Gas Tax Allocation
In March 2012, a new survey of the state line separating North and South Carolina resulted in 93 property owners being sent, as it were, into the other state. One of the affected properties was a gas station formerly in Lake Wylie, South Carolina. Upon his business being found to operate in North Carolina, the station owner told media he would probably have to close it — in part because he could no longer sell fireworks, but also because gas in N.C. costs about a quarter more per gallon.
It's no secret that North Carolina has the highest gasoline tax in the region. Drivers here going on long road trips are encouraged to wait till they cross state lines, regardless of direction, before filling up. Contrary to public expectation, not all of those tax revenues go into road and highway needs.
Key Facts
- For the first half of 2012, North Carolina's tax on gasoline was 39.2 cents per gallon (cpg). The 2012 budget bill adjusted and capped the rate at 37.5 cents.
- North Carolina's gasoline tax rate ranked 6th highest in the nation, according to the Tax Foundation. It was also the highest in the South.
- The rates for neighboring states were these: South Carolina, 16.8 cpg (47th in the nation); Virginia, 19.8 cpg (40th); Tennessee, 21.4 cpg (36th); Georgia, 29.4 cpg (18th).
- True entrepreneurship, which is about spotting opportunities for profit in the market, is what lifts economies out of recessions and creates jobs.
- North Carolina's gas tax rate is higher than South Carolina and Virginia's combined, or even South Carolina and Tennessee's combined. It’s almost as high as the the combined rates of Virginia and Tennessee.
- Including the federal tax of 18.4 cpg, North Carolina drivers will pay 55.9 cpg for the remainder of 2012. In other words, each gallon of gasoline sold in North Carolina nets well over half a dollar in tax revenue for the state and federal governments.
- About one-fourth of highway funds are diverted annually into other, non-highway expenditures, and an increasing proportion of the highway funds are spent on planning and other pre-construction activities. These include such items as ferries, railroads, public transportation, and other non-road-related expenditures.
- Of the eight state highway funding distribution programs examined by transportation expert David T. Hartgen in 2010, only one (Contract Resurfacing) allocated funds based on need. Major funds made allocations based on geography or discretion.
- A new "Mobility Fund" approved in 2010 would allocate highway funds to transportation projects considered of "statewide or regional significance" and would prioritize reducing travel times "across transportation modes" — but that means eligible projects for the fund include non-highway projects with low commuter demand such as rail transit.
- Unlike in many states, there is no county-based road system in North Carolina. Municipalities manage urban roads, and the state manages roads between municipalities.
- North Carolina is among the bottom states in the nation in road funding per mile.
- Since the early 2000s, after years of decline, the state's roads have improved on some performance measures.
- With the state's gas tax already high, it is neither wise nor feasible to meet additional highway funding needs through higher taxes. Hartgen found that the state could meet those needs through better prioritization of projects (using such needs-based measures as congestion, condition, accident rates, and traffic).
Recommendations
- Stop spending highway funds on non-highway, non-pavement expenditures. North Carolina drivers should not pay one of the nation's highest gasoline tax rates to add to the General Fund or subsidize alternative modes of transportation with political rather than public support.
- Change funding formulas to focus highway spending on need. This recommendation requires deciding the best ways to measure highway needs — i.e., through measuring congestion, road condition, accident rates, traffic, etc. — to allow for a more judicious management of existing highway funds.
Analyst: Jon Sanders
Director of Regulatory Studies
919-828-3876 • jsanders@johnlocke.org
