Gasoline Tax Limit Translates to $600M Lost for N.C. Roads

Fri December 12, 2008 - Southeast Edition
Gary D. Robertson - Associated Press



RALEIGH, N.C. (AP) When the Legislature capped North Carolina’s gasoline tax in 2006, it gave politicians something to crow about at election time to show they cared about voters’ pain at the pump.

While motorists currently save about a nickel for each gallon they buy because of the cap, its loss for the state Transportation Department is much greater: $600 million.

That’s about how much less the department will have taken in cumulatively by the time the cap is scheduled to expire next June 30, compared with the amount that would have been collected had there been no cap, according to state estimates.

The department and General Assembly researchers estimate more than half of that money would have been collected this fiscal year, when record gas prices combined with the state’s variable gas tax formula would have brought in more than $400 million extra.

Lawmakers returning to Raleigh in January must decide whether to let the cap expire or extend it and find money elsewhere to pay for road construction and repair. There’s an estimated $65 billion gap between transportation revenues and needs in North Carolina through 2030, the Department of Transportation has said.

“Politically to some it would be better not to touch the cap,” said Rep. Becky Carney, D-Mecklenburg, a member of a blue-ribbon transportation funding committee meeting recently. “But there’s no money. We’re going to have to find it somewhere and it’s going to have to be in the form of a tax or fee.’’

The extra money could have been used to reduce a road-building backlog that now stretches for decades. This year’s uncollected money would have been enough to cover the $316 million shortfall now projected for the Highway Trust Fund and Highway Fund this fiscal year.

The gasoline tax and a tax on car sales are the primary sources for the two dedicated building funds that receive nearly $3 billion annually. Both have fallen off because people are driving less and buying fewer vehicles.

Salisbury attorney Bill Graham, who led a 2006 petition drive to lower the gasoline tax, said the uncollected taxes have meant more money in the wallets of working families and businesses reliant on fuel. The state’s gasoline tax was among the highest in the country.

“While the revenue was not generated, that also meant there was a savings to the general driving public at a time when some people are losing their jobs,’’ said Graham, who ran unsuccessfully for the Republican nomination for governor this year.

The state’s gasoline tax is automatically adjusted twice annually based on the average wholesale price of a gallon.

The adjustments, based on a six-month average for gas, were designed to keep the tax’s value from eroding. Until recently, the material cost for building roads had doubled in price compared to 2003, said Mark Foster, the chief financial officer for the Department of Transportation.

“The cap was intended to be a recovery of inflationary costs, so obviously we lost $400 million of opportunity to cover increases in fuel and construction materials,’’ Foster said.

The Legislature agreed to limit the tax to no more than 29.9 cents per gallon starting in mid-2006 after complaints when it rose by roughly 3 cents because gas prices had surged in the aftermath of Katrina and Hurricane Rita. Transportation advocates didn’t like the idea. Gov. Mike Easley initially was cool to it but later signed a budget bill with the cap.

Without the cap, the Legislature’s Fiscal Research Division says the tax now would have been 34.8 cents per gallon and soared to 41 cents the first of next year.

“I still believe that the cap on the gas tax was the right thing to do,’’ Graham said.

The sheer size of the lost revenue can’t be overlooked.

The $600 million exceeds the value of all road-building contracts approved by the Board of Transportation at monthly meetings from July through November. Replacing the aging, narrow Yadkin River Bridge along Interstate 85 could cost $400 million, Foster said.

With the struggling economy forcing contractors to bid less to highway projects and recent lower oil prices reducing the cost of construction materials, the extra cash could have helped accelerate work.

“We would’ve had the money in the bank to do these kind of things, and capitalize on the [bad] economy,’’ said Rep. Nelson Cole, D-Rockingham, co-chairman of the Legislature’s transportation oversight committee. “It would have multiplied our efforts considerably.’’

The Legislature might let the cap expire in a non-election year. The public may forgive lawmakers, too, if gas prices are still at their current $2 per gallon.

Graham said the cap should be extended and no new road revenue sources authorized until DOT and Gov.-elect Beverly Perdue makes the agency more efficient.

Rep. Bill McGee, R-Forsyth, another blue-ribbon panel member, said voters would prefer to have a flat tax rate that doesn’t change. But McGee acknowledged that fixing the gas tax won’t change the larger problem.

“The gas tax is not going to raise the amount of money that we need,’’ he said.