This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day.

Maryland drivers will pay slightly more in State gas taxes beginning July 1, but the annual adjustment reflects a much more considerable challenge facing Maryland’s transportation system.

The Office of the Maryland Comptroller announced this week that the State gasoline tax will increase from 46.0 cents per gallon to 46.6 cents per gallon. The change amounts to six-tenths of one cent per gallon, or about six cents on a 10-gallon fill-up.

While the increase itself is modest, it offers a timely reminder of how Maryland funds transportation infrastructure.

Why Does Maryland’s Gas Tax Change Every Year?

Unlike the federal gas tax, which Congress has held at 18.4 cents per gallon since 1993, Maryland automatically adjusts its motor fuel tax each year under a formula established by the General Assembly in 2013.

As required by Tax-General § 9-305, the Comptroller’s Office announces updated fuel tax rates by June 1 for implementation on July 1.

The formula includes two components.

The first ties a portion of the tax to inflation through the Consumer Price Index (CPI). If inflation rises, that portion of the tax rises as well. State law limits annual increases to 8%.

Lawmakers also phased in an equivalent sales and use tax rate on motor fuel. Because wholesale fuel prices fluctuate throughout the year, this portion can rise or fall.

Together, those two factors determine the annual tax rate.

This year, inflation pushed the rate higher, while slightly lower wholesale fuel prices offset part of the increase.

Why Did Maryland Adopt This System?

The General Assembly adopted the current structure through the Transportation Infrastructure Investment Act of 2013.

Maryland previously relied heavily on fixed fuel tax rates. Over time, inflation reduced the value of those revenues while transportation construction costs continued to climb.

The 2013 legislation responded by linking a portion of the gas tax to inflation and fuel prices. Lawmakers also phased in an equivalent sales-and-use tax rate on motor fuel.

The changes generated additional transportation revenue and reduced the need for lawmakers to revisit the gas tax every few years. The law also recognized that transportation costs rarely stay flat. As the cost of paving roads, repairing bridges, purchasing equipment, and building infrastructure increases, transportation revenues must keep pace to maintain the same level of investment.

Counties Don’t Levy A Gas Tax

One common misconception is that counties collect gas tax revenue directly.

They do not.

Maryland’s motor fuel tax is entirely a State tax. The State establishes the rate, collects the revenue, and deposits those funds into the Transportation Trust Fund.

Local governments still have a significant stake in transportation funding because counties, municipalities, and Baltimore City collectively own and maintain roughly five out of every six miles of road across the state.

As a result, transportation funding decisions made in Annapolis directly affect local governments responsible for maintaining roads, bridges, intersections, drainage systems, traffic signals, and other transportation infrastructure.

The Highway User Revenue Connection

Local governments receive transportation funding through Highway User Revenues, commonly known as HUR.

For decades, Maryland shared transportation revenues between the State and local governments. The arrangement reflected a simple reality: counties, Baltimore City, and municipalities maintain most of Maryland’s road network, while the State maintains the state highway system.

That partnership changed during the Great Recession.

Facing a severe budget shortfall in 2009, the Board of Public Works reduced local Highway User Revenue distributions by roughly 90%. The cuts significantly reduced transportation funding for counties and municipalities and altered a revenue-sharing structure that had existed for decades.

The General Assembly has approved several partial restorations since then, but local governments still receive a smaller share of transportation revenues than they received before the recession-era reductions. In fact, local governments received roughly 30% of Highway User Revenues before 2009. The local share dropped as low as 8.5% following the cuts and remains well below historic levels today.

That gap continues to shape local transportation budgets. Counties, municipalities, and Baltimore City remain responsible for maintaining most of Maryland’s road miles, along with bridges, traffic signals, drainage systems, and other transportation infrastructure.

The Transportation Challenge Isn’t Going Away

Maryland’s transportation funding system still depends heavily on fuel consumption, but transportation needs continue growing regardless of how much gasoline drivers purchase.

Vehicles travel farther on less fuel than they did a generation ago. Electric vehicle adoption continues to increase. Construction costs have risen sharply, and roads, bridges, and transit systems continue to age.

Those trends create a growing mismatch between the way Maryland raises transportation revenue and the cost of maintaining transportation infrastructure.

The annual gas tax adjustment helps transportation revenues keep pace with inflation, but it does not change those underlying trends.

This year’s increase may only add a few cents to a fill-up. The question facing Maryland is whether a transportation funding system built around fuel consumption can keep pace with the cost of maintaining and improving the transportation network residents rely on every day.

Stay tuned to Conduit Street for more information.