Five years after New Jersey overhauled how it finances transportation projects, the state’s gas tax now ranks among the highest in the country.
And later this month, motorists should find out whether the gas tax will increase again, or if they are in line for a reprieve.
State law requires the state treasurer and another top public-finance official to analyze gas-tax collection figures each year by the middle of August.
Their main task is to determine whether New Jersey’s current per-gallon gas-tax — now 50.7 cents — is generating enough revenue to keep up with what the state plans to spend on road, bridge and rail projects.
Paying more at the pump
If a shortfall is detected, an automatic rate increase may be triggered to avoid a deficit — and to remain in compliance with a state law that former Gov. Chris Christie enacted in 2016.
New Jersey’s last automatic gas-tax increase was a year ago in the wake of economic shutdowns triggered by the pandemic that influenced driving habits.
The latest gas-tax revenue figures and projections suggest there’s an improved outlook this year amid an ongoing economic recovery. But it remains to be seen whether last year’s increase provided a big enough cushion.
Department of Treasury spokeswoman Jennifer Sciortino said her agency is reviewing the available data but has yet to make a final determination. She also pointed to comments about the gas tax that were made by Treasurer Elizabeth Maher Muoio earlier this year when she appeared before lawmakers to discuss budget issues, including an expected increase in travel.
“There continues to remain a degree of uncertainty as to when consumption will return to pre-pandemic levels and that uncertainty is reflected in the forecast and was built into our assumptions when the annual determination was made last year,” Sciortino said.
If a new per-gallon rate is required under the 2016 legislation, the change would likely be made public by the end of the month. Under that law, the change would go into effect automatically on Oct. 1.
Over the past five years, New Jersey’s per-gallon gas tax has shot up significantly, from 14.5 cents to 50.7 cents.
That’s moved New Jersey’s per-gallon price up to the fourth-highest in the nation, according to the Tax Foundation, a Washington, D.C.-based organization that tracks state tax policies.
The decision to link New Jersey’s gas-tax rate to annual consumption levels — and to require automatic rate increases whenever revenue sags — was made five years ago as part of a broader effort to ensure the state would have enough funds to adequately maintain New Jersey’s roads and bridges, as well as its mass-transit system.
Running on empty
At the time, New Jersey’s Transportation Trust Fund had run dry, and the Democrats who controlled the Legislature and then-Republican Gov. Christie were at odds over what to do next.
Funded primarily with revenue from the state’s gas tax, the trust fund is a separate account from the state budget that ensures New Jersey has enough money on hand to maintain its extensive network of roads, bridges and railroad infrastructure.
To break the 2016 impasse, Christie and lawmakers eventually struck a compromise that raised the per-gallon gas tax by 22.6 cents. They also agreed to renew the TTF for another eight years, in part by using the new revenue that would be generated from the higher rate.
Largely overlooked at the time was language inserted into the trust fund renewal law that allowed for additional gas-tax hikes to go into effect automatically each year if a set amount known as the “Highway Fuels Revenue Target” is not met.
Under that language, the state treasurer must meet annually “on or before August 15” with the top public-finance official from the nonpartisan Office of Legislative Services. Together they determine whether fuel-tax revenues have met the minimum amount needed to avoid running a TTF deficit; that minimum is usually around $2 billion.
In addition, New Jersey also promises investors whenever bonds are issued to finance long-term transportation projects that it will make the automatic gas-tax rate adjustments if they are determined to be needed.
Last year, the pandemic took a huge bite out of state gas-tax collections, triggering that automatic rate increase. That 9-cent tax hike was the second to occur automatically since the TTF-funding law was changed. In all, a total of 13.6 cents has been added since 2016 on top of the original 22.6-cent increase approved by Christie and lawmakers that year.
But just as the law requires automatic gas-tax increases if there is a sizable deficit, it also allows for rate reductions if gas consumption generates a surplus. So far that’s yet to occur.
Revenue figures and projections released earlier this year as Gov. Phil Murphy and lawmakers were preparing to enact a new state spending plan for the fiscal year that began on July 1 raised hopes that gas-tax collections would hit the latest targets.
But officials at the time stopped short of making any predictions, citing this month’s pending analysis of the latest figures.