UPDATE: HB 8 - this session’s tax reform legislation - passed the Senate and the House last night.

The legislation is on the way to the Governor’s office, where a veto is waiting for it. The veto will almost certainly be overridden by the General Assembly when they reconvene for the final two days of the session.

A troubling provision relating to electric vehicles suggests the legislature is preparing to “index” Kentucky’s gas tax in a future session, possibly as early as 2023.

With inflation and energy prices skyrocketing, many states are suspending their gas taxes.

Taxpayers should never underestimate Frankfort’s appetite to deliver on long-standing promises to the pro-gas tax crowd for more government spending.

(For background on “indexing” see our post from March 17th below.)

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Yesterday, the Kentucky’s Petroleum Marketer’s Association (KPMA) cast a spotlight on the effort to conceal “a hidden gas tax hike” in a legislative vehicle before the end of the 2022 session. (Lane Report, Daily Independent, Advocate-Messenger)

The op-ed from KPMA’s Executive Director Brian Clark started out:

With the state’s Road Fund doing well and inflation taking off like a rocket, one would think that gas taxes should stay the same, or even go down, as Governors in Florida, Virginia and Illinois have proposed.

But not in Kentucky. Here, lawmakers continue to consider the notion that the gas tax should be “indexed” to the Consumer Price Index or possibly the National Highway Construction Cost Index. That means, as prices for ordinary consumer goods increase in the future – and they almost always do – then motor fuel taxes will automatically follow.

Clark continued:

Lawmakers won’t have to even vote to make this happen if indexed because the amount of the gas tax will be determined by a mathematical equation…Substituting a math problem for human judgment undercuts the very essence of electoral accountability.

Future politicians will be able to honestly say they didn’t vote to raise the gas tax even while spending hundreds of millions in new tax revenues that ordinary Kentuckians will pay at the pump. Lawmakers who vote to raise taxes should do so transparently so that voters can decide whether their actions deserve another term. That basic level of accountability is gone with the indexing proposal.

Senate Transportation Committee Chairman Jimmy Higdon told WEKU’s Stu Johnson this week that raising the gas tax is “off the table.” Higdon explained that the current formula in Kentucky statute adjusts the gas tax based on the wholesale price of fuel, not inflation. Higdon said, even if the wholesale price goes up this summer, “it’s averaged over four quarters. So I don’t see that (Kentucky will) have any increase in the gas tax this summer.”

We pointed out earlier this month that - for the first time since the 2018 session - Rep. Sal Santoro didn’t file a stand-alone bill to raise the gas tax:

The gas tax supporters and their legislative allies…realize the issue would be so unpopular given the current environment that for the first time in four years they’ve decided against filing one.

In Frankfort, it’s never over until it’s over. Watch the various conference committees near the end of the session for the gas tax increase trying to find a home.

Santoro’s previous bills have included a version of “indexing” where — after an initial $0.10 / per gallon increase — the gas tax would be adjusted annually to account for the cost of highway construction inflation.

Which brings us back to KPMA’s op-ed:

Good infrastructure is important, and it isn’t cheap, but passing a hidden gas tax increase in the form of indexing future motor fuel taxes is not wise. It hurts Kentucky taxpayers. As they are about to go into the conference committee behind closed doors where these kinds of decisions get made, the General Assembly should reject any increase in fuel taxes tied to an index.

What should Kentucky legislators, especially rank-and-file members, know about “indexing” as the session moves into the final days before the veto period?

• Indexing Virginia’s gas tax was approved as part of a transportation omnibus bill in the 2020 session. Newly-elected Gov. Glen Youngkin said high gas prices are part of the “inflationary pressures” Virginia families are facing. Youngkin said this week he will send a bill to the Virginia General Assembly in an upcoming special session to suspend Virginia's gas tax for three months.

• Maryland tied their gas tax to the consumer price index in 2013. This week, Maryland lawmakers are poised to suspend their state’s gas tax. Both Democrat and Republican lawmakers are moving fast to push through the bill that would eliminate Maryland’s $0.36 gas tax for 30 days. Gov. Larry Hogan’s office said he will sign the bill as soon as it hits his desk so it can take effect immediately.

• This from Michigan: “Taxpayers concerned about the toll inflation may inflict on their household budgets are about to discover a fresh new source of it: a cost-of-living allowance baked into the state’s motor fuel tax levy. Beginning Jan. 1, 2022, the state’s gas tax will begin what could turn out to be stiff annual increases pegged to the rate of inflation.” Earlier this week, the Republican-controlled Senate approved a suspension of the state’s gas tax. Michigan’s Democratic Governor Gretchen Whitmer has signaled she intends to veto the legislation.

The headline from a piece in the Hill by Louisville native Michael Lambert - a policy analyst at Americans for Prosperity - got it right:

INDEXING THE GAS TAX IS STILL A TAX HIKE ON WORKERS AND FAMILIES.

We agree.

To borrow from our post earlier this week:

The legislature is poised to increase the state’s investment in infrastructure by prioritizing spending and directing the lion’s share of road fund resources towards their intended purpose. Many in Frankfort said it couldn’t be done without higher gas taxes. The General Assembly should continue to prove them wrong.