N.J. takes bold move to hike diesel tax by 27 cents to repair sagging infrastructure

States are moving quickly to do what the federal government seems incapable of – raising taxes in order to pay for sorely needed upgrades for roads and bridges.

New Jersey is the latest to do so, and legislators in the Garden State are not tiptoeing around the problem. Under a proposal that its high-profile Gov. Chris Christie (R) says he will sign, the state legislature is close to approving an immediate 23-cent per gallon increase in the gasoline tax. For truckers, it will be mean a 27-cent per gallon increase on diesel, effective Jan. 1.

If the increases take effect – and New Jersey insiders say it will after legislators finish their kabuki dance in justifying it to their constituents – the Garden State immediately will go from having the second-lowest state fuel tax (14.5 cents for gasoline) to the seventh-highest (37.5 cents for gasoline, 44.5 cents for diesel).

“We support it provided that they cut out every loophole and pay for the freaking roads and bridges,” Gail Toth, executive director of the New Jersey Motor Truck Association, told LM. “We are the highest taxed state for everything else. This is a lot of money.”

Lawmakers say the fuel tax increase with fund at 10-year, $20 billion Transportation Trust Fund in New Jersey. The increase in fuel tax will be partially offset by a slight reduction in the state sales tax and a phasing out of the state tax.

Under the proposal, New Jersey residents earning under $100,000 will be able to deduct up to $500 of their fuel tax costs off their taxes. AAA has estimated that an additional 23 cents a gallon at the pump will cost the average driver about $170 more a year.

New Jersey trucking officials said the state had little choice. The state transportation fund was essentially bankrupt. It got so bad this summer that Gov. Christie last summer ordered a halt to more than 900 ongoing road and bridge projects worth a combined $3.5 billion because of lack of funds.

“Since Christie Whitman was governor (1994-2001), every governor has been borrowing for road repairs,” Toth explained. “They all felt comfortable in raising the debt. Ten years ago we had a blue ribbon commission recommend closing loopholes to stop them from raiding the (Highway) fund. Ten years ago we saw this day coming.”

That blue ribbon commission recommended a 25-cent fuel tax in five-year increments. But nothing happed politically. Now the state cannot even get matching funds from the federal government because it cannot pony up the necessary 20 percent in the typical 20-80 state-federal matching fund formula.

“We’re now out of money,” Toth said. “The state needed a $3.6 billion loan to cover debt repayment. Right now the state owes $16 billion. That has us in a position that they have to do something desperate.”

 In a huge shift, Gov. Christie said he will encourage voters to get behind a Nov. 8 ballot question that would alter the state constitution to dedicate all new fuel tax funds to transportation projects.

 “While I'm not authorizing any other tax increase during my time as governor, I'm authorizing this one because of the importance of the Transportation Trust Fund, the tax fairness that we've accomplished together, and the compromise we've reached and because we need to responsibly finance this type of activity,” Christie said in recommending the tax hike.

That’s because there is little forthcoming relief from Washington. The federal tax on motor fuels (18.4 cents on gasoline, 24.4 cents on diesel) is unchanged from 1993. Republicans (and some Democrats) in Congress says raising any tax in the current political environment is political suicide.”

So, states are acting on their own. Six states – Idaho, Georgia, Maryland, Rhode Island, Nebraska and Vermont – raised fuel taxes last July 1. The increases ranged from 0.35 cents (Nebraska) to 6.7 cents (Georgia.) Additionally, Alabama is considering raising its fuel tax as much as 12 cents. Alaska, which has the lowest fuel tax in the nation (8 cents), is considering doubling that.

Not all the states are raising them. California, which under Gov. Jerry Brown (D) has raised income and other taxes significantly, recently reduced its fuel tax by 6 cents.

Privately, truckers refer to any increase in the fuel tax as an “Ex-Lax tax.” Why? Because it’s easy to pass through to shippers, they say. Toth of the New Jersey trucking association, slightly disagreed.

“No, it depends on who you are,” she said. “The bigger guys tend to handle this better than the smaller guys. It also depends on if you have a lot of contracts locked in. Sometimes it’s hard to absorb. But ultimately, yes, it is absorbed by the customers. But you can only pass so much on. Not everybody gets 100 percent of it back in rates.”

That’s because of the various nature of trucking operations, which is really an amalgram of about 20 niche sectors  with all kinds of specialty operations. “The trucking industry is not a one size fits all,” Toth explained. “It’s a vast group of people. Some people hate this. Others think they can absorb it and increase the accessorials and other fees. Whatever they have to do they will do. Some will feel more pain than others.”

Toth said the money is sorely needed in the Garden State. “There’s a reason we were one of the original 13 colonies –we’re an old state,” she said. “The New Jersey Turnpike and Garden State Parkway are phenomenal roads. They gave us our own (Truck-only) lanes on the Turnpike. They’ve expanded it. They got rid of the bottlenecks.

“We got a helluva road but we paid for it,” Toth said. “But closer to New York City there’s some bad infrastructure. There’s some stuff we can’t go over. We do have old infrastructure. We have a lot of things that need to be upgraded and repaired. But most of our interstates are doing quite well.”