How did we get here? The portion of Georgia’s motor fuel tax that is dedicated to transportation funding is among the lowest in the nation. Over the last decade, state leaders have diverted funds for maintenance into sorely needed new projects. Today, not only do we have a backup of needed maintenance (not unlike the years of neglected maintenance of the Atlanta sewer system) and additional debt to service, but we also need added investment to relieve some of the nation’s worst traffic congestion in Metro Atlanta and other bottlenecks throughout the state.
What is the need? In our lengthy study, we determined Georgia needs $1 billion a year of new revenue to meet ongoing maintenance needs as well as new capacity to address traffic congestion, safety and freight.
What was our proposal? Part of our solution was to lock in the current gas tax rate by converting sales taxes that vary dramatically based on the price of gas to an excise tax that is based on volume rather than price. This excise tax would be constitutionally protected so the funds could only be spent on roads and bridges. Local and state government spending of motor fuel taxes on non-transportation purposes would be phased out over time. This, combined with fees on alternative fuel vehicles (in lieu of motor fuel taxes) and a few other measures, would provide the needed funding without raising taxes.
Where are we now? The House and Senate have reached consensus on locking in current gas tax rates by converting all state sales taxes on motor fuel to a state excise tax. Since the price of gas is volatile, a four-year average was chosen as the starting point. Adding up all state and local motor fuel taxes would equal an excise tax of 29.2 cents per gallon.
Although state legislators agreed to immediately shift funding from the general fund to transportation (the “fourth penny” of the fuel tax), local governments balked at shifting an average of 11 percent of sales tax funding over time to dedicate to transportation.
Local sales taxes on motor fuel amount to about 6 cents per gallon at current prices, so a revenue-neutral excise tax that does not change local sales taxes on motor fuel would equal 23.2 cents per gallon.
The House proposed allocating $100 million per year to transportation from the general fund, specifically to go to transit. The Senate proposed allocating $250 million per year to transportation through the general fund. Allocating future spending is better than raising taxes, but it is difficult to sustain.
A better approach would be to raise the excise tax and lower another tax. For example, the $100 million for transit must remain in the general fund because excise taxes must be spent on roads and bridges. The remaining $150 million the Senate proposes is equal to about 2.5 cents per gallon, which would raise the state excise tax to 25.7 cents per gallon.
An equal decrease in the personal income tax rate would reduce the rate from 6.0 percent to about 5.9 percent. This would benefit every single taxpayer with taxable income over $7,000 (Annual income for someone making the minimum wage in Georgia is more than $10,000.)
What would this mean for individuals? For someone driving 16,000 miles per year in a car getting 24 miles per gallon, a 2.5 cent per gallon tax increase is less than $17 a year, even before factoring in lower income taxes.
What would this mean for transportation funding? A state excise tax of 25.7 cents, fees on alternative fuel vehicles, transit funding of $100 million per year and revenue from additional diesel fuel sales results in an average of $1 billion a year in new transportation funding over 10 years. This does not include shifting local grants to state projects or proceeds from new TSPLOSTs for roads and transit thanks to changes made in the Senate that make TSPLOST a much more flexible funding mechanism.
UPDATE as of April 2 – Final Transportation Bill passed by House and Senate
Text of the bill: http://www.legis.ga.gov/Legislation/20152016/153333.pdf
The bill will raise approximately $900 million. (The fiscal note is not yet available to the public.)
What taxes or fees will be raised?
- Motorists will pay more per gallon of gas: 3 cents per gallon more than the four-year average; six cents more than current prices.
- Owners of alternative-fuel vehicles will pay an annual fee of $200 ($300 for commercial vehicles) in lieu of motor fuel taxes.
- Both the excise tax and the alternative-fuel fees will be adjusted for inflation and fuel efficiency changes for two years, with adjustments only for the change in the fuel efficiency of Georgia-registered vehicles thereafter.
- Truckers will pay an annual “highway impact fee” of $50-$100 based on weight.
- Fees of $5 per night will be added for hotels and motels.
- Local governments will continue to apply local sales taxes to motor fuel, but the proceeds will be capped: the highest price of gas subject to sales tax will be $3.00 a gallon.
Where will the new funds for transportation come from?
- Higher motor fuel tax ($180 million)
- Reduced spending caused by converting the “4th penny” to an excise tax ($180 million)
- The bill eliminates special tax exemptions on aviation fuel and electric vehicles that will help offset these funds over time
- Locking in the motor fuel tax based on the four-year average price of fuel ($210 million)
The above revenue ($570 million) is constitutionally restricted to be used for roads and bridges.
- Annual fees on alternative-fuel vehicles (($2 million in year one, but up to $12 by year six))
- Weight-based annual fees on trucks ($50 million)
- $5.00 per night fee on hotels and motels ($200 million)
These fees will be automatically discontinued if the revenues are not appropriated for transportation purposes. Transportation purposes does include transit.
Changes to TSPLOST
- Allows for a “fractional” TSPLOST, with rates of up to 1 percent in increments of .05 percent.
- Individual counties (with some restrictions) may now hold a TSPLOST referendum and multiple counties may join together based on an intergovernmental agreement, however, counties are allowed to have only one TSPLOST tax in effect at any one time, even if the amount is less than 1 percent.
Other Related Matters
The transportation bill creates a Special Joint Committee for Georgia Revenue Structure similar to the Commission created in 2010. By next year, the Commission is required to propose a tax reform bill that must receive an up or down vote with no amendments.
The FY16 budget includes $100 million in bonds for bridge repair and $75 million in bonds to be allocated among the state’s 128 transit systems.
How did we get here? The portion of Georgia’s motor fuel tax that is dedicated to transportation funding is among the lowest in the nation. Over the last decade, state leaders have diverted funds for maintenance into sorely needed new projects. Today, not only do we have a backup of needed maintenance (not unlike the years of neglected maintenance of the Atlanta sewer system) and additional debt to service, but we also need added investment to relieve some of the nation’s worst traffic congestion in Metro Atlanta and other bottlenecks throughout the state.
What is the need? In our lengthy study, we determined Georgia needs $1 billion a year of new revenue to meet ongoing maintenance needs as well as new capacity to address traffic congestion, safety and freight.
What was our proposal? Part of our solution was to lock in the current gas tax rate by converting sales taxes that vary dramatically based on the price of gas to an excise tax that is based on volume rather than price. This excise tax would be constitutionally protected so the funds could only be spent on roads and bridges. Local and state government spending of motor fuel taxes on non-transportation purposes would be phased out over time. This, combined with fees on alternative fuel vehicles (in lieu of motor fuel taxes) and a few other measures, would provide the needed funding without raising taxes.
Where are we now? The House and Senate have reached consensus on locking in current gas tax rates by converting all state sales taxes on motor fuel to a state excise tax. Since the price of gas is volatile, a four-year average was chosen as the starting point. Adding up all state and local motor fuel taxes would equal an excise tax of 29.2 cents per gallon.
Although state legislators agreed to immediately shift funding from the general fund to transportation (the “fourth penny” of the fuel tax), local governments balked at shifting an average of 11 percent of sales tax funding over time to dedicate to transportation.
Local sales taxes on motor fuel amount to about 6 cents per gallon at current prices, so a revenue-neutral excise tax that does not change local sales taxes on motor fuel would equal 23.2 cents per gallon.
The House proposed allocating $100 million per year to transportation from the general fund, specifically to go to transit. The Senate proposed allocating $250 million per year to transportation through the general fund. Allocating future spending is better than raising taxes, but it is difficult to sustain.
A better approach would be to raise the excise tax and lower another tax. For example, the $100 million for transit must remain in the general fund because excise taxes must be spent on roads and bridges. The remaining $150 million the Senate proposes is equal to about 2.5 cents per gallon, which would raise the state excise tax to 25.7 cents per gallon.
An equal decrease in the personal income tax rate would reduce the rate from 6.0 percent to about 5.9 percent. This would benefit every single taxpayer with taxable income over $7,000 (Annual income for someone making the minimum wage in Georgia is more than $10,000.)
What would this mean for individuals? For someone driving 16,000 miles per year in a car getting 24 miles per gallon, a 2.5 cent per gallon tax increase is less than $17 a year, even before factoring in lower income taxes.
What would this mean for transportation funding? A state excise tax of 25.7 cents, fees on alternative fuel vehicles, transit funding of $100 million per year and revenue from additional diesel fuel sales results in an average of $1 billion a year in new transportation funding over 10 years. This does not include shifting local grants to state projects or proceeds from new TSPLOSTs for roads and transit thanks to changes made in the Senate that make TSPLOST a much more flexible funding mechanism.
UPDATE as of April 2 – Final Transportation Bill passed by House and Senate
Text of the bill: http://www.legis.ga.gov/Legislation/20152016/153333.pdf
The bill will raise approximately $900 million. (The fiscal note is not yet available to the public.)
What taxes or fees will be raised?
- Motorists will pay more per gallon of gas: 3 cents per gallon more than the four-year average; six cents more than current prices.
- Owners of alternative-fuel vehicles will pay an annual fee of $200 ($300 for commercial vehicles) in lieu of motor fuel taxes.
- Both the excise tax and the alternative-fuel fees will be adjusted for inflation and fuel efficiency changes for two years, with adjustments only for the change in the fuel efficiency of Georgia-registered vehicles thereafter.
- Truckers will pay an annual “highway impact fee” of $50-$100 based on weight.
- Fees of $5 per night will be added for hotels and motels.
- Local governments will continue to apply local sales taxes to motor fuel, but the proceeds will be capped: the highest price of gas subject to sales tax will be $3.00 a gallon.
Where will the new funds for transportation come from?
- Higher motor fuel tax ($180 million)
- Reduced spending caused by converting the “4th penny” to an excise tax ($180 million)
- The bill eliminates special tax exemptions on aviation fuel and electric vehicles that will help offset these funds over time
- Locking in the motor fuel tax based on the four-year average price of fuel ($210 million)
The above revenue ($570 million) is constitutionally restricted to be used for roads and bridges.
- Annual fees on alternative-fuel vehicles (($2 million in year one, but up to $12 by year six))
- Weight-based annual fees on trucks ($50 million)
- $5.00 per night fee on hotels and motels ($200 million)
These fees will be automatically discontinued if the revenues are not appropriated for transportation purposes. Transportation purposes does include transit.
Changes to TSPLOST
- Allows for a “fractional” TSPLOST, with rates of up to 1 percent in increments of .05 percent.
- Individual counties (with some restrictions) may now hold a TSPLOST referendum and multiple counties may join together based on an intergovernmental agreement, however, counties are allowed to have only one TSPLOST tax in effect at any one time, even if the amount is less than 1 percent.
Other Related Matters
The transportation bill creates a Special Joint Committee for Georgia Revenue Structure similar to the Commission created in 2010. By next year, the Commission is required to propose a tax reform bill that must receive an up or down vote with no amendments.
The FY16 budget includes $100 million in bonds for bridge repair and $75 million in bonds to be allocated among the state’s 128 transit systems.
