NTF Issue Paper: Gastax8.doc. 3-15.

BACKGROUND. Sen. Jim Smith, usually a fiscally conservative senator, introduced LB 610, to raise our state gas tax by 6c by 2019, bringing our total state gas tax up to 31.6c per gallon. Of the two components of the fixed rate, the portion allocated to the Dept. of Roads would increase 1/2 cent every year, from 7.5c to 9.5c. The portion allocated to cities and counties would increase 1c every year from 2.8c. Beginning January, 2019, the total fixed rate motor fuels tax would become 16.3c per gallon. His bill would raise about $19 million annually to repair state roads but mostly bridges, split among cities, counties, and state. The average driver would pay about $45 more annually. Add to this sum the 18.4c per gallon federal gas tax, and the total tax is 44.9c per gallon.

LEGISLATIVE ACTION. Despite opposition from our tax group and other citizens, the Revenue Committee voted 5-2 to advance LB 610. Senators Gloor, Harr, Scheer, Schumacher, and Smith voted against taxpayers. Senators Brasch and Sullivan voted for taxpayers. Sen. Davis did not vote. The bill awaits debate and possible passage by the full legislature.

THE PROBLEM. Nebraskans deserve a guarantee of safe travel. Only a small percentage of our 3,500 bridges require major repair or replacement. Currently, counties use local property taxes to pay for bridge repairs and replacement. However, funneling state funds to repair and replace bridges in large batches will prevent small construction companies from bidding on projects and favor large NE and outstate companies.

OUR SOLUTION. Many counties already have interlocal agreements among themselves to cooperate for bridge replacement and repair; other counties can act likewise to pool financial resources. Legislators easily can find millions in waste and inefficiency in state expenditures and programs and use these dollars to solve the problem.

BACKGROUND. State highway funding stems from fuel taxes and sales taxes on vehicles. Nebraska motorists have paid a fuel tax since 1925. Proceeds from this tax the state spends on construction, repair, and maintenance of highways, roads, and bridges. There exist a number of different taxes that constitute the state gas tax. The motor fuel tax is an established rate divided among state, city, and county road funds. This tax is a cents per gallon tax collected at the wholesale level and levied on consumers. The special fuels tax applies to multi-purpose fuel, like diesel or propane, levied at the retail level. This tax also is a cents per gallon tax. Recent changes have allowed the tax-free sale of diesel fuel for off-road purposes. The variable excise part of the gas tax becomes levied as a percent of the wholesale price established by the Dept. of Roads. Bureaucrats cite a growing gap between their highway wish list and funds available, an alleged gap of $1.3 billion over 20 yrs. Improvement and maintenance needed on state highways and Interstate system, together with 600 new miles of planned expressway, complete this list.

CURRENT TAX RATES. The total motor fuel tax rate consists of a fixed portion and a variable portion set each calendar quarter. The variable portion determined by multiplying the average statewide cost of motor fuels bought by the State by the variable excise tax % rate set by the State Dept. of Roads. Through June 30, 2015 the per gallon variable gas tax rate is .8c per gallon, the fixed tax rate 10.3c per gallon, and the wholesale tax rate 14.5c per gallon. The total: 25.6c per gallon for gasoline, gasohol, diesel, ethanol, and compressed fuels. The petroleum release remedial action fee is .9c per gallon on gasoline, gasohol, ethanol, and aviation gas. Also, a 3c per gallon release prevention fee for diesel fuels. The director of the Dept. of Roads sets the variable percentage rate to fund highway projects. This rate is .3% for the period 1-1-15=6-30-15. 1c of the state fuel tax generates about $12 million in yearly revenue. In FY 2013-2014, fuel tax receipts totaled over $329 million. Add a 1.2c per gallon state sales tax. The motor fuels tax rate also becomes adjusted each quarter to offset the amount of tax not collected in the previous calendar quarter because of ethanol producer credits. Ethanol producers here gain a 20c per gallon ethanol production tax credit in the form of transferable motor fuels tax credit certificates. After the amount of tax credits issued meets or exceeds a specific percentage of the total amount of motor fuels tax collected during a quarter, the motor fuels tax increases by a proportional amount to compensate for the lost revenue. Translated, non-ethanol users subsidize ethanol consumers. One fixed portion of the motor fuels tax rate goes to the Highway Allocation Fund. These dollars go 50% to cities and 50% to counties. The other portion goes to the Highway Trust Fund. Dollars generated by the variable part of the tax rate go to the Highway Cash Fund for use for state highways. Motor fuels tax revenue credited to the Highway Trust Fund combines with other sources of highway user revenue and sales tax on vehicles and goes to the Highway Cash Fund (53 1/3%) and the Highway Allocation Fund.

CONSUMER VICTIMS. Most tax experts agree that the gas tax is regressive. A Citizens for Tax Justice report shows that the NE gas tax absorbed .37% of the income of the highest earners ($66,000 +) and l.10% of the lowest incomes ($17,300 or less). Because of a current but not permanent oil glut on the market, Nebraska drivers are paying less at the pump. However, many Nebraska businesses, especially in rural areas, depend on transporting people and goods long distances, and increased fuel costs cut thin their profit margins. Rising fuel taxes on vehicles and equipment add millions to NE farmer and rancher production costs, depressing income for some already barely surviving. School districts, particularly in rural areas, spend more to transport students. Cab companies and drivers, courier services, florists, and fast food deliveries suffer from a higher tax. Because NE drivers are conserving fuel and fuel-efficient vehicles find more buyers, revenue from fuel taxes has not fulfilled projections, so the Roads Dept. wants to boost our gas tax. With higher fuel taxes publicized, truckers and tourists will avoid crossing our state, dropping state and commercial revenues further. Hiking the gas tax will negate the savings from lower gas prices, which are beginning to rise again.

TAKE ACTION NOW. Contact your state senator today to vote NO on LB 610. During this temporary time of lower gas prices, urge state senators to leave more money in taxpayer pockets. Lower total gas prices during summer vacation time will lure tourists and their dollars and will convince long-distance truckers to travel through Nebraska, buying their fuel and other items here. Otherwise, NE service stations, truck stops, and convenience stores will suffer from border bleeding. Also, urge the Governor and your senator to either privatize the state Dept. of Roads or privatize much of its road construction and maintenance work to save operational and labor costs because of spiking costs for steel and paving materials. The dept. also can purchase equipment and supplies at bulk rates by ordering together with other state departments and agencies. Demand state senators repeal the statute that permits the State Dept. of Roads director to set the variable fuel tax rate twice annually, on July 1 and January 1, removing authority from elected legislators. The Legislature with direction from this director approves road construction budgets, and the variable tax is meant to fund those budgets adequately. Legislators are accountable to their constituents, but a state bureaucrat is not and hikes the tax to fund items in the budget he helped produce. The bureaucrat who sets the proposed budget should not have authority to collect and spend the revenue funding it. Our state auditors find millions in waste and inefficiencies in state government, places to cut the budget. Use these dollars for roads and bridges. Email for state senator contact information.

Dollars in the Highway Allocation Fund go equally to cities and counties based on the following formulas:
A. the county distribution formula bases on 7 factors:
1. rural population – 20%
2. total population – 10%
3. lineal feet of bridges 20’ or more in length – 10%
4. rural motor vehicle registrations – 20%
5. total motor vehicle registrations – 10%
6. miles of county and township roads – 20%
7. value of farm products sold – 10%
B. the city distribution formula bases on 3 factors:
1. population – 50%
2. vehicle registrations – 30%
3. lane miles – 20%

Nebraska has the highest gas tax and the 3rd highest diesel fuel tax of all adjacent states.

Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the Nebraska Conservative Coalition Network. 3-15. C

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