Gas Tax Hike Will Help New Jersey Pay for New Rail Tunnel

gastaxes

To history’s list of epic negotiations, we may someday add the prospective deal to finance the Gateway Project between Newark’s and New York City’s Penn Stations. With two belligerent states, a disgraced Port Authority, and Amtrak and the federal government on the hook for Gateway’s $15 billion (and counting) expense, divvying up the cost will be contentious, to say the least. But the final equation will almost certainly include a rise in New Jersey’s stunningly low gasoline tax.

The recent history of cross-Hudson rail tunnels is tortuous and depressing, with few rewards for paying close attention. Informed observers agree, however, that New Jersey Governor Chris Christie’s main motive in cancelling the ARC rail tunnel in 2010 was mercenary: the state’s Transportation Trust Fund had run dry, and big bills for highway expansion were coming due. Scrapping ARC allowed Christie to divert $2.5 billion in Port Authority tunnel funds to road projects. Thumbing his nose at New York State and proving his anti-transit bona fides to fellow Republicans were bonuses.

Five years on, the ARC cancellation is blowing up in Christie’s face. No less a bigwig than New York Senator Chuck Schumer this week labeled it “one of the worst moves made by any political figure in the New York area for over 100 years.” The reason, of course, is the prospective “transportation Armageddon” (Schumer again) from losing 75 percent of cross-harbor passenger-rail capacity if just one of the two ancient Sandy-damaged rail tunnels ceases to function — as happened on multiple days last month, causing some rail commuters’ 15-mile trips to stretch out to three hours.

Schumer, of course, is a Democratic Party stalwart — he’s set to succeed Minority Leader Harry Reid as the Senate’s ranking Democrat next January. But in his third term he has attained avuncular status that transcends partisan divisions, at least in nuts-and-bolts issues like infrastructure. That helps explain why his proposal this week to create a new non-profit corporation to assemble the billions needed to build a new cross-harbor tunnel and oversee the project has attracted mostly glowing coverage. (It doesn’t hurt that Schumer’s statesmanship contrasts markedly with other politicians’ finger-pointing and buck-passing.)

Both personally and politically, Christie may be no more disposed to have New Jersey cough up funds for the Gateway project than he was five years ago for ARC. But he has far less room to maneuver. Of late, Christie has been ridiculed for GWB-gate, slammed for using the Port Authority as a political piggybank, and practically disavowed by his Republican Party. Now, the need for a new Hudson rail crossing, if only for redundancy so the existing tunnels can be rehabbed, has graduated from hypothetical to dire. With a reported 80 percent of rail tunnel passengers residing, and voting, in New Jersey, it’s unlikely that Christie will be able to blow off Gateway the way he blew off ARC.

Wherever New Jersey’s share of Gateway costs settles out, the logical funding source is exactly what it was for the ARC tunnel: raising the state’s gasoline tax. Here too, the objective factors have only grown more compelling. Not only is the price of gas in a deep trough and likely to remain there to cushion a tax rise. But New Jersey’s state tax rate on gasoline (and diesel) is more of an outlier than ever. At just 10.5 cents a gallon, New Jersey’s gas tax is the third lowest among the 50 states and Washington, DC, and less than half the national average of 21.9 cents, as the graphic shows. (The discrepancy is now even greater, as half a dozen states have taken advantage of the drop in pump prices to raise their gas tax since 2013.)

Taxable sales of gasoline and diesel fuel in New Jersey are between 4.5 and 5 billion gallons a year. [The original version of this post mistakenly put the range 10 times too low, at 450-500 million gallons.] Lifting the state tax rate to the U.S. average would generate over half-a-billion dollars a year in new revenue, free and clear. A slightly smaller but rounder dime a gallon hike would bring in nearly that much. Either way, that’s five billion dollars of found money in the decade it should take to build Gateway. (I haven’t factored in price-elasticity or price-shopping, but the modest increase and the fact that taxes in neighboring Pennsylvania and New York would remain considerably higher render those points nearly moot.)

It is true that making all Jersey drivers pay a little more for gas so that residents of north Jersey can reach Manhattan by train (and by car as well, since the viability of highway travel depends critically on non-highway alternatives) won’t be popular with some voters in the rest of the state. Legislative leaders might look to New York as a model. Here, residents in the 12-county MTA region pay higher sales taxes as well as payroll and other taxes to support mass transit. An analogous arrangement in New Jersey, with a larger gas tax hike in the state’s northern counties and lesser increases elsewhere, could be part of a statewide formula to pay the state’s eventual share of Gateway.

  • lop

    In NJ the existing gas tax is going to be used to pay for past road projects. To pay for ongoing maintenance and capital projects, and any future road expansions, the state will need to raise the gas tax. Christie and leaders in the legislature know this. They also know there will be a lot of opposition to the needed gas tax hike. If you try to tack on funding for the rail tunnel it might kill the tax hike. They are very unlikely to risk that. NJ drivers will pay their contribution through tolls on the PA crossings.

  • qrt145

    The tunnel seems cheap if you present the price tag using different units: it costs less than 10 mIW, or milli-Iraq-wars. Imagine that: for the price of that wonderful war, we could have instead built what the President, the Secretary of Transportation, and others call “the most important infrastructure project in the country” and one whose neglect is “almost criminal”… a hundred times over!

    Also amazing that even in California, the state with the highest gas tax in the US, the gas tax is still not even 10% of what’s typical of the richer European countries…

  • Bolwerk

    It’s doubtful the economic boon a tunnel would be to New Jersey falls short enough to justify an ounce of the fiscal hysteria being raised over paying for it. NJ quite literally threw money away when it canceled ARC and then was like, “Nawh, we don’t need that,” to decades of future economic growth.

    Granted, Gateway needs a shave of a few billion$. But you scarcely hear the debt/tax-hike scolds talking about that.

  • Bolwerk

    Foxx is hyperbolic too. It’s not that important, and it’s primary importance is to New Jersey commuters. In Europe, the bias toward users or at least agencies paying for their infrastructure themselves would probably preclude this nonsensical notion that New York should pay for Gateway beyond what the PA ponies up.

    Things like the Second Avenue Subway are way more important in terms of sheer usefulness alone, and as far as New York is concerned plenty of un-started proposals are much more useful: a subway to SI, RBB reactivation, Triborough RX, any numbers of potential not-even-discussed projects in Brooklyn or The Bronx, etc.

  • Joe R.

    Given the ongoing costs of our foreign ventures, plus the long term damages to the economy employing bright people to devise better ways to kill instead of solving more important problems, I might say the tunnel will come in under 1 mIW. Our stupid militaristic ventures will likely end up costing well in excess of $10 trillion. Now Russia is building up its forces, presumably because of the US. Here we go again. Nothing good ever comes out of stuff like this. Funny how we unhesitatingly find trillions to wage war, but building things which would have made going to war unnecessary we can’t find the money for. I have to think had we transitioned off fossil fuel after the first energy crisis in the 1970s, then disengaged from the Middle East soon after because it no longer had any strategic value to us, 9/11 plus all that followed would never have happened.

    I feel like this is a Twilight Zone episode where mankind followed the worst possible course. It didn’t have to be this way.

    For the price of the Iraq war, we could have had a great national HSR system which would have made all medium distance flying/driving totally unnecessary. It would have also replaced a significant amount of longer distance flying or driving. The same system could have doubled shipping high-priority freight at nights, pretty much negating the need for long distance trucking. Given that, we may well have been able to just let nature have much of our interstate highway system. We also could have added quite a bit more mass transit to cities. As I said, nothing good ever comes from war when you look at what the money might have bought instead.

  • Kevin Love

    … or Canada.

  • lop

    Average is 73.31 US cents/gallon in Canada. California average is 60.75

    http://www.api.org/~/media/files/statistics/gasoline-tax-map.pdf

    ~83%

  • Kevin Love

    The graph in the Streetsblog article on which we are commenting shows the California tax rate at 40 cents. Your link is combined state and federal taxes.

    Apples/oranges.

  • sbauman

    “Taxable sales of gasoline and diesel fuel in New Jersey are between 450 and 500 million gallons a year. Lifting the state tax rate to the U.S. average would generate over half-a-billion dollars a year in new revenue, free and clear.”

    There’s something wrong here.

    A 10 cent per gallon increase (10 cents to 20 cents – rounded) would net only $50 million per year.

    I’d check your statistics regarding the number of gallons consumed per year. It needs to be on the order of 5 billion gallons to generate $500 per year.

  • lop
  • Komanoff

    Thanks, Steve B and lop, for your eagle eyes. I indeed lowballed the gallonage 10-fold in the original post, though my revenue figure of half-a-billion bucks a year was right, as lop noted. I’ve inserted a correction.

  • lawhawk

    FYI, here’s the actual revenue numbers from NJ:

    The motor fuel tax took in roughly $524m in 2013; $539m in 2012, and $524m in 2011. That’s the revenue collected. http://www.state.nj.us/treasury/taxation/pdf/annual/2013.pdf

    The amount of sales to generate that would be roughly $4-$5 billion depending on the mix of diesel to gasoline sales. Gas tax is at 10.5 cents per gallon; diesel at 13.5 cents per gallon.

    This is far lower than neighboring states. By way of comparison:

    Diesel – basic rate (combined rate w/state and federal):
    CT – 50.3 cents (74.70 cents)
    DE – 22 cents (46.40 cents)
    NJ – 13.5 cents (41.90 cents)
    NY – 8 cents (69.50 cents)
    PA – 64.2 cents (89.70 cents)

    Gasoline (combined rate w/state and federal in parens):
    CT – 25 cents (59.26 cents)
    DE – 22 cents (41.4 cents)
    NJ – 10.5 cents (32.9 cents)
    NY – 8 cents (64.39)
    PA – 50.5 cents per gallon (70 cents)

    Given that NJ hasn’t increased the tax in decades means that it simply hasn’t kept up with inflation (while Christie has overseen a nearly 30% hike in mass transit fares in that time). And support for hiking the gas tax is there – except for Christie’s refusal to address crumbling infrastructure other than by raiding the Port Authority (potentially illegally at that).

  • neroden

    Worth noting: if I’m not mistaken, the NY gas tax in that list looks “low” because that’s jut the gas-specific tax — NY charges sales tax on gasoline (this is in addition to the gas tax).

    Many other states exempt gasoline from sales tax. Including NJ. This is a direct subsidy to the gasoline industry. Charge sales tax on gasoline and you’d raise oodles of money.

  • al

    They’ll shovel it off to county governments, who will raise property taxes to pay for road maintenance.

  • al

    With his record, Christie might institute some sort of TOD tax, ~1 mile of NJT stations, to pay for this.

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