A top official from Gov. Phil Murphy’s administration defended a nearly 10-cent hike in the state’s gas tax set to go into effect in just a few weeks, telling lawmakers an increase is inevitable under a formula written into state law.
The uptick emerged as a hot topic Wednesday during the latest hearing on the state budget plan Murphy proposed in late August, around the same time his administration announced New Jersey’s per-gallon gas-tax rate would climb by 9.3 cents on Oct. 1.
The hearing provided lawmakers with their first chance to question state Treasurer Elizabeth Maher Muoio and other administration officials about the increase, which will push New Jersey’s per-gallon rate up to 50.7 cents per gallon for gasoline, and 57.7 cents for diesel.
Both Republicans and Democrats on the Assembly Budget Committee seized on the issue as the state’s gas-tax rate will soon be the fourth-highest in the nation, according to industry officials. But Muoio suggested there’s little wiggle room under a 2016 state law that directly linked the gas-tax rate to consumption, which has flagged during the coronavirus pandemic.
“It’s a strict formula that we follow,” Muoio said during the virtual hearing.
Some lawmakers suggested the administration’s fuel-consumption projections may be overly pessimistic and asked her to reconsider the size of the looming rate increase.
A 2016 law enacted by former Gov. Chris Christie, a Republican, generally requires the gas-tax rate to be changed whenever state gas-tax collections miss what’s known as the “Highway Fuels Revenue Target.” That law was passed as part of a broader renewal of the state Transportation Trust Fund, which uses revenue from the gas tax to finance road, bridge and rail network improvements across the state.
Pandemic keeps drivers off the road
Last month, Muoio announced a more than $150 million shortfall opened up this year after fuel consumption dropped off amid the pandemic and after economic restrictions were ordered to help slow the rate of new infections. Gasoline consumption dropped by nearly 40% between March and May as strict stay-at-home orders were put in place, according to Treasury data.
The 9.3-cent increase was based on the best estimates from Treasury officials for what will be needed to meet the target even as many restrictions will remain in place, Muoio said.
“The formula is a statutory formula,” she said during the hearing.
Last year, gas-tax revenues came up slightly short of the highway-fuels target, but Treasury officials decided to leave the per-gallon tax rate at 41.4 cents. However, the year before, the rate had to be increased by 4.3 cents to offset a shortfall of $170 million.
Assemblywoman Serena DiMaso (R-Monmouth) was among the lawmakers who pressed Muoio on the issue of the gas tax on Wednesday. The Transportation Trust Fund operates as an “off-budget” account and is not directly related to the $32.4 billion spending plan Murphy has put forward for the state’s 2021 fiscal year. But many of the same officials who formulate the budget and appeared before lawmakers on Wednesday also play a role in setting the gas-tax rate each year under the 2016 law.
Questioning Murphy’s motives
DiMaso suggested during the hearing that the administration may be underestimating a rebound in fuel consumption that could already be underway in New Jersey as businesses and schools have reopened, at least partially, across the state. She also questioned whether politics had influenced the decision-making process given Murphy, a first-term Democrat, is up for reelection next year.
But Muoio pushed back strongly against those suggestions, and she also said the decision to increase the rate by 9.3 cents nearly mirrored an analysis of the consumption figures that was conducted by the nonpartisan Office of Legislative Services.
“Our decision is formulaic and completely built on, and based on, consumption data,” Muoio said.
Muoio and other officials also reminded lawmakers the same formula that mandates an increase when there are shortfalls also requires the rate to be lowered when gas-tax collections surpass the highway-fuel target. That means if Treasury officials are being too pessimistic in their forecast this time around, the gas tax would have to be lowered next year to offset any overage.
“There would be a possibility that the rate could go down 12 months from now,” said Martin Poethke, director of the Office of Revenue and Economic Analysis.