File this one under the least anticipated proposals of the 2011 General Assembly session.

The state’s largest trucking association is asking Gov. Dannel P. Malloy and lawmakers to impose an even larger diesel fuel tax hike on its members than originally proposed.

But of course there’s a trade-off: The Motor Transport Association of Connecticut wants to be spared from an administration proposal to allow municipalities to collect property taxes on large commercial vehicles.

In its place, the association suggests, the legislature could tack an extra penny onto Malloy’s proposal to boost the diesel fuel tax by 2 cents per gallon starting in July.

Connecticut currently levies a 39.6 cents per gallon tax on diesel fuel. It is adjusted annually by law to reflect increases in regular gas prices, and is expected to climb several cents in July. The 2 cents proposed by Malloy — and additional penny suggested by the association — would apply on top of that.

Both a property tax on commercial vehicles and an extra 1 cent per gallon on diesel fuel would raise between $2 million and $3 million per year. The difference, according to the president of the Motor Transport Association of Connecticut, Michael J,. Riley, is that the diesel levy would be shared both by in-state and out-of-state companies, while property taxes only would fall on the latter.

“To lose that property tax exemption would really be devastating to some of our members,” Riley said, adding some firms would face a tax hike approaching $100,000.

He also predicted that if the exemption were removed, larger companies with facilities both in Connecticut and in other states would base their vehicles elsewhere. Other northeastern states that fully or partially exempt property taxes on large commercial vehicles include New Jersey, New York, Pennsylvania, Rhode Island and Vermont.

But while the association insists that the potential revenue gains under the competing proposals are nearly identical, the beneficiary of the tax is not.

Under the governor’s plan, cities and towns would reap the benefits of being able to tax large commercial vehicles. Under the association’s plan, diesel fuel taxes would rise, and those taxes accrue to the state.

“I admire Mr. Riley’s ingenuity, but it still leaves us on the hook,” James Finley, executive director of the Connecticut Conference of Municipalities, said Tuesday.

Local leaders, who have argued that state aid has not grown to match inflation for much of the past two decades, would see state grants remain flat at nearly $2.9 billion under Malloy’s $19.74 billion budget proposal the fiscal year that begins July 1.

The governor, who inherited a built-in shortfall between $3.2 billion and $3.67 billion in 2011-12, would allow towns to collect an extra $85 million next year through increased taxing power and a new share of state sales and hotel tax revenues.

Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, recently reviewed the association’s proposal. And while he said “it is worth considering,” Barnes said its future could hinge on whether communities might receive some other benefit to replace the potential property taxes tied to commercial vehicles.

“So far we’ve tried very hard to avoid harming local governments,” he said.

Sen. Eileen Daily, D-Westbrook, co-chairwoman of the tax-writing Finance, Revenue and Bonding Committee, said that while she expected to receive details of the association’s proposal in the near future, she agreed the impact on local communities would have to be closely reviewed.

But Daily added that Riley’s group deserves credit for taking a step few other interest groups have this year, by suggesting an alternative revenue source rather than simply asking that a tax not be imposed without offering other choices.

“That’s what we need to hear when we face a deficit like this,” she said.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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