House, Senate reach gas tax compromise

Published March 27, 2015

by Mark Binker, WRAL, March 26, 2015.

State House and Senate leaders have reached an agreement to revamp North Carolina's gas tax that will cut what drivers pay at the pump starting April 1 while averting a much steeper decline that would have taken place this summer.

The current gas tax is 37.5 cents per gallon, a price derived based on a formula that includes the wholesale price of gasoline. That wholesale price has plummeted over the past year, meaning the gas tax was set to follow suit this summer. An expected dip to roughly 30 cents per gallon on July 1 would have cost the state fund used to build and repair roads roughly $400 million.

The agreement announced Thursday afternoon lowers the gas tax rate more gradually before putting in place a new formula that legislative leaders hope will be less volatile.

"It gives stabilization, it gives us certainty, and it also gives us immediate tax relief," House Speaker Tim Moore said.

Lawmakers and the governor had been quarreling over House Bill 20 for much of the still-young legislative session. Thursday's agreement, Moore said, shows the House and the Senate are working closely together despite having initially different visions for fixing the gas tax.

For his part, Gov. Pat McCrory applauded the compromise.

"This proposal protects and stabilizes gas tax revenue so we can fund important transportation priorities that connect communities throughout our state," McCrory said via a prepared statement. "I appreciate the spirit of cooperation by House and Senate leaders in working to reach this bipartisan compromise."

Under the conference report for House Bill 20, North Carolina's gas tax would dip to 36 cents per gallon on April 1. On Jan. 1, 2016, that would dip again to 35 cents per gallon, and then on July 1, 2016, it would go down to 34 cents per gallon.

Legislative leaders say they hope to reach a grand bargain on transportation funding by the end of 2016. More fuel-efficient cars, fluctuating prices and changing driving habits have played havoc with the gas tax, and legislative leaders say they need to find a new way to fund road construction.

However, if a grand bargain fails, the newly unveiled gas tax law will gradually begin to change based on a formula. Three-quarters of the change will be based on North Carolina's population growth. The remainder of the change will be based on the consumer price index, a measure of how much consumers pay for certain goods.

"What we've come to realize is that a lot of the demands on our roads are simply because we're blessed to live in a growing state," Rep. David Lewis, R-Harnett, said.

Earlier in the legislative session, Democrats slammed Republican-led attempts to adjust the gas tax. As with this House-Senate compromise bill, those plans lowered the gas tax slightly but not as much as it would have dropped this summer if left unchanged. Democrats labeled that a tax increase.

Standing with Republican legislative leaders Thursday, a handful of Democrats who embraced the deal expressed optimism it would garner the support of their colleagues.

"I'm certainly not in a position to speak for the Senate Democratic caucus, but I do believe this will be a bipartisan effort. There will be Democrats who vote for this conference report," said Sen. Floyd McKissick, D-Durham.

The state, McKissick said, simply could not afford to let the gas tax drop to 30 cents per gallon.

Rep. Ed Hanes, D-Forsyth, said he was most concerned about ensuring the changes to the tax rates would not lead to job losses in the Department of Transportation. The original Senate bill would have eliminated 500 positions.

"We're very pleased about that, so I anticipate very strong support from the (House) Democratic caucus," Hanes said.

The House and the Senate are expected to take votes approving the measure on Monday and Tuesday.

No mortgage relief in bill

Senate Bill 20 is more than just a gas tax bill. It has the potential to affect thousands of people filing their income taxes this year.

That's because it contained technical provisions, known as internal revenue code updates, that help match North Carolina's tax laws to the federal government's. This set of IRC updates is being made in response to federal tax changes passed in 2014.

For example, the bill mirrors the federal tax code in a way that will let teachers keep a $250 tax deduction for buying school supplies.

However, North Carolina has decided to charge taxes on some items that would have gone untaxed due to changes to federal laws. The most controversial change along these lines has to do with mortgage debt that is forgiven.

When someone who is in a financial pinch has the amount they owe on their home forgiven through a debt relief program, that can be counted as income. The federal government decided not to tax this amount, but the state will under the Senate Bill 20.

This change was controversial when the measure passed through the Senate because it levies a big tax bill on those trying to work their way out of debt. When House lawmakers first passed this bill, they excluded the mortgage forgiveness from taxes. The compromise measure takes the Senate position.