States Divided on Raising Road Taxes

By: - May 29, 2009 12:00 am

One of the best state political tales this year comes from Idaho, where a snit between Republican Gov. C.L. “Butch” Otter and his own party’s House members led to the governor vetoing 35 budget bills to try to force state lawmakers to increase gasoline taxes to pay for road repairs.

The House refused to budge, but both sides saved some face by approving a $57 million-a-year package of fee and revenue increases – far short of the $174 million Otter had sought to tackle a backlog of transportation needs.

Clashes over transportation spending have been somewhat tamer in other states but the outcomes no different than in Idaho. Raising taxes during a severe recession is a tough sell. States will get about $50 billion in federal stimulus money for transportation, but that won’t begin to deal with the national need, which the American Association of State Highway and Transportation Officials says is $545 billion.

“We didn’t think it was the right time to raise taxes on constituents who are already having a hard time,” said state Rep. Judy Boyle , a Republican from western Idaho, explaining her vote against Otter’s proposed 6-cents-a-gallon gas tax increase. Currently Idahoans pay 25 cents a gallon in state gasoline taxes.

The same argument could be made in Michigan, where lawmakers are considering higher gasoline taxes and vehicle fees to finance transportation projects. But lawmakers may reject it because the state has been slammed by the recession harder than most.

Massachusetts Gov. Deval Patrick (D) has recommended a 19-cent-a-gallon increase in the gasoline tax – now at 23.5 cents a gallon – and several smaller tax increases, but lawmakers instead voted to raise the state sales tax from 5 percent to 6.25 percent, with some of the money going to transportation.

Louisiana lawmakers considered raising the gas tax, but the state’s Republican governor, Bobby Jindal, snubbed it, saying government should cut spending instead. The Maine, Tennessee and Texas legislatures also are weighing gas tax increases in the closing days of their sessions.

Efforts by Georgia lawmakers, who like those in Idaho have failed for several years to finance their transportation logjam, broke down again this year. But the dispute this time was over a proposed sales tax increase, the House supported a statewide sales-tax increase while the Senate backed a tax imposed regionally. Virginia lawmakers and Gov. Tim Kaine (D) also went another session without addressing transportation taxes, although that brawl has more to do with political differences between Kaine and GOP lawmakers than the economy.

Despite the string of defeats in state capitols, there were some victories for tax proponents. Vermont lawmakers approved a 2 percent increase in the wholesale price of gasoline, or about 3 cents a gallon based on current prices, to raise money for transportation projects. The Oregon House voted May 27 to approve a 6-cent-a-gallon increase, up from the current 25 cents a gallon, along with higher vehicle fees that will bring in an estimated $300 million a year. The Senate is likely to go along. North Carolina lawmakers canceled plans to allow the state’s gas tax to drop by 2 cents, to 28.2 cents a gallon, on July 1 to help plug a gap in the state transportation budget.

Other states raised different taxes for road and bridge repairs. Colorado lawmakers hiked vehicle registration fees to raise about $250 million a year for transportation. Iowa lawmakers agreed to Democratic Gov. Chet Culver’s plan to borrow $830 million, with the bonds paid off from casino gambling profits. Ohio lawmakers approved a $7.6 billion transportation bill that included unrelated items such as additional unemployment benefits for laid-off workers. The North Dakota and Oklahoma legislatures also boosted transportation spending without increasing taxes.

Meantime, the road and transit needs piled up in other states. Arkansas lawmakers set up a commission to recommend ways to generate about $300 million a year in transportation funding. Kansas put off action until next year after learning the state needs to raise $18 billion over 10 years.

Idaho has known for years about its transportation challenges. About a third of the state’s 5,000 miles of roads are in mediocre or poor condition, a higher share than in surrounding Oregon, Montana, Washington, Utah and Nevada, according to an audit released in January.

The audit said that even if tax and registration-fee increases generated an additional $240 million annually, more than Otter’s proposed $174 million tax increase, Idaho still would fall $55 million short of what it needs to preserve its existing highway and bridge infrastructure by 2013.

A year ago, Otter and the Legislature failed to reach an accord on a $200 million tax and fee increase package for transportation largely because of House opposition. That set the stage for another try this year – but against the backdrop of a deepening recession.

In Republican state Rep. Dick Hammond’s northern Idaho district, the unemployment rate is near 17 percent. “We’re not sure when the recession is going to end,” he said. “Yet here we are saying we want to raise taxes to fix roads? I think the timing was bad for this.”

Countered GOP state Sen. Joyce Broadword , also of northern Idaho: “When is the timing ever right? Last year they (House Republicans) said it was an election year. This year they said it was the economy. What will it be next year?”

Broadword voted for Otter’s plan, as did the Republican-controlled Senate. Rather than try to override Otter’s vetoes, lawmakers restructured the bills and approved them again before adjourning. The governor didn’t try to block them.

Otter said that user fees such as gasoline taxes “are probably the best and fairest form of taxation.” But he said the struggle with his fellow Republicans was not over gas taxes as much as about accepting the magnitude of the transportation needs and determining the best way to finance them. The $57 million lawmakers approved is a good start, he said.

“This was never about any particular way of generating the revenue we need to fulfill this proper role of government,”   Otter said in a statement. “This was about acknowledging the challenge and making a commitment now to meeting it. That’s been achieved.”

Republican state Sen. Robert Geddes of southeast Idaho had a pithier explanation that could apply to other states: “Taxes are just hard to raise in Idaho.”

See Related Stories:

State budget gaps top $200 billion; fees, tax hikes in the works (4/24/2009)
States warned tax hikes may be needed (12/15/2008)
States worry about dwindling road funds (7/23/2008)
Govs turn to fixing infrastructure (7/15/2008)
Jobs are at risk if Congress doesn’t fix the Highway Fund (6/12/2008)
Governors target transportation funding (2/26/2008)

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.