Is New Jersey’s Gas Tax About to be Pumped Up?

John Reitmeyer | May 23, 2018 | Budget
Projections suggest revenue from the tax may not generate enough to meet annual target for funding transportation projects, thus triggering an automatic increase

gas pump
The state gas tax is not one of the revenue sources that Gov. Phil Murphy has proposed increasing in the next state budget, but that doesn’t mean New Jersey motorists won’t see a hike this year.

Based on the current flow of revenue from the gas tax, and the way the tax itself is structured, it’s possible it may increase slightly later this year to help keep the state’s Transportation Trust Fund in balance.

It’s too soon to say for sure, but the chances of a gas-tax increase of at least a few pennies went up this week after state Treasurer Elizabeth Maher Muoio released the administration’s latest tax-collection estimates. The new projections showed the gas tax may not generate enough revenue at its current rate to meet an annual target that was established in a 2016 law using a formula designed to create more stability for spending on transportation projects.

While any future increase would likely be modest, the potential for even a small hike will be looming in the back of the minds of lawmakers as more serious budget negotiations between legislative leaders and the Murphy administration are expected to play out before the state’s June 30 deadline for a new spending plan. Murphy is already pressing lawmakers to hike the sales tax and increase the income tax for millionaires as part of his overall budget plan for the 2019 fiscal year.

Sarlo: It’s ‘always been a concern’

“That has always been a concern,” Senate Budget and Appropriations Committee Chair Paul Sarlo (D-Bergen) said yesterday when asked about the possibility of a gas-tax increase later this year. “We’re going to keep a close eye on it,” he said.

While New Jersey for decades enjoyed one of the lowest gas tax rates of any U.S. state, Democratic legislative leaders reached a compromise with former Republican Gov. Chris Christie in 2016 that increased the rate by 23 cents. That came as part of a broader deal to renew the Transportation Trust Fund, an account that pays for road, bridge and mass-transit projects, for another eight years after it ran dry in the middle of 2016.

Christie and lawmakers used legislation to hike the gas tax, and they inserted fine print into the 2016 bill to make sure there wouldn’t be a major drop in revenues in the event there was a decline in fuel sales. Under that language, the 23-cent gas-tax increase can be adjusted annually to ensure there is a baseline of $1.16 billion in new revenue for the TTF each year.

By all indications, the gas-tax met its legally required target last year, but this year it appears to be in jeopardy of coming up short. In fact, the latest projections from the Department of Treasury for what’s officially categorized as the Petroleum Products Gross Receipts tax were just lowered by $82 million. That marked the second forecast downgrade of the 2018 fiscal year as rising gas prices may be causing a reduction in overall gas consumption.

According to the terms of the 2016 law, the state treasurer and the budget and finance officer from the nonpartisan Office of Legislative Services are to determine by August 15 each year whether the gas tax is generating adequate revenues at its current rate. If it’s falling short, the law calls for a new rate to be established that “shall take effect on October 1 of that year.”

Muoio: All eyes on summer driving season

Asked about the likelihood that an increase may materialize later this year, Muoio told lawmakers during budget committee hearings earlier this week that her department will be keeping a close eye on the performance of the gas tax over the next few months, which tend to be a high-volume period for motorists.

“We’ve seen that the revenue number on the gas tax has been lower (and) we’re going to continue to monitor it throughout the summer,” she said. “We’re going into the heavy travel season so we’re going to watch what happens.”

“We’ll sit down in August and determine based on the numbers, the most recent numbers that we have at that time, what action needs to be taken,” Muoio said.

Frank Haines, the OLS budget and finance officer, told lawmakers the gas tax generally brings in about $50 million for each penny that is levied, meaning any possible increase would likely be between 2 and 4 cents.

Poison pill

Potentially complicating matters further, at least politically, is other language that was written into the 2016 legislation as the deal struck by Christie and lawmakers also reduced several other taxes. Among those cuts was a reduction of the general sales-tax rate from 7 percent to 6.625 percent, and Murphy is now proposing as part of his fiscal 2019 budget to restore the rate to 7 percent to generate an estimated $581 million in new revenue.

The 2016 bill attempted to protect the tax cuts from being reversed in the future by creating what’s known as a “poison pill” that is supposed to undo the gas-tax increase if any of the cuts are repealed. Even as the gas-tax rate may go up automatically later this year, Murphy is now hoping lawmakers will work with him to get around that poison pill — given that his budget calls for increased spending on public-employee pensions, K-12 education and mass transit, among other areas.