The Georgia House of Representatives has presented legislation to help transportation funding. Its road to legislative success is already potholed with protests – from local government and education officials to those worried about higher taxes and more.
As with the debate over the 2012 transportation sales tax referendum, the Georgia Public Foundation agrees the state requires greater funding – for needs, not “nice-to-haves.” We have provided detailed evidence of statewide needs that will cost a minimum of $1 billion a year.
From a fiscally conservative viewpoint, it’s always better to prioritize existing spending rather than raise taxes. As the Foundation has pointed out several times, a good starting point is the more than 40 percent of transportation taxes that are not dedicated to transportation. Every plan has critics, but accountability requires those who dislike this option to find other spending cuts or accept raising taxes.
We have consistently promoted two principles: All gas taxes should be spent on transportation and everyone who uses the roads should pay. The House proposal generally gets these principles right by swapping sales taxes for more predictable, dedicated excise taxes and adding a new annual fee for alternative fuel vehicles.
Can the proposal be improved? Certainly. We will share our ideas at the Foundation’s next event on Feb. 18, “Transportation Funding Matters.”
What makes the transportation funding debate so complicated is Georgia’s current mix of motor fuel taxes: an excise tax on each gallon of fuel and additional state and local sales taxes applied to the price of each gallon of fuel.
The Transportation Funding Act would convert this mix of taxes into a single state excise tax of 29.2 cents per gallon, based on the average retail price of gasoline in Georgia over the last four years. For reference, that’s more than the 27.5 cents per gallon Georgians paid in 2014, but less than the 29.4 cents per gallon in 2012.
Gas taxes should be dedicated to transportation. The practice of state and local governments diverting these funds to other non-transportation purposes for many years led to the current dilemma; correcting it is neither easy nor simple.
Exempting motor fuels from sales taxes would shrink the state and local sales tax base by about 11 percent, on average. The effect would vary greatly at the local level, from as low as 1.4 percent to as high as 53 percent.
As a partial remedy, the proposal would create a new local excise tax that helps cities and counties replace lost sales tax revenue. Missing – and needing addressing – is a mechanism that would reduce the state gas tax to offset the increase at the local level.
Local governments have a pressing incentive to convert to an excise tax: Gas prices dropped more than 40 percent over the past few months; they stand to lose more than $200 million in sales tax revenue if gasoline remains around $2.00 per gallon.
Legislators have promised local governments additional transportation funding for transit and increased state matching grants. This would also help offset the local loss of revenue, but these funds are subject to the state budget process, so local governments are understandably not overly excited.
It’s important to put protests about local education funding cuts in context. Exempting motor fuels would mean $188 million less for future capital projects. The amount is about 1 percent of the last year’s total K-12 revenues of $17.9 billion. This does not count the several hundred million dollars of new education funding in the past two state budgets, $35 million in new funding for the governor’s program to enhance broadband access in schools, or revenue reductions caused by plunging gas prices.
Georgia taxpayers have prioritized billions of dollars on education infrastructure over the last 15 years. Even after the reductions, more than $1.3 billion would continue to be available each year for school construction. Now, however, it’s time to prioritize transportation. Making do with 1 percent less revenue going forward is not unreasonable. If this is unacceptable, it will require a tax increase.
The House proposal is a good start. It needs adjustments, but few legislative proposals pass as-is. For now, citizens and legislators must ignore the spin from special interest groups on both sides of the debate. Let’s be honest about the tough choices that are required and take the time to get the facts and the plan right.
[Kelly McCutchen is president of the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians.]
