WASHINGTON — Maryland lawmakers are considering a 10-cent-per-gallon increase to the state’s 23.5-cent gas tax, but the government may not be able to use the potential revenue increase to back bonds for transportation projects because there is limited room under its debt cap.
The legislation would not increase the debt cap for the Maryland Department of Transportation, meaning the triple-A state’s own fiscal prudence may end up preventing new projects from being financed with bonds.
Bonds, backed partly by toll revenues, were a crucial part of the state’s successful InterCounty Connector project, which opened last month.
Currently, MDOT is capped at $2.6 billion of outstanding debt and the department’s planned financings would reach that amount by 2017.
The gas tax legislation introduced last month in the Maryland House and Senate could raise $471.2 million in fiscal 2012. In addition to the gas-tax hike, the legislation would bump up vehicle registration fees 50% to between $50.50 and $76.50.
The legislation also would prevent most transfers of money from the transportation trust fund to the general fund, strengthening the credit support for bonds backed by the fund. For fiscal 2011, the state pulled $370 million from the transportation fund to plug budget holes in the general fund. Moody’s Investors Service said last June that about $23 million of the $370 million was used to pay debt service.
If the proposed state gas-tax increases were added to the 18.4-cents-per-gallon federal gas tax, Maryland drivers would pay 51.9 cents in taxes on a gallon of gas — above the national average of 48.1 cents and more than the state’s six neighboring jurisdictions, according to January data from the American Petroleum Institute.
Still, the tax hike has broad support from local governments and the Maryland Chamber of Commerce. But lawmakers may lose their appetite for the increase if oil prices continue to rise as summer approaches.
Utah senators earlier this month voted down legislation to increase the state’s gas tax by 5 cents per gallon. The Obama administration and Republicans have agreed that federal gas tax increases will not be part of any transportation legislation proposed this year.
Maryland’s gas-tax increase is an “unwise idea in this economy with gas prices going up,” said Nick Loffer, the deputy state director of Americans for Prosperity in Maryland.
Though the legislation would increase revenues going into the trust fund, “it does not have any provisions in there to increase the bond cap,” said David Fleming, chief financial officer at MDOT.
Historically, the state has boosted the bond cap in legislation that increases the department’s revenue. However, he said the additional revenue would make the department’s debt service coverage ratios stronger on the debt that is planned for issuance.
Gas taxes are “the fairest and best way” to money taxes for roads, said Keith Crane, an author for RAND Corp. who co-wrote a February 2011 paper on the use of oil tax revenues for transportation projects. For the best results, gas taxes should be dedicated to project-specific financing and not lumped in with general spending needs like filling potholes, he said.
Bonding financing makes “a lot of sense” because it introduces discipline to a transportation project, Crane said. Bonds ensure that a project has the money needed to get completed.
When a government doles out revenue on a “pay-as-you-can” scheme, projects can get delayed half built, he said.