Drivers in New Jersey will get hit with a more than 9-cent increase in the state’s per-gallon gas tax starting on Oct. 1, Gov. Phil Murphy’s administration announced Friday.
The gas-tax hike will push the state’s per-gallon levy to over 50 cents. The tax has increased more than 36 cents in the past five years.
According to Department of Treasury officials, the higher tax on gasoline sales will ensure adequate funding for road, bridge and rail improvements, even as fuel consumption has sagged during the ongoing coronavirus pandemic. The increase is being made under terms that were set in a 2016 state law that overhauled the way New Jersey finances transportation-infrastructure spending.
“As we’ve noted before, any changes in the gas-tax rate are dictated by several factors that are beyond the control of the administration,” state Treasurer Elizabeth Maher Muoio said in a statement issued on Friday.
Tax hike follows toll hike
But the tax hike will also be going into effect directly on the heels of a series of toll hikes that will also hit motorists across New Jersey, starting next month. That comes under a separate transportation-funding initiative for the state’s toll roads that Murphy cleared several months ago.
The gas-tax increase also comes as Murphy — a first-term Democrat who faces reelection next year — is proposing a series of additional tax hikes unrelated to transportation in a new state budget. But unlike those proposed tax increases, which are still subject to the approval of lawmakers, the gas-tax hike will go into effect automatically on Oct. 1 under existing state law.
For years, New Jersey motorists were charged one of the nation’s lowest gas-tax rates as governors and lawmakers chose to finance a significant share of transportation-infrastructure spending with borrowing. But that all changed in 2016, when the per-gallon rate was increased in one shot from 14.5 cents to 37.1 cents.
At the time, the state’s Transportation Trust Fund had run dry and the Democratic-controlled Legislature was at odds with Republican Gov. Chris Christie over what to do next.
They eventually struck a compromise that raised the gas tax by 22.6 cents and also renewed the TTF for another eight years as part of a broader $16 billion transportation-spending initiative. Other tax-policy changes made as part of that compromise included a reduction of the state sales tax and a phaseout of the estate tax.
Tax hikes on automatic pilot
But largely overlooked at the time was language that lawmakers inserted into the TTF renewal law that allowed for additional — automatic — gas-tax hikes to occur on an annual basis if a set amount known as the “Highway Fuels Revenue Target” is not met.
Under that language, the state treasurer must meet each year in mid-August with the top budget official from the nonpartisan Office of Legislative Services to determine whether fuel-tax revenues have met the minimum amount needed to avoid running a TTF deficit; that minimum is usually around $2 billion.
Last year, although those revenues came up slightly short of the TTF target, Treasury officials announced that the per-gallon tax rate of 41.4 cents would not be increased. However, the year before, the rate had to be increased by 4.3 cents to offset a TTF shortfall of $170 million.
This year, Treasury has been projecting steep declines in most state revenues because of the coronavirus pandemic and economic restrictions that were put in place by Murphy to help slow the rate of new infections. As of the end of July, actual collections for the two taxes that make up what’s generally referred to as the “gas tax” in New Jersey were running behind last year’s pace for the same 13-month period, by 12.1% and 8.7%, respectively, according to Treasury’s data.
The 9.3-cent increase announced by Treasury officials on Friday will be used to close a $154 million projected shortfall under the rules established in the 2016 law. In addition to charging a 50.7-cent per-gallon rate starting on Oct. 1 for gasoline, the state’s per-gallon levy for diesel fuel will also increase to 57.7 cents, Treasury officials said.
Following a formula
“The law enacted in 2016 contains a specific formula to ensure that revenue is meeting a certain target,” Muoio said in the statement. “When it does not, the gas tax rate has to be adjusted accordingly in order for us to meet our obligation under the law and fully fund the state’s many pressing transportation infrastructure needs.”
Once the change set for Oct. 1 goes into effect, the state’s gas tax will have increased by nearly 250% since the transportation-funding policy changes were made in 2016. And since the state issues bonds that are backed by the gas tax as part of its transportation-infrastructure finance law, it makes it virtually impossible to prevent the rate increases from going into effect.
Meanwhile, New Jersey motorists are already set to be hit with toll increases in mid-September. Those increases come after the respective agencies that run the Garden State Parkway, New Jersey Turnpike Authority and Atlantic City Expressway approved new capital plans earlier this year that rely on hiking tolls to maintain balanced spending.
Murphy officially cleared the way for those toll hikes in June. And just like the 2016 gas-tax legislation, the new highway capital plans allow for future toll hikes to be enacted automatically.
Among the taxes that would go up under Murphy’s budget plan for fiscal year 2021 are those levied on cigarettes, boat sales and guns and ammunition. Millionaires and high-earning businesses would also get hit with higher taxes under Murphy’s budget plan.