Promised tax relief at gas pumps unlikely to materialize

By Jack Brammer – jbrammer@herald-leader.com

FRANKFORT — Kentucky motorists likely won’t get the tax relief at gas pumps they’ve been promised in coming months.

Despite an expected influx of more than $400 million from the federal government for road building, state lawmakers are considering freezing the state’s gas tax of 21.1 cents a gallon to prevent a further shortfall in the state Road Fund.

The tax is scheduled to drop 4 cents a gallon on April 1, based on a 1980 law that ties the tax rate to the average wholesale price of gasoline in the state. The average retail price of regular gasoline in Kentucky has dropped by half in the last six months.

Jack Fish, president of the Louisville-based Kentuckians for Better Transportation, said lowering the tax rate would be “disastrous” for the $1.2 billion Road Fund.

Without “stabilizing the gas tax,” he said, the projected $104.7 million shortfall in the state Road Fund this fiscal year, which ends June 30, could jump another $128 million.

Leading lawmakers have been huddling behind closed doors, sometimes with Gov. Steve Beshear, for much of the week to hammer out a new six-year road funding plan for the state.

House Transportation Chairman Hubert Collins, D-Wittensville, said he expects the tax will be frozen at its current rate.

“We’re being pushed to do things in these hard economic times that we don’t enjoy doing but must be done,” Collins said. “It’s not like we are raising the gas tax. We would just be keeping it at what people are already paying.”

Collins’ counterpart in the Senate, Republican Ernie Harris of Crestwood, said the gas tax was discussed in a closed-door meeting Wednesday of legislative leaders in the Capitol Annex.

Two of those leaders — Senate President David Williams, R-Burkesville, and Senate Minority Leader Ed Worley, D-Richmond — later met privately with Gov. Steve Beshear for about 35 minutes.

Beshear’s spokesman, Jay Blanton, said in a statement that the governor and legislators are “grappling” with the gas tax issue.

“At this point, we haven’t reached a firm resolution but hope to do so in the near future,” Blanton said. “We’re confident that working together with our colleagues in the legislature we’ll resolve a number of issues related to transportation and infrastructure.”

Blanton said the $421 million Kentucky might reap for highways and bridges from the federal economic stimulus bill must be separated from the gas tax discussion.

The federal money is for “shovel-ready projects,” not solving long-term funding challenges in the Road Fund, Blanton said.

“The state will continually need money for its roads, and the gas tax needs to be strong enough to support that,” said Fish with Kentuckians for Better Transportation.

Not everyone is in favor of locking in the current gas tax.

“As an advocate for motorists, we would be against that change,” said Christopher Oakford, spokesman for AAA Blue Grass Kentucky in Lexington. “The state should continue with the law as it was intended.”

The state’s Road Fund budget is $1.22 billion for this fiscal year and $1.4 billion for next year.

The two largest contributors to the Road Fund are the gas tax and motor-vehicle tax. The gas tax is expected to generate $640.5 million this year and the motor-vehicle tax $340.2 million.

Besides the state gas tax, Kentucky motorists pay 18.4 cents per gallon in the federal tax and 1.4 cents per gallon to handle leaking underground storage tanks.

Kentucky started tying its gas tax adjustment to the average wholesale price of gasoline in 1980 amid concerns that skyrocketing gas prices would cause people to buy less, which would harm the Road Fund.

Since its inception, the tax has been adjusted five times — up 1 cent per gallon in 2005, up 1.1 cents in 2006 , up 1.2 cents in 2007, up 1.3 cents in 2008 and up 1.5 cents this year.

The tax has never been lowered.

Now that gas prices are plummeting, the state expects the tax to decrease in April unless the legislature locks in the current rate, said Chuck Wolfe, a spokesman for the state Transportation Cabinet.

“We were looking at a potential 4-cent decrease,” he said.

The state legislature froze the penny increase in the tax in 2005 and an additional 1.1 cents in 2006. The last three increases have not been frozen, yet.

In the past, lawmakers have been eager to lock in the gas tax because that makes the revenue predictable, which allows the state to issue bonds to pay for more road projects. Revenue from the locked-in gas tax is then used to pay off the bonds over time.