Raleigh, N.C. — A change in the state's gas tax proposed by Senate leaders would mean short-term savings at the pump, but higher gas taxes down the road and deep cuts at the state Department of Transportation.
The rewrite of Senate Bill 20 was unveiled Tuesday morning in the Senate Finance Committee and had cleared two committees by mid-afternoon. It was expected on the Senate floor on Wednesday.
The proposal would lower the current state gas tax from 37.5 cents per gallon to 35 cents per gallon, effective March 1. That cut would cost the state $33 million, which would be paid for by a mandatory cut of 500 filled and 50 vacant full-time positions at DOT, as well as cuts to road maintenance and other funds.
Senate President Pro Tem Phil Berger touted the proposal as "tax relief" in a statement from his office Tuesday morning.
"The long and the short of it is, it is a two-and-a-half-cent tax cut," said sponsor Sen. Bill Rabon, R-Brunswick.
However, the legislation would actually increase future gas taxes in two ways.
First, it raises the minimum gas tax from 21 cents per gallon to 35 cents. Under the state's current formula, falling gas prices over the past few months would have cut the gas tax from 37.5 cents per gallon to 30.4 cents in July. Under Senate Bill 20, consumers would not see that decrease. The rate would remain at 35 cents per gallon until Jan. 1, 2016.
Second, it increases the percentage of the average wholesale price of gas used in calculating future increases. Under current law, the formula uses 7 percent of the average wholesale cost. Under the proposal, that figure would rise to 9.9 percent of the cost. The future gas tax would be the higher of either the variable cost percentage or 35 cents per gallon.
According to legislative staff, the gas tax under the current formula is projected to be 31.3 cents per gallon in 2017. Under the proposal, it would be 36.4 cents. By 2019, the increase is projected to be even larger – 41 cents per gallon under Senate Bill 20 instead of 34.2 cents under the current formula.
The bill would also change the adjustment schedule for the gas tax to once per year instead of twice.
"We’re planning to cut and freeze and stabilize. Get the volatility out of the motor fuels tax," said Rabon, "so that going forward, the department, the industry and the legislature can better forecast and budget."
Sen. Dan Blue, D-Wake, questioned the need for the $33 million in short-term cuts.
"Given the increased demand – in fact, seems to be overwhelming demand on the Highway Fund as well as the [Highway] Trust Fund – why can’t we just freeze and stabilize this tax rather than cutting it?" Blue asked Rabon. "We could freeze it at its current level, leave this $33 million in transportation and therefore not have to back up on making bridges safe and these administrative cuts throughout the department as well as the secondary and primary road cuts."
"I would say that if we did that, we might have difficulty in some or one of the chambers of passing such a bill," Rabon replied, "and it is imperative that we do get a floor and a stabilization to this highly volatile situation."
Rabon added he is confident that the position cuts at DOT "can be absorbed and absorbed very well. There are around 13,000 employees at DOT. We think this is a very reasonable number, and it is a way to balance this bill with the budget."
According to legislative staff, the tax increase is expected to bring in an additional $237 million in 2015-16 to the Highway Fund and the Highway Trust Fund. In 2016-17, it would yield an additional $261 million.
Over four years, it's projected to raise an additional $1.2 billion, which Senate leaders say would help pay for the $1.2 billion transportation bond proposed by Gov. Pat McCrory.
'Bait and Switch' from both sides
Americans for Prosperity state director Donald Bryson called the proposal a "bait and switch."
"We’re telling taxpayers that they’re getting a tax cut, but it's actually keeping the rate artificially high. Whereas it could drop 6 to 8 cents over the next year, it's going to keep it locked at 35 cents. So, over time, this bill functions as a tax increase," Bryson said. "I think we should be honest with taxpayers. Either we’re going to cut the gas tax or we’re not going to cut the gas tax. But this is sort of a weird middle ground."
In an odd reversal of its usual opposition to right-leaning AFP, left-leaning group Progress NC took the same position, calling the proposal "a $1.2 billion tax increase on working families."
“Lawmakers think they can fool voters by passing a tiny short-term cut which hides a massive long-term increase. Governing through bait-and-switch tax schemes is no way to run a state, and North Carolinians deserve better from their leaders,” Progress NC Action director Gerrick Brenner said in a statement.
The proposal got similar pushback in the Senate Appropriations Committee on Tuesday afternoon.
"This is a tax increase, Sen. Rabon," said Sen. Joel Ford, D-Mecklenburg. "With all due respect, it is a motor fuels tax increase."
"I will continue to call it a tax cut any time you go from 37.5 cents to 35," Rabon answered.
Sen. Bob Rucho, R-Mecklenburg, asked what would happen to highway funding if the floor is not put in place, allowing the gas tax to plunge for the next few years as it would under the current law.
"We would have to drastically slash our bridge program," Rabon replied, adding that, by 2019, "we would have more than an $800 million deficit in maintenance and improvement of highways."
"This is an effort to stabilize and to know what we'll be dealing with," Rabon said, noting the volatility of oil prices over the last several years. "What we want to prevent is the boom and bust that we've been through before."
"You can call it a tax increase as it may be over time," added Sen. Jerry Tillman, R-Randolph. "I think it's the only thing we can do."
'Playing a game'
Motorists who spoke to WRAL News Tuesday weren't impressed by the political name game.
Cary resident Tom Kuhl said he travels a lot, so he'd like to see the gas tax go down. He called the proposal "deceiving."
"When you say 'tax cut,' I think it's permanent," Kuhl said. "I think they should say it’s a temporary reduction in the tax and it's going back up."
Driver John Treadwell also liked the idea of the short-term tax cut but not at the price of losing a bigger gas tax cut in July.
"They’re lying to us. I’ve kind of gotten used to that from politicians," Treadwell said.
"I feel like they're playing a game," said Garner resident Daryle McNair.
Business, city groups praise plan
Meantime, the NC Chamber of Commerce and the NC League of Municipalities had high praise for the plan, calling it a "crucial investment in transportation infrastructure."
The Chamber, which has been lobbying for more transportation funding, issued a statement warning that the state is "heading toward a transportation crisis" without additional investment. Calling the current gas tax formula "volatile and unsustainable in the future," it lauded legislators for seeking to stabilize revenue.
The League of Municipalities represents cities that rely on state funding to help maintain roads within their borders. In a statement, League President Burlington Mayor Ronnie Wall said the proposal "will provide much needed stability to transportation revenue in the state while delivering a boost for consumers and the North Carolina economy."