WASHINGTON
RESEARCH
COUNCIL
POLICY
BRIEF
April 13, 1993
Governor's transportation plan: the cost factor
Gov. Lowry has proposed $937 mil-
lion in tax and fee increases over the
next two years to pay for a broad
range of transportation improvements.
The economic impact of this plan must
be taken into consideration. The plan
Overview
would raise fuel taxes to among the
highest in the nation. Heavy new costs
on motor carriers could result in lower,
rather than higher, state revenue collec-
tions, higher costs for some goods and
services and a loss of businesses. The
governor's proposal to apply the sales
tax to gasoline also raises concerns
about constitutionality and the integ-
rity of the state's transportation fund.
W
ashington motorists may be
looking at a 2 2 cent per
plan are to provide jobs for the state
economy and to solve current and future
Vancouver, Washington.
o Improving rural roads, particularly in
gallon increase at the gas pump if the
governor's transportation plan is ap-
proved. In his "Keep Washington Mov-
ing Plan," released on March 22, Gov.
Mike Lowry proposed a comprehensive
tax package and fee increases to pay for
an ambitious list of transportation projects
in the state.
The financing plan includes a 12 cent
increase in the gas tax over the next
three years, a redefinition of retail sales
subject to the sales tax to include gaso-
line, and an increase in trucking fees.
The governor projects that approving
the program would raise $937 million in
state revenue in the next two years.
Motor carriers would also be looking
at increases in fees and taxes that would
translate to some of the highest in the
nation. This could result in reduced fuel
purchases in Washington state, as op-
erators are induced by high prices to
purchase fuel in other states. Other eco-
nomic effects would include shifts by
businesses to other means of delivering
goods, and potential loss of businesses
especially sensitive to transportation
costs. Tax collections could also be af-
fected if higher taxes and fees encour-
age tax avoidance by motor carriers.
Program Goals
The stated purposes of Gov. Lowry's
transportation problems. The Puget
Sound area has the fifth worst traffic
problems in the country, behind Los
Angeles, San Francisco, Miami and
Washington, D.C. According to the gov-
ernor, traffic congestion costs Washing-
ton businesses more than $1 billion a
year in lost productivity due to delays in
delivering goods, services and people.
The Washington state Department of
Transportation anticipates an additional
increase of 67 percent in miles driven on
Washington highways from 1991 and
2012. "Arterials are like arteries," said
Lowry when he submitted his proposal.
"What we have is cholesterol coming."
Lowry's plan proposes to fund projects
across the state that would "aid com-
merce, create jobs and move commut-
ers more effectively." The projects envi-
sioned include:
o Providing matching state dollars for regional transit projects. These include a bus-and-rail transit plan in the Puget Sound area, costing about $9.3 billion, and the expansion of the Portland MAX system to Vancouver.
o Accelerating construction and completion of the state's high-occupancy vehicle (HOV) lanes.
o Upgrading AMTRAK's rail beds be-
tween Vancouver, British Columbia and
eastern Washington, to help agricultural
products reach the market.
o Repairing the First Avenue South Bridge in Seattle and Highway 18 be-
tween Auburn and I-90 in East King County, and improving Spokane's North-
South bypass.
o Maintaining and upgrading existing highways, roads and streets.
Financing Sources
The governor proposes three main sources at the state level to pay for the plan, raising about $922 million in the next biennium.
o Increase the gas tax 5 cents per
gallon in fiscal year (FY) 1994 and an-
other 5 cents in FY 1995. This would
bring in an estimated $370 million in the
next two years. An additional 2 cents per
gallon gas tax would be levied between
July 1, 1997 and June 30, 2003.
o Extend the state's 6.5 percent sales
tax to include all motor vehicle fuels.
This would raise an estimated $465 mil-
lion.
o Raise combined license fees on
trucks to generate about $87 million.
Cities and counties would be autho-
rized to extend their local-option sales
taxes to fuel sales. (Local taxes include
a 0.5 percent sales tax in the City of
906 S. Columbia, Suite 350 o Olympia, WA 98501 o (206) 357-6643 o 1-800-445-1086 o FAX (206) 754-2193
Page 2 April 13, 1993
Seattle and a 0.5 percent tax in King County.) This would raise an additional $87 million.
In order to receive matching funds for their regional transportation plans, vot-
ers in King, Pierce and Snohomish coun-
ties and cities must first approve an increase of 0.4 percent in their lo-
cal-option sales tax.
Constitutional issues raised
Concerns have also been raised about
the prudence of earmarking sales tax
revenue to transportation purposes, as
the governor proposes to do. Amend-
ment 18 to the Washington Constitution,
adopted in 1943, requires that all mon-
WASHINGTON RESEARCH COUNCIL
highest among the 50 states. Ahead of
Washington were Rhode Island and
Connecticut at 26 cents each, Maryland
at 23.5 cents and Nebraska at 23.4
cents.
Washington's tax on diesel fuel is 10th
highest in the nation, below New York
(33.7 cents), Pennsylvania (28.4
cents), Illinois (27.6 cents), Indi-
"The cost is substantial," Lowry
acknowledged, "but not nearly as much as if we don't do it."
Not everyone agrees. Rep.
Jeannette Wood (R-Woodway ), a
member of the House Transporta-
tion Committee, said, "Many of the
projects that would be funded by
the gas tax increase are worthy,
but the tax increases that will be
Future budget constraints will invite
attempts to divert the gasoline sales
tax to other programs. . . The integ-
rity of the transportation fund will
be constantly at risk.
ana (27 cents), Vermont and
Rhode Island (26 cents), Ne-
vada (24.5 cents), Ohio (24
cents) and Nebraska (23 .8
cents).
Fuel prices would rise sharply
If the transportation plan were
to pass, Washington state would
have the highest gas tax in the
proposed, taken together, are just too
much for Washingtonians to afford."
Some eastern Washington legislators
argued that they already pay higher gas
prices and have a higher driver/popula-
tion ratio than western Washington, and
will therefore be harder hit by increases
in the gas tax.
Rep. Tim Sheldon (D-Hoodsport) ex-
pressed concern to the governor at a March 22 Transportation Commit-
tee hearing that rural families would
be hit harder than urban dwellers.
ies from motor vehicle fees and excise
taxes on motor vehicle fuel be "placed in
a special fund to be used exclusively for
highway purposes." The governor hopes
to avoid a conflict with the legal ban on
using money in this fund for other than
highway purposes by depending on new
sales taxes on gasoline, rather than
constitutionally protected motor vehicle
fees and fuel taxes, to pay for public
transit projects.
nation at 45 cents per gallon. It would
also join eight other states that tax motor
vehicle fuel under the sales tax.
The total tax increase for the ordinary
motorist would be 22 cents per gallon.
The higher gas tax would account for 12
cents of the increase. The other 10 cents,
based on an estimated FY 1993 gaso-
line price of $1.25 per gallon, would
accrue from the extension of the sales
tax at both the state and local levels to
gasoline.
The Washington Department
His constituents, he said, tend to
drive pick-up trucks and travel ru-
ral roads, resulting in poorer gas
mileage and higher costs than for
those who own economical cars
and do most of their driving on the
freeway. Rep. Sheldon said these
Total combined trucking fees and of Transportation projects that
the average gasoline price of all
taxes of $7,271 currently place Wash- grades and services in FY 94
will be $1.30. Gov. Lowry's plan
ington 6th highest in the nation. would raise gas prices to $1.53
per gallon when his proposed
12-cent gas tax increase is
costs could potentially amount to $600
annually, a large burden on low-income families.
A February report by the Washington,
D.C.-based Tax Foundation, "The Price
of Mobility: Gasoline Taxes in America,"
found, after analyzing current federal
and state gasoline tax burdens on indi-
viduals over a range of income brackets,
that "the gasoline tax hits poor and
middle-income Americans the hardest."
Families with incomes under $10,000,
according to the report, pay 3.21 percent
of their total income in federal and state
gasoline taxes, while those earning more
than $200,000 pay only 0.17 percent of
their income.
This tool, however, is a double-edged
sword. If the new sales tax is not consti-
tutionally restricted to highway uses, it
cannot truly be restricted to transporta-
tion uses either. Future budget con-
straints will invite attempts to divert the
gasoline sales tax to other programs,
just as interest in the state transportation
fund will be shifted to the general fund
this year to help close a projected deficit.
The integrity of the transportation fund
will be constantly at risk, and state funds
for local transportation projects con-
stantly in doubt.
How Washington compares now
As of January 1992, Washington's 23
cents/gallon tax on gasoline ranked fifth
added to King County's 8.2 percent state
and local sales tax.
That estimate excludes any increase in the federal gas tax, which stands now at 14 cents per gallon. President Clinton's proposed energy tax would add an esti-
mated 7.5 cents per gallon, boosting the price at the pump to $1.62 per gallon.
Consumers of diesel fuel would see
an increase of 44.1 cents per gallon under the governor's plan.
Costs to Motor Carriers
Under current law, any Washington
state licensed truck or tractor-trailer rig
exceeding 6,000 pounds empty scale
weight must pay a gross vehicle weight
(GVW) license registration fee. The
WASHINGTON RESEARCH COUNCIL
trucker must pay an additional annual
2.2 percent excise tax levied on the
value of the vehicle and a trailer registra-
tion fee as well. According to data com-
piled by the Paragon consulting firm for
the Research Council, Washington reg-
istration and weight fees for an 80,000
pound truck are currently $3,585. This
compares to fees of $2,951 in California,
$132 in Idaho and $320 in Oregon. (Idaho
and Oregon do not have weight fees).
Gov. Lowry's transportation proposal
would increase GVW fees by 50 per-
cent. The current GVW fee of $1,158
would increase $ 7 5 9 , raising
Washington's total registration and weight fees to $4,344.
Total combined trucking fees and taxes
of $7,271 currently place Washington
6th highest in the nation, behind Ari-
zona, Oregon, New York, Kentucky and
Montana. According to Paragon, the to-
tal tax and fee burden on Washington
motor carriers is roughly equivalent to
those in Idaho ($7,084) and California
($6,933). The average Washington
trucker, however, would be looking at an
increase of 57 percent if the governor's
proposal were adopted. This increase
April 13 1993 Page 3
Comparative Diesel Fuel Tax Rates
as of March 1993
State Retail Sales Tax Total State
Deisel Fuel Tax on Diesel Fuel Diesel Fuel Tax
(Cents per gallon) (Percent) (Cents per gallon)
Washington 23 None 23
Idaho 21 None 21
California 17 8.5% = 8.7 Cents1 2 25.7
Oregon None3 None3 None3
1 Based upon diesel price of $0.817 (Average pump-price of $1.248 per gallon, less $0.201 federal fuel tax and $0.23 state fuel tax).
2 California state sales tax of 5% plus 3.5% local-option "transaction tax" levied by larger cities such as San Francisco. This tax is not levied as a "use-tax."
3 Oregon levies a ton/mile tax based upon weight. A 5 axle tractor plus trailer rig with an average
weight of 80,000 pounds would pay 14.55 cents per mile. Additional axles reduce the levy.
Additional weight, in 2,000 lb. increments, increases the levy. With an average 6-miles-per-gallon
fuel efficiency, the Oregon ton/mile tax is equivalent to a gas tax of 87.3 cents per gallon of fuel
consumed.
scale could reduce the competitiveness motor carriers and fuel tax collections by
of smaller trucking companies. the state are likely to decline if the addi-
According to Paragon, tional fees and taxes proposed by the
Small carriers typically buy fuel from a governor are adopted. There are at least
retailer, such as a key-card fuel depot four reasons for the projected decrease.
or truck stop. Larger motor carriers buy Tax avoidance. Interstate motor carri-
wholesale fuel directly from jobbers who ers pay the state's motor carrier fuel use
deliver larger volumes of fuel to the tax under a system of self-reporting.
carrier's privately-owned and operated
translates to a total of $11,399, slightly
less than Oregon's $11,960, now 2nd highest in the nation.
Paragon notes that estimates of total taxes and fees may vary depending on the source. The fuel tax is generally calculated on a national fuel consump-
tion figure of 5.7 miles per gallon.
Washington's figures, however, are usu-
ally based on a 5.0 miles per gallon figure, due to the high number of logging trucks operating on back roads rather than interstate highways, where mile-
age is somewhat better.
An increase in fees and taxes on this
fuel depot. The pump price paid by a
small carrier at a truck stop can be up to
20 cents per gallon greater than the
volume wholesale price paid by large
motor carriers. With such a price dis-
parity, a small carrier with only 10 five-
axle tractor-trailer rigs (logging 80,000
miles annually) will pay $2,634 more
annually in retail sales tax on fuel pur-
chases. Under the traditional cents-
per-gallon motor vehicle fuel tax, both
the small and large carrier, when buy-
ing equal amounts of fuel, would have
paid an equal amount in taxes.
Economic Impacts
In-state sales of goods and services to
Operators are required to record and
report fuel purchases and miles traveled within Washington. On the basis of these reports, the fuel use tax is then com-
puted at a rate of 23 cents per gallon, and paid quarterly to the state Depart-
ment of Licensing.
Washington state is also a party to the
International Fuel Tax Agreement (IFTA).
Under this system interstate carriers reg-
ister in their "base," or home, states, and
report all interstate mileage and diesel
fuel usage, as well as taxes paid at the
pump in various states, to their base
states. Each base state then redistrib-
Tax & Fee Burdens for Typical Motor Carrier
MVET/REG Tonnage Other State Sales Tax Weight-Dis- Total Price
or License Fuel Taxes on Fuel tance Tax per Mile
Current Washington $2,067 $1,518 $6.75 $3,680 - - $7,272 0.0909
Proposed Washington $2,067 $2,277 $6.75 $5,280 $1,769 - $11,399 0.1425
Idaho $132 - - $3,360 - $3,592 $7,084 0.0886
California $1,522 $1,429 - $2,720 $1,262 - $6,933 0.0867
Oregon $320 - - - - $11,640 $11,960 0.1495
Page 4 April 13, 1993 WASHINGTON RESEARCH COUNCIL
utes tax revenues to other IFTA-mem- their revenue bases by attracting con- for trucks to travel through the state to
ber states according to the actual mile-
age traveled in each state.
Based on experience in other states, the collection rate for these self-reported taxes is likely to drop as the tax
rate increases. A high differential
between fuel taxes in Washing-
ton and in neighboring states in-
sumers from bordering states. "The rev- reach other states. Uncompetitively high
enue gains achieved by a state with low trucking fees and taxes, combined with
excise taxes," Price Waterhouse said, high fuel taxes, may deter new business
"necessarily come at the expense of the from locating in the state, or cause exist-
ing employers to leave for lower-
cost locations.
Based on experiences in other
Sources
creases the incentives for motor
carrier operators to "cheat" the
system by failing to make accu-
rate reports of miles traveled and
fuel purchased in the state. It also
substantially increases the incen-
states, the collection rate for self-
reported taxes is likely to drop as
the tax rate increases.
Advisory Commission on Intergovern-
mental Relations. 1992 Significant Fea-
tures of Fiscal Federalism. Volume 1. Feb-
ruary 1992.
American Legislative Exchange Coun-
cil, "Voting with Their Feet." The State
Factor. 18:11, August 1992.
tive for trucks to fill up in another state,
such as Idaho, and transport freight through Washington without ever buy-
ing fuel here.
The loss of fuel tax revenue to the
state is only the first result of this tax
avoidance practice. It would also result
in a considerable loss to truck stop op-
erators in sales of ancillary products
such as cigarettes, snacks and meals,
and to the state in sales tax revenue.
One eastern Washington operator re-
ports that he sells about 20 cents of
these products to truckers for every gal-
lon of fuel that they purchase.
The Connecticut legislature rolled back
that state's high diesel fuel tax in 1991
after reports from truck stop operators
that they were losing business to com-
petitors in the three bordering states
because of the differentials in fuel prices.
A consultant has reported to the Con-
necticut General Assembly that "after
the decrease of diesel fuel taxes from 22
cents per gallon to 18 cents. . . sales at
truck stops on the major highways have
states that have increased their tax rates
in order to raise more revenue."
Although the effect can be expected
to be greater in New England, where
mileage between state borders is so
much shorter, the long-distance fuel
capacity of interstate motor carriers
makes it likely that higher prices would
mean lower consumption of fuel here as
well.
Shifts to other modes of delivery.
Higher fees and taxes will be passed on
to the consumer through higher trans-
portation costs. Some companies may
find it more cost-effective to ship their
goods through air and rail freight rather
than motor carriers.
Loss of new business. Washington
state is geographically disadvantaged.
Businesses need not locate within the
state if the state is not the primary source
of raw materials or the primary market
for finished products. Nor is it necessary
Elaine Ramel Davis and Steve Excell, Para-
gon, "An Economic Assessment of Governor
Lowry's Gas Tax Increase and New Sales Tax on
Gas." (Unpublished manuscript.) March 31, 1993.
Gov. Mike Lowry, "Lowry Proposes to Keep
Washington Moving," March 22, 1993.
State of Washington. Department of Transpor-
tation, Transportation Commission. "Statewide Transportation Systems Plan: Draft Service Ob-
jectives." Fall 1992.
The Tax Foundation, "New Foundation Report Traces Gasoline Excise Tax Collections," Tax Features, February 1993.
Rep. Jeanette Wood, "'Lowry Tax Week' be-
gins with Gas Tax Increase," March 22, 1993.
The Washington Research Council is a non-profit, non-governmental research or-
ganization. Its mission is to promote efficient government and effective public policy through independent fiscal analysis of im-
portant policy questions and broad commu-
nication of its findings.
The Washington Trucking Associations,
Inc., provided partial funding for this study.
increased, generating additional sales
tax revenue in excess of $1 million."
Reduced demand. As with most goods
Comparative Registration & Weight Fees
for an 80,000 lb Truck
and services, as fuel prices rise, con-
sumption is likely to decrease.
A February 1993 study by Price
Waterhouse conducted for the Ameri-
can Legislative Exchange Council found
"significant cross-border activity" in items
subject to state excise taxes (including
Washington
Idaho
California
Oregon
Current Registration
and GVW Fees
$3,5851
$1322
$2,9513
$3204
cigarette, alcoholic beverage and gaso-
line taxes) in the New England states as
a result of tax disparities . Price
Waterhouse determined that states that
maintain low excise taxes can increase
1 $3,585 includes 2.2% annual excise tax on truck valuation, $42.75 in trailer registration fees
and $1,518 gross vehicle weight (GVW) licensing fees. The governor's 50% increase applies to only the $1,518 GVW fee. 2 License fee with no weight fee. 3 License fee of $1,522 and GVW
fee of $1,429. 4 License fee with no weight fee.
