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Will the General Fund Get the Gas Tax Treatment?

Some taxes are more equal than others, it would seem. House leadership is currently publicly indicating that there will be no new revenues to help cover the devastating holes in the Health and Human Services and Education budgets, but a revenue enhancing tax reform has very quietly and without much fuss passed the Senate, made it through House Transportation and now, this morning, Finance, and is set to make it to the House floor for a vote on Thursday, June 4.

Senate Bill 200 temporarily removes the 29.9 cents per gallon gas tax cap, making the 29.9 cent mark the minimum rate from July 1, 2009 to June 30, 2011.

The revenue effect is modest – perhaps $50 million more in 2009-2010 and under $20 million for 2010-2011. The gas tax will rise by around one cent from the high 28’s or low 29s to 29.9 cents per gallon in 2009-2010 and by around a third of a cent or the mid 29’s to 29.9 cents per gallon in 2010-2011.

Senate Bill 200 raises a fundamental question: What is so different about transportation that it looks like it will get some sort of revenue enhancing reprieve while all around it programs serving the poor and vulnerable are getting the chop?

The answer: nothing. It’s a case of what is good for the goose should be good for the gander. In fact, the arguments for enhanced General Fund revenues are far more persuasive than for a gas tax increase.

Economic Development

There is a widespread belief among rural legislators that the road network is critical for regional economic development. Many legislators who boost increasing the gas tax but not General Fund revenues appear to care more about roads than poor and vulnerable people because they place greater faith in the argument that building and maintaining roads boosts regional economic development than the argument that improving the lot of the disadvantaged can produce employment growth and, yes, contribute to economic development.

Of course, building a road alone won’t attract companies and jobs. Sufficient human capital and genuine geographic location advantage are required. Too often these are absent.

What building and maintaining roads is guaranteed to do is create road construction and maintenance jobs. The transportation ARRA funds are essentially a jobs program. Secretary Gene Conti has described the stimulus projects in such terms in presentations at the General Assembly.

Equally and obviously, expenditure on health and human services and teachers creates jobs and puts money into the hands of people who go out and spend that money. Government expenditure multiplies wealth, just as private expenditure multiplies wealth. The idea that taxes are somehow a dead weight on the economy is a complete fiction. That money gets spent by the government on activity that both helps people and communities, and is an economic driver. Failing to raise new revenues when budgets decline will contract the economy and make things worse, just as surely as failure to continue to invest in roads will cause deterioration and degradation of the network.

In addition, investing in people, as our state budget does through educating our children and improving the health of many, has obvious indirect economic dividends through the building of human capital. Ultimately, this form of capital is the most important of all and is a far better bet to improve economic growth than building roads and hoping business turns up.

Who Gets What?

The allocation of one-quarter of the state gas tax to the Highway Trust Fund (HTF) favors rural areas over urban ones and predisposes rural legislators to a favorable assessment of increases to the gas tax. That one-quarter is used to build roads.

The so-called HTF ‘equity formula’ divies 25% of the money it governs (HTF money minus money for loops, secondary roads and administration) equally between seven regions, the boundaries taken from correctional facilities divisions created in the 1930s. A second 25% is distributed based on the intra-state highway network listed in the 1989 legislation. That network is living testimony to the belief that if rural roads are built, economic development will follow.

Only half of the HTF money is divided on the basis of population, the only measure that approaches a supply/demand nexus.

If rural legislators are more apt to support a gas tax increase because it represents a re-distribution of highway resources on a per capita basis from urban to rural areas, then they should also support General Fund revenue enhancements. Rural areas in this state, especially in the east, routinely have the highest rates of unemployment and the highest incidence of poverty. They have, therefore, the highest corresponding need for government-funded health and human services, and for an education system that can adequately educate children from a low wealth rural backgound. The proposed House cuts decimate both areas of the budget.

Building Support

There has been a concerted effort over the last couple of years to investigate and publicize the problems transportation revenues have had in coping with rising costs, new and neglected demands (public transportation especially) and a deterioriating road network. The gas tax cap has exacerbated the revenue problem and cost North Carolina at least $400 million in the last 18 months. The 21st Century Transportation Committee that reported earlier this year brought the concerns of counties, cities, and community and industry groups together and coordinated the voice for enhanced transportation revenues.

By contrast, the promotion of the budget crisis facing services to the poor and vulnerable has a far shorter contemporary history – just six months or so. Together NC is now coordinating a growing unified voice and leaders in the coalition remain hopeful that the House will come to the conclusion the Senate did weeks ago, cuts alone cannot balance the budget.

Just as potholes cause damage to vehicles, the cutting of vital services and assistance to the poor and the vulnerable and to the education of our children will exact a human toll – a cost in any civilized society that is surely too high. Let’s hope the General Fund gets a little gas tax treatment in the coming days.

One Comment

  1. Leadership Conference

    June 4, 2009 at 9:55 am

    Even Ronald Reagan raised taxes when he was governor of Cali.