Article by Erik Smith. Published on Sunday, February 28, 2010 EST.

One Reason Not to Raise Oil Tax, They Say – Haugen Offers Warning as Senate Passes Highway Budget

Senate Transportation Chairwoman Mary Margaret Haugen, D-Camano Island.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Feb. 28.—Trouble lies ahead for state gas-tax money, the major source of funding for highways and ferries in the state of Washington, the Senate transportation chairwoman warned Saturday afternoon.

            The warning helps explain a back-room wrangle this year over a proposal to hike taxes on oil – and why the state’s transportation interests are so dead-set against it. Gas-tax revenue is on the decline, and a long-term projection shows the state will fall $1 billion short of meeting construction needs. If the state hikes the price of gas, transportation interests say the money ought to go to road construction.

Cautionary words about plummeting gas-tax revenues came from Senate Transportation Chairwoman Mary Margaret Haugen, D-Camano Island as the Senate passed its transportation budget Saturday. The budget bill, the least controversial of the spending measures before this year’s Legislature, makes minor changes to the $3.4 billion two-year spending plan approved by lawmakers last year. It passed 41-3.

            Transportation got lucky this year, she said – it managed to avoid cuts. But the future is a different story:

“I will tell you in the future it may not be so bright, so next year, as we face another biennial budget, I think we’re going to have to realize that transportation funding is beginning to decline. This is the first time ever that we have seen a reduction in the gas tax.

“Now, there are a lot of reasons for that. People aren’t working, but more than anything else people are making other choices. Many of us, myself included, have bought hybrids, so we’re not going to be able to continue to depend on that source of revenue. So we’re all going to have to sit down and roll up our sleeves and work together to improve our state in transportation, because we all know that is truly the economic engine of our state.”

            Haugen didn’t mention the oil tax-hike proposal directly – but the decline in gas-tax revenues is one of the things that is helping derail a top priority for the state’s environmental lobby.

            Greens Would Hike Hazardous Substance Tax

Green groups are pushing for a tripling of the state’s tax on hazardous substances, which now generates $114 million a year and which is paid largely by the state’s oil refiners. The idea is to provide money for stormwater pollution cleanup projects, largely in the urban Puget Sound area. The tax hike also is supported by county and city lobbying groups, because new federal regulations will force them to begin spending money on costly drainage projects. Advocates of the tax came up with a plan they thought would be irresistible to this year’s cash-strapped Legislature – for the first few years, they suggest that the bulk of the money ought to go to the state general fund.

But transportation advocates are alarmed at the idea that it might raise the cost of gasoline, making it harder to raise gas taxes and finance road construction projects in the future. Exactly how much it would increase gas prices is a matter of dispute, and the two sides frame the figures in different ways. Estimates range anywhere from somewhere under three cents a gallon to somewhere beyond five cents a gallon.

As far as transportation interests are concerned, any increase is a terrible idea.

Said Sen. Dan Swecker, R-Rochester, “This, unfortunately, I think, would divert a huge amount of revenue [from] highways and put it to other things, and in my mind that could create a brick wall going forward if we try to find additional revenue that’s going to help us continue to expand and maintain our transportation infrastructure. So just as a principle I find it problematic.”

            Gas Tax Revenue on the Decline

Transportation-minded lawmakers say the oil-tax increase is just another way of raising gas taxes, without calling it a gas tax. That tactic avoids a clash with the state constitution, which says fuel taxes can only be spent for transportation purposes. And while they say the idea might be vulnerable to a court challenge on that score, the real problem is that it would give the environmental lobby a bigger share of the pie at a time when the pie is shrinking.

Gas-tax revenue has been dropping of late. Part of the problem is the downturn in the state economy. People aren’t driving as much and aren’t buying as much gasoline. After the Legislature passed its budget last year, gas tax revenue dropped $168 million from the amount that had been projected.

 The latest adjustment to the state’s 16-year road-construction plan shows state gas tax revenue running $551 million short. That, plus expected increases in ferry operating costs, gives the state a $1 billion problem, Swecker said.

That’s not the only issue: There’s also the switch to more fuel-efficient vehicles, to hybrids and to electric cars that consume no liquid fuel at all.

Right now the state’s transportation spending is about 80 percent dependent on gas-tax money.

“Gasoline will continue to be a player in the future, but I think we are foolish if we think it will continue to be the full source,” Haugen said.

Already lawmakers are pondering other ways to raise money for new construction projects, including tolls for bridges and high-occupancy vehicle lanes in the urban Puget Sound area.

For now, they’re not talking about another gas-tax increase, always a hugely controversial idea whenever it is broached. But the prospect appears all but certain.

 Stormwater Brings Storm

At this point it is difficult to predict how the proposal to hike the Model Toxics Control Act tax will fare. Green groups and environmental-advocacy websites have been beating the drum for weeks. But the effort appears to have faltered as the oil industry and other affected interests have mounted a lobbying effort every bit as strong. Refinery workers have stormed the Legislature every time the stormwater tax bills have been heard. And while the oil industry pays 84 percent of the tax, other user groups have pounding the statehouse as well. Farmers would be particularly hard hit, because the tax is levied not just on diesel fuel but on pesticides.

            The governor has endorsed the tax hike, arguing that it’s a better idea than a regressive sales tax increase, and might eventually do good in the cleanup of Puget Sound. The House has not yet come up with a tax plan, and there are sharp disagreements regarding the tax between the chairs of that chamber’s budget committees. But the Senate budget proposal last week rejected the idea, while Senate Democrats said they might be willing to consider a smaller increase in the tax if the full amount was directed to stormwater projects.
             Clifford Traisman, lobbyist for the Washington Conservation Voters, told the Senate Ways and Means Committee last week that the environmentalists aren’t giving up and hope to see the tax plan emerge in the final budget. “We are undeterred,” he said. “We feel like we made a lot of progress with the Senate and we look forward to working with you and leadership in working to get that through in the end.”

Meanwhile, it should be noted that House Transportation Chairwoman Judy Clibborn, D-Mercer Island, signed on as a sponsor of the tax-hike bill in the House. She explained to reporters that she endorsed the proposal because the bill earmarks 10 percent of the proceeds from the tax to the state Department of Transportation. “I don’t know if the bill has enough support to go through,” she said. “I hear concerns from a lot of members. My thought was that if it was going to go through, I wanted to get that 10 percent for transportation.”

 But she said it might be a mistake for anyone to think the tax would be a reliable source of money for cleanup. The existing tax already is supposed to go to pollution cleanup, yet lawmakers raided it to the tune of $160 million last year, and may do it again this year as well. Who knows what the Legislature might do with the money if the revenue is tripled?

“I call it a drug for the general fund, because it would be very difficult to hold future legislatures to what the current Legislature wants to do. If there’s a problem with MTCA, it’s that you have to trust the Legislature.”

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