- Associated Press - Tuesday, February 10, 2015

RALEIGH, N.C. (AP) - A quick cut in North Carolina’s gasoline tax proposed Tuesday by Senate Republicans could bring higher tax rates to the pump later this decade.

The measure would lower the gas tax from the current 37.5 cents a gallon to 35 cents March 1 for the rest of 2015.

Starting next year, the formula that recalculates the tax periodically based in part on the wholesale price of gas would be modified and set a 35-cent floor for the tax, the primary funding source for state Department of Transportation operations as well as road and bridge maintenance.

“We’re going to cut, freeze and stabilize the gas tax,” Sen. Bill Rabon, R-Brunswick, one of the bill’s chief sponsors, told the Senate Finance Committee. The alteration was incorporated into another tax bill and approved on a voice vote. The chamber’s budget-writing committee also approved the bill later Tuesday, before the first of two required floor votes Wednesday.

Without changes to the formula, recent low gas prices would cause the gas tax to likely fall by several cents per gallon - well below 35 cents - this July and could keep the projected rate below that level for years, according to lawmakers and legislative staff. Lawmakers and business leaders worry that would hamper road construction as state officials consider how to close a transportation funding gap in the coming 25 years.



If the current formula is left intact, DOT estimates it would have to delay scores of projects and thousands of miles of road resurfacing valued at nearly $840 million through mid-2020, according to a list given to lawmakers and obtained by The Associated Press.

“Volatility absolutely kills us because we put projects in, then we have to take projects out,” Rabon said after the meeting.

The immediate tax drop in the bill would cause an immediate loss of $33 million. The measure directs DOT to make across-the-board reductions and eliminate 500 filled full-time positions and at least 50 vacant positions to help cover some reductions.

However, the change could mean an even higher rate and more revenues for transportation over time.

If the bill were enacted, the average annual gasoline tax would be projected to reach 40.5 cents for the year ending June 30, 2018, and 41 cents in 2019, according to Amna Cameron, a legislative fiscal analyst on transportation matters. A detailed fiscal review of the provision estimates the change would generate $237 million more in the next fiscal year, rising to $352 million in 2018-19.

The proposal is a tax increase because the rate won’t fall as much as current law mandates, said Donald Bryson, state director for the conservative Americans for Prosperity.

“Telling taxpayers they’re getting a tax cut when in fact it’s keeping the rate artificially high and functions as a tax increase over time is a real problem,” Bryson said.

Rabon disagrees, saying the detailed fiscal review is flawed because it doesn’t account for a continued decline in gasoline consumption from more fuel-efficient cars and higher standards, he said.

“Decreasing this volatility makes a lot of sense,” said Democratic Sen. Floyd McKissick of Durham.

DOT Chief of Staff Bobby Lewis told senators the agency could handle the employment reduction by shifting more work to contract companies, as lawmakers previously mandated.

The North Carolina Chamber is backing the formula change and the liberal-leaning Progress North Carolina Action opposes it.

House Speaker Tim Moore, R-Cleveland, backed the idea as “a middle-of-the-road approach” between tax relief and road funding.

Republican Gov. Pat McCrory told lawmakers last week in his State of the State address he would “support any efforts to protect and stabilize our existing transportation revenue streams.”

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