New Jersey motorists will soon get some relief at the pumps thanks to a reduction in the state’s gas tax.
The automatic tax decrease, announced Tuesday by the Department of Treasury, will total 8.3 cents for every gallon purchased; the decrease goes into effect on Oct. 1.
But before motorists get too excited, the reduction won’t fully offset a 9.3-cent tax hike enacted last year, after gas consumption sagged significantly during the worst months of the coronavirus pandemic.
In all, New Jersey’s per-gallon gas tax has increased from 14.5 cents to 50.7 cents since 2016, making it the fourth-highest in the country, according to the Tax Foundation, a Washington, D.C.-based organization that tracks state tax policies.
After the reduction takes effect, New Jersey could drop to the bottom of the top 10 U.S. states for highest gas tax rates if all the others leave their respective rates unchanged, according to the Tax Foundation’s data. California levies the highest state gas tax in the country, at 66.98 cents, according to the foundation. Alaska has the lowest, at 14.98 cents.
And while the tax reduction is required under a law enacted by former Republican Gov. Chris Christie, the timing of it could not be better for Gov. Phil Murphy and fellow Democrats who control both houses of the Legislature. Murphy is running for reelection and all 120 legislative seats will also be decided in November.
Ensuring funds for infrastructure
A state law enacted five years ago linked the gas tax to annual consumption, to ensure the tax would generate enough dedicated funding to keep pace with the state’s planned spending on transportation infrastructure.
The same law requires an annual assessment every August, with automatic reductions or increases generally mandated in the infrastructure funds whenever Treasury officials determine a surplus or deficit would be generated under the current tax.
Treasury officials are attributing the upcoming tax reduction to gas consumption largely keeping pace with projections made around this time last year, as well as a projected increase in consumption throughout the current fiscal year, which began on July 1. Increased consumption usually means more revenue can be expected to be generated by the per-gallon tax.
As a result, New Jersey’s per-gallon rate will be dropping to 42.4 cents for regular gasoline, and 49.4 cents for diesel fuel, according to Treasury. These will be the first automatic decreases to occur since the gas-tax law was overhauled in 2016.
“We are pleased that this dedicated funding stream continues to provide billions of dollars across the state to support our critical transportation infrastructure needs,” Treasurer Elizabeth Maher Muoio said in a statement released Tuesday.
Tax rate linked to consumption
The decision to link New Jersey’s gas-tax rate to annual consumption levels — and to require automatic changes based on consumption trends — was made five years ago as part of a broader effort to ensure the state would have enough funds to adequately maintain New Jersey’s roads and bridges, as well as its mass-transit system.
At the time, New Jersey’s Transportation Trust Fund had run dry, and the Democrats who controlled the Legislature and then-Gov. Christie were at odds over what to do about that.
Funded primarily with revenue from the state’s gas tax, the trust fund is a separate account from the state budget that ensures New Jersey has enough money on hand to maintain its extensive network of roads, bridges and railroad infrastructure.
To break the 2016 impasse, Christie and lawmakers struck a compromise that raised the per-gallon gas tax by 22.6 cents. They also agreed to renew the Transportation Trust Fund for another eight years to help cover a planned $16 billion infrastructure-spending initiative.
What was overlooked in 2016
But largely overlooked at the time was language inserted into the trust-fund renewal law that allowed for automatic gas-tax hikes to go into effect each year if a set amount known as the “Highway Fuels Revenue Target” is not met.
Under that language, the state treasurer must meet annually “on or before August 15” with the top public finance official from the nonpartisan Office of Legislative Services. Together they determine whether fuel-tax revenues have met the minimum amount needed to avoid running a transportation fund deficit; that minimum is usually around $2 billion.
Just as the law requires automatic gas-tax increases if there is a sizable deficit, it also allows for rate reductions if gas consumption will generate a surplus, something Treasury officials are now forecasting. After several increases were triggered since the law’s inception, including a 9.3-cent rate hike last year, the pending 8.3-cent reduction will be the first automatic decrease to occur.
Last year’s gas-tax increase went into effect around the same time that tolls on New Jersey’s major toll roads were raised to help fund new capital investments for those roads, which do not receive any funding from the gas tax. And while the gas tax will soon be reduced, the higher tolls enacted last year remain in effect.