Op-Ed: New Jersey gas-tax formula makes cents — but not sense

John J. Metro | October 9, 2020 | Opinion, Transportation
‘Policymakers should consider adopting a per-mile-traveled user fee to replace the gasoline tax’
John J. Metro

As of Oct. 1, purchasing all grades of gasoline and diesel fuel costs New Jersey drivers more. The nearly 10 cents per gallon tax increase is nothing new to New Jersey residents. In fact, since 2015, the New Jersey gas tax has increased by over 36 cents per gallon, going from the second lowest to the fourth-highest fuel tax in the nation. These increases result from a 2016 fuel tax revenue mandate that is fundamentally flawed.

Historically, one of the many fiscally irresponsible practices past governors utilized to close funding gaps was deferred maintenance — the process of delaying much-needed scheduled repairs to roads, bridges and tunnels — in exchange for budgetary relief. Because the federal gas tax has been stagnant at 18.4 cents per gallon since 1993, states must absorb the increased cost of transportation projects. Unfortunately, many of New Jersey’s infrastructure costs were not adequately appropriated for in spending plans. Instead, governors made room for their own initiatives and essentially passed infrastructure issues onto the next administration.

However, the increasing deterioration from this “pass the buck” mentality finally caught up with the state’s infrastructure, causing significant safety concerns. Notably, the American Society of Civil Engineers gave New Jersey an overall failing grade of D+. Almost 10% of the state’s bridges and about 42% of our roads are “structurally deficient.” Additionally, water systems, New Jersey Transit and wastewater systems all exhibit similar deficiencies. In 2016, former Gov. Chris Christie established the Transportation Trust Fund (TTF) provision to fund urgent upgrades to these structural assets. The plan, driven solely by dedicated state fuel tax revenues, will raise $16 billion over eight years.

Although the TTF policy appears to be a much-needed corrective action for New Jersey’s transportation upgrades, the substantial flaw lies in its funding calculations. The law requires the gas-tax rate to be changed whenever the state’s gas-tax collections miss the highway fuels revenue target (HFRT). With the annual revenue threshold of approximately $2.1 billion, any shortfalls are made up by a tax increase the following year. For several reasons, the gas-tax revenue has been on a multiyear decline, triggering tax increases the following year, which in return cause further gas consumption reduction. As the HFRT revenue requirements have and will continuously be overly optimistic, state lawmakers sit idle as fuel taxes spike.

Pandemic, economic downturn and other complications

Aside from the obvious pandemic shutdown and economic downturn that are largely exacerbating decreasing gasoline consumption this fiscal year, continuous complications affect usage, as well. For instance, the formula does not factor in the ever-increasing fuel efficiency of automobiles. Before the TTF provision expires in the next four years, gas-guzzling vehicles will see the end of their useful lives, while hybrid and electric vehicle sales will continue to grow. As previously stated, New Jersey’s gas taxes prior to 2016 were among the country’s lowest, encouraging commercial vehicles and tractor trailers to fill up on multistate hauls.

However, current rates now make those same drivers avoid fueling in New Jersey in favor of neighboring states. In fact, New Jersey’s gas tax is now seven cents per gallon higher than that of New York State. Equally important, if legislators can finally fix New Jersey Transit operations as promised and more commuters utilize mass transit, gas consumption will again be reduced. These issues along with fluctuating oil costs have a meaningful impact on reducing gas usage, leading to increased taxes.

An alternative program

Transportation infrastructure upgrades are vital to public safety and the regional economy, and funds must be dedicated for this purpose. With the inconsistent revenue stream from the TTF and almost guaranteed future gas-tax increases, an alternative program must be initiated.

Policymakers should consider adopting a per-mile-traveled user fee to replace the gasoline tax. This simple policy would charge vehicle users a tax per mile traveled, similar to current turnpike and parkway tolls. This universal policy would capture revenue from all gasoline, hybrid or electric vehicles traveling on public highways, regardless of where they fill up or charge their vehicles. Similar to existing toll roads, the tax rate would be set by vehicle classification, with the greatest tax imposed on larger vehicles that impact the roads the most.

This new legislation would be transparent, simple to understand, and ultimately protect the TTF revenues from uncertainty surrounding oil consumption and allow for true environmental changes away from traditional combustible engines. The future of transportation is green but the current gasoline tax is seeing red.