TRENTON — New Jersey drivers have a lot riding on whether out-of-state motorists keep filling up in the Garden State once the gas tax is increased and the cost savings shrink.

Without drivers from New Yorker and Pennsylvania, the New Jersey gas tax hike could wind up higher than 23 cents a gallon.

Although a copy of the proposed legislation still wasn’t available Tuesday, earlier versions of the plan consistently included a complex formula for imposing the tax hike that meant the level could vary in future years. The less gas that is sold, the higher the tax.

Assembly Speaker Vincent Prieto, D-Hudson, thinks out-of-state drivers will still fill up in New Jersey.

“We’re a corridor state. More than a third is bought from out of state. It will still be bought from out of state because it will be cheaper,” Prieto said.

New Jersey’s gas tax will be 14 cents less than Pennsylvania’s and 9 cents less than New York.

Sen. Raymond Lesniak, D-Union, predicts sales to out-of-state drivers will drop noticeably.

“Without a doubt, sure,” Lesniak said. “As we get closer to Pennsylvania, as we get closer to New York, they won’t be piling back into New Jersey. So that number’s going to go down precipitously.”

Sen. Raymond Lesniak, D-Union (Michael Symons/Townsquare Media NJ)

If one-third of the buyers scaled back their purchases, it would be bad news for state residents.

The legislation, at least in the past versions, directed the state to figure out how much money the increased gas tax would have generated it if was in effect in fiscal 2016. The state treasurer would then adjust the tax rate each year, on Oct. 1, to adjust for any variations from that amount.

It’s called a “true-up” provision. If the state collects more than it intends — $1,137,900,000 — then the gas tax would be reduced for the following year. If the state collects less than it intends, then the rate would be increased for the following year.

In a fiscal note this summer, the Office of Legislative Services notes that the volume of future fuel consumption spends on fuel efficiency, more use of alternative fuel vehicles and slowing growth in the state population. It says “it is likely that changes … will require increases” in the gas-tax rate.

Motor fuels tax collections – which account for 10.5 cents of the 14.5 cent current tax, with the balance levied at the wholesale level – have already dipped a bit from their peak, in part because vehicles are become more fuel-efficient.

In fiscal 2007, more than $560 million in motor fuels taxes were collected in New Jersey. That had dropped to below $525 million in 2011 and 2013, though rebounded to $535 million in 2015 and is estimated at $540 million for the current fiscal year – before the impact of the looming tax hike.

Looked at another way, the number of barrels of motor gasoline consumed in New Jersey fell from almost 105 million in 2007 to less than 95 million in 2012 and 2013, according to the U.S. Energy Information Administration. It rose to over 96 million in 2014; 2015 data is due out this month.

The tax cuts

The Transportation Trust Fund financing plan up for a vote Wednesday also includes tax cuts, as part of a political deal to attract votes for a politically unpopular hike in the gas tax, the first in New Jersey since 1988.

The state would go from having the nation’s second lowest gas tax to its seventh highest.

The cuts include a reduction in the sales tax, by 1/8th of a percentage point in January and by an additional 1/4th of a percentage point in January 2018.

Gov. Chris Christie advocated for the cut in the sales tax, which he says is the state’s first broad-based tax cut since 1994.

In June, Christie struck a surprise deal with Prieto to cut the sales tax from 7 percent to 6 percent as part of the gas-tax bargain, though that version was blocked by Senate President Stephen Sweeney, who preferred a tax-cut plan focused on estate and, for targeted groups of people, income taxes.

“We didn’t like the original Senate package, but I have to hand some credit to Sen. Sweeney. He held up the project when the Assembly was grossly negligent and signed off in the dark of night on the sales tax original package,” said Dave Pringle of Clean Water Action, a critic of the latest compromise. “But he threw all of that out the window on Friday.”

'Return of Jim Florio'

The reduced sales tax cut would probably amount to a $650 million tax cut once fully implemented. Interest groups said the state budget will miss that money – but that consumers will hardly realize it on their end, where it amounts to less than half a penny for every dollar of taxable purchases.

“To consumers, the cut is almost meaningless. It’s less than a penny on a cup of coffee at Starbucks,” said Ed Richardson, executive director of the New Jersey Education Association, who said the current sales tax ranks in the middle nationally in terms of its tax burden.

Liberal interest groups, joined by Lesniak at a Statehouse news conference, particularly criticized the proposal’s phase-out of the estate tax by the start of 2018. They said only 4 percent of estates pay the tax anyway and said the reduction of $550 million is a sweetheart deal the state can’t afford.

“This is Trenton insanity at the worst that I’ve ever, ever seen it,” said Lesniak, who prefers a smaller, phased-in hike in the gas tax without the estate tax cut.

“This is the return of Jim Florio,” Lesniak said, referencing a taxpayer revolt that followed hikes of income and sales taxes in 1990. “And it will have the same impact, I believe, on any legislator who votes for it. And it should.”

Advocates for the plan said it's for the state's greater good. Tom Bracken, the chair of the Forward New Jersey coalition and president and chief executive officer of the New Jersey Chamber of Commerce, said those are necessary steps to ease the state's tax burden.

"Every component of this plan bodes well for the future of New Jersey," Bracken said.


New Jersey: Decoded cuts through the cruft and gets to what matters in New Jersey news and politics. Follow on Facebook and Twitter.


Michael Symons is State House bureau chief for New Jersey 101.5 and the editor of New Jersey: Decoded. Follow @NJDecoded on Twitter and Facebook. Contact him at michael.symons@townsquaremedia.com