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July 7, 2023

Diesel tax freeze renews push for long-term fuel tax relief

CTMIRROR.ORG Trucks parked at the state rest stop on I-84 in Willington.

State legislators and Gov. Ned Lamont spared Connecticut’s trucking industry — and, by extension, many consumers — from a hefty increase this month in the state’s diesel fuel tax.

But the 12-cents-per-gallon bump that never happened, and the 9-cent increase that was imposed in July 2022, have advocates for trucking companies, gas stations and others calling for permanent relief, either through fuel taxes or by eliminating a new highway mileage fee on large commercial trucks.

Given that the state budget’s Special Transportation Fund just closed the 2022-23 fiscal year with a 13% surplus — even after a gasoline tax holiday that returned hundreds of millions of dollars to motorists — advocates say government can afford to provide even more relief.

“Diesel and gasoline [prices] affect the cost of every single item we buy,” said Michael Fox, executive director of the Connecticut-based Gasoline & Automotive Service Dealers of America, commonly known as GASDA. 

‘If this isn’t the time, it never will be’

Fox, whose organization represents roughly 500 stations, is urging state officials to decouple the diesel tax from a formula that resets the levy every July 1. Similarly, GASDA also wants the state to reform a second tax, a percentage-based levy that impacts the wholesale price of gasoline and that can vary considerably from year to year.

“If this isn’t the time,” Fox added, “it never will be.”

Lawmakers and Lamont already have delivered huge relief to motorists over the past 15 months.

They suspended the entire retail tax on gasoline, a fixed 25 cents per gallon, between April 1 and Dec. 31 of last year. And they also waived a portion of that tax between Jan. 1 and April 30 of this year.

The 13-month holiday, ordered to help motorists recover from a 40-year high in the national inflation rate, saved drivers an estimated $330 million in the aggregate.

The governor and legislature took a second step in early June, freezing the diesel tax for one year at 49.2 cents per gallon and saving consumers $37 million. Absent that action, the diesel tax was set to rise by 12 cents on July 1, according to Department of Revenue Services Commissioner Mark Boughton.

“We are constantly looking for opportunities to lower the cost of doing business in Connecticut,” said Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee. “This change is certainly a big step in that direction, as fuel costs are a significant percentage of expenses not only for the trucking industry but for all markets that rely on the sale of goods.”

But some say Connecticut can afford to do even more.

Despite funding all of that relief, the Special Transportation Fund unofficially closed the last fiscal year last week with a $260 million surplus, according to the Lamont administration. Though the fiscal year ends on June 30, the comptroller doesn’t audit and close the books until early September.

With the exception of this July, the diesel tax has been adjusted annually each summer since 2007 based on a statutory formula that relies heavily on wholesale diesel prices from the prior 12 months.

And while it hasn’t always led to large increases, it forced a 9-cents-per-gallon increase one year ago.

Many economists say most increases in transportation costs are passed directly onto consumers by supermarkets, department stores and other retailers that rely on trucks to receive their goods.

Freezing the diesel tax at its current level, and also converting the wholesale gasoline tax from a percentage-based levy into a fixed amount of pennies per gallon, would be a big boost for motorists, gas station owners and consumers, Fox said.

And that’s not the only industry seeking relief.

The Connecticut Energy Marketers Association, which represents fuel distributors across the state, also has been pushing for years to remove the volatility from Connecticut’s fuel tax system.

Had the governor and legislature not acted this June, the diesel tax would have jumped 21 cents in 13 months, noted Chris Herb, CEMA’s president and CEO.

“We don’t desire to see prices bounce around,” he said, adding it “puts a strain on [businesses’] credit lines while often exacerbating retail prices during the worst periods of inflation.”

“We want stability and reliability,” added John Blair, president of the Motor Transport Association of Connecticut, which represents more than 500 trucking and trucking-related businesses.

The association also is urging state officials to keep the diesel tax frozen at its current level.

GOP still pushing for repeal of highway mileage tax on trucks

And it’s not just fuel taxes that are drawing increased attention.

Minority Republicans in the state House and Senate have been pushing for the past two years to repeal a new highway mileage tax imposed on large commercial trucks, excluding those in the dairy industry.

The highway tax, which took effect Jan. 1 and is expected to generate $90 million annually, is simply another transportation expense that will make already expensive goods in Connecticut even more unaffordable for many poor and middle-income households, the GOP argues.

Legislators need to remember that while state government is flush with cash, most Connecticut families “aren’t generating more revenue than they expected on their household budget,” said Senate Minority Leader Kevin Kelly, R-Stratford.

While Lamont and his fellow Democrats in the legislature blocked efforts to repeal the highway use tax, the battle will resume when the regular 2024 session starts in February, added House Minority Leader Vincent J. Candelora, R-North Branford.

“I’m not going to give up on it,” he said, predicting more rank-and-file Democratic legislators may be willing to support repeal as inflation continues to take a toll on their constituents. “I think that once they understand the impact, they may be willing to have that discussion.”

Rep. Maria Horn, D-Salisbury, the other co-chair of the finance committee, predicted her committee would be willing to take a closer look at removing volatility from diesel and wholesale gasoline taxes next session.

But any repeal effort regarding the highway use tax faces an uphill battle.

Lamont, who sought that increase after the legislature rejected his call to install electronic tolling on state highways, says the revenue from the truck fees are essential to help rebuild Connecticut’s aging highways, bridges and rail lines.

Though the Special Transportation Fund was in surplus this past fiscal year, nonpartisan analysts project it will be in deficit by 2026-27. 

That forecast, though, is based on the assumption that Connecticut will accelerate spending on transportation capital projects — something it has struggled to do over the past decade.

Connecticut issued an annual average of $725 million in transportation bonds between 2015 and 2018 during the second term of Lamont’s predecessor, Gov. Dannel P. Malloy, according to debt reports from the state treasurer’s office. 

Connecticut pairs those transportation bonds — which are paid off by the Special Transportation Fund — with the hundreds of million of dollars in federal grants that the state receives annually to rebuild its infrastructure.

But during Lamont’s first term, which ran from 2019 through 2022, the annual average ticked upward just 2.6%, reaching $744 million. And that’s despite a huge surge in state sales tax receipts dedicated to the STF during that period.

Labor unions argue the DOT is badly understaffed and needs more architects, engineers and planners to help launch projects more quickly.

The Lamont administration insists it’s working to accelerate Connecticut’s transportation capital program, particularly to take advantage in huge increase in federal aid ordered by President Joe Biden and Congress in late 2021.

When it comes to a long-term freeze in the diesel tax, Chris Collibee, spokesman for Lamont’s budget office, said state officials “need to understand the impact of the [one-year] freeze, which will require time, before considering future changes.”

But Connecticut approved $830 million in transportation bonds during the first year of Lamont’s second term — a major hike from the governor’s first term average.

And while Collibee didn’t mention the highway use tax, he said the goal is to continue to get more projects done.

“The Special Transportation Fund must remain robust,” he added, “to provide the necessary matching state funds, otherwise Connecticut will not be able to maximize federal resources.”

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