Massachusetts Becomes Fourth State to Reform its Gas Tax This Year

Lawmakers are often criticized for not taking a long-term perspective on important issues.  But when it comes to the gas tax, elected officials in four states this year (Maryland, Massachusetts, Vermont, and Virginia), as well as the District of Columbia, have done just that.

As we have shown, collecting a “fixed-rate” gas tax (i.e. one that doesn’t change from year-to-year) leaves state transportation departments totally unprepared to deal with rising infrastructure construction costs and the consequence of growing vehicle fuel-efficiency cutting into gas sales.  At the start of the year, only fourteen states handled this reality by levying gas taxes that gradually grow over time alongside either gas prices or the general inflation rate in the economy.  That number has now risen to seventeen, with Maryland, Virginia, and now Massachusetts joining that group.  (The District of Columbia recently enacted this reform as well, and Vermont reformed its already price-based gas tax in a way that links it even more closely to gas prices.)

The Massachusetts reform comes after months of back-and-forth between Governor Patrick and the state legislature.  The Governor originally proposed a much more far-reaching and progressive revenue package that would not only have raised gas and cigarette taxes, but also reformed the income tax and cut the sales tax rate.  That proposal failed to gain traction, and the legislature ultimately opted just to raise the cigarette tax and the gasoline tax, and to index the gas tax so that it grows alongside inflation in the future.

This reform will put the state’s gas tax on a much more sustainable trajectory.  As the above chart shows, Massachusetts’ gas tax rate was scheduled to fall to its lowest (inflation-adjusted) level in its history next year.  The increase, which takes effect next week, will prevent that from happening.

But lawmakers shouldn’t pretend that the state’s transportation funding problems are completely solved.  While indexing the tax to inflation should make it easier for the state to afford the rising cost of construction materials, it still leaves the gas tax vulnerable to decline as Massachusetts residents switch to more fuel-efficient cars and purchase less gas as a result. Moreover, as Governor Patrick pointed out, the state’s toll road revenue is scheduled to take a major hit in 2017 when tolls on the Massachusetts Turnpike will be reduced. Patrick wanted to include an additional gas tax hike in 2017 to compensate for this loss—and even vetoed the package passed by the legislature in an effort to see it included—but his veto was overridden.  These looming challenges mean that Massachusetts lawmakers will likely have to consider another gas tax increase in a few years, but for now this reform is certainly a step forward.

Looking at the rest of the country, legislatures in most states where gas tax reform was a real possibility have gone home for the year, but there’s still a chance Pennsylvania could revisit the idea this fall. With luck, the number of states levying a smarter gas tax could rise to eighteen before the year is over.