Staring at a third gas tax hike in four years, New Jersey is exploring mileage-based fees as an alternative revenue source for the state’s Transportation Trust Fund.
State Treasurer Elizabeth Maher Muoio said during a budget hearing last week that gas tax revenues are falling short of this year’s $1.5 billion highway fuel target meaning another increase to gasoline taxes could be in the works. New Jersey’s gas tax rose 4.3 cents last October to 41.4 cents a gallon because of lower-than-projected fuel consumption levels needed to support the TTF and Gov. Phil Murphy says now is the time to explore other avenues for funding infrastructure, including a mileage-based fee that will soon be tested out.
“The reality of the world we’re living in is that gas consumption will go down over time, just with the advent of hybrid and electric vehicles, and the change of habits by the next generation,” Murphy said at an April 5 press conference where he announced Department of Transportation municipal aid funding under the TTF. “We may need to think of a different mousetrap to capture the movement around this state, and there are some other states that are looking at that, in terms of mileage fees, as opposed to gas-consumption fees.”
Former Gov. Chris Christie, in concert with state lawmakers, approved a 23 cents per gallon hike in fall 2016 to fund a $16 billion TTF re-authorization marking the Garden State’s first gas tax increase since 1988. New Jersey previously had the second-lowest gas tax rate in the nation and now is now among the highest in the nation after the two hikes in three years.
The I-95 Corridor Coalition is leading the charge in trying to foster alternatives to gas taxes with a mileage-fee program set to be tested in New Jersey, Pennsylvania, Delaware, Virginia and North Carolina. The group will look to determine whether a mileage-use fee is feasible with study participants plugging a device into their vehicle’s data port as a way of measuring miles driven before receiving a monthly report on how much they would pay compared to a gas tax.
“It’s about having that conversation with the public about how they pay for transportation,” said Patricia Hendren, executive director of the I-95 Corridor Coalition, a partnership that includes transportation agencies and toll authorities from Maine to Florida. “There is a lot of movement in this area, so we are exploring it through all angles because it is a big deal to find sustainable revenue sources for infrastructure.”
The mileage-usage pilot program will be funded through federal Surface Transportation System Funding Alternatives grants established under the Fixing America's Surface Transportation (FAST) Act. The concept is getting tested on the East Coast after getting a look out west with Oregon, Washington, California, Colorado and Utah undergoing their own road-usage charge pilot programs in recent years.
Oregon has thus far been the only state to implement a mileage-use fee that is voluntary and capped at 5,000 participants. The state’s residents can choose whether they want to pay the road-usage charge or a traditional gas tax. The mileage-fee program participants are provided rebates or credits for state fuel taxes paid.
“It’s a much more complicated environment on the East Coast with smaller states and more out-of-state drivers,” said Hendren of how the new round of mileage-use fees will have a different dynamic than the Pacific region. “We’re trying to make sure the characterization of the East Coast states are reflected.”
Lisa Washburn, managing director at Municipal Market Analytics, noted that future prospects for gas taxes as the main driver for transportation funding are dim because of increased electric and hybrid vehicle use coupled with many politicians reluctant to raise rates. The federal tax rate has not been raised since 1993 and while President Trump endorsed a 25-cent fuel hike last year for his proposed $1.5 trillion infrastructure bill, congressional republicans quickly balked at the idea.
“There are a lot or negative views of the gas tax and that makes it hard to raise frequently to address infrastructure needs,” Washburn said. “It’s like a third rail tax.”
Washburn said the mileage-use fee is an idea that has potential to work in northeast states such as New Jersey if drivers can see linkages between their vehicle usage and the importance of improving the roadways on which they travel. Some possible complications would need to be addressed, according to Washburn, such as how to determine mileage-fee program credits for gas taxes and making sure that those with more fuel-efficient or electric vehicles don’t get adversely affected from the change. She added that assurances about privacy concerns with data collected would also be important, especially with trying to attract older participants.
“Looking for an alternative to the gas tax for funding infrastructure is very important,” Washburn said. “We have to find innovative ways to fund infrastructure and this certainly could be a very good way to shore up and make more sustainable revenues for infrastructure.”
Treasurer Muoio said a decision on whether New Jersey’s gas tax will rise for a second straight year will be determined in August after revenue collections are determined during the summer driving season. She said last August when announcing the 4.3 cents a gallon gas tax hike that fuel revenues fell $125 million short for the 2018 fiscal year and were off by $32.6 million in 2017.
The higher gas tax took effect just prior to the New Jersey Transportation Trust Fund Authority issuing $1.56 billion of revenue bonds to fund outstanding debt. The 2016 gas tax increase helped fuel $800 million more in total dedicated revenues to the trust fund in fiscal 2018 compared to 2016, according to Moody’s Investors Service, which rated the deal Baa1.
