Fuel-efficient vehicles, less driving puts NCDOT in a jam

by Molly Parker, Wilmington Star-News, November 15, 2013.

Thanks to more fuel-efficient cars and the economy's curb on driving habits, the N.C. Department of Transportation is in a jam.

The gas tax is the state's primary way to finance road construction and repairs, but states across the country - including North Carolina - are grappling with what to do with the declining collection of gas taxes as roads fall into disrepair and urban centers grow more congested.

"As we know with fuel efficiency and changing driving habits, the amount of gas tax collections expected for the future will drop ... Yet the obligation to take care of the transportation continues to stabilize or grow over time particularly in a state like North Carolina where we continue to add customers to the system," said Mark Foster, the DOT's chief financial officer.

It's not a new dilemma, but one DOT officials are sounding the alarm about with increased urgency. Board members were briefed on the issue during their regular monthly meeting last week.

During the long legislative session that ended this summer, the Republican-led General Assembly passed a massive tax overhaul - but did not touch the gas tax, arguably the weak link in the state's taxation scheme.

"The purpose of the conversation is to raise the urgency in that we're losing about 2 percent of the gallonage base per year in terms of gas tax collections," Foster said. "We're currently capped at the gas tax in North Carolina, which means for every 1 percent the base drops we lose $20 million of revenue going to maintain and modernize the transportation system."

He went on to explain that 2 percent per year equals $40 million compounded annually.

"It's serious dollars," Foster said. "If it stays on that trend we'll lose $600 million in the next five years."

The N.C. Department of Revenue sets the motor fuel gas tax for the state. The formula is updated every six months and is based partially on a fixed rate and partially moves with the national wholesale price of fuel. Right now the current rate is 37.5 cents per gallon, at the ceiling set by the General Assembly last year. Of that rate, 17.5 cent is fixed and the remainder is variable.

Consumers pay a federal and state gas tax for every gallon of fuel purchased. The federal gas tax goes to Washington and each state applies for reimbursement based on the transportation projects that it has slated as a proportionate share of those gas taxes.

The federal gas tax has remained stagnant since 1993, and is collecting about two-thirds of what has been promised to the states in terms of the federal program, Foster said. It has historically been plugged with money from the state's general fund, but there's "lots of questions going forward as to whether that will continue," he said.

"There's been talk but so far there's not been the political will to address the revenue issue," Foster said.

No easy choices

The state's roads are funded by three different means - fuel taxes; fees you pay at the on things such as your driver's license and license plate at the DMV; and a highway use tax, which is a 3 percent levy on sales of vehicles, new and used.

Foster said that long term the state faces three options if it is going to keep up with road construction and repair in one of the fastest growing states in the Southeast. One is to raise the gas tax, but there has historically been little political appetite to do so. The second option is to raise driver's licenses and registration fees.

Foster said the third option is to look for a substitute to the gas tax, such as a mileage-based tax, which is essentially where driver's pay a fee based on the number of miles driven. That could be paid during annual vehicle inspections or collected at the pump, though Foster acknowledged there's no easy way to do it.

He said discussions will be ongoing in the coming months about possible solutions.

"The goal is to determine exactly what the transportation system needs in terms ... and to work backwards on how to finance that," Foster said.

AAA Carolinas spokeswoman Angela Vogel Daley said the gas tax is one of the fairest ways to pay for the road system because the more you drive, the more you pay.

"We have one of the highest gas taxes in the Southeast, but we are one of the fastest growing states," she said. "Our roads are definitely in need of repair ... the money needs to come from somewhere."

According to AAA Carolinas, 45 percent of the state's roads are of poor or mediocre quality and 39 percent of bridges are substandard.

State Sen. Bill Rabon, R-Brunswick, a leader on two transportation-related Senate committee meetings, said one solution could be to stop raiding the Transportation Fund, which collects the gas taxes and fees and is meant to pay for road projects.

"We put money back into the budget every year," he said. "Most people think it goes the other way but it does not."

Every year, roughly $225 million goes to the N.C. Highway Patrol and other general fund initiatives.

So why not just dedicate all the money to roads?

It's not that simple, Rabon said.

"No one wants their ox to be gored," he said. "If we stop paying for Highway Patrol out of the transportation budget then it's got to come from someone else's ox."