Gas prices, already rising, may go higher amid Russia-Ukraine crisis

JOHN REITMEYER, BUDGET/FINANCE WRITER | FEBRUARY 28, 2022 

NJ Spotlight News

Gas prices have shot up across New Jersey over the last year, more than wiping away any relief motorists may have seen several months ago when the state’s gas-tax rate was reduced slightly.

But as gas prices rise amid the military conflict in Ukraine, it’s too early to say how that could affect overall gas-tax collections, which play a key role in determining the taxes motorists pay each time they buy a gallon of gas in New Jersey.

The state gas-tax rate is reset every year to ensure long-term transportation infrastructure investments are sufficiently funded on an annual basis; the next formal analysis of the revenue data and consumption trends is still months away.

The price of gas has no direct impact on how much New Jersey collects from the gas tax because it is levied as a volume tax on a per-gallon basis, not as a percentage of an individual purchase as happens with the state sales tax.

But Department of Treasury officials also suggest the price factor cannot be ignored.

“Gas prices can be volatile, and price changes either up or down could impact consumer behavior in a way that indirectly impacts collections,” said Treasury spokeswoman Danielle Currie.

Motorists cut back on driving

And right now, motorists appear to be cutting back on driving in response to the latest surge in gas prices, according to Sal Risalvato, executive director of the New Jersey Gasoline and Convenience Store Association.

“Members have been telling me this for the past few months,” Risalvato said in a recent interview.

According to data collected by AAA, the average price of a gallon of gas sold in New Jersey last week topped $3.60, which was also above the national average for the week. Prices were even higher at service stations on the Garden State Parkway and New Jersey Turnpike, according to data tracked by the New Jersey Turnpike Authority.

The rise in gas prices comes as overall inflation has gone up by 7.5% over the last year amid the coronavirus pandemic, according to the federal government’s consumer price index.

Gas and fuel oil are among the categories that experienced the biggest annual increases through the end of January, according to the federal data.

NJ’s per-gallon gas tax

But even as the price of gasoline has increased in recent months, including in New Jersey, the tax rate the state levies on each gallon of gas purchased by motorists is lower today than it was a year ago.

That’s because the per-gallon gas tax was reduced by 8.3 cents, to 42.4 cents, on Oct. 1. And for diesel fuel, the per-gallon rate was reduced to 49.4 cents. Those rates are locked in by state law for at least a year.

That law, enacted in 2016, linked New Jersey’s gas-tax rate to annual consumption to ensure the state would have enough funds to adequately maintain the statewide transportation system.

The gas-tax revenues are dedicated to funding New Jersey’s Transportation Trust Fund, or TTF, which is an account separate from the state budget that pays for road, bridge and rail-network infrastructure improvements on an annual basis.

The 2016 law requires automatic changes in the gas-tax rate each year to keep that planned transportation fund spending in balance.

Under rules written into the law, the state’s top financial officials must perform an analysis by mid-August every year to determine whether a surplus or deficit would be generated under the current gas-tax rate. The rate must be increased to offset any deficit or decreased to prevent a major surplus. Any changes must go into effect each year at the beginning of October.

Despite the gas-tax rate decrease that went into effect last October, the overall rate is up by nearly 28 cents since 2016 when the state’s current transportation-financing arrangement was established, according to an NJ Spotlight News analysis.

Fifth-highest in nation

New Jersey’s per-gallon gas tax was ranked earlier this year as the fifth-highest among U.S. states by the Washington, D.C.-based American Petroleum Institute.

While this year’s analysis of the revenue figures is still months away, gas-tax collections were running at or near year-end growth targets through the first seven months of the current July-to-June fiscal year, according to Treasury’s latest revenue data. New projections are expected to be released by Gov. Phil Murphy’s administration early next month, at the same time he unveils a budget for the state’s next fiscal year.

The best remedy for high gas prices, according to Risalvato, is usually “high gas prices.” That’s because high prices typically generate less demand that eventually causes price reductions.

However, Russia’s decision to invade Ukraine may end up upsetting the typical supply and demand patterns given the role Russia plays globally as an oil and gas producer.

“This is a fly in the ointment,” he said.

And for the state’s gasoline retailers — who must pay for their supplies upfront and then try to recover those outlays with individual sales — the soaring prices may be cutting into or even consuming profit margins as stations compete for customers.

“There’s a reluctance to raise the price because you can’t be uncompetitive,” Risalvato said.

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published this page in News and Politics 2022-02-28 02:58:26 -0800