Shh! States are (quietly) raising their gas taxes. And some in the White House are considering it, too.

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Despite the failure of Louisiana’s 17-cent gas tax increase proposal last week that would have levied as much as $500 million annually for road and bridge projects, a recent analysis by the Institute on Taxation and Policy found that as many as 24 states (as in one state shy of fully one-half of all the states in the Union) raised their state gas tax rate since 2013.  In 2017 alone, six states have raised their gas taxes, including the bleeding-heart liberal/tax-and-spend happy states of South Carolina, Montana, Tennessee, and Utah.

From the Tax Justice Blog:

2017 Enacted Legislation

  • California: A 12-cent gas tax increase and 20-cent diesel tax increase will take effect on Nov. 1, 2017. The new law also changes the formula that California uses to implement ongoing gas tax rate adjustments. Among those changes are a new provision allowing for gas tax increases based on the rate of inflation within the state’s borders.
  • Indiana: A 10-cent increase will take effect July 1, 2017. Further adjustments will occur between 2018 and 2024 based on a new formula that considers both inflation and the rate of growth in Indiana’s personal income. The new law also shifts the portion of sales tax revenue collected on gasoline purchases out of the general fund and toward transportation instead.
  • Montana: A 6-cent per gallon gas tax increase will be phased-in over 6 years. Most of the increase (4.5 cents) will take effect on July 1, 2017. The remainder will be implemented in 0.5 cent increments between July 1, 2019 and July 1, 2022. The state’s diesel tax will eventually rise by 2 cents, with most of that increase (1.5 cents) taking effect July 1, 2017.
  • South Carolina: The legislature overrode Gov. Henry McMaster’s veto to enact a 12-cent per gallon increase in the tax rate on both gasoline and diesel. The increase will be phased-in over 6 years, with the first increase (of 2 cents per gallon) taking effect on July 1, 2017.
  • Tennessee: The gas tax will rise by 6 cents and the diesel tax by 10 cents on July 1, 2017. While Gov. Bill Haslam initially proposed indexing the state’s gas tax rate to inflation, this reform was not included in the final package passed by the legislature.
  • Utah: A new law modifies the variable-rate gas tax formula enacted by Utah lawmakers in 2015 in a way that will allow for somewhat more robust revenue growth. The new formula is expected to result in a roughly 0.6-cent-per-gallon tax increase in 2019 and a 1.2-cent increase in 2020.

Sarcasm aside, the point is state legislatures (both Democrat and Republican controlled) are starting to take their infrastructure funding woes seriously.

Not to be outdone, it looks like the White House also wants in on the action.  Late last week, The Hill reported that Richard LeFrak, real-estate mogul and one of President Trump’s key advisors guiding his $1 Gazillion dollar infrastructure package, is also not not willing to explore the possibility of raising the federal gas tax.

From The Hill:

One of President Trump’s advisers says he supports hiking the federal gasoline tax to help pay for new roads and bridges — a politically fraught issue that Congress has avoided for years.

Richard LeFrak, a real estate developer leading a new White House council to vet infrastructure projects, told CNBC on Wednesday that he is “in favor” of increasing the gas tax, which hasn’t been raised in over 20 years.

The federal fuel tax is currently 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel.

“You’d be leveling it to where it would have been had they adjusted it for inflation in 1993,” he said. “If they did adjust it for inflation … it actually would produce tens of billions of dollars to annual revenue that would be reinvested.”

Obviously, there’s reason to be very skeptical. First, there’s the feat of getting a tax increase through a Republican-controlled Congress.  Furthermore, it isn’t even clear everyone in the White House is on the same page as Mr. LeFrak.  President Trump’s budget proposal released last month wasn’t exactly the boon to infrastructure funding most were hoping for, with some Democrats calculating it will reduce (as in the opposite of increase) overall federal outlays by $145 billion over the next 10 years.

Regardless of what the White House (and really Congress) decides to do, what does appear likely is continued action by state and local governments.  Infrastructure needs aren’t going away, and there’s a limit to what creative financing can do.  For now, at least, more state legislative leaders are making the calculation that funding their state’s transportation infrastructure is worth the heartburn they’ll get afterward.

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BALLOT WATCH: Louisiana Amendments 1 & 2

Lousiana_dealIn addition to Texas Proposition 7 I wrote about yesterday, Louisiana voters will also be asked two transportation-related ballot question this fall.  Keith Goble of Land Line Mag has more:

Voters in Louisiana will head to the ballot box in about six weeks to decide on issues that include road and bridge project funding.

Two questions were added to the Oct. 24 ballot after gaining approval this spring from the Louisiana Legislature. State lawmakers endorsed putting the questions on the ballot to help address a $12 billion backlog to pay for infrastructure needs.

Amendment 1 on the fall ballot will ask voters whether to steer state mineral revenue, which includes oil and gas, into a transportation account.

Currently, about $21 million in mineral money is instead deposited into the state’s rainy day fund.

If approved by voters, about $21 million in revenue during the next five years would be allocated for the state highway system and the Louisiana Intermodal Connector Program. The transfers would begin in fiscal year 2017-18.

Up to $100 million annually would be applied to transportation in later years.

Amendment 2 on the statewide ballot will ask voters whether they support setting up a state transportation infrastructure bank.

The setup would cover the use of public funds to establish the new account. All money in the new account would be used solely for transportation projects.

Infrastructure banks are in place in 30 states. The banks are owned by states and offer loans and credit to public and private transportation infrastructure projects.

The first amendment, which appears to be a diversion similar to Texas’ Proposition 7, will be no doubt provide more money to transportation (although $21 million annually isn’t all that much).  The second amendment is more intriguing.  Infrastructure banks have become an increasingly popular tool by state legislatures, particularly because of their perceived value as one solution to maximizing limited transportation dollars.  A recent CBO analysis found infrastructure banks can aid in better taking advantage of federal credit programs and allowing the benefits of a project to be more easily compared to in a competitive selection process.

One of the most vocal supporters of these amendments, the Louisiana Good Roads Association, has proposed and supported a variety of transportation funding packages and initiatives in the past.  Business trade groups continue to provide the solid base of support these types of initiatives need in order to succeed. No clear opposition has seemed to have mobilized yet, but of course that can change quickly.  It will no doubt be interesting to follow how these amendments play out and whether voters continue what appears to be a nationwide trend of supporting diversions from other sources to transportation.

NICK’S PREDICTION:  Amendment 1 – PASS 59-41; Amendment 2 – PASS 63-37 

BALLOT WATCH: Texas Proposition 7 will probably pass, but it could be close…

TxLegePicAfter months of featuring ballot initiatives elsewhere, it’s time to give a quick update on what’s going on here in Texas.  This November, voters will be asked to support a constitutional amendment that will divert portion of state sales tax revenue away from the general revenue account and toward the state’s transportation account.  This diversion, which many estimate at around $2.5 billion annually, will be revenue on top of the extremely successful Proposition 1 state transportation bond election from last year.  If approved, the Proposition 7 amendment would take effect September 1, 2017 and is not set to expire for another 15 years, would give TxDOT and the transportation planning community relative assurance that they will be able to count on this as a source of revenue for their long-term planning purposes.

The list of business groups and conservative lawmakers that have come out in support for this is incredible. Furthermore, it doesn’t appear that organized opposition to Proposition 7 has formed (yet); many of the groups upset about the rapid increase in toll roads are probably pleased to see no funds from this can be used to build more.

To loosely paraphrase Hunter S. Thompson, keep in mind this is Texas–anything can and will happen. The Montgomery County road bond this year was a sure thing until it wasn’t in the final few months.  My money is that Proposition 7 passes, but I wouldn’t be surprised if it’s closer this year, 55-45.

Week of July 20th: Monday Morning Round-Up

IMG_2189Rise and shine, it’s Monday morning.  Here’s a recap of the latest going on in the world of better infrastructure and initiatives around the country to fund more of it.

U.S.

U.S. Senate still holding strong to long-term transportation fix

Maryland considering a $517M, 10-year plan to improve busy I-81 corridor

How the U.S. Can Make Investing in Infrastructure Attractive to Pension Funds

Can Infrastructure Needs Trump Anti-Tax Instinct?

Around the World

“Bureaucracy, low quality in planning” blamed for infrastructure project backlog in Brazil

China is looking to invest €10 Billion in the EU’s new Infrastructure Fund

China celebrates Asian Infrastructure Bank Charter Signing

Financial Challenges in Puerto Rico and What it Could Mean for the U.S.

News about Puerto Rico’s financial challenges emerged this week out of seemingly nowhere, serving as a quiet footnote to larger worries about Greece and its likely exit from the euro.  Similar to Greece, it appears that Puerto Rico’s problems are systemic, having more to do with its growing reliance on exceptionally easy access to low-interest bonds financed by U.S. investors seeking a lawful way to avoid state and local tax obligations.  The New York Times explains:

For years, investors were lining up to lend Puerto Rico money, so it was easier to borrow than to fix any number of financial or structural shortcomings. Many of the lenders were middle-class Americans who knew little or nothing about Puerto Rico, but simply opted for one of the many tax-exempt municipal bond funds that have become popular.

Such funds have appeared to offer both low risk and a tax shelter. They have long catered to residents of higher-tax jurisdictions, like New York City, San Francisco and Philadelphia, where people pay three layers of income tax, to federal, state and local authorities. In other places, like Maryland and Indiana, the local income taxes are paid to counties, not cities, which makes them harder to escape.

For tax-weary residents, bonds issued by United States territories and commonwealths offer a unique way to avoid these taxes lawfully. Investors who buy these bonds can exclude the interest paid to them from their taxes, no matter what state they live in.

Perhaps most interesting is this quote by a managing partner at Municipal Market Analytics:

“This is the main problem with the muni market,” said Matt Fabian, a partner at Municipal Market Analytics. “We don’t worry, generally, about how bond proceeds are spent. We worry about how bonds are repaid.”

This is not an issue unique to Puerto Rico.  For the most part, bondholders do not care what the money is spent on; they only care about the terms for how the money borrowed will be repaid.  This creates a bit of a disconnect between the entity that is spending the money (states, cities) and the entity providing the capital (bondholders.) Bonds can be issued over a very long period of time and bondholders can sometimes lose track of what cities are doing with it.  This latest challenge in Puerto Rico seems to highlight this disconnect and shows that better, more constant communication between these two parties is sorely needed.  Furthermore, bondholders would do themselves a major service by asking tough questions of states and cities regarding their realistic expectations on future revenue streams. Perhaps more due diligence may help prevent more instances of this occurring in the U.S. and help state and local governments realize that our future infrastructure funding challenges is a revenue stream problem, not a financing one.

 

Gas Tax To Increase in 6 States This Month

Despite a politically hostile climate for anyone considering increasing taxes, somehow lawmakers in six states (mostly in the North and West) managed to do just that. The chart below produced by Tax Justice Blog shows gas tax increases will be in effect beginning July 1st in Idaho, Georgia, Maryland, Rhode IslandVermont. (California will see a gas tax decrease of 6 cents, which is due to the state linking its gas taxes to the price of gasoline, which of course has fallen significantly since its last adjustment.)

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Of all the states on this list, the most interesting is Nebraska, whose famously unicameral and “non-partisan” Legislature somehow garnered enough votes to override a veto by Republican Governor Pete Ricketts. After the veto override back in May, Gov. Ricketts was not happy with the move and issued the following statement:

The Legislature’s decision to raise the gas tax hurts hardworking Nebraskans who can least afford a tax hike.  When I travel the state, Nebraskans tell me that they need tax relief, not tax increases. Our state already has the 13th highest property taxes, the 15th highest income taxes, and this tax hike makes our gas tax rate the 16th highest in the nation. This tax increase will not only hurt Nebraska’s hardworking families, but it will only make it more difficult to grow Nebraska because of our state’s burdensome tax climate.

Besides for Gov. Rickett’s selective use of tax ranking “facts” (this report produced by the Tax Foundation places Nebraska at exactly the middle of the pack for total state and local taxes), this goes to show that some state leaders are still deciding to ahead and take a hit politically in the near-term by increasing gas taxes to fund infrastructure for the long-term.  For the sake of our nation’s crumbling infrastructure, let’s hope more of our state elected leaders decide to do the same.