LEGISLATIVE FISCAL ESTIMATE

ASSEMBLY, No. 2718

STATE OF NEW JERSEY

214th LEGISLATURE

 

DATED: JUNE 1, 2010

 

 

SUMMARY

 

Synopsis:

Increases motor fuels tax eight cents per year for three years with later CPI adjustment and requires all motor fuels taxes to be credited to Transportation Trust Fund.

Type of Impact:

Revenue increase to the Transportation Trust Fund.

Agencies Affected:

Department of the Treasury, Department of Transportation

 

Office of Legislative Services Estimate

Fiscal Impact

FY 2011 

FY 2012 

FY 2013 

 

State Revenue

 

 

 

 

Motor Fuels Tax Increase

Approximate

Approximate

Approximate

 

 

$400,000,000

$800,000,000

$1,200,000,000

 

 

 

 

·        Approximately $2.4 billion in additional revenue would be generated by the eight cent per year increase in the motor fuels tax over the three year period.

·        All State revenue collected from the motor fuels tax would be credited to the Transportation Trust Fund Account.

·        The motor fuels tax would be indexed to the rate of inflation beginning July 1, 2013.

 

BILL DESCRIPTION

 

      Assembly Bill No. 2718 of 2010 would provide enhanced funding of the New Jersey Transportation Trust Fund (TTF) through an increase in the rate of the tax on motor fuels, and the expansion of the statutory earmark of State revenues collected from the motor fuels tax to be annually credited to the TTF that includes all revenues collected from the tax.  The amount of the increase in the motor fuels tax would be eight cents per gallon in each of the State fiscal years 2011 through 2013, with further increases each fiscal year thereafter in proportion to the year-over-year increase in inflation.

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The Office of Legislative Services (OLS) estimates that the three annual increases of eight cents per gallon each in the motor fuels tax will generate approximately $400 million in FY 2011, $800 million in FY 2012, and $1.2 billion in FY 2013 for a total of $2.4 billion in additional funding to the TTF over the three year period.  The projection follows the current “rule of thumb” that each penny per gallon increase of the motor fuels tax yields $50 million annually.  The tax increase can be expected to reduce sales of motor fuel below the pre-tax level.  The amount of the reduction, however, is likely to be minimal, since (1) the State motor fuels tax comprises a small proportion of the total price for motor fuels, and (2) the demand for motor fuels is much less responsive to changes in prices than is the demand for other commodities.  With respect to the first factor: an eight cent per gallon increase in the tax would raise the average price of gasoline in New Jersey by less than three percent.  With respect to the second, economists studies indicate that the so-called “price elasticity of demand” for gasoline is about -0.25 over the short-run (i.e., in the first year after a price change), and rises to about -0.64 in the long run.  These statistics suggest that the impact of the proposed change in the tax might reduce sales volume below the level it would have been without the tax by less than one percent in the first year, less than two percent in the second year, and about three percent in the third year.

      The OLS notes that in addition to increasing the tax and earmarking all revenue from the increase for the TTF, the bill increases the amount of revenue from the current tax that would be earmarked for the TTF.  The current motor fuels tax of 10.5 cents per gallon on the sale of gasoline and a 13.5 cents per gallon tax on the sale of diesel fuel raises approximately $553 million annually.  The State Constitution dedicates the 10.5 cents per gallon ($528 million), from both the gasoline and diesel fuels taxes for transportation capital purposes.  The remaining three cents of the diesel fuel tax ($25 million) is not constitutionally dedicated.  Of the $528 million, the Legislature appropriates $483 million to the TTF.  The remaining $45 million is appropriated to New Jersey Transit’s operating budget for “repair and rehabilitation” purposes that are consistent with the constitutional language.  Under this bill, the TTF would receive all of the approximately $553 million from the motor fuels tax, thus increasing the amount of the current tax that is earmarked for the TTF by $70 million.

      The OLS also notes that adjusted or indexing the motor fuels tax to the increase in the rate of inflation after July 1, 2013, would generate additional revenue to the TTF that cannot be projected with any certainty.

 

 

Section:

Authorities, Utilities, Transportation and Communications

Analyst:

Joseph A. Hroncich

Associate Fiscal Analyst

Approved:

David J. Rosen

Legislative Budget and Finance Officer

 

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).