"Be thankful we’re not getting all the government we’re paying for." – Will Rogers
The Issue: The North Carolina Motor Fuels Tax
The Cost to North Carolina Citizens:
Jan 1, 2006 – June 31, 2006: Estimated 2.8 cents increase in the gasoline tax: $74,000,000 (North Carolina General Assembly Fiscal Research presentation to the Joint Select Committee on Energy and Fuels Costs on Jan. 5, 2005)
Estimated total gasoline tax: $790,214,285
Bills Proposed during the 2005 Session:
House Bill 1802 Reduce Motor Fuels Tax , sponsored by Rep. Cary Allred (R) on October 11, 2005, in conjunction with a Republican plea for the legislature to address the fuel tax increase. The bill proposes capping the variable component of the gas tax at 7.1 cents a gallon.
Status: Will be on the calendar May 9 for introduction when the House reconvenes for the 2006 short session.
Senate Bill 994 Change Gas Tax Rates/Increase Tank Fees, sponsored by Sen. Daniel Clodfleter(D) on March 24, 2005, referred to Senate Finance Committee; and
House Bill 1386 Change Gas Tax Rates/Increase Tank Fees, sponsored by Rep. Pryor Gibson(D) on April 21, 2005, referred to House Finance Committee.
These two bills contain the same language that would raise the flat rate from 17 ½ cents per gallon to 18 ½ cents per gallon and cap the variable component at 9.1 cents per gallon.
Status: Because these bills rest in the respective Finance Committees and because these are revenue bills, they qualify for consideration during the 2006 short session.
N.C. Gen. Stat. §1 105‑449.80. Tax rate.
(a) Rate. – The motor fuel excise tax rate is a flat rate of seventeen and one‑half cents (17 1/2¢) a gallon plus a variable wholesale component. The variable wholesale component is either three and one‑half cents (3 1/2¢) a gallon or seven percent (7%) of the average wholesale price of motor fuel for the applicable base period, whichever is greater.
The two base periods are six‑month periods; one ends on September 30 and one ends on March 31. The Secretary must set the tax rate twice a year based on the wholesale price for each base period. A tax rate set by the Secretary using information for the base period that ends on September 30 applies to the six‑month period that begins the following January 1. A tax rate set by the Secretary using information for the base period that ends on March 1 applies to the six‑month period that begins the following July 1.
In the wake of Hurricanes Katrina and Rita, petroleum and crude oil costs have increased. Wholesale gasoline prices have skyrocketed due to limited crude oil production on the Gulf Coast. Because North Carolina’s tax rate is tied to the wholesale price, our tax rate went up by 2.8 cents per gallon on January 1, 2006, bringing the total tax on a gallon of gasoline to 29.9 cents. This increase makes the North Carolina motor fuel tax the 6 th highest in the nation and the highest of our neighboring states; 10 cents higher than Tennessee, 12 cents higher than Virginia, 14 cents higher than South Carolina, and 22 cents higher than Georgia. In addition to the increase at the gas pump, the increase in fuel costs during the coldest months of the year will impact all North Carolina families.
Just in the last five years, over $527 million earmarked for roads has been diverted from the Highway Trust Fund. Now we are faced with a tax increase of $74 million — with claims it is needed to pay for roads. Our state’s leadership has wasted the road money. They have spent it on pet projects, such as airline recruitment, ferries, a teapot museum and the Global Transpark. If they had used the $527 million for roads, as promised, a tax increase would not be necessary. How can we believe that this new tax money will even go for roads?
Revenue from the gasoline tax is already ahead of what was budgeted for this year. According to forecasts by the N.C. Department of Transportation, revenues should exceed $64 million, more than expected. All budgeted transportation expenses should be taken care of without the need for this additional revenue, if in fact it’s spent on transportation.
Instead of allowing for this tax increase, we think the legislature should keep the tax rate as it was prior to the January increase, for the next six-month period. Experts predict the increase, a result of devastating hurricanes in the Gulf, will decrease as the recovery progresses along the Gulf Coast. We also suggest that the problem lies in the mismanagement of the state’s highway funding and not the amount of revenue paid by taxpayers.
Explanation of the Issue
North Carolina has long been known as “The Good Roads State.” Anyone driving anywhere in the state during the past several years knows this is no longer true.
More than twenty years ago, lawmakers established the Highway Trust Fund dedicated to constructing new roads across North Carolina. This fund was in addition to the Highway Fund, with the primary responsibility of maintaining roads. Taxes from the sale of gasoline, drivers’ licenses, motor vehicle fees and interest on investing part of the fund provide funds for the Highway Trust Fund and the Highway Fund.
The amount of tax on gasoline fluctuates every six months, depending on the national wholesale price. Theoretically, this fluctuation allows for inflation and changes in the costs of construction and maintaining roads.
In 2005, after a particularly active and devastating hurricane season, which caused widespread damage to the oil refineries in the Gulf Coast, the wholesale price of gasoline soared. North Carolina law requires that the gasoline tax be adjusted every six months based on a formula of a flat rate of seventeen and one‑half cents (17-1/2¢) a gallon plus a variable wholesale component. The variable wholesale component is either three and one‑half cents (3-1/2¢) a gallon or seven percent (7%) of the average wholesale price of motor fuel for the applicable base period, whichever is greater.
The January 1, 2006, adjustment reflects an increase of almost 3 cents per gallon additional tax. When the 2005-2006 state budget was formulated, no one knew the changes in fuel prices or the extra revenue that it would produce. In fact, revenue from the gas tax is anticipated to be more than $64 million, without the additional 3 cents per gallon. State government doesn’t need the additional revenue to pay bills for the next year.
N.C. Department of Transportation officials estimate the tax per consumer to be $15.00 per year. We disagree. Based on an estimate of one fill-up a week in a car with a 20-gallon tank, the new tax would equal 60 cents per week or $31.20 a year. For small businesses that transport goods and people around the state, individuals with sales jobs who must drive daily, and commuters, the yearly total would be much higher. With an increase in the cost of doing business, everyone would see an increase in the costs of goods. With gasoline prices considerably lower in neighboring states, consumers will cross state lines to go to Virginia, South Carolina, Tennessee and Georgia to purchase gas and goods at cheaper prices, contributing to those states’ tax base instead of North Carolina’s.
The Department of Transportation estimates it will gain an additional $74 million with the increased gasoline tax rate during the next six months. Again, this is money in addition to what was budgeted for the department.
If there was a history of good fiscal management of highway money, we might agree that more funding could be used wisely for roads. But when one looks at recent funding and how state leaders have mismanaged, misdirected and misspent taxpayers’ money, there are justified reasons not to favor additional gas taxes that will be mismanaged, misdirected and misspent.
Since 2001, the Highway Trust Fund has been raided every year to pay for general expenses, things like a Teapot Museum, a chandelier for a university chancellor’s house, and giveaways to companies with million dollar profits, while our roads have fallen into disrepair. When Governor Jim Martin(R) established the Highway Trust Fund in 1989, part of the funding came from taxes on the sales of motor vehicles that had previously gone to the General Fund. To reimburse the General Fund, $170 million each year is taken from the Highway Trust Fund and deposited into the General Fund. Beginning in 2001, Governor Mike Easley(D) has diverted an additional $527 million over the statutorily mandate of $170 million, money that was supposed to build and maintain roads.
In addition to raiding the Highway Trust Fund, a slush fund in the Department of Transportation has allowed the state’s leaders to divert transportation money for low priority/pork barrel projects away from highway road construction and maintenance. Since 2003, House Speaker Pro Tem Richard Morgan (R) has requested a total of $3,095,000 in special projects (pork barrel), House Speaker Jim Black (D) requested $4,365,817 and President Pro Tempore Marc Basnight (D) requested $3,516,219 in special projects. Some of the special projects included relocating a portion of an existing sidewalk, streetscape and beautification, restoration of an airport terminal to serve as a Welcome Center, installation of direction signs to East Carolina University and paving Country Club Lane. When priorities are for special projects, there is no money left for building and maintaining our roads that everyone can use. After years of diverting tax money intended to improve and maintain the highway system, the roads are in disrepair, full of potholes and dangerous to drive on.
In discussions about the gasoline tax increase, there is plenty of blame being thrown around for the high prices at the pump. The federal government is being blamed for the fuel prices and North Carolina’s roads problems. The oil companies are being blamed for making a profit. Additional discussions focus on comparisons between neighboring states. There are even reassurances that our poorest citizens will get help with their heating bills (while paying more for gasoline!). Although these discussions may be interesting and may even be valid, they are a diversion from the issue at hand. The issue is that state government officials must assume the responsibility for using North Carolina taxpayers’ money responsibly, effectively, efficiently and as promised.
The leadership has embraced this gasoline tax increase as additional revenue and is even telling citizens that it will be used to improve highways. If only it were true. Once again, they have misspent and mismanaged the people’s money and are taking more through tax increases. It is time the citizens say no.
Legislative History Appendix
1915: The State Highway Commission was established in North Carolina with a $10,000 appropriation.
1921 : The North Carolina State Highway Department was formed, financed by a $50 Million bond whose debt grew to $115 Million as more county roads were built. Gasoline taxes established to pay for roads, raised three times in this decade.
1931 : As a result of the Great Depression, state government assumed the responsibility for all county road maintenance, which it still does today, differing from some of our neighboring states.
Prior to 1986 , North Carolina had a flat per gallon rate that the General Assembly seldom raised.
1985 Session: Senate Bill 866 , An Act to Provide Roads to the Future and to Classify Household Personal Property and Exclude It From Property Taxes
1985 N. C. Session Laws, Chp. 982, Part III.
Motor Fuel Tax Increase at the rate of 14 cents per gallon plus 3% of the average wholesale price
House Vote on the Conference Report: 93 Ayes, 15 Noes
Senate Vote on the Conference Report: 47 Ayes, 1 No
1989 Session: House Bill 399, An Act to Establish the North Carolina Highway Trust Fund, To Provide Revenue for the Fund, To Designate How Revenue in the Fund Is To Be Used, and To Raise Revenue for the General Fund.
1989 N.C. Session Laws, Chp. 692, Part V.
Motor Fuel Tax Increase at the flat rate of 17 cents per gallon plus a variable rate of either 3 ½ cents per gallon or 7% of the average wholesale price, whichever is greater.
House Vote on Conference Report #2: 94 Ayes, 18 Noes
Senate Vote on Conference Report #2: 36 Ayes, 9 Noes
1991 Session: House Bill 1222, An Act to Amend Various Statutes Relating to the Cleanup of Leaking Petroleum Underground Storage Tanks, To Increase the Per Gallon Fuel Excise Tax, and To Dedicate the Proceeds of the Tax Increase to the Cleanup of Leaking Petroleum Underground Storage Tanks.
1991 N. C. Session Laws, Chp. 538, Sec. 17, 18, 19 and 20
This bill increased the Motor Fuel tax to 17.5 cents, effective January 1, 1992 and then would decrease the tax by lowering the rate to 17.25 cents per gallon plus the variable component, effective January 1, 1995 and then decrease it again to 17 cents (back down to the 1989 rate) plus the variable component, effective January 1,1999. The 1993 General Assembly repealed the two tax decreases in this bill (see below).
House Vote: 93 Ayes, 7 Noes
Senate Vote : 32 Ayes, 1 No
1993 Session: House Bill 681, An Act to Implement the Requirements of the 1990 Amendments to the Federal Clean Air Act, To Repeal the Expiration of a Portion of the Per Gallon Fuel Tax, To Dedicate A Portion of the Per Gallon Tax to the Administration of the Air Quality Program, To Dedicate A Portion of the Proceeds of the Tax to the Cleanup of Leaking Petroleum Underground Storage Tanks, and to Repeal the Expiration of the Leaking Petroleum Underground Storage Tank Cleanup Act of 1988 1993 Session Laws, Chp. 400, sec. 12 Repeals the ¼ cent tax cut scheduled to take effect in 1995 and the additional ¼ cent tax cut scheduled to take affect in 1999 found in Sections 17and 19 of Chapter 538 of the 1991 Session Laws; See above. House Vote: 105 Ayes, 1 No Senate Roll Call: 42 Ayes, 1 No
1995: There was a substantial re-write of the motor fuels tax law, see 1995 Session Laws, Chp. 390 (Senate Bill 943). However, that re-write did not change the tax rate.
Today: The rate remains the same today as it was in 1991, a flat rate of seventeen and one‑half cents (17 1/2¢) a gallon plus a variable wholesale component of either three and one‑half cents (3 1/2¢) a gallon or seven percent (7%) of the average wholesale price of motor fuel for the applicable base period, whichever is greater.