Landmark Agreement Reached to Increase New Jersey Gas Tax by 23 Cents

The surprise agreement reached on Sept. 30 is part of a tax shift that decreases taxes that fund the state's general fund. An impasse had arisen between the state Senate and Gov. Christie as to which taxes to cut, and by how much, in order to restore solvency to the New Jersey Transportation Trust Fund which pays for transit as well as road and bridge projects. Christie made it clear that tax cuts had to accompany the gas tax increase in order to achieve what he called 'tax fairness'.

"Mr. Christie made the announcement at the State House in Trenton, flanked by the State Senate president, Stephen M. Sweeney, and the speaker of the State Assembly, Vincent Prieto, both Democrats," reports Patrick McGeehan for The New York Times. "The three men each described the agreement as a hard-fought compromise."

What makes it particularly significant, is that it appears that it won't be phased, like the 11.9-cent gas tax approved signed by Washington Gov. Jay Inslee (D) in July 2015.

The increase could take effect as soon as next week. The Legislature has scheduled a special session for Wednesday to vote on the matter.

The funding situation had become so dire that Gov. Christie had declared a state of emergency on June 30, causing many state-funded road projects to shut down. While the Assembly had agreed in June to the governor's one percent sales tax drop as a required tax shift for the 23-cent gas tax increase, the Senate insisted the one percent drop would cause too much harm to the general fund, and proposed an estate tax reduction, plus increasing the retirement income tax exemption. The compromise involved all three taxes, plus two more.

According to Gov. Christie's office, the five tax changes listed below will accompany the gas tax increase. Christie refers to the changes as 'tax fairness' that made the gas tax increase possible from his perspective:

• Sales Tax Cut: On January 1, 2017, the sales tax will go from 7% to 6.875%. The following year on January 1, 2018, , the sales tax will go from 6.875% to 6.625%. A .375% decrease in the sales tax is the first statewide tax cut that has been given in New Jersey since 1994.
  
  
• Tax Savings for the Working Poor: Increase the Earned Income Tax Credit for the working poor to 35 percent of the federal benefit amount beginning in Tax Year 2016.
   
• Tax Savings for Retirees: Increase the New Jersey gross income tax exclusion on pension and retirement income over four years to $100,000 for joint filers, $75,000 for individuals and $50,000 for married/filing separately.  
   
• Eliminate the Estate Tax: Phase out the estate tax over the next 15 months, replacing the current $675,000 threshold with a $2 million exclusion after January 1, 2017 and eliminating the estate tax altogether as of January 1, 2018.
   
• Tax Savings for Veterans: Provide a personal exemption on state income taxes for all New Jersey veterans honorably discharged from active service in the military or the National Guard.

"The wrong path forward"

“These leaders have foolishly paired a big package of tax cuts that will disproportionately benefit well-off New Jerseyans while decimating the state’s ability to pay for essential services, promised obligations and other critical investments,” said Jon Whiten, the vice president of New Jersey Policy Perspectives.

“While it is absolutely essential that New Jersey invest in its transportation infrastructure, that investment should not be held hostage to some warped idea of so-called tax fairness that will cost the state well over $1 billion a year,” Mr. Whiten added. “This is, quite simply, the wrong path forward for New Jersey.”

The hit to the state's general fund is estimated at "$164 million next year and as much as $1.4 billion when they are completely in place in 2021," according to the governor's office.

Of the 11states that approved gas tax increases or halted their reduction last year, none involved a tax shift, i.e, the general fund was not negatively impacted in order to increase transportation revenue.

Transportation Trust Fund reauthorized

Gov. Christie announced on Friday, flanked by Sweeney and Prieto (see video and transcript) the fund's reauthorization "for eight years at $2 billion a year."

That will be the longest reauthorization for the Transportation Trust Fund in its history and the largest reauthorization of the Transportation Trust Fund in history. That will mean for the people of New Jersey that over the next 8 years when we combine the funds that will be contributed by the state and the funds that will be contributed by the federal government that over $32 billion will be invested in infrastructure improvements and modernizations in the state of New Jersey over the next 8 years.

Constitutional restrictions on gas tax funds

Although Gov. Christie's press release states, "With a $2 billion TTF plan in full gear over the next 8 years with 100 percent of gas tax revenues constitutionally dedicated to repair and replace New Jersey roads and bridges...," McGeehan of The Times writes that the state uses the TTF "to pay for improvements to rails, roads and bridges."

The FAQ for the Transportation Trust Fund Authority speaks to a 'transportation dedication', not a road and bridge dedication. In fact, it frequently references "NJDOT/NJ TRANSIT capital projects."

Voters will have their say next month on Public Question 2 which would ensure the constitutional dedication of the 23-cents gas tax increase plus 3.5-cents of the 13.5-cent diesel tax that is currently undedicated. 

Missing — diesel tax increase

The agreement makes no mention of any increase to the state's 17.5-cent diesel tax [PDF].

Largest gas tax increase in nation's history

At 23 cents, the N.J. tax increase will be the largest in the nation's history, even larger than the 2013 Pennsylvania gas tax increase. Of course, it comes after 26 years. How long has it been since your state increased its gas tax?

*The current state gasoline excise tax is 10.5-cents per gallon, plus a four-cent per gallon Petroleum Products Gross Receipts Tax that was added in 1990. At 14.5-cents per gallon (per API [PDF]), it Is the nation's lowest after Alaska. The average state gas tax is 29.78-cents per gallon. After the increase, the New Jersey gas tax will be 37.50-cents per gallon, which, according to API [PDF], would make it the seventh largest in the U.S. after:

1. Pennsylvania
2. Washington
3. New York
4. Hawaii
5. California
6. Connecticut

Hat tip to Eugene Wilson.