The State of Play on State Gas Taxes

A quick update on the state of gas taxes in certain states. I blogged previously about how legislators in Virginia, Maryland and Iowa are trying to confront the challenge of funding their transportation infrastructure needs in the face of fewer federal dollars. 

[UPDATE: My blog triggered this Huffington Post story, which quotes me.]

In Iowa, a bi-partisan effort to bump up the state's 21 cents-per-gallon fuel fee looks likely to pass. The tax on gasoline and diesel fuel would increase by 4 cents in 2013 and again in 2014. Each penny increase in the tax would generate roughly $22 million. Kudos to Iowa's elected leaders for taking bold action to address the state's infrastructure fiscal crunch.

Meanwhile, Maryland Gov. Martin O'Malley is expected to introduce his budget tomorrow, and everyone is waiting to see if he follows through on his pledge to boost the gas tax by up to 15 cents per gallon.

Across the river, in Virginia, Republicans are debating a measure to link the state’s gas tax to inflation — as is suggested by many experts and as is the case in several other states. Alas, Gov. Bob McDonnell strongly opposes any increase in the gas tax. Such philosophical opposition is misguided, especially since the state's gas tax has been dwarfed by inflation and rising construction costs. Indexing would, over time, provide Virginia with hundreds of millions of dollars more annually to pay for transportation upgrades. Without it, the state will continue to fall further into an abyss of its own making.

The Washington Post editorialized on the situation, putting it bluntly: 

The gas tax, Virginia’s main source of transportation funds, was last raised in 1987, to 17.5 cents per gallon. Since then, rising prices have decimated the revenue it yields, so that the state will soon have no cash — not a dime — for new roads, rails and bridges.

The governor has been frank about the urgency of the problem. But he also has been hamstrung by his ill-advised promise not to raise taxes.

As alternatives, he has accelerated borrowing in the near term and proposed diverting a modest but gradually increasing sum from schools, public safety and health to transportation. But even by 2020, that diversion would yield just $300 million a year in extra revenue for transportation. According to most estimates, the state needs a minimum of $1 billion more right now — not eight years from now.

Depending on how it was structured and on the rate of inflation, indexing, or switching to a straight percentage sales tax on gasoline, could produce an extra $150 million to $200 million a year by 2016 or 2017 and more in subsequent years. It would probably increase the tax on gasoline by 3 or 4 percent a year, meaning an extra dime or two to fill up the tank in the first year.

Some Republicans may howl, including those who handed Grover Norquist the final say over state finances by signing a pledge to oppose higher taxes. But as things stand, Virginians are not paying anything close to the cost of the roads they are using. Within a few years, all transportation funds will be drained off just to maintain the existing, badly inadequate network. And indexing isn’t a new tax; it would simply enable Virginia to avoid falling further behind.

Last month, Mr. McDonnell announced $10 million in fee increases — for lost vehicle titles, late registration renewals and temporary drivers licenses — to cover costs at the Department of Motor Vehicles. “All we’re doing is making ends meet by making the revenues come in equivalent to the cost of running the DMV,” he said, sensibly.

Building and operating the state’s transportation network is no different. By leaving the gas tax untouched for 25 years, Virginia has fallen critically behind in its ability to move people and remain competitive. That has to end — better late than never.