Democrats pledge fuel tax relief, but only for one year

Majority Democrats proposed a one-year cap Monday on the state’s escalating wholesale fuel tax — but set it to expire one day before one of the largest fuel tax increases in state history is set to kick in.

Democratic leaders in the House and Senate pledged to consider extending the cap beyond June 2013, but said they couldn’t commit to one given uncertainties about the state budget. But the budget Gov. Dannel P. Malloy proposed in February for 2012-13 faces a major deficit — based on the administration’s own numbers — one year later, the same time that state fuel taxes would climb dramatically.

Republican legislative leaders, who have been advocating a cap on the state’s most volatile levy on gasoline for several months, agreed to support the proposal, but criticized Democrats for including an expiration date.

At New Haven harbor, the single-largest fuel importing site in Connecticut, the wholesale price of gasoline stood Monday at $3.18 per gallon, according to the Independent Connecticut Petroleum Association. The Democrats’ proposal would calculate the tax based on an artificial ceiling of $3 per gallon whenever the actual wholesale price rises above that mark.

Based on current tax rates and that price, the cap would trim about 1.4 cents per gallon off a total state gasoline levy that approaches 49 cents per gallon.

“Today we are saying to the consumers of Connecticut we understand your concerns,” House Speaker Christopher G. Donovan, D-Meriden, said during a midday news conference on the north steps of the Capitol.

According to the Connecticut AAA, the average retail price of regular gasoline stood at $4.01 Monday, a price topped by only five other states and the District of Columbia.

“As Connecticut families are having to tighten their belts, … so, too, are we as a state,” said House Majority Leader J. Brendan Sharkey. “We don’t want to benefit from rising gas prices.”

State often has benefited from gas tax

But since the 2005 General Assembly and then-Gov. M. Jodi Rell overwhelmingly imposed a battery of gasoline tax increases on Connecticut consumers — just seven “no” votes in the entire legislature — the state’s coffers often have benefited considerably from rising prices.

Connecticut actually imposes two levies that affect gasoline prices: a fixed, 25-cents-per-gallon tax on retail transactions, and a 7 percent tax on gasoline and certain other fuels when they are distributed to local filling stations and other retailers.

But the state allows fuel distributors, who actually collect and pay the wholesale tax, to pass the cost along to station owners, and through them to motorists. This is part of a complicated system that effectively elevates the 7 percent levy to a rate of 7.53 percent, a system that the state Supreme Court affirmed in 1987.

And it’s been this wholesale tax — which increased in the summers of 2005, 2006 and 2007 — that has driven overall gasoline prices in Connecticut higher than those in neighboring states.

The 2005 hikes were ordered to complement what was billed at the time as a major transportation initiative. Between 2005 and 2006, state officials would earmark $2.3 billion for rail, highway and bridge upgrades, and the fuel tax increases were pitched as necessary to cover the bill.

But in the first five years after those tax hikes were ordered, just 40 percent of the nearly $1.5 billion raised by the wholesale fuel levy was dedicated to the Special Transportation Fund.

A fourth consecutive annual increase in the tax was supposed to take effect in July 2008, but Rell and the Democratic-controlled legislature canceled it amid skyrocketing fuel prices and media reports of tax revenues used for non-transportation programs.

‘Tax-gouging’

The top Republicans in the House and Senate, minority leaders Lawrence F. Cafero and John P. McKinney, noted Monday that members of their caucuses have been pressing for a cap on the wholesale fuel tax since the 2008 debate.

“It is with great admiration that I say ‘thank you’” to Democratic leadership, Cafero said. “Fortunately, I think they have realized that people out there are angry and frustrated.”

“This is a good day,” added McKinney, who predicted that a cap could be enacted within a matter of days if Democrats want to move quickly. “Our tax is too high and unfair.”

State gasoline taxes are on pace to get much higher in July 2013 when the fifth and final wholesale increase ordered by the 2005 legislation is set to kick in. This would raise the statutory rate from 7 percent to 8.1 percent, and the effective rate passed onto motorists from 7.53 percent to 8.81 percent.

Based on current wholesale prices, that would add 4 cents per gallon to price of gasoline in one move.

And what if wholesale prices — which have risen 43 cents per gallon since Jan. 2 — continue to rise and lie well north of the $3 per gallon mark when the cap expires in 15 months? Not only would taxes rise because of the higher rate, but the increase would exceed 4 cents because the higher rate would be imposed on a larger, uncapped wholesale price.

“What’s been proposed today is only half of a step,” said Sen. Len Suzio, R-Meriden, who first proposed capping the tax last October. “If price-gouging is wrong all of the time, then so is tax-gouging. The people of Connecticut need a permanent tax break.”

Deficit looms

Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, said that while his party’s cap system does expire in 15 months, that doesn’t mean Democrats won’t consider renewing it.

“We will come back next year and look at the totality of circumstances of the budget,” he said.

But right now, those circumstances look like Malloy and his fellow Democrats in the legislature may need more revenue.

The $20.7 billion budget Malloy proposed in February for 2012-13 is balanced in that fiscal year. But based on the administration’s own numbers, the plan would run a $424 million deficit in 2013-14 — the same year that the wholesale fuel tax hike would arrive.

Fiscal analysts for the administration and the legislature projected in January, before wholesale fuel prices shot up dramatically, that wholesale fuel taxes would raise an extra $37 million in 2013-14. Canceling the tax increase would increase the long-range shortfall in the governor’s budget plan.