Raleigh, N.C. — A proposed vehicle insurance tax has been removed from legislation designed to reduce North Carolina's dependence on gas tax revenue to build and maintain highways.
House Bill 927 called for a 6.5 percent tax on automobile insurance premiums, which would have added about $106 to the average auto policy. But sponsor Rep. John Torbett, R-Gaston, said during a House Transportation Committee meeting Tuesday that the bill remains "under construction" but that section "is not going to be in there."
Torbett didn't say why the insurance tax was dropped, but it was clear it has drummed up intense opposition.
Even after Torbett announced the change, Insurance Commissioner Wayne Goodwin and a lobbyist for the Insurance Federation of North Carolina told committee members what a bad idea an auto insurance tax would be.
"It would amount to the highest across-the-board increase on car insurance in 30 years," Goodwin said, noting that North Carolina has the lowest auto insurance rates in the nation.
"This 6.5 percent – or higher – increase would definitely be passed on to drivers by insurance companies regardless of their driving records or how much or how little they drive," he added.
Insurance industry lobbyist John McMillan said the tax could spark retaliatory taxes by other states and could drive some insurers out of North Carolina.
The bill still calls for raising the fees for various services performed by the state Division of Motor Vehicles by 50 percent, such as a vehicle registration going from $28 to $42 a year and a learner's permit rising from $15 to $22.50. The highway use tax paid when a vehicle is purchased and sales taxes on rental cars also would go up under the proposal.
Meanwhile, the bill would lower the gas tax from 36 to 30 cents per gallon. That change would have occurred anyway on July 1, but lawmakers in March put a floor under the tax to prevent a projected loss of $400 million from such a drop.
Even with a lower gas tax, the fee increases and the shifting of some costs, such as money for the State Highway Patrol, from the Highway Fund to the state's general budget would generate between $485 million to $593 million a year for transportation programs over the next four years, Torbett said.
Sixty percent of the revenue would go toward paving state highways – the money would be divided equally among the 100 counties – with another 10 percent to help cities pay for resurfacing their roads. Dredging shipping channels and other work to upgrade the ports at Wilmington and Morehead City would get 20 percent of the money, with the final 10 percent earmarked for bridge repair and replacement.
"We can't kick this can down the road because it's been kicked so long there's not much of a can left," Torbett said of long-delayed efforts to address highway maintenance needs.
Basing transportation funding on gas tax revenue is akin to funding schools with corn futures prices, he said, noting gas prices are too volatile. Also, increases in vehicle fuel efficiency continue to eat into the amount the tax raises each year.
Moving to more of a fee-based system "spreads the pain around" and helps generate enough money to fix some immediate needs, he said. After four years, extra money raised through the system would be go back to the Highway Fund and the Highway Trust Fund for longer-range needs.
Lobbyists for auto dealers and rental car agencies said they feel the bill unfairly targets them through higher taxes.
"We'd encourage the General Assembly to look more at options that focus on usage," said John Policastro, general counsel for the North Carolina Automobile Dealers Association. "Right now, this bill focuses almost entirely on anyone who buys or owns an automobile and doesn't really address the usage of the automobile, how much the roads are being used."
Still, Chief Deputy Transportation Secretary Nick Tennyson praised lawmakers for "working on a serious problem at a serious scale," and Barry Jenkins, co-chairman of transportation advocacy group NC Go!, said the effort requires a lot of vision and "political guts" to accomplish.
Lawmakers said some issues in the bill still need to be addressed, such as the budgetary impact of moving Highway Patrol costs and the loss of gas tax money for air-quality monitoring programs in Mecklenburg, Forsyth and Buncombe counties.