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States finding tough climate for gas tax proposals

Monday - 3/5/2012, 3:51pm  ET

By BRIAN WITTE
Associated Press

ANNAPOLIS, Md. - As if gas prices weren't high enough, several states across the U.S. are looking to raise fuel taxes they say are needed to pay for roads and bridges that are outdated, congested and in some cases, dangerous.

Maryland's governor is proposing a phased-in 6 percent sales tax by 2 percent a year, which would raise about $613 million annually when fully implemented. Iowa is considering raising its current 21-cent-per-gallon tax by either 8 cents or 10 cents.

Such proposals were hard to even contemplate during the recession and its immediate aftermath. Now, states forced to grapple with the problem are running into record-high gas prices for this time of year and lingering effects of the recession.

In Maryland, lawmakers are questioning whether the time is right for such an increase, which is never popular even in good fiscal times.

"They understand that it's needed," Delegate Tawanna Gaines, a Democrat, said when asked about the proposal last month, on a day when the national average price of gasoline hit $3.65 a gallon. The average price of gas on Monday pushed toward $3.80 a gallon. "They get that, but they basically believe that you can't get blood out of a turnip. It's going to be a very, very tough sell."

Maryland Gov. Martin O'Malley, a Democrat, is quick to point out that the state hasn't raised its gas tax since 1992 _ and the flat tax doesn't buy nearly as much as it once did. But some lawmakers say they are getting significant pushback from residents who are calling their offices to express opposition at a time when Maryland, like most other states, is still trying to bounce back from the recession.

O'Malley's plan would delay a 2 percent annual increase if gas prices rise by more than 15 percent in a fiscal year. Lawmakers also say Maryland's $1.1 billion deficit is creating another obstacle, because his challenging budget plan includes a variety of other tax increases that legislators will be considering.

Other states also are looking at increasing revenue streams for transportation projects after years of neglect.

Michigan Gov. Rick Snyder, a Republican, is calling on lawmakers in his state to raise $1.4 billion more for transportation needs. In Arkansas, voters may be asked to consider raising two taxes to help pay for the state's roads. In Iowa, a commission named by Republican Gov. Terry Branstad recommended late last year that the fuel tax be increased.

In Michigan, state lawmakers in both parties are considering higher fuel-related taxes and vehicle registration fees to raise more than $1 billion of the $1.4 billion the governor is seeking. Rep. Rick Olson, a Republican who supports the revenue increases, contends it's a matter of trying to avoid larger expenses later, if maintenance is deferred.

"It's certainly going to be difficult, and no one argues that we need $1.4 billion," Olson said. "The longer we wait, the more it is going to cost us."

In both Maryland and Michigan, business groups have been supportive of raising revenue for transportation.

Rich Studley, president of the Michigan Chamber of Commerce, said Michigan's transportation system is crucial to three top industries in the state, including manufacturing, agribusiness and tourism.

"It's really, from a Chamber of Commerce perspective, all about jobs and the economy," Studley said.

Kathy Snyder, Maryland's Chamber of Commerce president, also is backing a revenue increase in Maryland. However, she said the chamber would rather phase in a 10-cent increase to the state's flat tax, instead of O'Malley's phase-in of a sales tax.

"Transportation funding is one of the top priorities of the Maryland chamber again this year," Snyder said. "Like many states, we don't have enough funding to build any road, bridge, highway or transit project either from state funds or federal funds."

An Arkansas constitutional amendment that lawmakers have placed on the November ballot will ask voters to approve a temporary, half-cent sales tax to pay for the state's highways. The sales-tax measure is part of a highway plan calling for an increase in the state's diesel tax, which the Legislature approved last year. That plan was scaled back when the state's trucking lobby withdrew its support and said voters would not approve a tax hike. Instead, voters approved extending a $575 million highway bond program in November.

A second proposal in Arkansas would raise the state's severance tax on natural gas to pay for highways. A former natural-gas executive has until July 6 to submit more than 62,000 signatures to place his proposal on the November ballot. It would increase the severance tax to 7 percent. Wells are now taxed at between 1.25 percent and 5 percent of the value of the gas being taken from the land.

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