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TITLE: transportation tax; election; gas tax |
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SPONSOR: Livingston |
STATUS: As Introduced |
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PREPARED BY: Jordan Johnston |
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Description
The bill would:
· Increase existing motor fuel taxes by an additional one cent each year for 23 years (or a 23 cent increase by 2045) along with adjusting the tax rate for inflation;
· Implement a new annual flat tax of $500 on alternative fuel vehicles and $300 on hybrid vehicles;
· Authorize Maricopa County to impose a new transportation excise tax, subject to voter approval, which would effectively increase the current half-cent sales tax to a new 3/4 cent sales tax starting in 2026;
· Redistribute the local government portion of Highway User Revenue Fund (HURF) revenues collected from motor fuel taxes; and
· Require the Arizona Department of Transportation (ADOT) to construct 6 new transportation projects.
Estimated Impact
In the short term, we estimate that:
· The increase of current motor fuel taxes would increase HURF revenues by $18.5 million in FY 2022, $75.7 million in FY 2023 and $129.2 million in FY 2024.
· The new taxes on alternative fuel and hybrid vehicles will increase HURF revenues by $56.1 million in FY 2022, $57.2 million in FY 2023 and $58.3 million in FY 2024.
Combined, these 2 provisions would increase HURF revenues by $187.6 million by FY 2024 (See Table 1).
The longer-term impact of the bill will depend on how quickly automobile manufacturers and the public shift from gasoline-based vehicles to electric and hybrid vehicles. The actual collection of gas and diesel tax revenues may be less if the gas-powered vehicle market share drops significantly. Conversely, given the expected increase in electric and hybrid vehicles for the foreseeable future, the new tax on alternative fuel and hybrid vehicles could generate in excess of $400 million in revenue by the end of the decade.
If Maricopa County voters approve the new transportation excise tax, we estimate that Regional Area Road Fund (RARF) and Maricopa County public transportation revenues will increase above the existing half-cent sales tax by $133.8 million in FY 2026, $337.2 million in FY 2027 and $354.1 million in FY 2028. The Maricopa Association of Governments (MAG) estimate the new tax will increase RARF and Maricopa County public transportation revenues by $145.3 million in FY 2026, $312.0 million in FY 2027, and $332.0 million in FY 2028, adjusted for inflation in 2020 dollars.
We do not have an estimated cost for the 6 new transportation projects.
We have not yet received fiscal impact estimates from ADOT.
Analysis
The bill would make the following changes:
(Continued)
· Increase the taxes per gallon of gas and diesel by 1 cent annually starting January 1, 2022. The 1 cent tax increase would end December 31, 2045.
· Adjust the taxes per gallon of gas and diesel annually starting July 1, 2022 based on average annual change in Consumer Price Index (CPI) as published by the Bureau of Labor Statistics (BLS).
· Implement an alternative fuel vehicle tax of $500 and a hybrid vehicle tax of $300 annually starting in FY 2022.
· Effective January 1, 2026, and subject to voter approval, implement a transportation excise tax in Maricopa County for 20 years at a rate not more than 15% of the transaction privilege tax (TPT), which would effectively increase the current half-cent tax to a 3/4-cent tax.
Additionally, the bill requires ADOT to widen lanes on 2 sections of Interstate-17 and 3 sections of Interstate-10 as well as construct a suspension bridge on State Route 30.
Increased Gas and Diesel Tax
The bill would require the current 18 cents per gallon gas tax and 26 cents per gallon diesel tax be adjusted by 1 cent annually starting on January 1, 2022, with the 1 cent increase for the gas tax ending on December 31, 2045. Prior to an adjustment for inflation, the gas tax would be 41 cents by 2045. The bill further adjusts these taxes based on average annual change in CPI each year starting on July 1, 2022. For the sake of this analysis, we assume the bill will apply to the average annual change in CPI over calendar years and we assume an adjustment to the nearest tenth of a cent.
The analysis further assumes an estimated 2.9 billion gallons of gas and 0.8 billion gallons of diesel consumed, based on FY 2020 consumption. Under these assumptions, we estimate the gas tax would generate approximately $529.7 million in revenue and the diesel tax would generate $222.2 million in revenue in FY 2022 compared to $515.4 million in gas tax revenue and $218.0 million in diesel tax revenue in FY 2020, or a net increase of $18.5 million for the half-year in which the increased tax is effective in FY 2022.
In the beginning of FY 2023, the bill, based on a 2022 annual change in CPI of 2.46%, would result in a new gas tax rate of 19.5 cents and a new diesel tax rate of 27.7 cents. Adjustments would continue on January 1 (1 cent) and July 1 (CPI) annually, until the gas tax 1 cent increase eventually ends on December 31, 2045.
We would note that the actual increase could differ from our estimate depending on how much gas or diesel fuel is used in FY 2022 compared to FY 2020. In the long-term, as a greater proportion of vehicles are alternative fuel or hybrid vehicles, the amount of increased revenues derived from the increased gas and diesel fuel tax could be significantly less than our estimates (see further discussion on alternative fuel and hybrid vehicle usage below).
New Alternative Fuel and Hybrid Vehicle Tax
According to data from ADOT, there are 29,412 electric vehicles in Arizona as of FY 2019. Using data from the federal Energy Information Administration (EIA) we estimate 12,297 additional alternative fuel vehicles in the state. While ADOT records no data on hybrid vehicles, the most recent data from EIA suggests that 1.8% of the nation's 241 million vehicles are hybrid vehicles. Applying the same proportion to Arizona's estimated 6.4 million motorized vehicles, we estimate that there are about 114,400 hybrid vehicles in the state currently. We assume 2% growth per year for both alternative fuel and hybrid vehicles. Based on these assumptions, we estimate that the new $500 tax on alternative fuel vehicles and $300 tax on hybrid vehicles would generate $56.1 million in FY 2022, $57.2 million in FY 2023, and $58.3 million in FY 2024.
In the longer run, the bill is likely to generate substantially more revenue as the use of electric and hybrid vehicles increase. For example, Toyota and Volvo have each announced plans to generate half of their sales from electrified vehicles by 2025. General Motors has set a target date of 2035 for ending production of gas and diesel vehicles. If manufacturers approach these targets, this bill would generate significantly more revenue. In 2018, electric vehicles totaled 1 million across the country. By 2030, Deloitte forecasts 31 million electric vehicles in the U.S. while the Edison Electric Institute (EEI) forecasts 18.7 million electric vehicles in the U.S. Given the expected increase in electric and hybrid vehicles for the foreseeable future, the tax could generate in excess of $400 million in revenue by the end of the decade.
(Continued)
Table 1 outlines the revenue increase for the increase of current motor fuel taxes and creation of new electric and hybrid vehicle taxes for FY 2022 through FY 2024. We have assumed the alternative fuel vehicle and hybrid vehicle taxes are implemented on July 1, 2021.
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Table 1 |
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SB 1650 HURF Revenue Increase Above Current Law by Year |
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FY 2022 |
FY 2023 |
FY 2024 |
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Motor Fuel |
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Gasoline |
$14,316,700 |
$57,266,700 |
$97,353,300 |
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Diesel |
_ _4,192,300 |
_ 18,446,200 |
_ 31,861,500 |
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Subtotal - Motor Fuel |
$18,509,000 |
$75,712,900 |
$129,214,800 |
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Vehicles |
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Alternative Fuel |
$21,754,200 |
$22,189,300 |
$22,633,100 |
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Hybrids |
__34,320,000 |
__35,006,400 |
__35,706,500 |
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Subtotal - Vehicles |
$56,074,200 |
$57,195,700 |
$58,339,600 |
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Total |
$74,583,200 |
$132,908,600 |
$187,554,400 |
Beyond the direct HURF impacts, the following macroeconomic components may also affect the bill's overall impact: 1) increased prices from the bill on fuels and vehicles may reduce demand for motor fuels and vehicles; 2) the increased price of gas may reduce consumer spending on other goods; and 3) the effect of significantly increased highway construction spending on the state economy. These different components could likely both increase and decrease state non-HURF revenue. An analysis incorporating those elements in greater detail is beyond the scope of this limited analysis.
Local Government Impact
Increased HURF Taxes
Local governments receive 49.5% of HURF revenues, with 19% directed to counties and 30.5% to cities and towns. However, as previously noted, the bill redistributes gas and diesel tax revenues within HURF. The bill would redistribute the current 49.5% local government distribution of gas and diesel tax revenues within HURF as follows: 40% to Maricopa County and cities and towns within Maricopa County and 60% to all other counties and cities and towns within those counties. We estimate the bill will increase local HURF revenues by $36.9 million in FY 2022, $65.8 million in FY 2023 and $92.8 million in FY 2024 from the increase of current motor fuel taxes and creation of new alternative fuel and hybrid vehicle flat taxes.
Maricopa County Excise Tax
Using the Department of Revenue's (DOR) Annual Reports, we calculated the tax base and its average growth rate were calculated using historical revenue data from the Maricopa County Road Tax and some simplifying assumptions.
The new Maricopa County transportation excise tax would modify the current half-cent sales tax to increase to a 3/4 cent sales tax starting January 1, 2026, after the current half-cent sales tax is scheduled to expire. Because the bill would go into effect on January 1, 2026, the new tax rate of .75 cents would only apply for half that year, from January to June of 2026. TPT collections are delayed by a month – what is collected by businesses in January would be remitted to DOR at the end of February, which is why there are only 5 months in 2026 with the new rate. This projection uses assumed growth rate of 5%, which is based on of the average 10-year growth rates of the tax base. Overall, we estimate the new tax will increase RARF and Maricopa County public transportation revenues above the current half-cent level by $133.8 million in FY 2026, $337.2 million in FY 2027 and $354.1 million in FY 2028.
2/24/21