Republican lawmakers in Raleigh have spent the past several months grappling with two conflicting desires: 1) addressing the demonstrable need to repair and expand North Carolina’s system of roads and bridges, while 2) maintaining their commitments to fiscal restraint and North Carolina taxpayers.
In principle, all transportation systems should be as much as possible funded in proportion to use. Airports should derive their revenue from charges and fees on tickets, parking, concessions, and cargo operations. Railroads and seaports should derive their revenue similarly.
When it comes to automotive transportation — by far the largest and most important means of moving people and goods — the user-pay principle should remain our guide. Although this is often overlooked, motorists bear the vast majority of the cost of the system when they buy, fuel, service, and insure their private vehicles.
As far as the highway grid itself is concerned, the principle calls for tolls on suitable limited-access highways, charges per mile traveled on other roads (typically levied as a tax per gallon of fuel), and per-vehicle charges adjusted for weight (because heavy vehicles put more wear and tear on pavement) and perhaps value (because maintaining the roads to reduce wear and tear on vehicles is a service worth more to those who own more valuable vehicles). Compared to the average state, North Carolina relies more on gas taxes and less on per-vehicle charges such as sales taxes, property taxes, and Division of Motor Vehicles fees.
Technological progress has actually made the tolling component of the revenue mix easier. Electronic collection has eliminated traffic-snarling toll booths. But when it comes to the backbone of North Carolina’s system, taxing fuel, technology has subverted its ability to serve as a stable approximation of a user fee. Cars traverse more miles per gallon. And some cars are now partially or entirely fueled by other, non-taxed means.
Thus over time, actual revenue collections adjusted for inflation and miles traveled have gone down. Combine that with the routine under-pricing of heavy trucks and the diversion of gas taxes to non-highway uses, and you produce the conflict: unmet road needs coupled with (understandable) resistance to gas-tax hikes.
Decades ago, lawmakers partially adjusted the gas tax rate to changes in the wholesale price of gas. The idea was that because asphalt is itself a petroleum product, gas-price spikes also signify spikes in construction costs. However unpopular the variable-tax policy was among motorists during rising prices, it proved even more unpopular with highway boosters when gas prices fell.
Early in the 2015 session, the General Assembly took an initial stab at resolving the conflict. Lawmakers combined a short-run cut in the gas tax with a new floor under which the gas tax would not be allowed to fall, as well as a formula for increasing the rate in the future to keep up with inflation and population growth. During the inevitable political blowback, lawmakers promised to come up with a better solution.
House Transportation Committee Chairman John Torbett is trying to do that with House Bill 927. It’s a sprawling package that includes lower gas taxes, higher taxes on vehicle sales, higher DMV fees, a new tax on auto-insurance premiums, and a phase-out of the transfers of highway-tax revenue to the General Fund for operating the Highway Patrol, among other things. According to its fiscal note, House Bill 927 would allow for about $477 million in additional transportation expenditure in FY 2016-17, growing to $732 million by FY 2019-20.
I’m not crazy about the generalized tax hikes or devoting some $200 million of the annual revenue to the state ports, which ought to be financed by their users. But I think a clear case can be made that North Carolina should charge more for commercial vehicles and DMV services as well as end the Highway Fund diversions. If we also adopted Torbett’s gas-tax reduction, the net effect would be about $360 million a year when fully implemented, enough to fund much of the road and bridge work called for in the bill.
That’s a starting point, at least. Let the debate begin.
John Hood is chairman of the John Locke Foundation. Follow him @JohnHoodNC.