Governor Haslam Proposes Gas Tax Increase

Posted at 8:37 AM, Jan 18, 2017
and last updated 2017-01-18 20:29:24-05

Citing a critical need to address Tennessee's crumbling roads and bridges, Governor Bill Haslam announced he will introduce legislation which would raise the state's gas tax in an effort to help pay for transportation needs.

As announced on Wednesday, the bill, known as the "IMPROVE Act," would create $278 million in new revenue funds by raising the gas tax by 7 cents per gallon. Bringing the total tax on regular gas in Tennessee to 28.4 cents a gallon.

The tax on diesel fuel would also increase by 12 cents a gallon and any revenue created by raising the gas tax would be for the explicit use of transportation projects.

"We have people who say, 'Well, we have surplus, why don't we use it to address transportation?'... A one time surplus is not a way to solve a long-term problem," Governor Haslam told reporters in a closed door meeting on Wednesday morning, prior to his public roll out of the plan and addressing the state's current $2 billion surplus.

Tennessee currently has an $11 billion backlog in road projects and the governor's plan would help fund 962 projects across the state but he admitted the proposed gas tax increase would not be able to fund every need the state currently has.

The IMPROVE Act would also increase car registration fees by $5 for the average passenger vehicle, place a $100 annual fee of electric cars and tack on an additional three percent charge for rental cars.

As part of the legislation, Tennessee would also no longer become an open container state, making it illegal for passengers in a moving car to consume alcohol while the vehicle is moving. That change would generate $18 million in federal funds.

Even though the state's current gas tax sits at 21.4 cents per gallon, state financial analysts believe Tennessee has only been getting about 11 cents per gallon in revenue from the gas tax because of the increased gas mileage passenger vehicles get.

The last time the gas tax was raised was in 1989.

Governor Haslam told reporters that he estimates the average family in Tennessee would pay about $4 more a month on gas if the plan passes. The increased revenue from raising the gas tax would replace or repair 688 bridges across the state and help pay for interstate construction.

"Not having a good road system will cost our citizens," he said.

In an effort to minimize likely backlash from Republicans in both the House and Senate, the Governor also announced that he will be cutting $270 million dollars in taxes, a majority of which will benefit businesses. Funds for cutting those taxes will be drawn from the states nearly $2 billion surplus, the Governor said.

"We are increasingly at a disadvantage when recruiting big companies ... One reason is the franchise and excise tax," Governor Haslam said, adding that Tennessee has ranked third highest in the nation for taxes on businesses.

The Republican Governor also announced he will be cutting the grocery tax from five percent to four and a half percent, estimating that will cost the state about $55 million in revenue.

If passed the plan would provide an additional $39 million for cities and $78 million for counties to use on local transportation projects. The Governor said mayors from counties across the state, including Mayor Megan Barry of Nashville, have approached him about the plan and asked that they be allowed to use that money for mass transit projects, if voters approve the measure by a referendum.



"This proposal is the next step in the conversation about how we're going to position the state to address expected growth," Governor Haslam said.

Governor Haslam acknowledged that he expects some push back from lawmakers over the proposed bill, much like he did over his failed InsureTN legislation, but if passed in 2017, Tennesseans could see the price they pay at the pump increase by as early as July 1 of this year. 

Lt. Governor Randy McNally released the following statement on the proposal:

"Governor Haslam's proposal does what Republicans do consistently: It cuts taxes. This plan addresses our transportation funding dilemma in a way that makes sense and still reduces the overall tax burden on our citizens. In just the past few years, we have repealed the gift tax, eliminated the death tax, reduced the sales tax on food and begun the phase out the Hall Income Tax. Governor Haslam's plan unveiled today does even more to reduce the overall tax burden on our citizens. This plan eases the tax burden on our manufacturers allowing them create jobs that Tennesseans need. The plan also takes another bite out of the food tax which gives our working and middle class citizens a tax break on the everyday necessities of life. For Tennessee's economic growth to continue we must have the infrastructure to support it. This plan attacks the funding issue in a responsible way. I appreciate Governor Haslam bringing forth this proposal. I look forward to a spirited debate on the merits in the House and the Senate."