Maryland’s gas tax is set to rise from 43 cents per gallon to 47 cents per gallon. The automatic, inflation-driven increase is set to take effect on July 1.
State and local governments rely on fuel tax revenue to fund road preservation and improvement projects. For example, Maryland’s gas tax generates roughly $100 million monthly for transportation projects and maintaining state and local roads.
Unfortunately, gas tax revenue has failed to keep up with rising infrastructure costs and inflation. In addition, fuel tax revenue has been declining in recent years because drivers of vehicles with better fuel efficiency pay less per-gallon gas and diesel taxes. The growth in sales of electric and hybrid vehicles has accelerated the trend.
While the federal gas tax has been stuck at 18.4 cents a gallon since 1993, the increasing squeeze on transportation budgets has led many states to raise the gas tax in recent years. In addition, many states, like Maryland, have variable-rate gas taxes, using formulas related to everything from the price of gas and the Consumer Price Index (CPI) to population growth and fuel efficiency.
Maryland Fuel Taxes
Motor fuel tax rates are indexed for all fuels, except for aviation or turbine fuel, to the annual change in the consumer price index — which measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Motor fuel tax rates will increase annually if the Comptroller’s Office determines that the CPI has increased over the past year.
The increase equals the percentage growth in the CPI multiplied by the motor fuel tax rates, rounded to the nearest one-tenth of one cent. Motor fuel tax rates will remain unchanged if the CPI stays flat (or decreases).
Why Does Maryland Index Fuel Taxes?
Legislation Establishing Consumer Price Index Adjustment The Transportation Infrastructure Investment Act of 2013 (Chapter 429) substantially increased revenues available for transportation projects, primarily by increasing motor fuel taxes.
Chapter 429 altered motor fuel taxes specifically by:
- Indexing motor fuel tax rates, except for aviation and turbine fuel, to inflation beginning in fiscal 2014
- Imposing a one percent sales and use tax equivalent rate on all motor fuel, except for aviation and turbine fuel, beginning in fiscal 2014 and increasing in several steps to five percent starting in fiscal 2017
Highway User Revenues
For decades, the State supported a balanced means to maintain its transportation infrastructure. The bulk of transportation revenues – mainly motor fuel and vehicle titling taxes – have been split between the State (for its consolidated Transportation Trust Fund, serving multiple modes) and local governments (who own and maintain roughly 5 of every six road miles across the state). For decades, this split served all parties effectively.
The State faced a mid-year budget crisis during the depths of the “great recession” in 2009. As a result, the Board of Public Works adopted a 90% reduction of the local distributions of these Highway User Revenues and a roughly 40% reduction to Baltimore City’s allocation (the largest by far to any jurisdiction). Since then, recession-driven cutbacks in many service areas have been fully or largely restored. This is not the case with Highway User Revenues – they remain far, far behind historic levels, even after the State has enacted a substantial transportation revenue increase.
Unfortunately, the Great Recession HUR cuts, coupled with new obligations toward school funding, leave little room for additional investment in roads, not to mention counties are preparing for an uncertain economic future and talk of recession.
In addition, the push toward electric vehicles will likely exacerbate the issue. Cars and trucks use less gas or run on electricity, shrinking funds for roads and bridges. But electric vehicles still contribute to road wear and tear, so states and local governments need money to maintain them.
State policymakers are considering other ways to pay for Maryland’s transportation infrastructure. One growing policy trend is applying a separate registration fee for hybrid or electric vehicles.
However, special registration fees are not the only mechanism to lower gas tax revenue and promote equity among drivers. After exploring several options, such as a tire tax, a battery tax, and expanding other user fees like gas taxes and registration fees, Oregon settled on a per-mile charge as the fairest and most accurate way to pay for state roads and bridges.
Stay tuned to Conduit Street for more information.