All three states that make up the metropolitan region are desperate for money to invest in transportation. New Jersey revenues that support mass transit and highway improvements are close to being 100% dedicated to debt service. The state’s capital programs function today only because NJ has discovered a new form of borrowing (GARVEE bonds, which are backed by future federal transportation aid). New York transit riders are facing the Metropolitan Transportation Authority’s ballooning debt, which is likely to trigger another round of fare increases in 2005, while there is no clear picture at all of how the state will reauthorize its highway programs next year. Connecticut has not indulged in borrow-and-spend transportation budgeting as egregiously as has its neighbors, but consequently it has starved key systems, like the New Haven commuter rail line, of badly needed investment.

While it may be obvious that the blame for this situation can be attributed to the tax allergy firmly rooted in American politics, exploring some of the details of transportation budgets and revenues may ultimately help elected officials facing a fiscal cliff make the case for the new revenues needed to maintain or increase investment in our critical transportation systems.

All three states impose an excise tax on gasoline, which makes up a sizeable portion of state revenues collected for transportation-related purposes. In New York, Albany added a partially-indexed petroleum business tax to the state motor fuels tax in the early 1990s, the last major revenue source implemented to finance transportation. Connecticut approved a gradually increasing gas tax after the collapse of the I-95 Mianus River Bridge in 1983, which at 38cents/gallon in 1996 was the highest state gas tax in the U.S. However, a series of cuts has brought the CT tax to 25 cents in 2001, where it has remained since. New Jersey’s 10.5-cent per gallon gas tax is the 3^rd lowest in the U.S. and it has not been increased since 1988.

Political trends aside, one reason gas taxes have not been raised much in recent decades is that erosion of tax rates’ purchasing power at the hand of regular, economy-wide price inflation has been masked by steadily increasing car ownership, vehicle miles of travel and weak or negative gains in overall vehicle fuel efficiency. In other words, for many years, gas tax receipts increased in spite of a declining real tax rate. In the 1990s, big increases in federal transportation aid may also have contributed to the illusion that transportation revenues were keeping pace with needs. But according to a 2003 Brookings Institution report, only three states have increased gas tax rates sufficiently to keep pace with inflation. In that period, Connecticut and New York reduced gas tax rates (NY marginally, due to indexing of part of the petroleum business tax to inflation), while New Jersey’s has remained low.

At the same time, the vehicle-miles traveled trend that has allowed gas tax receipts to rise without a rate increase has put huge wear and tear and congestion stresses (compounded by the additional trend of quickly rising truck-miles traveled) on the transportation system. In our region, economic expansion, new NYC fare policies and system expansion projects in New Jersey also caused a mass transit ridership boom in the 1990s. There is simply not enough money with present revenues to fund the needs of our systems.

Prior to the Rowland administration, Connecticut had coped with the problem with its gradually escalating gas tax. However, the policy did not survive the tax cutting politics of the 1990s and upward pressure on gas prices. Its fate raises the question of whether gas tax hikes are a strong option today with prices at $2 per gallon. It’s possible that a new tax or fees could be linked to a specific, popular project, such as the Second Avenue subway, much the way that Gov. Pataki has proposed a new hotel tax to pay for Javits Center expansion and costs associated with west side stadium construction. However, the mundane costs of keeping the rest of our mass transit and road systems also demand more revenue.

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