North Carolina drivers would pay higher taxes and fees, tolls on some of the state’s busiest roads, and a new charge tied to every mile they drive, if the next General Assembly adopts ideas percolating through the 21st Century Transportation Committee. That committee could adopt those ideas next week.
“We’ll bring as many or all of these that will pass out of the [Finance] Subcommittee to the full group,” said committee chairman Brad Wilson during the group’s most recent meeting in Raleigh, “thereby providing the General Assembly a menu of options from which they can pick or choose to try to provide additional and new revenue for transportation in North Carolina.”
If lawmakers accept the transportation group’s ideas, drivers would dig deeper into their pockets to address the $64 billion price tag North Carolina transportation officials have assigned to projects scheduled through 2030.
The 21st Century committee’s proposals would cover only a fraction of that cost. Earlier this year, Wilson urged his colleagues to develop a plan he dubbed “10 for 10.” It would identify at least $1 billion a year in new funding sources for the next 10 years.
Charging by the mile
The newest idea on the table is a fee for “vehicle miles traveled,” which would charge drivers based on the number of miles they drive. A VMT fee would help the state cope with declining revenues from the state fuel and highway-use taxes, which provide more than 80 percent of the N.C. Department of Transportation’s budget, Wilson said.
“Both of those taxes are in steady decline and will not serve to meet the needs of North Carolina in the future,” he said. “So if we want to still subscribe to the philosophical approach that North Carolina has taken since 1921 — that is, ‘user pays’ — we will need to discuss and decide how is it that we are going to measure use going forward. That brings you to a discussion of ‘vehicle miles traveled.’”
Deciding to adopt a VMT fee is just the first step in the discussion, Wilson said. “Once you get your mind around that that’s what you should do, then the devil’s in the details.”
A draft of the committee’s work suggests a charge of ¼ cent to ½ cent per mile for passenger vehicles. The driver would pay $25 to $50 for every 10,000 miles he drives. The charge would be tied to the mileage recorded when the driver has his car inspected each year. “The fee — depending on the range, of course — would generate somewhere between $165 million [and] $330 million annually,” Wilson said.
Trucks could face a higher charge. The committee draft suggested ½ cent to $0.02 per mile depending on the truck’s weight. Depending on the fee structure, those charges could generate another $40 million to $80 million for the state.
Wilson emphasized to his committee that the numbers printed in the draft were designed as a starting point. Some committee members want to know how the new fee would affect drivers already paying inspection fees, vehicle registration fees, and property taxes for their cars. “We will run a hypothetical, trying to use an average property tax rate, make an assumption on vehicle miles traveled, add in the inspection fee and the registration fee, so you could see what that total might look like in an average situation.”
Some VMT supporters like the fee as an alternative to the gas tax. North Carolina drivers could end up paying both.
“Does this [VMT] replace the fuel tax?” Wilson asked colleagues. “Well, the answer is, ‘It could, but probably not.’ But it might be a combination of vehicle miles traveled and fuel tax. The point is: if this is an approach North Carolina wanted to move to, that’s the kind of question the General Assembly ultimately would have to answer. You would want to do a lot of math to understand exactly what you are accomplishing.”
Among the math problems to be answered is the average number of miles people drive each year on North Carolina roads. The model used in the recent public presentation assumed an average of 12,000 miles. That model “excused” 2,000 miles from the new fee, Wilson said.
“We’re going to validate that,” Wilson explained it. “It may be 12,000 [miles]. Somebody said it could be as high as 18,000.”
Lawmakers would also be forced to decide how many miles — if any — they would exempt from the new fee, Wilson said. Committee discussion also raised questions about how the new fee would exempt miles North Carolina drivers accumulate outside the state.
There’s also a “social equity issue,” said committee member Nina Szlosberg, who also serves on the N.C. Board of Transportation. “[There are] concerns about it disproportionately hurting low-income families who might have to travel farther to get to their work,” Szlosberg said. “Having some sort of mechanism in that recommendation [could] mitigate for that, and that may be starting with a bucket of miles that everybody gets so that they’re not harmed in any way.”
Committee members also questioned how a VMT charge would affect a taxi driver or the owner of a delivery truck. Wilson responded that future discussions could include a ceiling on charges or some sort of graduated scale for the charge.
Other taxes and fees
Drivers across the state also could pay a higher sales tax to help fund roads and other transportation projects, if lawmakers move forward with another idea under consideration. The 21st Century Transportation Committee could recommend a 1 percent local-option sales tax for counties, cities, and metropolitan regions.
“The local-option tax would be voter-approved,” Wilson explained. “This concept says it would sunset in 10 years. That’s an idea that can be discussed. It would also provide the taxing entity the ability to set priorities between roads, transit, and other modes of transportation.”
The new taxing authority generated at least some concern from one committee member. Rep. Becky Carney, D-Mecklenburg, has been working on another piece of legislation, House Bill 2363, dubbed the “intermodal bill.” It would allow a number of local communities to seek voter approval for half-cent sales tax increases devoted exclusively to transit projects.
“I would not like to see us put local governments in the position of pitting the road people against the transit people for this referendum,” Carney told colleagues.
Another recommendation on the table is an increase in the Highway Use Tax owners pay when they buy their cars. The committee is considering raising that tax rate from 3 percent to 4 percent over a two-year period.
The full 1 percent increase could generate $200 million each year, but Wilson cautioned colleagues to remember that estimate is based on the state’s collection history. “Automobile sales are probably the worst they’ve ever been since the invention of the automobile, and as a result we see declining revenues now — dramatic — with the current Highway Use Tax.”
A cap on North Carolina’s gas tax rate would disappear in July, if lawmakers follow the committee’s recommendations. Lawmakers enacted the cap in 2006 following a steep increase in gasoline prices. “As a result of the cap, North Carolina has not received $430 million in fuel tax revenue that it would have received otherwise,” Wilson said.
Drivers would see their vehicle registration fees more than double during the next three years, if lawmakers adopt another proposal on the table. The current fee is $28. Once the three-year increase is complete, drivers would pay $58 for registration. The higher fee could raise $195 million each year.
Lawmakers might also consider changing the registration process. “You may also consider whether you charge on the basis of weight for the passenger vehicle,” Wilson explained. “That was the contrast between the Prius and the Hummer … whether or not there should be any differential in registration cost based on the weight of passenger vehicles.”
Road bonds
A statewide bond package of $2 billion to $3 billion could “accelerate construction on high-traffic, high-congestion roadways,” according to the documents used in Wilson’s presentation.
“This idea is and needs to be left on the table, recognizing we really don’t know what the debt capacity of the state is presently, what it might be in the future,” Wilson said. “We have the transition in the Treasurer’s office.”
Outgoing State Treasurer Richard Moore has issued reports in recent years warning lawmakers against borrowing too much money. Moore emphasized the need to keep state debt levels low enough for North Carolina to maintain its AAA bond rating. Sen. Janet Cowell, D-Wake, succeeds Moore in the Treasurer’s office in 2009.
Drivers could see some fee increases based on inflation. The committee is considering a plan to index registration, title, and driver’s license fees to the Consumer Price Index. “Those fees would automatically change on a periodic basis,” Wilson said. “You would have to define the period, of course, without requiring legislative action, as it does now. As you know, if you want to raise the driver’s license fee [now], the General Assembly has to take action on that specifically.”
The committee is considering a proposal to turn all of Interstate 95 into a toll road. “Border to border” tolling would support a $6 billion I-95 widening project. That project would add an additional two lanes in both directions on 180 miles of I-95. “We do have the green light from the federal government to do I-95,” Wilson said. “You have to get permission from the federal government before you can toll interstates.”
North Carolina does not have permission to collect tolls on interstates 77, 85, or 40. The committee is looking at recommending a toll on I-77 from the South Carolina line to the interchange with I-40 in Statesville. Supporters expect a project to add at least two lanes in each direction on that stretch of highway would cost more than $1 billion.
“We all know how long it takes to get permission from government, whether it’s federal or state,” Carney said. “I personally would like to see us move all of these interstates forward in the discussion to budge Washington off of that to let us toll all of these interstates border to border.”
The state also could use tolls for urban loop roads that are already built or under construction, Wilson said, “so as to generate revenue that could then be plowed back in for the completion of those urban loops.”
The one specific project mentioned during the discussion was a new bridge over the Yadkin River proposed for Interstate 85 north of Salisbury. It could cost more than $400 million, Wilson said. Funding for that bridge could be tied to a bond package. The new bridge could also be built with toll road funding or with help from the federal transportation budget, Wilson said. “The point is we’ve got to a figure out a way to pay for the Yadkin River Bridge.”
Using existing funds
Along with new taxes and fees, North Carolina could get more money for transportation projects within the existing state budget. One option involves ending transfers of highway money to pay for the state’s other bills, Wilson said. “We have already discussed and the General Assembly responded to the recommendation in the [2008] short session by beginning the elimination of the transfer from the Highway Trust Fund.”
Now the committee could recommend that the General Assembly “eliminate the remaining transfer of $73 million annually from the Highway Trust Fund to the General Fund,” according to documents linked to Wilson’s presentation. The committee could also recommend freeing up $258 million for transportation projects by shifting funding for the N.C. Highway Patrol and driver’s education, along with eliminating a money transfer linked to sales tax exemptions for N.C. DOT purchases.
The 21st Century Transportation Committee is pursuing more than just funding ideas. The group has been trying to find ways to “clear out unnecessary regulatory underbrush,” Wilson said earlier this year. Ideas include “improved long-term planning” and “improved management and execution” by the transportation department and other agencies.
Discussion about higher taxes and fees ignores a key issue, according to Joseph Coletti, John Locke Foundation Fiscal Policy Analyst. “First, we need to figure out what we’re paying the money for,” Coletti said in an interview with Carolina Journal. “That’s one of the problems we have with our transportation budget. We raise all this money from drivers, but we don’t put all the money into roads for those drivers.”
“We spend money on mass transit,” he added. “We spend money on ferries. We spend money on a number of things. So the first thing is let’s make sure that we’re spending the money we already have on roads. Then we can talk about how we fund those.”
Coletti supports additional toll road options, but he dislikes the idea of a local-option sales tax for transportation. He offers mixed reviews to the suggestion of a new charge for “vehicle miles traveled.”
“The gas tax is becoming a less efficient means of raising revenue, and so if you switch to vehicle miles driven, especially if you do it based on weight of the vehicle or something like that, you could replace the gas tax revenue with a vehicle miles tax,” he said.
Instead of replacing the gas tax, it looks as if the 21st Century Transportation Committee wants to add to that tax with the new VMT charge, Coletti said. “They’re always talking about how do we raise more money, not how do we raise the existing amount of money better. Especially with the numbers they were throwing around — ¼ cent to ½ cent per mile — that would only raise about half the money of the existing gas tax. Whatever they’re talking about right now is an addition to the tax drivers already pay.”
The 21st Century Transportation Committee’s finance group is scheduled to vote on funding recommendations Wednesday. The full committee could adopt those ideas that day or at a follow-up meeting Dec. 10. Committee recommendations would head to the new General Assembly when it convenes Jan. 28 in Raleigh.
Mitch Kokai is an associate editor of Carolina Journal.