With budget looking better, truckers seek relief from diesel tax hike

It didn’t take very long.

One business day after Gov. Dannel P. Malloy announced a concession deal to save $1.6 billion over the next two fiscal years, the administration and legislature received a request to cancel one of the multitude of tax hikes they adopted about two weeks ago.

But a spokesman for the state’s largest trucking association says that shaving two cents per gallon off the diesel fuel tax still would leave his group to face a sizeable tax hike starting July 1.

The alternative, according to Michael J. Riley, president of the Connecticut Motor Transport Association, would be for trucking companies to pass along a major fuel tax hike to their business clients–and ultimately to consumers.

“We’re already going to have to take a significant hit,” Riley said, referring to the annual adjustment in the diesel fuel tax that has been mandated since 2007 to reflect price changes. “We all know what’s been happening.”

The diesel fuel rate, which currently stands at 39.6 cents per gallon, is calculated under state law by the Department of Revenue Services based upon price changes over the past year, and the new rate effective July 1 won’t be known until next month. But according to the U.S. Energy Information Administration, the price of diesel fuel on New England highways has grown from $3.03 to $4.21 since last June.

The diesel tax is responsible for about one-fifth of the nearly $500 million that retail fuel taxes raise annually for the Special Transportation Fund, the component of the annual budget dedicated to road, bridge and other infrastructure maintenance and upgrades.

The legislature’s nonpartisan Office of Fiscal Analysis had warned shortly before the 2011 legislative session began that the transportation fund, which totals nearly $1.2 billion this fiscal year, was on pace to run $71 million in deficit in the fiscal year that begins July 1 unless adjustments were made.

Further complicating matters, the transportation fund has been harmed in recent years by the increasing use of revenues from a tax on wholesale fuel transactions for non-transportation programs.

State government dedicated $128 million from this wholesale tax to its General Fund this fiscal year, leaving $165 million for transportation.

Malloy, who decried this diversion of fuel tax revenues during last fall’s campaign, originally proposed several measures to strengthen the transportation fund in 2011-12 including:

• Shifting $35 million in wholesale fuel revenue from the General Fund to transportation.
• Adding 3 cents per gallon to the retail gasoline tax.
• And adding 2 cents per gallon to the retail tax on diesel fuel.

But legislators rejected the gasoline tax hike, choosing instead to shift even more wholesale fuel tax revenue, $61 million, away from the General Fund.

The legislature did boost diesel fuel taxes by 3 cents instead of 2. But the extra penny came at the request of the truckers’ association, which offered to support the higher tax hike if lawmakers and Malloy would agree to scrap a proposal to end the municipal property tax exemption for large commercial vehicles.

The $19.83 billion state budget that lawmakers adopted earlier this month for the coming fiscal year includes a $1.3 billion transportation fund now projected to have a $1.5 million surplus.

But Riley said that given the surge in fuel prices over the past year, the association believes the annual adjustment in diesel taxes will yield a tax increase large enough to cover at least 2 of the 3 cents added in the adopted budget.

Still, legislators and Malloy chose to cut close to $700 million from social service and other programs, boost overall state taxes by more than $1.5 billion, and have a tentative concession deal with state employee unions that the administration says would save $1.6 billion over the next two years.

Given all of these tough decisions, the House chairwoman of the tax-writing Finance, Revenue and Bonding Committee said officials would risk opening a political Pandora’s Box if they canceled a tax hike for one interest.

“Once you do that for one group, you’re probably going to hear from a lot of others,” Rep. Patricia Widlitz, D-Guilford, said, adding lawmakers already accommodated the truckers once by leaving the property tax exemption in place.

Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, also was wary of the association’s request. “How is that not going back on your word?” he said. “They agreed to support a 3-cent-increase if we worked with them on the (property tax) exemption.”