BUDGET 2013: Transportation tax changes to be passed on to businesses
Gov. Tom Corbett's transportation funding proposals as part of his budget have allowed many industries to sit back in their seats after waiting two years on the edge.
But not everyone will be happy with it.
That's because the governor's proposal to raise $1.8 billion by uncapping the Oil Company Franchise Tax (OCFT), assessed on diesel and gasoline at the wholesale level, will likely be passed on to businesses and consumers, according to trade groups and analysts.
The proposal calls for a five-year phase out of the OCFT cap, with one-third coming off in 2013, 2015 and 2017, according to PennDOT. Parallel to the uncapping is the 2-cent, or about 17 percent, cut to taxes at the pump.
"If we don't do something about this, public safety will be affected," Corbett said about transportation infrastructure at an event last week.
The OCFT is about 19 cents per gallon of gas and 26 cents for diesel, according to the state Department of Revenue. In the first year of uncapping, that would increase to 29 cents and 39 cents a gallon, respectively.
Because market prices fluctuate each year, wholesalers are different, and many factors such as weather affect prices, it's not clear how much will be passed on at the pump, revenue spokeswoman Elizabeth Brassell said.
Although the additional funding will fix deficient bridges and rebuild pockmarked roads, some find it evident the changes will increase costs to businesses and consumers.
"The admission that it will affect people kind of comes in the cut to the tax at the pump," said Peter Swan, an associate professor of logistics and operations management at Penn State Harrisburg.
He said he expects wholesalers to pass all the extra tax expenses on to consumers and businesses. Any company with a fleet of vehicles and buying large quantities of fuel is going to pay more.
Representatives from the Pennsylvania Petroleum Marketers & Convenience Store Association, a trade group for fuel wholesalers and retailers, did not return several requests for comment.
Added costs were part of the reason for the years with no changes to the OCFT, according to the Corbett administration.
"The phase-in allows businesses to plan for the uncapping of the franchise tax and any impact," said Kelli Roberts, a spokeswoman for Corbett.
Despite costs, many industries are relieved Corbett is moving forward on plans to fund maintenance of road and bridges as well as mass transportation.
The Keystone Transportation Funding Coalition — a broad group of manufacturers, transportation groups, the trucking industry, general business advocates, unions and community groups — expressed its support for such plans at a summit Monday.
Aside from the safety of roads and bridges, the group urged financial support at the state and federal level for ports, airports, mass transit and even bike and pedestrian routes as a way to provide diverse, safe ways for people to travel, but also a means for commerce.
"We can work together … to finally get this done," said David Patti, president and CEO of the Pennsylvania Business Council.
Jim Runk, president of the Pennsylvania Motor Truck Association, said trucking companies don't like taxes but because roads and bridges are so vital to the efficiency of the industry, they're willing to be leaders, support the governor's plan and pay their fair share.
The spaced-out cap removals will lessen the bite of increases, he said.
"That makes sense," Runk said. "It lets us go back to the shippers to let them know there will be an increase in certain years."
As if another nod to the real impact that uncapping the OCFT will have, the Corbett administration left out registration and licensing fee increases from its proposals. That surprised Runk, who was on the governor's Transportation Funding Advisory Commission that recommended similar changes in 2011.
Registration fee hikes on trucks and trailers would've hit trucking companies hard. Some companies would be facing tens of thousands of dollars to register their fleets, executives said two years ago.
Other industries see transportation funding not only as a necessity, but as a way to rebuild a revenue stream that shrank during the recession as states tightened their belts.
"It means we can finally get back to business in the area of transportation," said Paul McNamee, the transportation client services manager at engineering firm KCI Technologies in Cumberland County.
Additional funding for transportation maintenance and construction projects means more work for engineering firms that have to design roads, bridges and transit, he said.
That also mean more work for companies that will build the infrastructure, he said.
"Transportation is difficult. It's a tough nut to crack, especially with the economy," McNamee said. "So I'm glad the governor took his time to think about it and put forward something that will improve our infrastructure."
Unscrewing the gas cap
Gov. Tom Corbett's plans for increasing transportation funding for roads, bridges and mass transit hinge on a five-year uncapping of the oil company franchise tax (OCFT) and a 2-cent (or nearly 17 percent) cut in the at-pump fuel tax. The actions are projected to raise $510 million in the first year and $1.8 billion by the fifth year. To help companies adjust to the OCFT uncapping, the second and fourth years will see no action.
TAX ACTIONS BY YEAR
Year 1: Uncap first 1/3 of OCFT. Cut at-pump fuel tax by 1 cent to 11 cents.
Year 2: Cut fuel tax by 1 cent to 10 cents.
Year 3: Uncap second 1/3 of OCFT.
Year 4: No action.
Year 5: Uncap final third of OCFT.