Options to align and simplify fuel tax indexing
RTA members,
North Carolina has been blessed with a robust and diverse array of transportation funding sources for many decades, which have served our growing state well. Of course, we can always explore opportunities to make them more resilient and simplified. This week’s blog focuses on the gas tax, and a potential opportunity to do just that.
State gas taxes remain the largest component of the mix of revenue sources for the North Carolina Department of Transportation. Our state has indexed its gas tax to address inflation since 1986. Thirty years later, in 2016, the North Carolina General Assembly passed legislation to set our tate gas tax per gallon at $0.34 plus an annual multiplier, indexing by population growth (75%) and the energy component of the consumer price index (25%).
Over the past decade, the state motor fuels tax has risen from $0.34 to $0.41 per gallon, representing an increase of $0.07 per gallon or around 20%. While fuel tax revenue has grown over the last 10 years, driven by growth in state population, and vehicle miles traveled, as well as the index, the gas tax has not kept pace with inflation as measured by either the consumer price index or the costs of highway construction as reflected by the National Highway Construction Cost Index (NHCCI). These rapidly increasing construction costs have placed a constraint on NCDOT’s budget and its ability to deliver a timely and robust transportation program.
North Carolina could consider other methods to index the gas tax to better address the impact of inflation. For example, our “DMV fees” (e.g., vehicle registration, driver’s license, the EV and hybrid access user fees, etc.) are indexed based on the core consumer price index (“CPI-U”).
RTI has completed a report for RTA that highlights the inflation index we currently use in North Carolina for our motor fuels tax, and potential alternatives to that, including the index we use for our DMV fees. The memo shows that alternative indexing measures such as the CPI-U or NHCCI would result in a higher gas tax and more revenue for the state to meet transportation funding needs. The report reviews potential alternative indexing options, and the potential financial impacts of various frameworks, from both a retrospective and prospective standpoint.
To give one example, over the past decade, our state gas tax generated an estimated $22 billion for NCDOT, under the existing indexing framework. Had one of several alternative indexing scenarios been in place, the state could have had a different revenue picture since 2016. To give one example from the report: “Had the North Carolina state gas tax been benchmarked to a standard measure of inflation (consumer price index or CPI-U), it would have produced a cumulative $1.2 billion or 5% more over a 10-year period”.
While we do need to continue our focus on potential revenue alternatives for North Carolina, I believe we have an opportunity to align and simplify the indexing for the motor fuels tax now, to provide a more resilient transportation framework now.
I invite you to review the RTI research memo — from both a retrospective and prospective framework, and I welcome your comments about the opportunity.
Let’s get moving,
Joe
