North Carolina law freezes fuel tax rate
July 10, 2020
A new law in North Carolina will ensure the state’s fuel tax does not soon dip.
The state’s fuel excise rate of 36.1 cents per gallon is set through the end of this year. The fuel tax is indexed to a weighted average of energy inflation and state population growth.
The Legislature approved a bill to put a temporary floor on the fuel excise rate. Specifically, the 2021 rate cannot be lower than the current rate.
North Carolina’s excise tax was estimated to decrease by 0.9 cents to 35.2 cents at the first of the year, according to a fiscal analysis.
Supporters said the action by the Legislature is necessary to help the state combat a significant hit to road revenues due to fewer miles being driven during the coronavirus pandemic.
“The Department has faced unprecedented crises that have put a crunch on their budget, and the funds in this bill are critical to ensure they can maintain our roads and infrastructure,” Gov. Roy Cooper said in prepared remarks.
The fuel tax change is estimated to increase revenue by $53.6 million over the next two years.
Once the tax floor expires, the rate will revert to whatever the rate would be without interference from the Legislature.
More money for highway fund
Additionally, the new law increases the share of fuel excise tax revenue routed to the state’s highway fund. The share allocated to the Highway Trust Fund will decrease.
Currently, the state’s highway fund receives 71% of revenue from the excise tax. The Highway Trust Fund gets 29%.
Previously HB77, the new law reshuffles the allocation. Specifically, the highway fund will collect 80% of revenue in 2021. The Highway Trust Fund will receive 19%.
The rates will remain largely unchanged the following fiscal year before settling at a 74-25% split each year thereafter.
Transportation Board changes
The new law also gives the Legislature authority to appoint nearly one-third of the members on the North Carolina Board of Transportation.
Previously, the governor had the sole authority to choose board members.
The change also requires all 20 board members to have experience in transportation or finance.
Revisions to how the board is appointed follow a state performance audit that found the DOT overspent by nearly $750 million last year. Additionally, the agency borrowed against next year’s budget to cover cash shortfalls for all 14 highway divisions.
The governor said he is concerned about changes in transit funding and in board governance.
Cooper said the changes “distract from the work we must be doing together.”
The bill became law without his signature.