Rise in New Jersey gas tax could deter out-of-state consumption, analysts say

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A trend toward lower fuel consumption, driven in part by the COVID-19 pandemic, prompted New Jersey to raise its gas tax for a third time in five years to among the highest levels in the nation, putting the state at risk a for future volume dips, according to analysts.

"There is a substantial portion of the gas tax that is transitory," Regina Egea, president of the conservative-leaning Garden State Initiative, said of how much of New Jersey's gas revenues over the years has been derived from New Yorkers who went over the border for cheaper prices or from truckers that decided to stop there on long routes. "I wonder if they can now ever can return to volumes they once had."

New Jersey gas tax revenues, which support the state’s annual $2 billion Transportation Trust Fund, will jump to 50.7 cents a gallon from 41.1 cents starting Oct. 1, according to Treasurer Elizabeth Maher Muoio, who cited a 2016 law signed by former Gov. Chris Christie, which requires a steady stream of revenue to support the state’s TTF. The nearly 10-cent rise will lift New Jersey's tariff to among the highest in the nation. New York State levies a 45.8 cents a gallon gas tax by comparison.

A New Jersey gas station attendant pumps gas. The Garden State will have the fourth highest gas tax in the nation starting Oct. 1.

New Jersey went 28 years without a gas tax increase until 2016, when Christie and the state legislature agreed to a 23-cent hike as part of an eight-year, $16 billion, TTF re-authorization. The gas tax jumped again in 2018 by 4.3 cents after fuel revenues fell short of expectations.

The volume of New Yorkers crossing the New Jersey border to fill up their tanks dropped a bit in recent years as the gas tax rose, Egea said, and the latest hike will give out-of-staters even less reason to visit the Garden State. New toll hikes, taking effect on Sept. 13, of 36% on the New Jersey Turnpike and 27% on the Garden State Parkway will compound the gas tax increase, she said.

“It’s a double hit,” Egea said. “These are deterrents to people coming into the state.”

Michael Lahr, a research professor at the Edward J. Bloustein School of Planning and Public Policy, noted New Jersey used to benefit from New York residents who would visit for cheaper shopping options while also filling up for gas before the Empire State repealed its 4% sales tax on clothing items costing less than $110 in 2012.

New Jersey gas stations were already seeing less out-of-state vehicles this year because of consumers cutting down on travel due to the COVID-19 pandemic, he added. People traveling long distances on the east coast through New Jersey will likely opt to get gas in other states with cheaper tax rates, Lahr said, especially independent truckers, who are not reimbursed by their companies.

“The independent truckers are always working on a thin dime, so they may wait to fill up until after New Jersey,” Lahr said. “They may change their typical fill-up location.”

The looming 9.3-cent a gallon increase will lift New Jersey's to the fourth highest gas tax in the nation with only Illinois (52.01), Pennsylvania (58.70) and California (62.47) at a higher level, according to the American Petroleum Institute. New Jersey had one of the lowest gas taxes in the nation at 14 cents a gallon prior to the 2016 increase.

Muoio said the 22% gas tax jump would be used to close a $154 million projected shortfall in the state’s 2020 fiscal year highway fuels revenue target. The state’s tax on diesel fuel will also increase 9.3 cents per gallon to 57.7 cents.

Gasoline consumption dropped 38.7% from March to May, according to Muoio, as the COVID-19 pandemic caused stay-at-home orders and the closure of non-essential businesses. Both gas and diesel usage have continued to be “depressed” this summer, she added, due largely to many people working from home.

Egea said New Jersey's infrastructure has remained in poor condition the past few years despite the tax hikes in 2016 and 2018. Gov. Phil Murphy's administration should improve its transparency, she said, explaining how TTF money is being spent.

"I think it is good policy in terms of having the tax funding the roads and the bridges, but I just don't see it delivering on the execution," Egea said.

Lisa Washburn, managing director at Municipal Market Analytics, said since New Jersey already has among the highest taxes in the nation, the gas tax is one of the few tools the state has as its disposal to raise badly needed revenue. Future gas tax increases, she warned, could drive away some working class taxpayers.

“This tax, combined with its other high taxes, particularly the property tax, will make New Jersey an even less affordable place to live,” Washburn said. “The tax was already regressive but lower income workers are the ones that are more likely to drive further to work and less likely to be able to work from home.”

Christie signed the 2016 gas tax increase as part of a compromise struck with lawmakers to cut New Jersey’s sales tax to 6.625% from 7% and phase out the state’s estate tax.

Structurally imbalanced budgets and rising pension liabilities have brought 12 credit rating downgrades to New Jersey in the last nine years with the state’s general obligation bonds rated higher than only Illinois among U.S. states. New Jersey’s GO debt is rated A-minus by Fitch Ratings, A3 by Moody's Investors Service, A-minus by S&P Global Ratings and A by Kroll Bond Rating Agency.

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Gasoline tax Infrastructure State of New Jersey New Jersey Highway trust fund
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