Lawmakers give tentative approval to gas tax revamp

Posted March 30, 2015 8:11 p.m. EDT
Updated March 31, 2015 5:50 a.m. EDT

— The state House and Senate gave tentative approval on Monday to a bill that would drop the state's gas tax by 1.5 cents per gallon, with leaders in both chambers saying they needed to ensure the short-term stability of North Carolina's primary source of state funds for road construction.

Both chambers need to take a final vote on Tuesday before the measure heads to Gov. Pat McCrory, who has said he will sign the bill.

"It provides immediate relief for all North Carolina drivers as we pursue transportation funding reform," Sen. Bill Rabon, R-Brunswick, said Monday night.

Beyond Rabon's brief introductory remarks, the Senate did not debate the bill before tentatively approving it 40-9.

North Carolina's current gas tax is 37.5 cents per gallon, meaning Senate Bill 20 will save drivers about 23 cents on a 15-gallon fill up starting Wednesday and running through the remainder of the calendar year. The current gas tax rate is derived from a formula based largely on the wholesale price of gasoline. When wholesale prices go up, the tax has gone up. When they drop, the price goes down.

North Carolina and the rest of the nation have seen months of relatively low gas prices, which meant that, if lawmakers had done nothing, the gas tax would have dropped to 30 cents per gallon this summer. While drivers may have been happy to see that fall off at the pump, lawmakers said they would have been less than pleased with the fall off in road repairs and expansions.

Opposition focused on mortgage provision

While there was virtually no debate in the Senate, much of the discussion in the House didn't focus on the gas tax itself.

In addition to affecting what people pay at the pump, the bill also contains a set of tweaks to the the state's income tax. These internal revenue update provisions are designed to make North Carolina's tax law work with the federal tax law.

One of the changes dealing with mortgage forgiveness has been particularly contentious.

There are several programs that help people who have problems paying their mortgages. Several of those programs forgive a large part of the debt people owe on their first house.

Federal tax law does not treat the forgiven debt as income for 2014. However, North Carolina will, meaning those who have recently lost their homes due to the inability to pay will be charged thousands of dollars in taxes.

"That provision is tantamount to saying we're going to stomp folks while they're down, and then we're going to dance on them," said Rep. Kelly Alexander, D-Mecklenburg.

No member spoke on behalf of this provision during floor debate Monday night. In fact, when the House originally passed Senate Bill 20, it would have excused such payments from income taxes. But when the final bill was negotiated with the Senate, the forgiveness provision was dropped. It would have cost the state roughly $14 million, according to fiscal estimates.

More on gas tax

Lawmakers say the bill they are passing this week is meant to be a stop-gap that will stabilize North Carolina's road building revenue source until a new regime can be put in place. The constant gyrations in gas prices, legislative leaders say, makes the gas tax an unreliable source of long-term revenue.

Under Senate Bill 20, the gas tax would fall to 35 cents per gallon on Jan. 1, 2016, and then to 34 cents per gallon on July 1, 2016. By the end of 2016, lawmakers say, they hope to reach a grand bargain on replacing the gas tax as the primary source of revenue for funding road construction. If they don't reach an agreement, a fail-safe in the bill would begin driving up the gas tax rate again, basing the increases on a formula involving population growth and the consumer price index.

The gas tax raises about $50 million per penny, according to legislative leaders. The money attributed to one-half cent of the tax, or roughly $25 million, goes toward funds for underground storage tank cleanup and air quality programs. Of the remaining money, 75 percent goes to the Highway Fund, which pays for road maintenance, transit, rail, the State Highway Patrol and related programs. The remaining 25 percent goes to the Highway Trust Fund, which is used mainly for the construction of the interstate highway system, although some of the money does go to improvements of secondary roads.