon, pave the way for tolling and dedicate all money collected at the pump to roads by 2025.

Both chambers have to approve the final version before it's sent to the governor to consider.

In addition to raising gas and diesel taxesHouse Bill 1002 by Rep. Edmond Soliday"would instruct the Indiana Department of Transportation to apply for a federal waiver and to study how tolls could be added," according to a February post on the legislation. Like the California and Tennessee gas tax legislation, it also adds an electric vehicle annual fee ($150). Unlike the two other bills, though, it adds an annual hybrid fee of $50 as well.

The bill hikes the diesel tax by 10-cents as well, "while the version advanced by the Senate Committee on Tax and Fiscal Policy proposes a 6-cent increase phased in over two years," according to Fox59.

An April 20 statement from Gov. Eric J. Holcomb (who replaced now-Vice President Mike Pence on the November ballot) congratulated the state lawmakers for their plan, and the reporters also indicated he is in support of the legislation.

Hat tip to AASHTO Daily Transportation Update.

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Published on Wednesday, April 19, 2017 in The Tennessean
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