Lawmakers Want to Ease Burden of Fuel-Tax Increase for School Districts

John Reitmeyer | October 24, 2018 | Budget
Measure might bring some financial relief to school districts, but would it just shift the tax burden onto other motorists?

Credit: Paul Sabelman/Flickr
School bus
Lawmakers are seeking to provide some relief for school districts from fuel-tax increases that have boosted the rate paid by New Jersey drivers from the ranks of the lowest in the nation to among the highest.

A proposed exemption from New Jersey’s gas taxes for school buses that bring students to and from classes and other related activities was passed by a key committee in the state Assembly earlier this week.

A similar exemption is already given to emergency-services vehicles and some industries, and the bipartisan sponsors of the bill are arguing school buses deserve the same treatment. They also believe the policy change could reduce property taxes because school buses are typically operated by private companies under contracts with local or regional school boards, and thus funded through the local property-tax levy.

But there could be a tradeoff for that property tax relief as motorists have just learned the hard way this month. With the state gas-tax rate now tied to consumption and overall fuel-tax revenue collections, any new exemption could influence where the rate goes in the future and potentially shift the burden of the tax onto other motorists.

It was just a few years ago that New Jersey had one of the lowest gas-tax rates in the entire country, at 14.5 cents per-gallon. It was one of the few bragging rights for a state that is generally known for sky-high taxes.

Rescuing the Transportation Trust Fund

But lawmakers voted to increase the gas tax by nearly 23 cents in 2016 to rescue the Transportation Trust Fund, which is used to finance an annual program of road and rail infrastructure improvements all across the state. At the time, the TTF was deep in debt and there was no money available to fund new projects.

In addition to allowing for a 22.6-cent hike in the gas tax, the 2016 law signed by then-Gov. Chris Christie also included language that set the stage for additional, automatic gas-tax hikes if future consumption didn’t produce enough revenue to keep pace with the TTF’s $2 billion in annual spending. The same language also allows for rate reductions if the consumption generates sufficient revenue to sustain the TTF’s financial plan.

New Jersey motorists just saw the first impact of that bill language earlier this month after gas-tax revenues came up nearly $170 million short thanks to current consumption trends. An increase of 4.3 cents went into effect on October 1 to keep the revenues at the legally required amount, pushing the overall rate to 41.4 cents.

Under the exemption bill approved Monday by the Assembly Appropriations Committee, the full state gas-tax levy would be waived altogether for school buses, both for public and parochial schools. The measure defines a school bus as “any motor vehicle operated by, or under contract with, a public or governmental agency, or religious or other charitable organization or corporation, or privately operated for the transportation of children to or from school for secular or religious education.”

Bill sponsor Parker Space (R-Sussex) pointed to the gas-tax exemptions that are already provided to emergency-services vehicles, farming tractors and commercial-fishing vessels, among others, as a justification for a new carveout for school buses. He also suggested that since local school-district spending is typically the largest portion of a homeowner’s property tax bill, the new exemption would provide some help for district officials who are under intense pressure to reduce costs.

Real savings or not?

“Sometimes we need to think outside the box,” Space said. “This exemption is one way to lessen the burden on property taxpayers.”

A key issue going forward, though, will be the degree to which the gas-tax exemption actually saves taxpayers money. A fiscal note prepared by the nonpartisan Office of Legislative Services for an identical bill that has already been passed by the full Senate determined that there would be “savings realized by the private bus operators from the purchase of the newly tax-exempt fuel (that) may be passed along to local school districts.”

But the fiscal note also suggested that the way the state provides gas-tax exemptions — bus contractors initially pay the tax but are later provided a refund from the state Department of Treasury — could cut into any of the savings that could be realized by school districts.

“The full impact of the bill may be discounted to the extent school bus contractors fail to correctly apply for a refund since the exemption occurs after the fuel taxes have already been paid,” the fiscal note said.
Ultimately, the OLS declined to offer a precise amount of projected savings for school districts if the new exemption were to be enacted.

On the flip side, because the gas-tax rate is now tied to how much overall fuel is being consumed and the tax revenue that is coming in from the taxes levied at the pump, a new exemption for school buses could influence the equation that’s used to determine what rate adjustments are needed in the future. Under certain scenarios, the net effect could be to shift the burden of paying for the road improvements from one set of drivers to another.

Treasury officials have said the state generally collects about $50 million from every penny of the gas tax under current conditions, but the OLS fiscal note predicted only that there would be an “indeterminate” loss of revenue for the state from the proposed school-bus exemption.