Is New Hampshire’s Gas Tax Really Too High?

Recently, the New Hampshire Business Review published an interesting update on a federal issue that’s not getting a lot of press right now.  In her story lead, Kathleen Callahan writes,

“A looming federal deadline coupled [with] the usual Washington deadlock could stall the state highway program, which is already low on gas.

Two key transportation-related statutes are set to expire at the end of September – one that allows the federal government to levy a gas tax and another that authorizes giving aid to states for infrastructure projects, according to the state Department of Transportation.”

Callahan quotes DOT spokesman Bill Boynton as saying the agency expects Congress to at least pass a deadline extension, given the highway fund’s past history among legislators. But Callahan also draws on recent congressional battles over the debt ceiling and FAA funding as a possible cause for concern.  If Congress decides to make highway funding the next Big Issue, it could cause big problems for New Hampshire’s roadways.

How big?  Let’s crunch the numbers.

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According to the Tax Foundation, California drivers have the heaviest gas tax burden in the country.

Right now, the US Department of Transportation reports that total gasoline and gasohol taxes are 18.4 cents per gallon.  (Diesel is higher, at 24.4 cents.)  The 18.4 cent rate went into effect back in 1993, when Congress voted on a 4.3 cent increase.  But according to the US DOT, none of that money originally went into the Highway Trust Fund.  It all went for deficit reduction.  Four years later, Congress redirected that extra cash to the Trust Fund.  So the federal Highway Trust Fund has seen the same tax rate for about 14 years.

Meanwhile, New Hampshire’s rate is holding steady at 19.6 cents per gallon.  Based on 2010 data from the Tax Foundation, it’s not the lowest state gas tax…but it’s close.  Only 11 states have a lower rate than the Granite State.  Some of those states, like Virginia and Arizona, only beat out New Hampshire by fractions of a cent.

So all told, your average New Hampshire driver is paying 38 cents in taxes for each gallon of gas.  In addition to what the state DOT collects, Callahan reports about $150 million of the federal gas tax comes back to the state by way of the federal Highway Trust Fund.

And as Callahan reports, it’s still not nearly enough.

“…if the [federal gas] tax stays at its current level, [New Hampshire DOT spokesman Bill] Boynton said the Granite State’s allotment could fall by as much as a third because the highway fund has been underfunded for years for a variety of factors.

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Although New Hampshire draws about $150 million from the federal Highway Trust Fund each year, the state DOT is struggling with underfunding.

‘The two highway funds, state and federal, are not performing as well as they used to,’ said Boynton. ‘The amount of revenue that is coming in has not kept pace with construction costs and a host of other expenses associated with maintaining the transportation system.’

In addition to higher construction costs – which have risen in part because of higher prices of commodities like oil and steel – vehicles are becoming increasingly more fuel efficient, so people are buying less gas, said Boynton.

Also, because the federal gas tax has remained at the same level since 1993, it has not kept pace with inflation…

…This comes at a time when the NHDOT is suffering from budget cuts at the state level.

The elimination of the $30 motor vehicle registration surcharge in the latest budget cycle resulted in a $100 million annual hit to the NHDOT, which led the department to eliminate 200 positions and reduce the highway maintenance budget by 11 percent this year and 13 percent in 2012, said Boynton.

One of the biggest projects in the state, the widening of Interstate 93 between Salem and Manchester, is currently underfunded by about $250 million.”

At a combined state-federal rate of 38 cents per gallon, New Hampshire drivers actually pay slightly less than the national average.  According to a report published by the University of Vermont Transportation Research Center, the combined national average for state and federal gas taxes is 40.4 cents per gallon.  The Tax Foundation reports the state with the most punishing state gas tax is actually California, at 64.9 cents per gallon.  Between federal and state taxes, Californians pay an extra 83.3 cents per gallon.  New York and Hawaii round-out the top three for the highest gas tax burden.

Assuming that states like New Hampshire wanted to raise gas taxes to fill in funding gaps for infrastructure…how much more would they need per gallon?  Citing a number of other papers, the University of Vermont report finds that, well…it depends.

“In a number of states, doubling the gas tax would bring the state to 1957 funding levels without adjusting for additional need due to increased VMT [vehicle miles travelled], aging infrastructure and added popoulations…The present shortfall between transportation-related revenues and expenses is estimated at between 20 and 70 cents a gallon.”

So if the federal government kept the gas tax where it is (a likely scenario) and New Hampshire legislators decided to make up the state’s infrastructure shortfall by raising the gas tax (a much less likely scenario), the average New Hampshire driver could pay anywhere from 58 cents to $1.08 per gallon in combined taxes.