Time To Talk About the Gas Tax

A big decision about New Jersey’s gas tax is pending in Trenton as per-gallon prices continue to hover well above what motorists were paying a year ago.

New Jersey law requires the state treasurer and another top public-finance official to analyze the latest gas-tax revenue and consumption figures each year by the middle of August.

Their main task is to determine whether New Jersey’s per-gallon gas tax — currently set at 42.4 cents — can generate enough revenue to keep up with how much the state spends annually on road, bridge and mass-transit projects, a sum of about $2 billion.

This year, the gas-tax analysis comes as the cost of gasoline has become a key issue for many New Jersey residents following a surge that has only slightly waned after prices peaked at over $5 per gallon in June.

As of this week, the average cost of a gallon of gas in New Jersey was running just under $4.20, according to AAA.

Gas tax revenue dropped slightly
Despite the lingering high prices — which have likely impacted driving habits in recent months — the latest gas-tax revenue figures from the state Department of Treasury indicate total collections have dropped only slightly over the last 13 months.

It remains to be seen whether the state’s public-finance officials will change the tax rate, or if they will feel confident the current tax can generate enough revenue. 

If a new per-gallon rate is required under the state’s transportation-finance law, the change would be announced by Treasury officials by the end of August and go into effect automatically on Oct. 1.

The decision to link New Jersey’s gas tax to annual consumption levels — and to require automatic rate adjustments based on the latest revenue and consumption trends — was made in 2016 at the same time the state’s then gas tax of 14.5 cents per gallon was increased by nearly 23 cents.

At the time, New Jersey’s Transportation Trust Fund had run dry, and the Democrats who controlled the Legislature and then-Republican Gov. Chris Christie were at odds over what to do next.

Funded primarily with revenue from the state’s gas tax, the trust fund is a separate account from the state budget that ensures New Jersey has enough money on hand to maintain its extensive network of roads, bridges and mass-transit infrastructure on an annual basis.

The Christie connection
To break the 2016 impasse, Christie and lawmakers eventually agreed to hike annual transportation spending as part of an eight-year reauthorization of the trust fund, in part, by using new revenue from a 22.6-cent per-gallon rate hike that was enacted later that year.

Meanwhile, language was also inserted into the 2016 transportation-finance law to allow for additional gas-tax changes to go into effect automatically each year based on an analysis of what’s known as the state “Highway Fuels Revenue Target.”

Under that language, the state treasurer must meet annually “on or before August 15” with the top public-finance official from the nonpartisan Office of Legislative Services. Together, they determine whether the tax must be adjusted upward or downward to generate the roughly $2 billion that’s needed annually to support trust fund spending. It can also be determined that no change in the rate is needed to maintain annual spending.

The last automatic increase occurred in 2020, when the per-gallon rate was hiked by 9.3 cents after total revenues dipped amid the outbreak of the COVID-19 pandemic. Last year, there was an automatic rate decrease of 8.3 cents. Still, New Jersey’s gas tax was ranked earlier this year as the fifth-highest among U.S. states by the Washington, D.C.-based American Petroleum Institute.

And while Gov. Phil Murphy enacted a new law earlier this summer that hiked the total spending cap for the Transportation Trust Fund by $600 million, Department of Transportation officials have suggested that should not put additional pressure on the gas tax. 

By refinancing trust fund debt in recent years, the state has realized more than $800 million in net savings, easing the way for the higher spending limit, the officials said.

The trust fund will come up for reauthorization once again in mid-2024. But so far, there’s been little public discussion of what the next reauthorization will look like, including how heavily Murphy and lawmakers will rely on revenue from the gas tax to sustain annual spending since they have been trying to promote the use of electric vehicles in response to growing concerns about climate change. While electric vehicles are better for the environment, motorists who drive them are not regularly contributing to the maintenance of the state’s transportation network because they escape the gas tax.

Department of Transportation spokeswoman Leanna Nelson said last month that talks are expected to begin “in the near future.” Source: NJ Spotlight News