Senators back off plan to increase fuel tax

Senators back off plan to increase fuel tax

Tax to be revisited next year; Lawmakers to pull $15 million from reserve fund to help state qualify for federal road dollars

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The Associated Press

LINCOLN - A week after taking heat for piling onto record high gas prices, state lawmakers on Tuesday backed away from a plan that would have increased the fuel tax by 3 more cents a gallon.

That tax increase won’t happen now because the Legislature delayed the implementation of a new wholesale fuel tax until next summer. Lawmakers will revisit the fuel tax next year when they determine the size of the roads budget.

Lawmakers also decided to take $15 million from the state’s reserve fund over the next three years to make sure Nebraska will be able to qualify for millions of federal roads dollars.

Lawmakers argued that using money from the reserve fund has a big upside for the state. The federal money will be used for long-overdue projects including the Heartland Expressway, designed to link Denver and Rapid City, S.D., by way of the Nebraska Panhandle. Among others is a bypass around Kearney.

“It also sends a message to the citizens of the state we are not raising the gas tax,” Sen. Deb Fischer of Valentine said of the compromise she brokered.

Senators gave her bill (LB846) second-round approval, and it is likely to get final approval this week, before the legislative session ends Thursday afternoon.

Gov. Dave Heineman said he supports the measure.

Fischer and others say the state is facing a roads funding crisis because state fuel tax revenue remains mostly flat while construction costs are rising.

Earlier this month, that message trumped Heineman’s veto.

The Legislature raised the fuel tax a penny a gallon and overrode his veto of the increase. That bill will make the total state fuel tax about 26.5 cents per gallon beginning in July.

The political consequence of raising the fuel tax has been a repeated topic of conversation among senators, some of whom face re-election this year.

Tuesday’s voice approval was a sign that many concluded that now is not the time to test the public’s tax tolerance. Nobody on Tuesday tried to argue that 3 more pennies of fuel tax would cause little financial pain for most drivers.

But some of the legislators questioned raiding the state’s emergency account when the economy appears to be slowing.

“What we’ll be doing in effect is raising income and sales tax to replenish the rainy day fund,” said Sen. DiAnna Schimek, of Lincoln.

But there won’t be other raids on the emergency fund, said Fischer, and the money is needed now only to unlock federal dollars earmarked for road projects.

The core of Fischer’s bill remained intact and could eventually contribute to tax increases because it would change how fuel is taxed, beginning in July 2009.

The main piece of the plan is a new, 5 percent tax on the wholesale price of fuel, collected when the fuel is sold to retail stations. Tying the tax to the price of fuel would likely mean more money for the state, and possibly higher fuel taxes for drivers.

State fiscal analysts estimated that once fully implemented, the bill could hike the fuel tax by roughly 4 cents per gallon, bringing in another $52 million for road construction.

But such an increase is not automatic. The overall fuel tax rate is determined by how much money the Legislature budgets for the Department of Roads. Also, lawmakers changed the bill on Tuesday to limit how much the new, wholesale tax could increase every six months.

A so-called variable portion of the current per-gallon tax, which would not be changed by the bill, fluctuates to ensure the state collects no more, and no less, for roads than what has been budgeted.

Another portion of the current per-gallon tax is fixed, based only on how much fuel is sold, not the price. The bill would keep the fixed portion of the tax but reduce it by 8 cents to 2.5 cents per gallon.

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