Many people agree Georgia needs a $1 billion increase in transportation funding in the 2016 state budget to maintain its neglected transportation network. But a new transportation funding package (House Bill 170) mostly shifts money from the education, health care and public safety portion of the state budget and takes revenue from local governments. This attempt to solve one problem creates a multitude of other ones.
GBPI’s analysis of HB 170 shows the plan eliminates the state’s 4 percent sales tax on motor fuels and phases out the local portion, which ranges from 2 to 4 percent more. Meanwhile, the state excise tax increases from 7.5 cents a gallon to 29.2 cents a gallon. Today 3 percent of the state sales tax on motor fuels is dedicated to roads and bridges, while 1 percent generates about $180 million for the General Fund. The local portion of the sales tax on motor fuels, which totals about $520 million, will be eliminated over time.
Implementing HB 170 as it stands result s in a $180 million cut to the governor’s 2016 state budget proposal. That constitutes a major setback, just as state revenues and the state budget begin to recover from the devastation of the Great Recession.
The governor’s 2016 state budget proposal includes several significant increases. Examples include:
$280 million more than the prior budget for the K-12 education funding formula. Even with the additional money the funding formula still faces a shortfall of $465 million. Most schools in the 2015-2016 school year can still expect fewer teachers, larger classes, fewer electives and less money for supplies and materials than before the recession.
More than $50 million is included in the budget for a minimal merit-based salary increase for state employees. Take-home pay for most state employees will remain lower than pre-recession levels even with the increase, due to increased health insurance costs over the past seven years.
$12.5 million to hire 278 child protective service workers. The average caseload rose to 20.1 from 13.5 from 2011 to 2014. This new money creates the opportunity to take a first step to decrease the caseload to 15 by 2017. Not only are these funds necessary to move toward the state’s goals, but new money is needed again in the 2017 budget.
That new commitment to such vital programs is welcome. But if Georgia shifts the $180 million in motor fuel revenue now flowing into the state’s General Fund, that jeopardizes those proposed funding increases, as well as funding for healthcare and public safety. This is akin to robbing Peter to pay Paul.
Lawmakers can choose from many sound tax policy options to raise state and local revenue to mitigate the damage from eliminating the motor fuel sales tax. Examples include:
Increase the cigarette tax by $1 a pack, which raises between $325 million and $400 million.
Revisit tax exemptions and credits that overwhelmingly benefit single companies or industries. That includes the sales tax exemption that benefits Gulfstream and other aircraft manufacturers at a state revenue loss of $20 million and a local revenue cost of $15 million, or the electric vehicle tax credit that mostly spurs Nissan Leaf sales at a cost of more than $60 million.
Revisit Georgia’s ultra-generous exemption for retirement income. Returning the exemption to pre-recession levels raises $127 million.
Abolish sales tax holidays, which would generate $42 million for the state and $31 million for local governments.
More details on these revenue options and others are available in our 2014 report “Menu of Revenue Options to Pave Way for Georgia’s Rebound: 2014 Update.”
It is easy to argue the logic of consolidating motor fuel tax policy around an excise tax to focus that money exclusively on transportation. But that is only half the solution. If the goal is to raise $1 billion for transportation, it is imperative the funds are actually new, not just an illusion of new money created through an accounting gimmick.
Alan Essig is the executive director of the Georgia Budget and Policy Institute. He can be reached at firstname.lastname@example.org