Governor Haslam Proposes 7-Cent Gas Tax Hike To Pay For Tennessee Highways

Gov. Bill Haslam is outlining a plan to increase the state’s gas tax by 7 cents while also cutting Tennessee’s sales and businesses taxes.

He says the legislative package will give the state the funding it needs to pay for roads without taking more money from taxpayers.

Haslam is unveiling his proposal today, after nearly two years of starts and stops. During that time, his administration says it has identified more than $10 billion in needed improvements and potential projects.

The gas tax increase would be the first in Tennessee since 1989. The state currently levies a little more than 21 cents a gallon, an amount that the governor says has been eroded by inflation and improvements in fuel efficiency.

The 7-cent increase on conventional gasoline would be combined with a 12-cent hike on diesel fuel, a $5 increase in car registration fees, a new $100-a-year fee on electric vehicles, as well as charges on rental cars and natural-gas vehicles.

The Haslam administration estimates those taxes would raise an additional $278 million a year that would be split between the state and local governments.

Haslam is also proposing letting local governments collect additional sales taxes for mass transit. And, for the first time, the gas tax should be indexed to inflation, he says.

The governor plans to introduce his plan as a single bill, which he calls the IMPROVE Act. He concedes it’ll be a tall order to get passed.

“Hard stuff is hard to do, and I recognize that this is not an easy thing to do. But I think that people understand that we have to do something. So we have had a lot of conversations with members of the Senate, members of the House.”

Tax cut offsets

Many lawmakers, including Haslam’s fellow Republicans, have been skeptical of a gas tax increase. They note Tennessee has been running a surplus of $1 billion or more, and argue the state should use that money first.

But Haslam says the state shouldn’t rely on a short-term surplus to fund road projects that can take a decade or more to plan and complete.

And he’s offering to offset those tax increases with other tax cuts. His administration proposes lowering the sales tax on groceries by half a cent. That cut is expected to save Tennesseans about $55 million a year, he says.

The governor also proposes adjustments to the state’s business taxes that will save manufacturers $113 million a year. Haslam says the reduction is needed because Tennessee has missed out on plants because it charges more than other states.

“It’s a competitive issue for us,” he says. “We’re going to have to do something on our franchise and excise (business) taxes. This isn’t, ‘Oh, I’m trying to think of a tax to cut so I can get a road plan done.'”