Daily Tax Report: State

Governor’s $300M Gas-Tax Plan Approved in Alabama (1)

March 12, 2019, 8:02 PMUpdated: March 12, 2019, 9:06 PM

Alabama Gov. Kay Ivey signed her $300 million gas tax plan into law after it won quick passage in a week-long special legislative session.

The state’s taxes on gasoline and diesel fuel will increase by 10 cents per gallon by October 2021, while drivers of electric and plug-in hybrid vehicles will pay annual registration fees of $200 and $100, respectively, under H.B. 2. The state currently charges 18 cents per gallon for gasoline and 19 cents for diesel.

“We will use this new revenue to build a better future for our state for years to come,” Ivey told reporters March 12 at a bill-signing ceremony.

The Republican governor had told state legislators a gas tax increase to pay for infrastructure improvements was her top legislative priority in 2019. Following her March 5 State of the State address, she called them into a special session—pre-empting their regular session that had begun the same day—to focus on the infrastructure plan. The Senate passed H.B. 2 on March 12 by a vote of 28-6, after the House passed it March 8.

Alabama, which is dealing with increasing reports of aging infrastructure including bridges deemed unsafe for large trucks or school buses to cross, was one of several states considering a gas tax increase this year. Among the other states taking action, Arkansas Gov. Asa Hutchinson (R) signed March 12 a $300 million highway-funding plan that includes a fuel tax hike, and the Ohio House passed a bill March 7 to increase gas taxes by 10 cents per gallon and diesel by 20 cents. Meanwhile, Michigan’s governor is proposing an increase of 45 cents per gallon.

Previous gas tax proposals in Alabama have met resistance, but this year’s proposal passed both the House and Senate with more than 80 percent support. The infrastructure plan had the backing of city and county government associations, as well as the Business Council of Alabama.

Roads, Port, Charging Stations

The tax increase will come in steps, with a 6-cent increase in September 2019, another 2 cents in October 2020, and the final 2 cents in October 2021. Once the full 10-cent increase takes effect, the fuel taxes are expected to yield $323 million in new tax revenue annually, according to a legislative staff analysis. The money will go primarily to roads and bridges, while $11.7 million per year will be allocated to paying the bond financing expense for improvements at the Mobile port.

A portion of the electric-vehicle fees will be dedicated to installing vehicle-charging stations around the state. The legislative analysis didn’t provide an estimate on how much money the fees would raise.

The legislation also called for automatic adjustments that are indexed to highway construction costs—calculated every second year beginning in October 2023 and not to exceed a 1-cent increase or decrease in any single adjustment.

Some legislators voiced concerns about the indexing, saying their constituents feared the fuel taxes would climb excessively high in decades to come.

Sen. Clyde Chambliss (R), who carried the legislation in the Senate, said the indexing was crucial to ensuring the state’s problem of inadequate funding for road improvements doesn’t return a few years from now.

“We have a tendency in Alabama to kick the can down the road,” he told fellow Senators during March 12 floor debate. “This is a solution to the problem. It’s a long-term solution to the problem.”

Chambliss disputed the idea that indexing would cause fuel taxes to rise excessively. If the same formula had been in effect for the last 15 years, fuel taxes would have increased by a net total of 1 cent per gallon over that time, he said.

(This story has been updated to reflect Gov. Kay Ivey signing the gas tax plan and her comments. )

To contact the reporter on this story: Chris Marr in Atlanta at cmarr@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Megan Pannone at mpannone@bloombergtax.com

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