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Donald C. Fry: Assembly leaders back disingenuous gas tax

State lawmakers face a session of reckoning during the Maryland General Assembly’s next three months in Annapolis.

First, they face an estimated $1.6 billion operating budget deficit for the fiscal year that begins July 1 without benefit of more than a billion dollars annually in federal stimulus funding that they had at their disposal during each of the last two sessions.

Now, a disingenuous gas tax concept that legislative leaders are floating focuses attention on a second reckoning that looms regarding the deteriorating funding for one of Maryland’s most important capital assets — transportation infrastructure — and the continuing reluctance on the part of lawmakers to seriously address it.

The idea being floated calls for the passage of a 10-cent-per-gallon increase in the state’s gas tax, which has not been increased since 1992.  Revenue from the gas tax is a major source of the state’s transportation funding.

For business advocates, myself included, this is a tax increase that we have consistently supported as a way to begin addressing a more than $40 billion shortfall of transportation capital projects that are planned, but not funded for construction.  A 10-cent-per-gallon increase could raise approximately $300 million in new revenue that would go toward maintaining and improving highways, and transit, port and airport resources, in Maryland — all key prerequisites for a competitive business climate.

However, this gas tax proposal is not that straightforward.

The concept being touted would also rescind a 2007 provision that dedicated a portion of the sales tax increase passed that year to Maryland’s Transportation Trust Fund. Other states have used the sales tax as a method to augment transportation revenue. An advantage of the sales tax is that it accounts for inflation, which a per-gallon tax doesn’t.

Rescinding this provision would mean that most of the estimated $300 million in revenue raised by a 10-cent gas tax increase would do little more than replenish the estimated $212 million in transportation revenue derived from the sales tax that the legislation would send back to the state’s General Fund.

The net result? A 10-cent gas tax increase would raise only 2.6 cents worth of new revenue for transportation.  Almost three out of every four new dollars raised by the gas tax increase would, in effect, increase funding for general state operations instead of paying for new highways, mass transit and other capital investments in transportation that are the reason for having the gas tax in the first place.

Counterproductive tendencies

The fact that legislative leaders are putting this proposal into play continues to demonstrate a counterproductive tendency on their part. Since 2000, state lawmakers have allowed General Fund revenues to increase more than 58 percent while revenues to the transportation fund grew at only half that rate.

They still appear comfortable putting off funding long-term capital investments for infrastructure that is critical to our state’s economic future and quality of life.

Funding Maryland’s operating budget is certainly challenging, but the state’s transportation funding challenges are equally significant.

The Transportation Trust Fund has been reduced by $2.1 billion during the recession. No new projects are included in Maryland’s current six-year transportation capital budget.

Experts estimate that the total annual cost of congestion in Maryland is $3 billion. Baltimore-area drivers spend 60 million hours annually sitting in traffic wasting 40 million gallons of fuel. During the last 20 years, daily vehicle miles traveled in the state increased by 135 percent, yet lane-miles of road increased only 35 percent.

Maryland’s road quality now ranks 37th in the nation. Rough roads cost Maryland drivers an extra $425 in vehicle costs annually, according to the U.S. Public Interest Research Group Education Fund.

Lawmakers have not only allowed transportation funding to lag and eventually stagnate, but they have raided transportation coffers on numerous occasions. In the last 25 years, state legislators have transferred approximately $775 million from the Transportation Trust Fund to the General Fund for non-transportation-related purposes including bank bailouts and balancing the operating budget.

While most of those transfers have been reimbursed, $127.1 million remains to be paid back.

Meanwhile, in 2010, highway user revenues to the counties were cut 96 percent — money that counties depend on to keep their roads in good shape and to fill potholes.

Bottom-line question

What’s the bottom line to all of this fiscal pressure? The Transportation Trust Fund needs at least $500 million in new annual revenue — more than the $300 million that even a straightforward 10-cent-per-gallon gas tax increase could deliver.

Proposing a 10-cent gas tax increase seems a curious approach as a vehicle to channel $212 million in new money into the General Fund. A technical explanation that legislative leaders could offer is that this is a way to move sales tax revenue back to the General Fund, where it historically has gone, and to replace the lost transportation revenue with a more traditional source of transportation funding.

But this raises a fair question to lawmakers: Is it worth imposing a 10-cent gas tax increase as a housekeeping measure that will raise only 2.6 cents worth of new transportation funding? Isn’t this just a “back door” way to increase revenue to the General Fund?

A gas tax increase should not be part of any fiscal sleight of hand. It should result, directly and indirectly, in substantial new revenue for transportation uses.

Donald C. Fry, president & CEO of the Greater Baltimore Committee, writes a monthly column for The Daily Record. His e-mail address is [email protected]