New Jersey Lawmakers Approve Gas Tax Increase Following Months of Talks, Halt to Projects

New Jersey’s Democrat-led legislature approved a 23-cent gas tax increase last week after lawmakers struck a $16 billion, eight-year deal with Republican Gov. Chris Christie that will also reduce the sales tax and eliminate the estate tax in the state. The deal will allow stalled transportation projects to resume after Christie halted all but the most essential ones in July as the state’s transportation trust fund ran out of money and expired. But the hard-fought, months-in-the-making agreement also demonstrated once again how different 2016 has been compared to last year when it came to state efforts to increase revenues for transportation.

The state’s 14.5-cents per gallon gas tax had not been increased since 1988 and was one of the nation’s lowest. But despite that and the fact that state leaders knew a shortfall in the trust fund was coming, they were unable to avoid a stalemate that led to the idling of more than 900 road and bridge projects and hundreds of rail projects this summer. Numerous previous agreements earlier this year fell apart and the outcome of the measure was in doubt as late as the middle of last week, when the initially scheduled vote was delayed.  

Christie had for years rejected calls by Democratic lawmakers to raise any taxes and was reluctant to give in earlier this year as his failed presidential bid ran its course. The governor finally agreed to a compromise package that will drop the sales tax from 7 cents to 6.625 cents in two increments over the next eight months, eliminate the estate tax completely by 2018, raise the earned income tax credit—which helps low-income residents, increase the tax exclusion on retirement income over four years to $100,000 for joint filers, and give veterans a personal exemption for state income taxes.

If Christie signs the measure this week as expected, the gas tax increase will go into effect 15 days later or November 1, whichever is later. It will make New Jersey’s gas tax the sixth-highest in the nation, which will still be lower than gas taxes in the neighboring states of New York and Pennsylvania. As a result, the state transportation trust fund would see a boost from $1.6 billion to $2 billion annually.

With the deal done, Christie has said he will urge voters to approve a ballot referendum next month that would constitutionally dedicate the new revenue to the trust fund in order to protect it from future raids for other budget purposes.

Some have questioned a provision in the gas tax bill (SB 2412) that would create a panel that would have the final say about which projects receive funding from the trust fund. Under the measure, the panel would include the state transportation commissioner and three public members named by the Assembly speaker, Senate president and governor representing the state’s three regions. Transportation and other advocates said they are concerned the panel would make project decisions based on political allegiance rather than merit.

Some lawmakers meanwhile expressed concern that the $1.4 billion in tax cuts included in the deal could create a new budget crisis for a state that already struggles to fund education, public pensions and other programs.

New Jersey’s difficult path followed a year in 2015 when eight states passed gas tax increases, including several Republican-dominated ones. It was one of the few states mentioned in my “States to Watch in 2016” post last November that actually was able to get something across the finish line this year. Look for my States to Watch in 2017 next month.  

Further Reading

Transportation for America’s Capital Ideas II

Efforts by states to raise money for transportation through innovative state legislation will be in the spotlight next month as Transportation for America hosts Capital Ideas II in Sacramento, California. CSG is pleased to be a promotional partner for the two-day event (November 16-17), which will offer attendees a highly interactive curriculum of model state legislation, campaign tactics, innovative policies and peer-to-peer collaboration designed to help them advance successful state transportation policy and funding proposals. Just in time to get a jump on the 2017 state legislative sessions, Capital Ideas II (no affiliation with CSG’s magazine Capitol Ideas) will also examine how state departments of transportation are instituting reforms and how California and other states are leading the way in policy innovation. Among the other topics on tap: enabling local transit funding, incentivizing complete streets, project selection process reform, mileage-based road usage charge pilot studies and capturing the value of transportation investments. The latest tentative agenda for the conference is available on the T4America website. Registration is available here. For an idea of what the first Capital Ideas was like in 2014, you can read my coverage of the event here, here and here