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Senate | February 9, 2015 | Committee Room | Base Budget

Full MP3 Audio File

Swansboro, Senator Brown. Ben Marklune from Roxboro. Senator Brock. Moxville, pardon me, I read it correctly but it was written down wrong. And Connor Simmond from Charlotte. Senator Hartsell, thank you for being here. I hope you have a good week this week. Today we're here to hear the gas tax portion of the bill that was rolled out this morning, Senate Bill 20, and we will welcome Senator Rabin to the podium to explain the bill. [SPEAKER CHANGES] Thank you, Madam Chair. Members, good afternoon. I will go through this again. Many of you heard my spiel this morning but we'll take another stab at it. What the motor fuels tax changes, portion of this bill, does is it immediately provides a tax cut of 2 1/2 cents per gallon to the motor fuels tax. This effective date will be March of this year. That is the long and the short. It is a 2 1/2 cents cut. As you know, the motor fuels tax went up 1 cent to 37 1/2 cents January 1 of this year. In making this cut, we will have to adjust the motor fuels tax formula and that is what the next section, or section 2.3 of this bill does. It does it in this way, it has a fixed or set tax rate of 17 1/2 cents plus a possible 17 1/2 cents, that would make 35 if that happens. The other part is it would change the 7% variable rate to a 9.9% variable rate on the average wholesale price of gasoline over the testing period, or over the period of the year. Another thing that this bill does, and an important thing, is it sets the motor fuels rate once a year rather than twice a year and it will be set annually on January 1st, rather than twice a year as it is set now, January 1st and July 1st. September 30 will remain the closing date for the year for the readjustment come January 1. This bill will need adjustments of the budget in the amount of $33M dollars, just a mathematical figure in the highway trust fund, SAD, which comes out to a little over $8M and that leaves us the remainder to come out of the Highway Fund and you can see in the bill how those figures are arrived at in the Highway Fund. That's the long and the short of it. It is very highly a technical change to existing formula and the adjustment of the tax rate. That's what it boils down to. So Madam Chair, I'd be happy to answer any questions from members of the Senate. [SPEAKER CHANGES] Senator Rabin? [SPEAKER CHANGES] Senator Ford. [SPEAKER CHANGES] Thank you, Madam Chair. Madam Chair, could we get staff to answer the question what happens with the passage of Senate Bill 20 with this PCS? What in happens year '16-'17, 2018 and 2019. [SPEAKER CHANGES] Thank you, Senator Ford. Chair recognizes Ms. Cameron. [SPEAKER CHANGES] ?? Cameron. I serve on the transportation team on fiscal research. I will direct you to a handout that you have. It should be on the bottom of your packet and it is entitled "The Comparison of February 2015, Transportation Consensus Forecast and Senate Bill Changes to the Motor Fuel Tax." The first part of this chart shows the current consensus forecast and you can see it begins with the forecasted motor fuel tax rates and it includes the revenues that are expected to be generated. On the second part, includes what happens as a result of Senate Bill 20. So the only changes from

The forecast to the Senate bill changes, are to the motor fuel tax rates, and to two lines, the motor fuel rate that is deposited into the highway fund which is 75% of those revenues, and the remaining 25% to the motor fuels tax line deposited in the highway trust fund. So if you compare the tax rates, which I believe is your question sir, you can see how those rates change. Again, the bill stipulates a 35 cent per gallon rate. In the February forecast of course there is no cap or floor and that rate is dependent on a 7% variable rate. If you move down to the Senate bill 20 changes, that rate is reflective of a floor of 35 cent plus a variable rate that changes from 7% to 9.9%. [SPEAKER CHANGES] Follow up. [SPEAKER CHANGES] Thank you Miss Cameron. Follow up, Senator Ford? [SPEAKER CHANGES] Madame Chair, I just want to make sure that I’m reading this correctly. 2015, it appears that there’s a loss of revenue of 33 million and looking at 16, years 2016, 17, 18 and 19, that to me looks like a motor fuels tax increase. Is that correct? [SPEAKER CHANGES] Miss Cameron? [SPEAKER CHANGES] The forecast for 2016, under the Senate Bill, has a rate of 35 cents. The staff does believe that rate would be likely a little bit lower. Probably more around 34.8 cent per gallon and that increases to 35 with the floor. Compared to the forecasted rate that will go into effect next fiscal year, an average rate of 30.4. I’m not going down that fox-hole. [SPEAKER CHANGES] Follow up, I’ll go down that foxhole. [SPEAKER CHANGES] Senator Ford for a follow up. [SPEAKER CHANGES] Thank you, ma’am. I appreciate the follow up. This is a tax increase, Senator Rabin. And I respect your wording and description of it, because in year one, it would be. But under, without the change, the motor fuels tax would be at 30 cents. We’re going to, with this change in the bill and I want to make sure I’m correct, with this change we’re going to cap it at 35. So at its current rate in 2016 it’s going to be 30, in 2017 it’s 31, in 2018 it’s 33 and in 2019 it’s 34. So, by my comparisons and understanding in looking at these numbers and I’ve looked at quite a few, this with all due respect is a motor fuels tax increase. [SPEAKER CHANGES] Thank you, Senator. I do take exception with what you’re saying. I will continue to call it a tax cut, anytime you go from 37.5 to 35 from NC State, that is a cut. And I will tell you that more than just that, what we are attempting to do at the same time with this bill is to cut taxes on motor fuels, stabilize the motor fuel and continue to have a flat line or a straight line in our budgeting going forward for the department, for the legislature and for the industry. It’s a very necessary step to take at this time. [SPEAKER CHANGES] Thank you Senator Rabin. Senator Rucho. [SPEAKER CHANGES] Thank you Madame Chair. Senator Rabon, if as Senator Ford wishes it happened that we drop that gas tax to 30 or 29 or whatever, if we achieve what he wishes to do, what would be the impact on transportation in North Carolina? [SPEAKER CHANGES] Well, we would have to drastically slash our bridge program, which this bill holds solid. We would have to address our contract resurfacing and maintenance of our roads and we would by the end of the time period that Senator Ford is talking about, we would have more than 800 million dollars deficit in maintenance and improvements of highways throughout our state. [SPEAKER CHANGES] Did you have a follow up? Senator Hise? [SPEAKER CHANGES] Thank you Mr. Chairman. And can staff give me an answer over the last three years, how many times has the General Assembly changed the rate or the formula for the gas tax? I know the floors

Caps other that have gone forward. We're talking about forecasting out over a five year period. What's been our history in the last three years of leaving that alone for five years. [SPEAKER CHANGES] Miss Cameron, fiscal research. [SPEAKER CHANGES] Thank you, Madam Chair. I will start with January 2012 and give you the rates from there. In January 2012 there was no cap or floor at the time and the rate was $0.398 per gallon. Moving to July of 2012, the formula rate was $0.377 but the actual rate was $0.375 due to a cap being in place. On January 2013, the rate would have been $0.386 but again the cap applied at $0.375. In July of 2013 there was no cap or floor and the rate increased slightly to $0.376 per gallon. The rate also slightly increased starting in October of 2013 due to legislative action but again a cap was in place at $0.375 per gallon. Again, a cap was placed for this current fiscal year beginning in July 2014, but the rate was lower than the $0.375 so the rate from July to December of this past year was $0.365 per gallon and again it is now at the capped rate of $0.375 per gallon and I will be happy to email this out to everyone since this is so many numbers. [SPEAKER CHANGES] Thank you. Follow up, Senator Hise? [SPEAKER CHANGES] And to follow on that, for the years 16, 17 and 18, what is the expectation of the average cost of a gallon of gasoline for each of those years. [SPEAKER CHANGES] Miss Cameron? [SPEAKER CHANGES] We're gonna get right back to you with that. [SPEAKER CHANGES] We'll come back. [SPEAKER CHANGES] If they can give that information that's fine, just make a quick comment on what it is. We're talking about, I think obviously we've seen that the likelihood of this not being changed by the General Assembly as we adjust or move forward over five years, to claim that this is a tax increase going forward assumes that we will not continue our pattern of changing this rate as we have done and that we hold to a steady increase of the cost of a gallon of gasoline consistent over five years when in fact our history would show us that that is a very volatile calculation that could move greatly within a year or six month period. So quite frankly we have no idea what the revenues would be going out forward and to claim that in some way we've raised those taxes ignores both of those purposes. [SPEAKER CHANGES] You're correct, Senator Hise, and that's a point well taken because this is an effort to stabilize and to know what we would be doing at least through next January and with the volatility of oil prices we're just looking at a fiscal wall and what we want to prevent is the boom and bust that we have been through before and when you see the changes in the Transportation Budget that pale changes in the General Budget, you'd better take notice and stand up and do some kind of what the right think is. [SPEAKER CHANGES] Thank you for you comments Senator Hise and Rabin. Senator Tillman. [SPEAKER CHANGES] Thank you, Madam Chairman. I wish I had a map of the United States, Senator Ford, I would show you that only one state has more roads and maintains more roads than the state of North Carolina, that being the very large state of Texas. Now, since we have the second highest number of roads and bridges that we have to maintain by state dollars, and folks will tell you Senator as they do me, well, we have one of the highest gas taxes in the nation, Senator. Many states finance their roads with property taxes. We don't, and if you want to see a mess, turn this thing over to the counties and it'll all be busted in a year

To fix this problem and this is a temporary fix, it's not a long term fix. Those long term needs are billions of dollars that we're not addressing right here. But to get stability and to get some kind of a guarantee that it won't drop completely out of sight and that we can't maintain, and that we can't build the bridges and so forth, I think it's the only thing we can do. You call it a tax increase, it may in time end up being that as you're trying to point out. But you got to, when you're bleeding, you got to stop the bleeding. I think this does a good job in doing that Senator. Thank You. [speaker changes] Thank you for your comment Senator Tillman. Senator Brown. [speaker changes] Thank you madam chairman. ?? Give us a little history on revenue coming into the state on the gas tax in the last few years. With cars getting a lot better gas mileage, it's made it more difficult I think for transportation to fund projects because it's continuously dropped as far as revenue goes. Also without this bill, what would it mean to projects moving forward? [speaker changes] Well, without the bill a lot of the projects that have been put on the current STIP will fall off. That's a given as revenues decrease, projects go down. The really damaging thing and the worse thing that I fear is that we would not be able to maintain our, and keep up with the bridge program we started and with that contract resurfacing and taking ?? as Senator Tillman said of what we have of the federal government has brought along and is sponsoring or endorsing legislation ?? that says we are going to have to be above 40 even up to 54 miles per gallon and over the past two years consumption of motor fuels in this state has decreased, the number of car in the state has increased, the number of miles driven in the state has increased. The damage to the roads and bridges has increased but the motor fuels consumption has decreased. We're in a catch 22 with that, and I think it is noteworthy too, to bring before this group the fact that North Carolina in keeping with our entire big picture package, is able to at this time cut this tax and it will be cut through the rest of the year, at the same time that our neighbors to the North and the South are raising their gas taxes. So this again brings us in line with our neighbors as we've been trying to do with our corporate tax, our ?? tax and all the other taxes, so working and looking at our whole tax package, I think this is a big plus for the state. [speaker changes] Thank you Senator Rabon. Further questions or comments from committee. [speaker changes] ?? [speaker changes] We have a motion for favorable report. All those in favor say Aye. [speaker changes] Aye [speaker changes] Against, Ayes have it. Meeting adjourned.