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Capping the Gas Tax Could Put North Carolina in the Slow Lane

Posted By Ed McLenaghan On November 22, 2011 @ 10:53 am In Uncategorized | Comments Disabled

There aren’t many in North Carolina who would argue that the state suffers from too little congestion, too few potholes, not enough crumbling bridges, or too many construction jobs.

More than 5,000 of the state’s 13,000 bridges (almost 4 in 10) are structurally deficient or functionally obsolete.  The American Society of Civil Engineers (ASCE) recently down-graded [1] North Carolina’s roads from D to D-, and also estimates that poor road conditions cost North Carolina motorists $1.7 billion annually in additional repairs and operating costs.  At the same time, unemployment [2] in the construction industry continues to remain above 13 percent.

Thus, it’s strange that recent statements [3] by some North Carolina lawmakers suggest they may take up a measure after Thanksgiving that would reduce funding for vital transportation projects aimed at reducing congestion and improving the condition of the state’s roadways and bridges.

The measure in question is a seemingly perennial (and typically bipartisan) effort to cap the  state’s gas tax, a revenue source that accounts for more than half of state revenues dedicated for transportation projects.  Despite the impact a gas tax cap could have on transportation revenues, there’s been little discussion of replacing any lost revenue from capping the gas tax.

Unlike in most states, a portion of North Carolina’s gas tax varies every six months in response to changes in the wholesale price of gasoline.  The “variable portion” of the state’s gas tax is equal to 7 percent of the average wholesale price of gasoline, which is levied on top of a flat rate of 17.5 cents-per-gallon.  The rationale for allowing part of the gas tax rate to rise and fall with the price of fuel is that much of the cost of maintenance and construction is linked to the cost of petroleum-based materials, especially asphalt [4].

For the six months ending January 1, the two parts of the state gas tax add to 35 cents per gallon, putting North Carolina’s gas taxes [5] at ninth-highest in the nation.  The primary reason for North Carolina’s relatively high gas taxes is not higher-than-average spending on public roads.  Data from the North Carolina Department of Transportation (NC DOT) indicate the opposite:  North Carolina ranks 48th in the country in spending per lane-mile of paved road.

The reason North Carolina’s gas tax ranks high when spending is relatively low is that, more so than in almost any other state, road construction and maintenance is primarily a state — as opposed to a local — responsibility.  On average, states own about one-fifth of all roads within their borders.  In comparison, NC DOT owns and maintains more than three-quarters of the state’s roadways.  Thus, while North Carolinians (and out-of-state motorists passing through the state) may pay higher-than-average state gas taxes, the higher gas taxes are more than offset by lower property taxes and vehicle sales taxes (i.e. “highway use taxes”).

And what’s often left out in discussions of North Carolina’s relatively high gas tax rate is that it doesn’t translate directly into high gas prices.  In fact, according to the most recent AAA survey [6], North Carolina’s average gas price is exactly in line with the US average, suggesting that capping the gas tax might not have much impact at the pump.

Although there are long-term trends, particularly the shift toward more fuel-efficient and hybrid-electric vehicles, that will necessitate a move toward alternative means [7] of financing transportation projects, capping the gas tax would only worsen the large-and-growing gap [8] North Carolina faces between the need for investments in transportation and the available funding to meet those needs.


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URLs in this post:

[1] down-graded: http://sections.asce.org/n_carolina/ReportCard/2009/Condensed%20Report%20Card%20Final%20Inside.pdf

[2] unemployment: http://www.bls.gov/iag/tgs/iag23.htm

[3] recent statements: http://www.starnewsonline.com/article/20111119/ARTICLES/111119602

[4] asphalt: http://postcarboncities.net/files/PCCp25-26_OilAndAsphalt.pdf

[5] gas taxes: http://www.api.org/statistics/fueltaxes/upload/gasoline-diesel-summary.pdf

[6] most recent AAA survey: http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp

[7] alternative means: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CCwQFjAC&url=http%3A%2F%2Fwww.cbo.gov%2Fftpdocs%2F121xx%2Fdoc12101%2FHighwayFunding_SummaryforWeb.pdf&ei=ebnLTo_XBYzBtgfjtM1q&usg=AFQjCNFg2g90M_0-l9dpSn6DZFwVZayOBw

[8] large-and-growing gap: http://www.ncleg.net/documentsites/committees/JointAppropriationsTransportation2011/2011-02-16%20Meeting/DOT%20Funding%20Overview.pdf

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