Building A Better Gas Tax

Friday, December 30 by JerryFoster

A new report by the Institute on Taxation and Economic Policy (ITEP) reveals that New Jersey hasn’t raised the gas tax in 20 years, while roadway construction costs have skyrocketed. Effectively reducing the purchasing power of our taxes, this lost revenue is significant – “annual losses in New Jersey are over $500 million.”

According to the report, “taxes and fees paid by drivers (the most significant of which is the gas tax) make up a smaller share of total highway funding than at any point since the creation of the Interstate Highway System in 1957.”

In our previous post, Who Pays for Our Roads, we looked at the components of New Jersey’s state roadway funding (consumer gas taxes, oil industry taxes and general sales tax), and noted that property taxes fund local and county roads. We also reported that New Jersey’s gas taxes only pay the interest on past roadway improvements, and improvements are 99% paid with borrowed money.

Adjusted for roadway construction costs, the ITEP report notes that New Jersey’s gas and diesel taxes have lost 40% of their purchasing power since they were last adjusted, a loss totaling $505million annually.

The report recommends solutions: “The best structural reform possible is to link, or ‘index,’ the gas tax rate to some official measure of transportation construction cost growth.” An increase of 11.8 cents per gallon of diesel and 9.8 cents per gallon of gasoline would restore purchasing parity.

How about it? We’ve seen NJTransit fares increase 25% – it now costs almost $30 for a round trip train ticket between Princeton Junction and New York. We’ve seen toll increases on the turnpike, tunnels and bridges, and more are coming. When the Scudder Falls bridge on I-95 gets expanded to 6 lanes, a toll will be charged for the first time. Our transportation network is very expensive, but so far we’ve been unwilling to pay to maintain it, preferring to borrow instead – it’s not a sustainable solution. What do you think?

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Who Pays for Our Roads?

Monday, October 10 by JerryFoster

There’s an urban myth that only motorists pay for roads, therefore implying that bicyclists and pedestrians don’t belong on them. Is it true?

Not according to the 1995 study Crossroads: Highway-Finance Subsidies in New Jersey, which found that motorists only pay 77%. The rest ($733 million in 1995) is subsidized by the general taxpaying public.

“This subsidy is borne entirely at the local level, by New Jersey counties and municipalities. Localities spend $1.2 billion a year providing roads and motorist services, but collect only $200 million directly from drivers; the difference of $1 billion is paid largely through property taxes.” – Tri-State Transportation Campaign

Motorists pay even less now than in 1995. The New Jersey gas tax, fixed at $0.105 per gallon, has not changed since 1988, according to the 2010 study Spiral of Debt: The Unsustainable Structure of New Jersey’s Transportation Trust Fund. The federal gas tax has been fixed at $0.184 per gallon since 1993. You can be assured the cost of improvements haven’t stayed fixed since then. How did we make up the difference? According to the 2010 study:

“It didn?t happen overnight but gradually: Over the last 25 years, we have bought ourselves major transportation improvements ? road widenings, interchange redesigns, new rail lines and countless other projects ? without raising the money necessary to pay for them.

Instead, we?ve borrowed money. We have borrowed ? and we continue to borrow ? so much money that nearly every dollar we raise in taxes for transportation projects from the gas tax and other taxes, almost $900 million a year, is instead going to pay off interest and principal on bonds issued years ago.”

The state’s Quick Facts web page estimates that 1% of Transportation Trust Fund funding is Pay-As-You-Go, and the rest is borrowed.? According to the 2011 report Do Roads Pay for Themselves?, New Jersey exempts gas purchases from the sales tax, and the lower gas tax rate is in effect a subsidy that encourages gas purchases.? The major components of the Transportation Trust Fund revenues are the fuel tax ($483 million in FY2010), petroleum products tax ($200 million in FY2010) and a portion of the sales tax ($200 million in FY2010). The petroleum products tax is on activities such as oil refining and is paid by industry, while we all pay sales tax, of course.

So the state’s Fiscal Year 2012 Transportation Capital Plan total of $3,363,038,000 includes $149,703,000 for Multimodal programs (4.45%). Of course this funding is only for interstates and federal and state highways, except for specific improvements funded by the state’s local assistance program. So US 1 is covered in West Windsor.

Let’s look at county transportation funding – the 2011 Mercer County Capital budget Transportation Infrastructure total of $11,908,600?? includes $250,000 for bicycle and pedestrian improvements (2.1%). Capital Surplus provided $592,930 with the remaining $11,315,670 from General Bonds and Notes, i.e. borrowed, so 5.2% is Pay-As-You-Go. This assumes Mercer County is funded by property taxes rather than motorist-specific fuel or other motor vehicle use taxes. These pay for county roads, except for specific projects that are paid with federal and/or state funds, as the proposed CR571 Main Street project is.

West Windsor’s county roads include:

  • Washington and Princeton-Hightstown Roads (CR571)
  • Clarksville Road (CR 638)
  • Quakerbridge Road (CR 533)
  • Cranbury Road (CR 615)
  • South Mill and Edinburg Roads (CR 526)
  • Old Trenton Road (CR 535)
  • Village Road West (CR 644)
  • Edinburg Windsor Road (CR 641)
  • South Post Road (CR 602)

Similarly, our municipal roadways are assumed to be funded by local property taxes, although some can be partially funded through the Off Tract Road Assessment fund, which is collected from real-estate developers. West Windsor’s 2011 Capital Improvement budget includes $757,050 for roadway improvements, $1,054,515 for traffic safety improvements, as well as $373,590 in bicycle and pedestrian improvements (17.1%). Some of these projects could be funded at least in part by state grants, if West Windsor is successful with its applications. (Money is scarce, so this is highly competitive.)

In any case, the vast majority of bicyclists and pedestrians are motorists as well (full disclosure – we have more cars than drivers in our family, though not for much longer).

So, everybody uses and pays for our roads – in general, the federal and state highways from borrowing, the rest from property taxes.

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