Connecticut’s trucking industry will face a small tax hike next month when the state tax on diesel fuel rises slightly more than 3 cents per gallon.
Truckers dodged a much larger increase over the past year when legislators and Gov. Ned Lamont froze the tax, blocking a projected hike of nearly 12 cents per gallon.
Still, the latest increase, coupled with a new highway mileage tax that began last year and a nine-cent diesel hike in 2022, has truckers and others calling for reforms.
“Thankfully, it’s only going up a little bit,” said Department of Revenue Services Commissioner Mark Boughton, who recently notified the legislature the per-gallon tax on diesel fuel would climb 3.2 cents on July 1, from 49.2 cents to 52.4 cents. That’s a 6.5% increase.
Boughton noted the diesel tax has been adjusted annually each summer since 2007 based on a statutory formula that relies heavily on wholesale diesel prices from the prior 12 months. The formula has generated several tax cuts over the past 17 years, he added.
But the president of the Motor Transport Association of Connecticut, John Blair, said the new tax hike is the latest in a series of financial burdens recently placed on his group, which represents more than 500 trucking and trucking-related businesses.
Though the diesel rate was frozen last July, it had risen 9 cents per gallon in July 2022.
Truckers also were frustrated in January 2023 when the state launched a new highway mileage tax on many large commercial trucks, excluding those transporting dairy products.
The diesel tax and highway mileage fee each represent a relatively modest share of the state budget’s Special Transportation Fund, which covers operating costs for the Departments of Transportation and Motor Vehicles and debt payments on bonding for highway, bridge and rail projects.
Final totals for the current fiscal year, which closes June 30, weren’t available this week, but Boughton said the diesel tax collected about $133.5 million in 2022-23, when the rate also was 49.2 cents per gallon. Those collections represented 7% of total STF expenditures in 2022-23 and about 6% in the current year.
The highway mileage tax, which ranges from 2.5 cents per mile to 17.5 cents depending on a truck’s weight, will collect $60 million this fiscal year, according to Gov. Ned Lamont’s budget office. It represents less than 3% of the STF.
Further complicating matters, the transportation fund has generated huge surpluses in recent years.
The fund finished with a $157 million or 9% surplus two years ago, according to reports from the comptroller’s office. That’s despite a gasoline tax holiday that put hundreds of millions of dollars back in motorists’ pockets.
Last fiscal year saw a $284 million surplus, equal to 15.5% of the transportation fund. And the administration projects the fund will close this fiscal year on June 30 up $283 million or 13%.
Transportation tax reform ideas abound
Both Blair’s group and fuel distributors say the variable diesel tax rate should be replaced with a fixed amount of pennies per gallon. This would be similar, they say, to the state’s retail gasoline tax, which has been fixed annually at 25 cents per gallon since July 2000.
“The public’s being overly taxed when it comes to these transportation-related taxes,” said Chris Herb, president of the Connecticut Energy Marketers Association. “All of this is contributing to excessive funds that are being squirreled away.”
“At the end of the day, if we could come up with something predictable, that’s what’s important to us,” Blair said.
Both Herb and Blair also said the recent increases in trucking expenses have only exacerbated inflationary problems.
The Consumer Price Index hit a 40-year high in the summer of 2022 when it topped 9%. And though inflation rates have dropped since, that shoppers still are reeling from a stiff increase in the base price of groceries, department store goods and other items delivered by truck.
“Consumers are already at their wits’ end,” Blair added.
Minority Republicans in the state House and Senate have been pushing annually for repeal of the highway mileage tax. Rep. Holly Cheeseman of East Lyme, ranking House Republican on the tax-writing Finance, Revenue and Bonding Committee, predicted recently the GOP won’t relent on its push for repeal any time soon.
“Any tax we pass onto the truckers, that’s a tax they will pass onto our residents,” Cheeseman said. “And our residents deserve relief.”
Lamont has been adamant the highway use tax needs to stay, arguing that large trucks do the most damage to Connecticut’s aging, crowded highways. But Boughton said the Executive Branch hasn’t taken a stand against a flat diesel tax.
“The administration has always been open to other thoughts and ideas,” he said.
But Lamont and his fellow Democrats in the legislature’s majority have been wary of weakening STF revenues too much, though, despite the large surpluses in recent years.
If the Department of Transportation can launch more construction projects — thereby triggering the need for more transportation borrowing — the STF surplus next fiscal year would be just 4%, according to the governor’s budget office. And by 2025-26, the STF would run a very modest $8 million deficit, equal to roughly one third of 1%.
Connecticut’s construction industry and trades say the state’s transportation infrastructure needs even larger investments than the administration is aiming for to overcome decades of neglect.
And labor unions say the DOT is woefully lacking in engineers, planners and the other professionals needed to launch more projects annually.
Transportation Commissioner Garrett Eucalitto, who inherited that challenge when Lamont tapped him to run the DOT a little more than a year ago, has said that he’s aggressively trying to recruit more engineers and other professionals to bolster the agency.
Rep. Maria Horn, D-Salisbury, co-chairwoman of the finance committee, also said she’s willing to explore a flat diesel tax. But Horn also said legislators are determined to see more transportation upgrades underway. And even if the diesel tax is decoupled from a formula that makes annual adjustments, that doesn’t mean officials might never need to increase it in the future.
“Nothing stays flat in life,” she said. “The STF surplus is not long for this world.”