North Carolina's transportation budget is in crisis. But, says a new report, more efficient and effective funding systems could ensure that North Carolina gets the public transportation so crucial for the state's economic and social well-being.
The report, "Paying to Get From Here to There: Meeting North Carolina's Transportation Revenue Needs in Difficult Times  ," offers practical tools for lawmakers to boost funding for critical infrastructure projects. Creative reform of the state's tax and fee system would generate enough revenue for public transportation, ports, rail and bike and pedestrian facilities.
"Due to difficult economic times, the few tax and fee increases recommended in the report are modest," said author Steve Jackson, a public policy analyst who focuses on transportation issues for the North Carolina Justice Center's Budget & Tax Center. "But funding new transportation projects is an investment in North Carolina's people that will help the state's economy now, and continue to pay off for decades to come."
The report's recommendations include:
- Remove the cap on the variable portion of the gas tax. North Carolina will miss out on $250 million in transportation revenue in the first six months of this year because of the cap.
- Abolish the trade-in exemption for the Highway Use Tax, North Carolina's sales tax on vehicles, and increase the rate of the HUT by a modest one percent. The exemption is nothing more than a subsidy for auto retailers, and these changes would add an additional $300 million to the state's transportation coffers.
- Revise the structure of the state's registration fees system to reflect the damage heavier vehicles inflict on roads. This would increase transportation revenues by upwards of $150 million per year.
One-third of the new revenue created by these proposals would be sufficient to substantially fund a new state fund that could provide grants to local governments and entities for capital works in public transportation, ports, rail and bike and pedestrian facilities.
Since transportation taxation and fees are highly regressive, meaning low income people pay a higher proportion of their income on them than higher income people, Jackson's report recommends an increase in the Earned Income Tax Credit for low-income households. This would result in an effective tax cut for working families, while funding vital projects for lower-income wage earners.
Over the long term, changing to a system that more directly taxes road use – based on the number of miles a vehicle travels – would be beneficial to revenue collections and could be designed to more fairly distribute tax responsibility. However, creating such a system is currently unrealistic because of administrative and technology hurdles.
"Everyone knows that our state transportation funding system needs an overhaul," said Jackson. "These recommendations are practical steps we can take now to fund the projects we need now, while also reforming the system for the future."