Many states are taking advantage of cheap gasoline to increase gas taxes that fund transportation projects.
But North Carolina is taking the opposite approach.
The Tarheel State dropped the tax on a gallon of gasoline to 35 cents on Jan. 1. That was the second of three cuts set to conclude at the end of June, when the tax is cut to 34 cents per gallon.
Beyond these incremental increases, the North Carolina General Assembly last March reached an agreement on a new gas tax plan that is no longer built off the wholesale gasoline price. Lawmakers said the system was too volatile, especially as oil prices plunged and dragged gasoline prices down with them.
The new tax, which will take effect in 2017, will be based on the state’s population and the national consumer price index for energy. Three-quarters of the tax rate adjustment would come from the population and the other quarter would come from the price index. The tax would be adjusted every six months.
State Rep. David Lewis, a Republican from Dunn, helped write the plan. He said the goal was to detach the pump price from the price of crude oil, which was so volatile that it wouldn’t allow the state to plan for construction projects 20 years down the road.
Plummeting oil prices could have caused revenue from the gas tax to drop $400 million last year, reports show.
“Crude oil is a rather volatile commodity and we were concerned about losing the ability to do long-range forecasts because the price of oil changed as frequently as it did,” he said.
North Carolina faces unique challenges in maintaining its roads, Lewis said.
The state is responsible for maintaining nearly 80,000 miles of roads since North Carolina doesn’t have many local and county roads. That has led to the state requiring a higher gas tax than many North Carolinians would like, Lewis said.
The tax decrease being being phased in wasn’t the only part of the plan, he noted. The legislative compromise required some user fees, such as license plate renewals, to be increased.
Lewis said it’s a tax cut right now, but gas taxes could end up rising above the previous 37.5 cents per gallon tax if the population continues to rise.
Joseph Henchman, vice president of legal and state projects at the nonpartisan Tax Foundation, said North Carolina’s new formula could be a model for the federal government and other states.
Henchman said one of the big problems with federal highway funding is that the federal 18-cent gas tax, unchanged since 1993, is too low. The tax does not adjust to inflation like North Carolina’s, so it’s based off much lower gas prices and lower usage rates.
“We go through these constant crises of transportation funding almost every year at this point,” Henchman said. “Everyone knows the solution to this is raise the gas tax but no one wants to raise the gas tax.”
Just three other states use the consumer price index for energy, as North Carolina does, as a part of their gas tax formulas, according to the Tax Foundation.
While some North Carolina residents have expressed sticker shock at having to pay more money to renew their license plates, Lewis said lawmakers are making the case that the new formula will end up saving them money at the pump and over the long term.
“We simply make the business case to the people of our state that we’ve gotta have roads and bridges that are safe,” he said. “And to do that we have to have a plan for it, and to do that we have to have a steady stream of funding.”
