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Analysis: Transportation Funding Fix Now Appears To Be On Fast Track

gas pump fuel pump

With the Transportation Trust Fund scheduled to run out of money a year early, Gov. Chris Christie and Democratic legislative leaders are looking to reach agreement on a long-term solution to the state’s transportation funding crisis that is likely to include increased taxes on motor fuels.

High-level talks involving Christie and legislative leaders, Christie’s nomination of Democratic dealmaker Jamie Fox to be his new transportation commissioner, and the governor’s surprising declaration last week that he was now open to the possibility of a tax increase to refinance the Transportation Trust Fund raised the hopes of transportation advocates that the state might finally be close to providing a stable source of funding for highway, bridge, and mass-transit projects.

Transportation advocates believe the state needs to raise $800 million to $1.1 billion a year in pay-as-you-go financing to support a $1.6 billion- to $2 billion-a-year capital program. That would require an increase in the gas tax of 15 cents to 20 cents or an equivalent increase in the petroleum products gross receipts tax, which is paid by refineries or distributors and then passed along to motorists.

“We may be closer to a solution than we have been any time since 2003,” said Martin Robins, director emeritus of Rutgers University’s Alan M. Voorhees Transportation Policy Institute. Robins who served on the blue-ribbon commission that recommended a 12.5-cent gas tax increase -- only to have their proposal rejected by Democratic Gov. Jim McGreevey.

McGreevey’s chief of staff at the time was Fox, who -- like many former high-ranking state officials from both parties -- later regretted his failure to fight for a stable source of funding for the Transportation Trust Fund. Fox’s unanimous confirmation by the state Senate yesterday gives him a second chance, and he has already begun reaching out to key leaders for ideas and support.

Fox told the Senate Judiciary Committee yesterday that it would be a “terrible mistake” to rely primarily on borrowing -- as the Christie administration has done over the past four years -- and that the state should fund transportation capital projects as much as possible on a pay-as-you-go basis, which would undoubtedly require a tax increase.

Christie’s outspoken opposition to a gas tax increase had been the biggest roadblock to enactment of a new five-year Transportation Trust Fund plan, with most political observers assuming that the governor would do anything possible to avert an increase in motor-fuels taxes as he prepares to run for the Republican presidential nomination in 2016.

But Christie evidently has decided that it makes sense to push through a long-range transportation funding solution now -- more than a year before he would have to begin to face GOP primary voters -- rather than push through a short-term borrowing fix now and have to deal with a long-term solution while he is campaigning in Iowa and New Hampshire. That would be one more indication that Christie has decided to remain in office while he runs for president, and not resign early -- as some Democrats had both predicted and hoped.

Christie also is undoubtedly aware that most states have raised their existing gasoline excise taxes or petroleum products gross receipts taxes or imposed sales taxes on gasoline within the past decade, including swing states like Pennsylvania and Michigan, and such Republican bastions as Indiana, North Carolina and Wyoming.

And Christie’s willingness to nominate Fox, who served as chief of staff to both McGreevey and former U.S. Sen. Robert Torricelli (D-NJ), further underscores Christie’s intention to run in the Republican primaries on the theme of bipartisanship in problem solving he has been espousing to national GOP audiences since his first year in office.

That doesn’t mean this will be an easy decision for Christie to make politically, which is one reason that some insiders believe the governor is more likely to prefer an increase in the petroleum products gross receipts tax levied at the refinery level and other first points of sale, rather than an increase in the gasoline excise tax which is paid at the pump.

For motorists, there is little difference: The current 4-cent-a-gallon petroleum products gross-receipts tax that is levied on gasoline is passed along directly to motorists along with the 10.5-cent gasoline tax. The American Petroleum Institute, the lobbying organization for the nation’s oil and gas industry, counts both taxes the same in computing each state’s total motor fuel taxes.

New Jersey anticipates raising $541 million through the current motor fuels tax this fiscal year -- or $51.5 million for each penny per gallon imposed as part of the 10.5-cent gasoline excise tax -- and $215 million from the current petroleum products gross-receipts tax, which includes the 4-cent tax on motor fuels as well as a tax on aviation fuel used in takeoff and landing.

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New Jersey’s 14.5-cent total motor fuels tax (gas tax plus petroleum products gross-receipts tax) ranks 49th in the nation and has not been increased since 1988. The 2014 average in the 16 Northeastern industrial states running from Maine to Wisconsin was 33.6 cents per gallon, and 12 of those 16 states have raised their motor-fuel taxes since 2009. Last year, the overall national average was 26.8 cents per gallon.

New Jersey Forward, a nonpartisan coalition of business, labor, and nonprofit leaders assembled under the leadership of New Jersey State Chamber of Commerce President Tom Bracken to push for enactment of a stable source of funding for TTF, laid out a series of funding options last week. The biggest tax proposals were a 15- or 20-cent increase in the gas tax, a petroleum products gross-receipts tax ranging from 6 percent to 8 percent, and extension of the current 7 percent sales tax to gasoline.

A study conducted for New Jersey Forward by economist Allison Premo Black recommended increasing the Transportation Trust Fund from $1.6 billion a year in state spending -- which is currently matched on a dollar-for-dollar basis by federal transportation aid -- to $2 billion.

With state debt-service payments already eating up more than 10 percent of the state budget, the new TTF should include at least 50 percent pay-as-you-go funding, transportation advocates argue, which would thus require a minimum of $800 million to $1 billion annually in new revenue:

  • Based on Treasury’s FY2015 revenue projections, a 15-cent increase in the gas tax would raise $772.86 million, while a 20-cent gas tax hike would generate $1.03 billion.

  • Adding the current 7 percent sales tax to excise gas sales instead would produce $1.12 billion.

  • A 6 percent petroleum products gross-receipts tax would raise $883.5 million at an estimated $3.25 per gallon wholesale price, while a 7 percent tax would bring in $1.07 billion and an 8 percent tax would generate $1.25 billion. Raising the gas tax by 20 cents or imposing a 7 percent sales tax or petroleum gross receipts tax would raise New Jersey’s total motor fuels tax from 14.5 cents to about 34.5 cents a gallon -- less than 1 cent per gallon above the current average for the 16 Northeastern states, and still 16 cents less than New York State and seven cents less than Pennsylvania.

In any case, it is clear that the pay-as-you-go funding New Jersey needs to renew the Transportation Trust Fund will have to come from new revenue sources, because the funding sources Christie counted on for the FY2012-FY2016 Transportation Trust Fund will not be available next year.

Christie, who ran for governor on a “no new taxes” pledge in 2009, managed to avoid raising the gas tax when the Transportation Trust Fund came up for its five-year renewal in 2011 only because he had cancelled the Access to the Region’s Core (ARC) rail tunnel to New York City in October 2010.

Christie promised to dedicate $1.8 billion in Port Authority funds and $1.3 billion in New Jersey Turnpike toll revenue originally earmarked for the ARC Tunnel, plus another $500 million in state revenues, to provide $3.6 billion in pay-as-you-go funding for TTF, with the remaining $4.4 billion to come out of borrowing.

But Christie’s recurring fiscal problems forced him to use almost all of the Turnpike money and all of the promised state revenue to fill budget shortfalls. As a result, he was forced to rely so heavily on debt to keep the TTF going that he used up most of the program’s $4.4 billion borrowing capacity in just four years, leaving the TTF at least $800 million short of the $1.6 billion needed to fund the full transportation capital program in Fiscal Year 2016, which begins June 30.

The $1.8 billion in Port Authority funding that went into the FY2012-FY2016 Transportation Trust Fund will not be available for the next five-year plan, and the $335 million in annual Turnpike Authority toll being used to prop up the state budget can’t be redirected in future years to TTF without creating yet another hole in a state budget that has been plagued with recurrent revenue shortfalls for several years.

With the TTF scheduled to run $800 million short of the needed funding in the next budget, Senate President Stephen Sweeney (D-Gloucester) has been traveling around the state highlighting critical bridge repair needs.

Assembly Speaker Vincent Prieto (D-Hudson), who has spoken since taking leadership of the lower house in January about the inevitability of an increase in the motor-fuels tax to fund TTF, announced that the Assembly Transportation Committee would hold a series of public hearings seeking recommendations to solve the transportation crisis.

The committee, which is chaired by Assemblyman John Wisniewski (D-Middlesex), a longtime proponent of increasing the gas tax, will hold its first hearing at Montclair State University tomorrow morning.

Thus far, however, Sen. Raymond Lesniak (D-Union) has introduced the only bill to increase the state’s gas tax. While Lesniak originally planned a 15 percent hike phased in over three years, he eventually settled on a 9 percent increase over the same three-year period. His legislation has yet to move, and Democratic legislative leaders are looking to work out an agreement with Christie that would enable them to propose a joint solution.

That’s Christie’s goal too, as he said on his 101.5-FM “Ask the Governor” call-in show the night he nominated Fox. “We’ll sit down and talk with the Senate president, the Speaker and the Republican legislative leaders,” Christie said, “and see what we can agree upon in order to make funding our road and bridge upkeep and repair appropriate -- an appropriate level, and also make sure that we deal with issues of taxation in this state in a way that’s fair to the people who are paying the bills.”

When a reporter at the governor’s press conference did not believe that Christie was actually considering a tax increase, the governor was adamant that he was open to all solutions: "Is there something about 'Everything's on the table' that's confusing to you?" he demanded.

While most transportation advocates are primarily concerned that the pay-as-you-go funding be sufficient to support a robust $1.6 billion to $2 billion per year state transportation capital program -- and do not care whether it is funded with a gas tax, a petroleum products gross-receipts tax, or a sales tax -- Robins argues that it would be better to have a percentage-based tax, rather than a per-gallon tax.

“Using a percentage tax base that is growing is desirable because we have been stuck with a cent-per-gallon tax that doesn’t capture inflation as gas prices raise,” Robins said. “A per-gallon tax also hurts you because the laudable public purpose of requiring vehicles to get higher mileage will reduce gasoline sales. We have to look ahead.”

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