News & Events

Solow Says Negative Impact Of Gas Tax Increase Would Be Limited

Momentum in Iowa appears to be shifting to an increase in the state’s fuel tax, which pays to maintain Iowa’s roads.

No one denies those roads need work.

University Avenue, part of a renovation partnership between the city governments of Cedar Falls and Waterloo, the Iowa Northland Regional Council of Governments and the Iowa Department of Transportation, is aging and full of potholes. The DOT is also looking at plans to increase the safety of Highway 218 north of Cedar Falls, near Janesville, where dangerous intersections caused 127 total crashes between 2006 and 2010, the Waterloo-Cedar Falls Courier reported.

But those projects, and others across the state, cost money, lots of money, which in large part comes from the gas tax. Raising the tax could help offset costs of those projects.

Regardless of whether or not all lawmakers are in support, a bipartisan group of legislators now predicts the gas tax increase will pass, and Iowa Gov. Terry Branstad, who had opposed it, now says he is willing to listen. Meanwhile, several economists suggest the tax is wise and needed and will be hardly noticed.

Local Leaders Split

State Sen. Jeff Danielson, D-Cedar Falls, and State Rep. Walt Rogers, R-Cedar Falls, however, said there may be alternatives to raising the gas tax.

"I'm keeping an open mind. I always to reserve the right to see the actual bill. I do believe that we will need increased investment just to maintain the roads we already have," he said. "But there are other user fees associated with transportation. It doesn’t always have to be the gas tax."

Rogers said he thought some of those other ways to come up with funding should be examined first.

"I believe we should first and foremost look thoroughly for efficiencies and eliminating waste before we discuss any kind of a tax increase. Gas prices are predicted to go up substantially this summer, so increasing the gas tax now would be detrimental to the economy," he said. "That being said, we must find a way to sustain and improve our roads."

Proposal Calls for 8- to 10-Cent Phased Increase

The details of the proposal are still being worked out, but officials are exploring a plan in which they would find $50 million in savings in the Iowa Department of Transportation and then consecutive 4- or 5-cent per gallon fuel tax increases, in 2013 and 2014. Iowa’s fuel tax is 21 cents per gallon for gasoline and 19 cents for ethanol-blended fuel. The tax was last increased in 1989.

Gas prices in Cedar Falls, as of Jan. 23, was $3.05 at Kum & Go, $3.07 at Murphy USA and $3.09 at Prime Mart, according to Patch's Gas and Traffic widget.

Each 1-cent per gallon increase is expected to generate $22 million a year, meaning the increase would generate between $176 million and $220 million a year in additional revenue when fully phased-in.

Legislators Rallying Behind Small Gas Tax Increase

Speaking with the Associated Press, Sen. Tom Rielly, D-Oskaloosa and Rep. David Tjepkes, R-Gowrie, the co-chairs of the House and Senate Transportation Committees, which is behind the measure, said it is needed and said they expect it to pass, in part because of Branstad’s softening stance.

Sen. Herman Quirmbach, D-Ames, said he wouldn't be against a reasonable increase in fuel taxes.

“The cost of not repairing roads is pretty stupid if you think about it,” Quirmbach said.

He added that no one would notice a nickle increase.

Economist Say It’s Worth It

During a taping of Iowa Press and reported by the Associated Press, Iowa State University economist David Swenson said a 10-cent per gallon increase in the tax would cost the average family about $32 a year. Swenson and Creighton University economist Ernie Goss said the tax is worth it because roads are vital to Iowa’s economy, and the tax would be hardly noticed.

Increasing vehicle registration fees has also been discussed, but some say targeting the fuel tax is favorable because out-of-state users of Iowa roads would share the cost, as opposed to registration fees, in which Iowans alone would shoulder it.

Iowa State University Mechanics and Economics Professor Ross Morrow said he doubts an 8-cent increase would significantly change driving habits across Iowa.

“People tend to be very unresponsive to gas price increases, especially small and steady ones,” Morrow said.

John Solow, an economics associate professor at the University of Iowa Tippie College of Business, said a gas tax increase would have a negative, although limited, impact on Iowans.

Solow said those with low incomes who have commutes would suffer, and it could hurt the production and employment in Iowa, particularly for industries that rely on fuel and can’t pass the hike along to their customers.

Still, he said the tax may be the most fair way to address road maintenance needs.

“Using gas tax revenue to maintain roads fits with what is called the 'benefits principle' of taxation,” Solow said. “(This) is the idea that those who benefit from the expenditure should bear its cost, but it does so only loosely, in that the correlation between gasoline purchases and benefits from road use is not perfect.”

Can It Pass In An Election Year?

As with most things in the Legislature, it will depend on politics.

An advocacy group from Muscatine called Iowans for Tax Relief has urged the Iowa Legislature not to raise the gas tax “at a time when gasoline prices are predicted to spike,” and asked Iowans to contact their legislators to encourage them to oppose a bill if it is introduced.

The Farm Bureau, along with some cities, counties and labor groups, support the increase. Citing a state survey, the Cedar Rapids Gazette reported the state needs about $215 million to address "critical" infrastructure needs.

Christopher Larimer, political science professor at the University of Northern Iowa, questioned how strong the support would be during an election year, but said with Branstad’s support and if the economy continues to recover it may slide through.

"(It's) tricky. On one hand, in an election year you never want to vote for a tax,” Larimer said. “On the other hand, if you ask Iowans all over the state they’ll tell you the infrastructure needs work. It seems like every week we’re hearing about old roads that are falling apart.”

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