State Treasurer Elizabeth Maher Muoio announced that New Jersey’s current tax rate on gasoline and diesel fuel will remain stable for the coming year at 41.4 cents and 48.4 cents per gallon, respectively.
As required by law, the Department of the Treasury conducted a detailed review of fuel consumption data, and the Treasurer consulted with the Legislative Budget and Finance Officer, in order to make this year’s determination in compliance with the 2016 law (Chapter 57) that requires a steady stream of revenue to support the state’s Transportation Trust Fund (TTF) program.
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.
“We’re pleased that fuel consumption levels, coupled with our realistic projections last year, have allowed us to avoid an increase in the gas tax rate for this year,” said Treasurer Muoio. “This dedicated revenue stream has enabled us to disburse billions in funding across the state to bolster our transportation infrastructure and keep New Jersey moving forward.”
Since the 2016 law was enacted, the state has disbursed a total of $4.34 billion for local, county, and state projects, including NJ TRANSIT, with $2.73 billion of that funding being disbursed since the Murphy administration took office last January.
While gasoline consumption in New Jersey has continued a multi-year decline, the 4.3 cent increase that went into effect last year on Oct. 1 helped boost PPGR revenue in FY 2019, which came to a close on June 30. The state missed the FY 2019 Highway Fuels Revenue Target of $2.073 billion by just $33.4 million, a significantly smaller gap than the previous two-year shortfall of $125.2 million.
Treasury estimates that the new FY 2020 Highway Fuels Revenue Target of $1.981 billion can be achieved with the current PPGR tax rate. Maintaining the 4.3 cent rate increase that went into effect last year is necessary to cover the continued decline in gasoline consumption as well as the shortfall from FY 2019. The estimate assumes a decline in gasoline and diesel fuel consumption of about 3.0 percent in the new fiscal year now underway, which is consistent with both recent history and consensus assumptions for continued, but slowing, economic growth over the next year.
As a result, the 26.9 cent Petroleum Products Gross Receipts (PPGR) tax rate will remain stable for the coming year. When combined with the motor fuels tax, the total gas tax rate will remain unchanged at 41.4 cents per gallon and the total diesel tax rate will remain unchanged at 48.4 cents per gallon.
Last year’s 4.3 cent rate increase was necessitated by the statutory formula explicitly outlined in the law, which required the state to make up for a combined revenue shortfall of $125.2 million over both FY 2017 and FY 2018.
This was due in part to the fact that the previous administration overestimated consumption of gasoline and diesel fuel for FY 2018, projecting it would grow 2.0 percent over the average consumption level for the previous six years, a projection well above historical norms. The cost of not increasing the rate in August 2017 is estimated to have contributed an additional 1.7 cents to the total 4.3 cent increase last year.
Background on Chapter 57 & calculation of gas 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 several times 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.
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.
To access more business news, visit NJB News Now.Related Articles: