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Gas tax cut bill could lead to even higher rates

RALEIGH (AP) — A quick cut in North Carolina’s gasoline tax proposed Tuesday by Senate Republicans could bring higher tax rates to the pump later this decade.

The measure would lower the gas tax from the current 37.5 cents a gallon to 35 cents March 1 for the rest of 2015.

Starting next year, the formula that recalculates the tax periodically based on the wholesale price of gas would be modified and set a 35-cent floor for the tax, the primary funding source for state Department of Transportation operations as well as road and bridge maintenance.

“We’re going to cut, freeze and stabilize the gas tax,” Sen. Bill Rabon, R-Brunswick, one of the bill’s chief sponsors, told the Senate Finance Committee. The alteration was incorporated into another tax bill and approved on a voice vote. It was expected to move through one more committee Tuesday before the first of two required floor votes Wednesday.

Without changes in the tax rate, recently low gas prices would reduce tax collections by several cents per gallon and could keep the projected rate below 35 cents for the foreseeable future, according to lawmakers and legislative staff. Lawmakers and business leaders are worried that would severely harm road construction as state officials consider how to close a transportation funding gap of tens of billions of dollars in the coming 25 years.

“Volatility absolutely kills us because we put projects in, then we have to take projects out,” Rabon said after the meeting.

The immediate tax drop would cause an immediate loss of $33 million for two pots of money DOT uses. The measure directs DOT to make across-the-board reductions and eliminate 500 filled full-time positions and at least 50 vacant positions to cover the reductions. Road maintenance and pavement reductions would be minimized.

However, the change could mean more revenues for transportation over time.

If the bill were enacted, the average annual state gasoline tax now would be projected to reach 40.5 cents for the year ending June 30, 2018, and 41 cents in 2019, according to Amna Cameron, a legislative fiscal analyst on transportation matters. A detailed fiscal review of the provision estimates the change would generate $237 million more in the next fiscal year compared to the current law, rising to $352 million in 2018-19.

The proposal is a tax increase because the rate won’t fall as much as the current law mandates, said Donald Bryson, state director for the fiscally conservative Americans for Prosperity.

“Telling taxpayers they’re getting a tax cut when in fact it’s keeping the rate artificially high and functions as a tax increase over time is a real problem,” Bryson said.

Rabon disagrees, saying the potential tax rates are just forecasts, and surrounding states are considering tax increases. The fiscal review is flawed because it doesn’t take into account a continued decline in gasoline consumption due to more fuel-efficient cars, he said.

“Decreasing this volatility makes a lot of sense,” said Democratic Sen. Floyd McKissick of Durham.

DOT Chief of Staff Bobby Lewis told senators the agency could handle the employment reduction by shifting more work to contract companies, as lawmakers previously mandated. The department has about 13,000 employees.

Republican Gov. Pat McCrory proposed last week in his State of the State address a $1.2 billion transportation bond and told lawmakers he would “support any efforts to protect and stabilize our existing transportation revenue streams.”

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