NEW JERSEY – The Department of the Treasury announced Thursday that lower fuel consumption levels the last two years necessitate a gas tax increase of 4.3 cents per gallon in order to ensure compliance with the 2016 law that requires a steady stream of revenue to support the state’s Transportation Trust Fund (TTF) program.
Under the 2016 law (Chapter 57), 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.
Due to the formula explicitly outlined in the law and after a thorough review, the PPGR tax rate on gasoline and diesel will increase 4.3 cents per gallon to 26.9 cents, effective Oct. 1, 2018.
“The precise change in the gas tax rate is dictated by several factors, all of which are beyond the control of the current administration,” said State Treasurer Elizabeth Maher Muoio. “The law enacted in 2016 contains a specific formula to ensure that revenue is meeting a certain target. Unfortunately, because the Christie administration overestimated gas consumption rates last year, the tax rate has to be increased by nearly two cents more this year in order for us to meet our obligation under the statute and fully fund the state’s many pressing transportation infrastructure needs.”
Last August, the first year a decision had to be made under the new law, the Christie 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 current PPGR rate calculation. If the PPGR rate had been increased last year, the estimated PPGR rate for this fiscal year would be 25.2 cents, an increase of 2.6 cents.
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.
In order to calculate whether a change in the PPGR tax rate is necessary to achieve the Highway Fuels Revenue Target, the administration applied the formula laid out in the law based on the following revenue numbers:
- In FY 2017, motor fuels consumption declined and revenue collections missed the target set in 2016 by the Christie administration by $42.6 million. However, no PPGR Tax rate increase was proposed for FY 2018 and the rate remained at 22.6 cents.
- In FY 2018, revenue collections again missed the target set in 2017 by the Christie administration, this time by $125.2 million. By law, this shortfall is added to the new target for FY 2019.
- Therefore, the statutory revenue target for FY 2019 is $2,073.1 million, which equals the sum of the FY 2016 base level of $1,947.9 million (laid out in the law) plus the $125.2 million prior year shortfall.
- To achieve the $2,073.1 million target with stable motor fuels consumption, the statutory formula requires a PPGR Tax rate of 26.9 cents, an increase of 4.3 cents over the current rate.
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.