The Daily Record: This tax reform would hit the road

don fry commentary square

Editor’s note: The following commentary appeared on TheDailyRecord.com on March 20, 2015.

By Donald C. Fry

Gov. Larry Hogan has made it clear that the top priority of his administration is to strengthen Maryland’s competitiveness for economic development and job growth, an objective endorsed by virtually all business leaders.

Most in the private sector embrace Gov. Hogan’s commitment to tax reform, instilling a renewed culture of customer service in state government and implementing redistricting reform to inject a greater degree of competitiveness into the process of electing our lawmakers on Capitol Hill and in Annapolis.

However, among the Hogan administration’s first tax measures placed before the Maryland General Assembly in the 2015 session is a proposal to reduce revenue to the state resulting from the one tax legislation passed in recent years that business supported — strengthening revenue to the state’s Transportation Trust Fund.

A Hogan administration bill to repeal the inflation index to the state’s gas tax would reverse a key measure lawmakers enacted two years ago to address an escalating crisis in Maryland’s transportation funding.

A well-funded transportation infrastructure is among eight core pillars for a competitive business climate identified by business leaders at the Greater Baltimore Committee.

In 2013, the General Assembly took decisive steps to address a fiscal challenge facing Maryland: our state’s roads, bridges and transit systems were aging and the revenue source for transportation was rapidly dwindling. At the time, the state’s gas tax had not been increased in more than 20 years and the Transportation Trust Fund — the state’s source of funding for transportation projects — was projected to have enough money to only maintain existing transportation infrastructure. No new transportation projects had been included in the state’s Consolidated Transportation Plan for two consecutive years.

By passing the Transportation Infrastructure Investment Act of 2013, the General Assembly sent a message that our state was not going to fall behind again. The legislation not only increased transportation tax revenues, but also included a provision that tied future increases of the gas tax to the Consumer Price Index to account for inflation in the economy.

By enacting the CPI provision, lawmakers ensured that future transportation revenues would keep pace with growing transportation needs and the escalating costs of construction (labor, equipment, materials, etc.).

Meanwhile state voters reinforced their support of a strong, secure source of transportation funding by voting overwhelmingly for a state constitutional amendment placing a lockbox on the Transportation Trust Fund.

This session, the Hogan administration, in House Bill 483 and Senate Bill 589, is seeking to eliminate inflation indexing provisions and other scheduled revenue increases.

The ultimate effect of such an action? Lawmakers would have to pass regular increases in the per-gallon gas tax rate in order to keep transportation funding from again eroding its ability to meet infrastructure construction cost inflation.

While the principle of requiring elected officials to vote on every tax increase would be preferable, times have changed. Prior to 1992, passing an increase in the gas tax rate to keep up with inflation was a bipartisan vote cast every couple of years by the General Assembly. Today’s lawmakers, as evidenced by their reluctance to pass a transportation tax increase for more than 20 years, clearly would not relish having to vote regularly on such an action, however necessary it would be.

Doing away with Maryland’s inflation indexing for the gas tax rate would reduce revenue to the state’s transportation fund by more than $141 million in Fiscal Year 2016. In FY 2020, the revenue loss would be $438 million, according to state fiscal analysts.

Additionally, this reduction would further limit transportation dollars as the state would lose the “leverage” bonding component of that revenue source. The Transportation Trust Fund would experience more than $1.5 billion in cumulative lost revenue over a five year period, state analysts estimate.

While the state would still see increased revenue, removing the indexing provision would essentially take Maryland back to where it was two years ago — with a transportation revenue structure that is not inflation sensitive and that will not serve the growing transportation demands of the state.

That’s precisely how Maryland got into a serious transportation funding crisis in the first place.

Superior transportation infrastructure with a well-funded and reliable funding mechanism is a major priority for Maryland’s business community. The governor’s proposal to eliminate indexing the per-gallon gas tax to inflation raises an important question. What revenue adjustments would the Hogan administration support to ensure that Maryland’s roads, transit, port and airport resources are reliably and well-funded?

Given the significant steps lawmakers have taken to strengthen Maryland’s transportation funding in recent years, the best interests of the state’s business climate and the mobility of its citizens would be far better served if lawmakers decide against gratuitously tinkering with the recent changes to the state’s Transportation Trust Fund.

Donald C. Fry, president and CEO of the Greater Baltimore Committee, writes a monthly column for The Daily Record. His email address is donaldf@gbc.org. 

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