AASHTO Journal, 3 April 2015
The North Carolina General Assembly voted to quickly change the state user fee on motor fuels, allowing a series of mild declines that began this month but heading off a scheduled plunge based on market prices that could have cut hundreds of millions of dollars in transportation funding.
That makes it the second state to recently alter a percentage-based excise tax on fuel in order to stabilize the revenue flow for transportation infrastructure. Kentucky’s Legislature took similar action in March, and Gov. Steve Beshear quickly signed that measure into law.
Georgia also acted this past week to move away from a percentage sales tax on fuel on top of a low excise tax; lawmakers there voted to convert the sales tax portion as of July 1 to a fixed, per-gallon excise fee that can adjust in future years by a formula linked to population growth. (See related story.)
In North Carolina, the General Assembly completed passage on March 31 and Gov. Pat McCrory signed it the same day, allowing it to take effect April 1.
“We now have a gas tax that is based on North Carolina’s transportation needs instead of the unpredictability of the world oil market,” McCrory said.
Until now, the state had used a percentage levy on the wholesale price of motor fuel, which brought higher receipts when prices were rising. But the past year’s price decline in motor fuels by roughly a third would have quickly carved a big hole in transportation revenue.
North Carolina was on course to see its vehicle fuel tax drop from 37.5 cents a gallon to 30 cents starting July 1, with every cent of that user fee seen generating about $50 million in revenue.
The legislative fix was to let the user fee decline to 36 cents a gallon on April 1, then to 35 cents in January and 34 cents in July 2016.
While the measure prevented sharp declines in revenue, McCrory said the new law will require the North Carolina Department of Transportation to reduce its budget by $13.5 million, partly by eliminating 40 positions.
Starting in January 2017, the tax would be adjusted based on changes in state population and consumer prices, which could allow its per-gallon fee level and receipts to grow again.
However, news reports said legislators hope by then to have a broader accord on how to change transportation funding, in order to boost infrastructure investment and move away from reliance on fuel fees.