New Jersey’s Department of the Treasury announced on Friday that lower fuel consumption trends, which have been exacerbated by the COVID-19 pandemic, will necessitate a gas tax increase of $0.093 per gallon in order to ensure compliance with the 2016 law that requires a steady stream of revenue to support the state’s Transportation Trust Fund (TTF) program. The increase brings the gasoline tax from $0.414 to $0.507 per gallon (22.5%).
Under the 2016 law (Chapter 57) signed by Governor Christie, New Jersey’s TTF program is required to provide $16 billion over eight years to support critical infrastructure improvements to the state’s roadways and bridges. In order to ensure the state has the funds necessary to support these projects, the law dictates that the Petroleum Products Gross Receipt (PPGR) tax rate must be adjusted accordingly to generate roughly $2 billion per year.
As we’ve noted before, any changes in the gas tax rate are dictated by several factors that are beyond the control of the administration. The law enacted in 2016 contains a specific formula to ensure that revenue is meeting a certain target. When it does not, the gas tax rate has to be adjusted accordingly in order for us to meet our obligation under the law and fully fund the state’s many pressing transportation infrastructure needs. Highway fuels consumption took a significant hit in FY 2020 because of the economic downturn caused by the COVID-19 pandemic.—State Treasurer Elizabeth Maher Muoio
Treasury noted that consumption of gasoline declined by a total of 38.7% from March to May, while diesel fuel consumption declined by 16.5%. Consumption of gasoline and diesel fuel continues to be depressed as many people continue to work from home and limit extracurricular activity.
Due to the formula explicitly outlined in the law, the PPGR tax rate on gasoline and diesel fuel will increase on 1 October 2020 from $0.309 to $0.402 for gasoline and from $0.349 to $0.442 for diesel fuel. When coupled with the current $0.105 Motor Fuels Tax rate on gasoline and the $0.135 rate for diesel fuel, the total tax rates for gasoline and diesel fuel will be $0.507 and $0.577, respectively.
Background on Chapter 57 & calculation of tax rate formula. Under P.L. 2016, Chapter 57, a statutory formula determines how much the PPGR Tax rate is to be adjusted annually in order to meet the Highway Fuels Revenue Target. The Highway Fuels Revenue Target is required to be reviewed annually each August by the Treasurer, in consultation with the Legislative Budget and Finance Officer (LBFO). This process just concluded, with Treasurer Muoio and LBFO Frank Haines consulting on revenue numbers.
The target is to be adjusted at the start of each year based on the prior fiscal year’s shortfall or surplus. If last year’s revenue was below target, then the cap must rise to make up the shortfall or be lowered to account for the surplus. The PPGR tax rate is then re-calculated to meet the current year’s updated Highway Fuels Revenue Target.
In order to calculate whether a change in the PPGR tax rate is necessary to achieve the Highway Fuels Revenue Target, the administration applied the formula laid out in the law based on the following revenue numbers:
Highway fuels revenue collections in FY 2020 are projected to fall short of the FY 2020 Highway Fuels Revenue Target by $154.0 million.
The Highway Fuels Revenue Target for FY 2021 is $2.102 billion, based on the determination made between the State Treasurer and the Legislative Budget and Finance Officer during the review period in August 2020.
The target was calculated by taking the FY 2016 Highway Fuels Revenue Target of $1.948 billion and adding on the estimated shortfall for FY 2020 of $154.0 million.
Treasury noted that only legislative action can change the statutory formula and any new statutory change would still need to secure reliable annual revenues for the Transportation Trust Fund.
In August 2019, New Jersey kept the then-current tax rate on gasoline and diesel fuel stable for the coming year at $0.414 and $0.484 per gallon, respectively.