Truckers say state will feel the pain of third successive diesel tax hike

Connecticut motorists might think they have it bad on July 1 when state fuel taxes jump nearly 4 cents per gallon.

But the state’s trucking industry is bracing for a fuel tax hike of that size – for the third year in a row.

The state Department of Revenue Services announced Wednesday that the diesel fuel tax would climb 3.7 cents per gallon on July 1, from 51.2 to 54.9 cents.  Connecticut already has the highest diesel tax rate in the nation.

But couple this latest hike with previous July increases of 5 cents last year and 3.6 cents in 2011, and the state’s diesel rate will have grown by an average of 4.1 cents per gallon over three years.

“It’s disappointing that the state beats up its trucking industry like that,” Michael Riley, president of the state’s largest trucking association, said. “This does, in fact, increase the cost of doing business in Connecticut. This is not business-friendly.”

According to the AAA, the average price of diesel stood Wednesday at $4.16 per gallon. One year ago it was $4.10 per gallon.

“The people who will feel the brunt of this (diesel) tax are the employees of the trucking companies,” said Riley, who represents more than 800 businesses as head of the Motor Transportation Association of Connecticut.

“For some it will mean less hours,” he added. “For some it will mean less wages. And for some companies it may mean less drivers.”

Under a statute adopted six years ago, the diesel tax is adjusted annually using a complicated formula that analyzes wholesale diesel price changes over the prior year, as well as the state’s wholesale tax on gasoline and certain other fuels.

Unfortunately for truckers and other motorists, one of the factors behind the diesel tax hike — the wholesale gasoline tax — is headed for one of the largest increases in state history in less than three weeks.

That tax will jump, according to a statute passed in 2005, from 7 percent to 8.1 percent. Oil companies pass the tax along to gasoline stations — which in turn transfer the cost to consumers — and the state imposes a complicated surcharge on this transfer that effectively boosts the rate further.

The effective tax jumps from 7.5 percent to 8.8 percent. And, based on current wholesale prices, that means motorists will pay about 3.8 cents per gallon more.

But the chief economist for the Connecticut Business & Industry Association said consumers would feel the diesel hike as well as the increase on regular gasoline.

Trucks run on diesel fuel and “everything imaginable gets delivered by truck,” CBIA economist Peter Gioia said. And because its port and freight rail systems aren’t fully developed, “Connecticut is much more truck-dependent than most other states.”

Whether this involves groceries, other items available for retail sales, or even raw materials for manufacturing, products delivered by truck cost more when diesel fuel costs more.

“It’s a ripple effect,” Gioia said. “Part of this gets transferred over to the consumer.”

Further complicating matters, Riley said, is that the new state budget raids more from the transportation system than the rising fuel taxes can add.

The wholesale gasoline tax increase is worth about $60 million per year, and the diesel tax increase is worth roughly another $10 million.

But the new two-year budget siphons off an average of $100 million per year from the transportation system for non-transportation programs.

Gov. Dannel P. Malloy and leaders of the legislature’s Democratic majority have said the new budget features several tough choices as Connecticut’s economy recovers slowly from the recession.

“No session is perfect, but I believe we made good progress,” Malloy told Capitol reporters last Thursday, noting that the next budget increases funding for education and economic development while sparing municipal aid from cuts.

“The diesel tax is determined by a statutory formula,” said Gian-Carl Casa, spokesman for the governor’s budget office. “The major factor in the formula is the wholesale price of diesel set by the major oil companies. Connecticut has no tolls, which truckers pay in most of the surrounding states.”