New Jersey goes where others fear to tread

The US state is raising taxes on gasoline and diesel to help pay for infrastructure and is increasing the state’s use of public-private partnerships.

New Jersey is raising gasoline and diesel taxes next month, a politically unpopular move that could lead to investments in the Garden State’s infrastructure.

The New Jersey Department of Treasury announced last week a 9.3-cent-per-gallon tax hike for gasoline and diesel, which will go into effect 1 October. The state’s total tax rate for gasoline will now be 50.7 cents per gallon and 57.7 cents for diesel, making New Jersey the fourth-highest US state for fuel taxes.

Raising taxes is one of the easiest ways for politicians to lose public support, but it’s also a useful way for governments to collect money for infrastructure projects. That’s exactly what New Jersey governor Phil Murphy, a Democrat, plans to do. And thanks to his predecessor, Chris Christie, a Republican, he has political cover to do it.

New Jersey’s treasury department said in a statement that the fuels tax hike is a mandatory measure to “ensure compliance” with a law Christie signed in 2016, as his second term was coming to an end. The law, known as the Petroleum Products Gross Receipt, planned for $16 billion of funding dedicated to New Jersey’s Transportation Trust Fund – and spread over eight years – that would come from fuels tax revenues.

It’s amazing what politicians not facing re-election can muster the courage to do.

While the PPGR law established a mechanism for infrastructure funding, the covid-19 pandemic has led to tax revenues coming up short. Lockdowns and economic turmoil mean people are driving less. However, Murphy’s administration says it is obligated to collect the $2 billion transportation funding.

“The law enacted in 2016 contains a specific formula to ensure that revenue is meeting a certain target,” New Jersey State treasurer Elizabeth Maher Muoio said in a statement. “When it does not, the gas tax rate has to be adjusted accordingly.”

What Murphy hopes voters understand from that is the state is grandfathered in to meeting the tax revenue requirement.

Still, Murphy has set out to make sure the public’s money is spent prudently. In 2018, early in his administration, Murphy enacted Bill S-865 which expanded the state’s definition of what qualifies as public-private partnerships to include roads, bridges, public facilities and other types of infrastructure. The bill also allows public funding to contribute to PPPs costing more than $100 million, or to projects costing less than $10 million.

Murphy knows he can make $2 billion per year for infrastructure revitalisation go a lot further if project costs are offset by private investors.

And New Jersey isn’t even reinvesting all of the fuel tax revenues back into the infrastructure that drives demand for gasoline and diesel – highways and bridges. The state has also been earmarking part of the revenues for other transportation needs.

A report published in June by The Reason Foundation, a free-markets think tank, found that New Jersey ranks third among US states for percentage of fuel taxes repurposed for other transport-related initiatives. But while some states have diverted funding to unrelated activities, New Jersey apportioned nearly a quarter of its fuel tax revenues for rail, bus and light rail investments in fiscal year 2018.

For politicians, the only thing harder than raising taxes these days is working across the aisle to make it happen. New Jersey is making that happen, even if the two sides aren’t in the same room.

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