Sparks likely over gas tax ideas

The Baltimore Sun

The last time Maryland's gasoline tax was raised, the first President Bush was in office, Gov. William Donald Schaefer was near the height of his political power and the price of a gallon of regular was a little more than $1.

Now Gov. Martin O'Malley's administration is faced with swelling infrastructure costs and a state Transportation Trust Fund in urgent need of a cash infusion. Leading lawmakers say they expect O'Malley to propose an increase in Maryland's 23.5 cents-a-gallon tax and possibly recommend other measures, such as a sales tax on gasoline and tying future increases to inflation or construction costs.

Maryland Transportation Secretary John D. Porcari said in an interview this week that he supports changing the method of taxing gas, from one based on the gallon to one tied to rising prices.

Noting that some other states link their gas taxes to the Consumer Price Index, Porcari suggested that Maryland would be better served by aligning taxes with the less well-known Construction Cost Index. He said the prices of road- and bridge-building materials - cement and steel, among others - are rising annually by up to 50 percent.

"We think it makes a lot of sense to do that because it more accurately reflects the cost of our raw materials," Porcari said. He said that indexing Maryland's gas prices that way could bring in an additional $63 million a year.

O'Malley has yet to specify what his transportation tax package will include, but political will potentially exists in the Democrat-dominated legislature for an increase in the flat gas tax.

Maryland's gas tax of 23.5 cents a gallon compares with 19.6 cents in Virginia, 20 cents in the District of Columbia, 23 cents in Delaware, 31.5 cents in West Virginia and 32.3 cents in Pennsylvania. The figures represent a combination of taxes in some states.

For now, Maryland falls squarely in the middle of U.S. states in terms of its gas tax. Increases on the scale being discussed in Annapolis could catapult Maryland into the top ranks - but other states with similar unmet needs could soon be forced to catch up.

Other options abound. Vehicle registration fees are a potential revenue source, though lawmakers might be wary after Republican Gov. Robert L. Ehrlich Jr.'s near-doubling of them. The titling tax -paid when a vehicle is purchased - could also go up.

Porcari mentioned that a sales tax could be imposed on top of the gas tax. Senate President Thomas V. Mike Miller, a Democrat, suggested that a larger portion of the corporate income tax could also go to transportation.

Sources close to the governor said this week that these possibilities are all on the table.

The debate in Annapolis, meanwhile, is bound to be charged as lawmakers simultaneously grapple with how to address a $1.5 billion general fund shortfall. In accounting terms, the transportation fund problem and the so-called structural deficit are separate issues, but politically they are sure to be intertwined.

O'Malley has committed to getting a viable transportation package passed during the 2008 General Assembly session. He said traffic congestion is taking its toll on Maryland's roads and the costs of building and maintaining bridges and roads have skyrocketed.

"Our roads and bridges will not wait until the right political timing, the ideal gas price or the best fiscal environment," O'Malley, a Democrat, said during the Maryland Association of Counties conference in Ocean City.

Maryland spends roughly $2 billion a year on transportation. The gas tax, which yields $800 million annually, is the largest single source of state funds.

But transportation advocates believe Maryland needs to raise an additional $400 million to $600 million annually to adequately address $40 billion in unmet infrastructure needs.

However, O'Malley faces a different political dynamic than fellow Democrat Schaefer did in the early 1990s, when road-building was curtailed by an anemic trust fund and the state was in the grip of a recession that had idled many construction workers.

Back then, some leading Republicans were among the loudest proponents of Schaefer's proposal to raise the state gas tax - then 18.5 cents a gallon - by 5 cents. Robert R. Neall, then the Anne Arundel County executive and a former House Republican leader, was a staunch backer of the increase. Five Republican senators - but no delegates - backed the Schaefer revenue package that included the gas tax increase.

Neall said that in those days there was a group of moderate Republicans who would evaluate tax increase proposals on a case-by-case basis.

"We were not just reflexively anti-tax," said Neall, who later served in the Maryland Senate and eventually defected to the Democratic side before being defeated for re-election in 2002.

Next year O'Malley can expect little help from the opposition party. State Republicans are expected to dig in firmly against any major tax increase.

House Minority Leader Anthony J. O'Donnell, a Republican from Southern Maryland, said the GOP caucus "would be fairly united in opposition to a gas tax."

O'Donnell also said he would oppose any attempt to index Maryland's gas tax.

"I believe that the citizens expect us to manage that on an annual basis," he said. "[Indexing] amounts to an automatic tax increase, and I think that is probably a bad idea. We need to be able to shift priorities when it's warranted."

O'Donnell also said Maryland should tackle the budget shortfall before considering transportation needs. But his position runs counter to that of some leading business groups.

Donald C. Fry, president of the Greater Baltimore Committee, said Maryland will find itself "mired in gridlock in the future" if its transportation woes are ignored.

"The magnitude of the need for transportation projects to maintain the mobility of our people and goods and services is just growing," Fry said. "My guess is to get to that $400 million figure you'd probably have to have a combination of things, including a gas tax, and perhaps even indexing that gasoline tax to inflation."

In 2004, Ehrlich put the idea of a gas tax increase on the table as part of the discussion of a roughly $300 million-a-year transportation revenue package, but he pulled it off after meeting almost unanimous resistance from GOP legislators. He eventually won passage of a $238 million package based largely on a hefty increase in vehicle registration fees.

Miller, who called for gas tax increases during the previous two gubernatorial administrations, said he doesn't anticipate any Republican votes in favor of increased revenue for the trust fund.

Miller said he expects any vote in the Senate, where a supermajority would be needed to pass a revenue package in the event of a filibuster, to be close.

"It's going to be one or two votes at the most," he said. "It's a daunting task, but we're up to it."

The lack of a bipartisan consensus on the gas tax is among the reasons no Maryland governor has proposed an increase in 15 years. It represents the second-longest interval between gas tax increases since the state's first such levy - 1 cent a gallon - was adopted in 1921. By contrast, the tax went up three times during the 1980s.

Jack Kinstlinger, chairman emeritus of the engineering firm KCI Technologies Inc. in Hunt Valley and a longtime advocate of transportation infrastructure spending, said there was a time when taxes - the gasoline levy in particular - were "less toxic" politically.

"At one time, people expected it to be increased regularly, and they saw it as more of a user fee than a tax," he said.

That argument prevailed in the 1920s, when Maryland and most other states adopted gas taxes. Farm organizations were among the biggest boosters of the tax, which was seen as a fairer way of financing road improvements than property taxes - the previously prevailing source of transportation revenue.

More recently, rural legislators have soured on the gas tax - reasoning that their constituents tend to drive longer distances than urban voters. Lawmakers from farm districts also frequently object to the use of the transportation fund to support mass transit projects.

The idea of indexing the gasoline tax to inflation is not new. Neall noted that previous transportation secretaries going back to the first - Harry R. Hughes - have raised the idea of indexing the gas tax, only to be rebuffed each time by a General Assembly wary of ceding its powers.

"The legislature purposely shied away from any automatic escalator because they like the secretary of transportation to come see them," Neall said. "When the Department of Transportation adequately made its case in 1982 and 1987 and 1992, the legislature responded with the revenue."

Those increases came in smaller increments - 2 to 5 cents at a time - than the increases being suggested now. During the past legislative session, Miller floated a proposal to increase the tax by 12 cents, which would have raised $400 million in the first year. The House considered a 10-cent increase.

Neall, who now runs a Johns Hopkins health care subsidiary, said it might have been better if the state had raised the tax in smaller steps over the past decade and a half:

"When you leave it go for so long, then only a large increase will get you the money you need."

Mid-Atlantic gas taxes

Virginia ......................... 19.6 cents per gallon

District of Columbia .......................20 cents

Delaware ..........................................23 cents

Maryland .........................................23.5 cents

West Virginia ..................................31.5 cents

Pennsylvania ..................................32.3 cents

[Source: American Petroleum Institute; reflects rates effective July 1]

Sources of money

Gov. Martin O'Malley and state lawmakers are expected to consider a range of measures next legislative session to address a $40 billion shortfall in state transportation funding. They include:

Raising the gas tax

Maryland's gas tax hasn't been raised since 1992. At 23.5 cents per gallon, the state ranks 26th in the nation for the tax. State Republicans have said they would oppose an increase, but Senate President Thomas V. Mike Miller Jr., among other key figures, has indicated his support. Miller proposed a 12-cent increase during the 2007 legislative session.

Indexing the gas tax

To account for inflation, some states link their gas tax to the Consumer Price Index. Prices then automatically go up without lawmakers' review, a point that irks many Republicans. Maryland Transportation Secretary John D. Porcari says he believes it is more efficient to tie the gas tax to a construction price index, an effort to account for the rising cost of road construction materials such as concrete and steel.

Levying the sales tax on gas

Some states impose a sales tax on top of the excise tax. California, for example, has a 6 percent sales tax and a 1.25 percent county tax on gas and allows localities to institute additional sales taxes. Florida, Hawaii, Georgia, Michigan, Illinois and Indiana also impose sales taxes.

Raising vehicle registration and title fees

In an effort to avoid any tax increase, former Republican Gov. Robert L. Ehrlich Jr. raised the biennial vehicle registration fee in 2004. Fees for passenger cars increased from $81 to $128, and sport utility vehicle and truck fees went up from $108 to $180. Raising titling fees - a one-time charge imposed when a vehicle is purchased - could provide additional cash.

Tapping corporate income tax revenues

About a quarter of the money collected via the state's corporate income tax is funneled into the Transportation Trust Fund. Lawmakers could choose to divert a larger portion of the tax revenues.

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