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VOL. 39 | NO. 8 | Friday, February 20, 2015

Haslam wary of gas tax hike after ‘Insure’ loss

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Despite low gas prices, a backlog on road projects and prevailing winds for fuel-tax reform, Gov. Bill Haslam is pulling back from a gas-tax increase this session.

After floating the possibility of raising the tax in December, the Republican governor appears to be changing course, in part because of his loss in a Senate committee on Insure Tennessee, the Medicaid expansion alternative that failed to make debate in the full House or Senate.

“Obviously, our thoughts were colored by the heavy lift of Insure Tennessee, some education things, etc.,” Haslam says. “At the end of the day, sometimes it becomes almost a manpower issue, do you have enough people who can get your message out.”

Even as he points out the state Department of Transportation has multi-billion-dollar list of road-building projects on hold, Haslam also raises questions about whether his administration is ready to decide the details of a gas-tax increase. He’s not enthused, either, with what he calls Band-Aid approaches.

“What I didn’t think we had yet was a real: ‘If we pass this, here’s specifically what would happen over the next 10 years that wouldn’t happen without it,’ ” Haslam says.

“And so, our plan is going to be to further develop that, probably to be ready for next year.”

Haslam’s switch flies in the face of a Tennessee Comptroller’s report pointing out transportation revenue in Tennessee is stagnant and fuel taxes won’t bring in enough money to maintain the state’s infrastructure and meet long-term transportation needs.

Tennessee’s gas tax, which partially funds the state’s transportation construction and maintenance projects, is 21.4 cents per gallon, including 1.4 cents for a special petroleum fee, and nets the state $657.8 million annually. Yet it is the 40th lowest fuel tax in the nation and hasn’t been raised since 1989.

Fuel consumption in 2012 was below the peak amount in 2007 and is likely to fall further because of better vehicle fuel efficiency, higher fuel prices and demographic changes. Those changes have resulted in fewer miles traveled and increased use of alternative fuel vehicles, including electric cars, whose owners don’t pay fuel taxes, according to the comptroller’s report.

Even though Tennessee’s population grew by 14 percent from 2000 to 2013 – and gross domestic product jumped 57 percent – fuel tax revenue stayed flat, the report notes.

“Inflation erodes the purchasing power of fixed-rate fuel taxes, however, and Tennessee’s gas tax would have to be 38 cents per gallon in 2014 to equal the purchasing power of 20 cents in 1989,” the last time the state’s gas tax was raised, according to the report.

The state’s per-capita highway revenue ranked 50th in 2010, though its roads are considered to be good quality, ranking 4th nationally and 13th in deficient bridges.

Because of sluggish gas-tax revenues and uncertainty about federal funds, the state Department of Transportation is stuck in neutral with an $8 billion backlog of projects, TDOT spokeswoman BJ Doughty says.

No new projects were included in last year’s work program, and no new projects will be part of the next presentation, Doughty says. Roughly 55 percent of Tennessee’s road money comes from the federal government and 45 percent is derived from state funding.

“We have a list of needs that is already in existence,” she says.

Last year, Tennessee shifted 31 projects with a total cost of $393 million to fiscal 2016. The skyrocketing cost of acquiring right of way is affecting TDOT construction projects as well, Doughty notes.

Softening earlier statements, Lt. Gov. Ron Ramsey is calling for a comprehensive look at Tennessee’s fuel taxes to fund road construction, but he’s in no rush to raise rates this session, saying Tennessee’s roads aren’t in a “crisis” situation.

He’s also quick to say gas-tax talk has nothing to do with low gas prices, which dipped below $2 a gallon before rising recently.

“The bottom line is we are not keeping up with technology. The cars have doubled their gas mileage since the last gas tax increase and yet driving the same number of miles. We have electric cars on the road, a lot of hybrid cars on the road. A lot of fleets are going to LP (liquefied petroleum),” says Ramsey, who calls fuel taxes a user fee.

“None of those are paying any kind of tax to drive on the roads. This isn’t crisis mode. It’s not even close. But it’s factual that our revenue coming in to build roads is going down and in a time of inflation like we’ve had that can’t work.

“So we’ve got time to find a solution. It’s a problem that’s only going to get worse.”

But next year or the year afterward is fine with Ramsey. The state just needs to come up with a plan, he says.

Lone legislation

To combat the state’s eroding transportation revenue, Sen. Paul Bailey, R-Sparta, is sponsoring legislation that would impose a maintenance fee of 2.85 cents per mile on commercial motor vehicles; 13 cents per gallon of diesel fuel on freight motors vehicles driven in the state.

It also would authorize a franchise and excise tax credit in the amount of highway maintenance fees and surcharges paid by motors carriers set up in Tennessee.

“This is out-of-state carriers that run through Tennessee,” Bailey says. “Approximately 60 percent of our east-west traffic on Interstate 40 are from out-of-state truckers that run through the state of Tennessee.

“So I’m offering an alternative plan to raising the pump price for all Tennesseans to basically segregate it down to those out-of-state truckers that are using our highways.”

Meanwhile, as trucking companies lobby Congress for legislation allowing longer trailers and heavier loads, a new poll shows 75 percent of Americans oppose such a move.

Knoxville Police Chief David Rausch, the next president of the Tennessee Association of Chiefs of Police, points toward the poll by the Coalition Against Bigger Trucks as a clear sign the American people don’t want to see bigger tractor-trailers, which can cause more damage in crashes and do more damage to roads.

Economics and fairness

From an economic standpoint, especially in high-growth areas, state Sen. Jim Tracy, who chairs the Senate Transportation Committee, says long-term solutions are needed on fuel taxes.

“We always pay as we go, and this is an issue where Tennessee needs to take care of itself,” says Tracy, a Bedford County Republican, alluding to the fact Tennessee holds no debt on road construction.

“If we want jobs to continue to come to the area and we want economic development to come, we have to have roads to get the products in and out. And to do that, you have to pay for those roads and bridges.”

Federal fixed-rate fuel taxes also are stagnating, and uncertainty about federal funding for Tennessee projects is a major stumbling block for road construction projects, he notes.

A committee is studying the potential for taxes on vehicles powered by electricity and natural gas, according to Tracy. Tennessee already has a compressed natural gas tax for motor vehicles of .13 cents per gallon.

Despite the governor’s hesitation over fuel taxes in the wake of defeat for Insure Tennessee, state Rep. Craig Fitzhugh, a Ripley Democrat, believes that proposal should have no effect on whether gas taxes are increased.

One was designed to draw down funds Tennesseans have paid already and the other would simply raise taxes on people who use the state’s roads, he notes.

“I think we need to look at that whole thing because it’s different,” Fitzhugh says. “We have different types of transportation. You have different usages by commercial vehicles, electric cars, better mileages, so I think it’s something that we don’t need to take a knee-jerk reaction at. We need to study it, and I think we’ll do that this session.”

State Sen. Bill Ketron, Republican caucus chairman from Murfreesboro, says the Senate Transportation Committee needs to take a “strong look” at gas taxes, including fees on electric vehicles and natural gas-powered cars.

He points toward a $30 million investment to bring a United Parcel Services fleet to Tennessee, but the state is netting no revenue from those vehicles because they use an alternative fuel.

Ketron contends any vehicle using Tennessee’s roads should be paying taxes, and any new tax system should be “fair” and “broad” to keep rates low.

“Even the Nissan Leaf and the GM Volt, the electric cars, are not paying any tax but utilizing (Tennessee roadways),” Ketron says. “This is a long-term commitment we’re going to have to make if we want to tax those type of vehicles. It’s got to be done fairly soon because it seems to be growing, especially if they start bringing in the power of the Tesla.”

Sam Stockard can be reached at sstockard44@gmail.com

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