Option to fix Delaware roads: Higher wholesale gas taxes

Top Delaware lawmakers are meeting behind closed doors to seek an agreement on higher taxes and fees to help close a $780 million, six-year gap in funding for road and bridge repairs, after transportation funding plans have failed in each of the last two years.

The lawmakers from both parties are targeting $50 million in new revenue annually that could be dedicated to transportation improvements matched by $50 million in new Transportation Trust Fund borrowing.

They have discussed raising taxes on wholesale fuel deliveries.

Fees levied by the Division of Motor Vehicles on new car purchases and toll increases along I-95 or Del. 1 are among other sources of revenue that could be tapped.

Another plan would involve moving operational expenses out of the Trust Fund to make more funding available for capital projects. But those costs would have to be absorbed by Delaware's operational budget.

"Bottom line is we're looking at everything we can," said House Speaker Pete Schwartzkopf, a Rehoboth Democrat, who would not rule out higher gas taxes. Schwartzkopf said the discussion about wholesale taxes dates to 2014, but added that "there's no consensus on anything right now."

Legislative discussions come a year after Democrats and Republicans rejected Gov. Jack Markell's proposal to raise gas taxes and authorize new borrowing to fund $500 million in roadway system improvements over five years. During his State of the State address in January, the governor called on lawmakers to come up with plans of their own.

"Bring me your ideas on how to fund our infrastructure responsibly, and I will work with you to pass and sign legislation to accomplish this important goal," Markell said.

Few lawmakers would publicly discuss revenue options, but leaders hope the closed-door meetings could lead to an agreement this year inside Legislative Hall.

"I'm optimistic we can get some new revenue to the Trust Fund," said Senate President Pro Tem Patricia Blevins, D-Elsmere. "I think that's one of the most important things we can do this year. Not only are we going to fix our infrastructure with this, it creates a lot of new jobs."

Markell and lawmakers have been unable to agree on ways to fund new transportation projects since June 2013, when closed-door negotiations between the two failed after options, including raising the per-gallon gas tax, leaked publicly.

Meanwhile, construction of several dozen priority transportation projects remain unfunded as lawmakers delay a revenue fix. The $780 million roads funding gap includes $180 million in repairs to I-95 bridge decks and corrugated metal pipes, as well as $600 million in delayed projects.

Unfunded projects include safety improvements at the intersection of U.S. 40 and Del. 896 in Glasgow, a widening to relieve congestion on Del. 1 from Tybouts Corner to Del. 273, pedestrian walkway improvements along U.S. 13 in Dover, an overpass at Northeast Front Street and Del. 1 in Milford and the realignment of the intersection at U.S. 9 and Airport Road in Georgetown.

Top lawmakers from both parties met privately in state offices near Legislative Hall last Wednesday to discuss revenue options. Markell will have a Tuesday lunch meeting with them at Woodburn, the governor's mansion, in Dover. The lawmakers and administration officials meet weekly at Woodburn during the January-to-June legislative session.

"The governor is interested in getting revenue into the Transportation Trust Fund, which is chronically underfunded," said Mike Barlow, Markell's chief of staff. "There are a lot of major projects out there that need to be funded."

Potholes as political cover

Taxpayer frustration over post-winter potholes could offer lawmakers some political cover as they consider raising fees and taxes to make roadway improvements.

Delaware Transportation Secretary Jennifer Cohan told lawmakers during a Legislative Hall briefing last Wednesday that 85 state workers repaired 12,567 potholes between March 8 and March 21. The department has been collecting upwards of 210 pothole complaints daily, she said.

Potholes along North Odessa Boulevard have dogged Bill McCauley since he moved to Townsend a couple months ago. "It's impassable," McCauley said. "It's all torn up across the whole road."

The transportation group AAA Mid-Atlantic says it has responded to 30 percent more member calls about tires this pothole season, compared with the same period last year.

"As an advocate for all road users, AAA Mid-Atlantic supports increased funding for transportation and infrastructure so long as adequate accountability and performance metrics are in place," said spokesman Jim Lardear.

Sandy Hoffman of Newark pays close attention while driving.

"If I know there's a pothole I avoid it," Hoffman said Friday while gassing up at a Liberty station in Newark.

Renewed discussions about transportation funding come as lawmakers navigate what some say is one of the more difficult General Assembly sessions in recent memory.

Delaware revenue projections fell $45 million earlier this month, complicating a budget proposal from Markell in January that included no raise for state employees and lower spending on transportation and economic development efforts.

Lawmakers have expressed opposition to a key part of Markell's budget: a plan to save $12.6 million by reducing school tax credits for seniors. Budget lawmakers asked administration officials to offer a means-tested proposal, but any paring back of Markell's plan likely means less savings.

Markell was also taken by surprise in January and February as a deficit in the state's healthcare plan ballooned to $60 million. After criticism from lawmakers and public employee unions, the governor agreed to delay a vote on higher co-pays and deductibles for state workers that were intended to solve the problem.

Meanwhile, lawmakers and Markell are dealing with issues that are arguably far more complicated than dollars-and-cents budgeting.

A bipartisan group of lawmakers wants to allow parents to opt their children out of standardized testing in Delaware's public schools. Opt-out legislation is awaiting debate in the House Education committee. And Markell wants a vote this year on a redistricting plan to simplify public education in Wilmington, where students are currently split among four school districts.

"There are more moving parts now than I have ever experienced," said House Minority Leader Daniel Short, a Seaford Republican who has participated in the transportation discussions.

"This is an effort in negotiation at this point to see what it is we all can come to an agreement on," Short said, calling it premature to talk about specifics.

How other states compare

On transportation, other states have succeeded where Delaware has failed in recent years. Since early 2013, lawmakers in Maryland, Massachusetts, Pennsylvania, Vermont, Virginia, and Wyoming have raised new revenue for transportation projects.

Virginia replaced its 17.5-cent gas tax at the pump with a 3.5 percent tax on wholesalers. Maryland linked increases in the gas tax to inflation.

In Delaware, motor fuel taxes fund about 25 percent of the state's Transportation Trust Fund, or almost $120 million in the fiscal year ending June 30. Delaware's gas tax of 23 cents per gallon was last increased in 1995.

Wholesale motor fuel sales are already taxed at about 1.5 percent in Delaware, including taxes paid by wholesalers generally, and a 0.9 percent hazardous substances tax. But that money is funneled into Delaware's General Fund to help cover higher operational expenses and hazardous substance cleanup, not road improvements.

Joshua Schank, president and chief executive of the Eno Center for Transportation, a nonprofit in Washington, said states may choose to raise wholesale taxes, as opposed to taxes at the pump, for political reasons.

"When you tax wholesale as opposed to taxing downstream, in theory the consumer could be insulated from that," Schank said. "It sounds less like you are doing a gas tax. Of course if there are higher costs, they are ultimately passed on to the consumer."

Schank said there are benefits and downsides to a wholesale tax. While a percentage-based tax rises with higher gas prices, it also does the opposite, generating less revenue as gas prices fall. "If you do a percentage tax then you are taking that risk," Schank said. "You are basically counting on the price going up."

During her legislative briefing last week, Cohan, the transportation secretary, held up a piece of concrete that had fallen from Del. 141 near New Castle to illustrate the state of Delaware's roadway infrastructure.

The pothole forced the emergency closure of southbound Del. 141 on its bridge over U.S. 13. "We're patching patches," Cohan told lawmakers about ongoing roadwork. "We have serious concerns."

In an interview, Cohan said she has not been directly involved in legislative discussions about transportation funding, but said she has heard mention of increasing taxes on wholesalers.

Cohan said her department has considered short- and longer-term funding options, including a mileage-based user fee that is being tested in other states.

"We're in a situation now where we almost have an emergency need," Cohan said.

Staff writer Adam Wagner contributed to this story.

Contact Jonathan Starkey at (302) 983-6756, on Twitter @jwstarkey or at jstarkey@delawareonline.com.

By the numbers

$5.1 million

Amount generated annually for every 0.25 percent increase in how much is charged for Division of Motor Vehicles documents

$5 million

Amount generated annually for every penny increase in the per-gallon fuel tax

$24.8 million

Annual benefit to the Transportation Trust Fund by raising I-95 tolls by $1 for all vehicles