NASHVILLE - Tennessee Gov. Bill Haslam on January 18 proposed Tennessee's first gas tax hike in 27 years to fund a major road and bridge building program that could continue until 2030.
Called the IMPROVE Act, Haslam's plan would generate about $278 million per year in new transportation funding, while at the same time cutting about $270 million in taxes for shoppers buying groceries, manufacturing companies investing in the state and people earning income from stocks and bonds.
IMPROVE is short for "Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy." Haslam said the act is aimed at building and sustaining economic growth and the state's competitiveness for the next generation of Tennesseans.
"Under the conservative fiscal leadership of the General Assembly and this administration, state government is smaller, $500 million in recurring costs have been cut out of the state's operating budget, and together we've cut taxes by $270 million annually," Haslam said. "Because we are a smaller, less tax reliant state government, it is time to build on the vision of what the future of Tennessee looks like and requires."
Haslam said the IMPROVE Act cuts the sales tax on groceries another .50 percent ($55 million) to 4.5 percent, making a 1 percent cut to the sales tax on food, or $101 million.
Haslam's plan also includes:
Collecting $18 million for road projects by bringing the state's open alcohol container law into federal compliance.
Raising the tax on diesel by 12 cents bringing it into line with the gas tax.
Adding a 3 percent charge on rented cars in Tennessee.
Increasing car registration fees by $5.
The governor's proposal also makes Tennessee's franchise and excise tax on manufacturing businesses more competitive by allowing companies to go to a "single weighted sales factor" ($113 million); and cuts the Hall income tax 1.5 percent this year with a commitment to cut it another 1.5 percent next year (3 percent, $102 million).
IMPROVE cuts taxes by an estimated $270 million annually, bringing the total number of cuts made and proposed since 2011 to $540 million annually, which is approximately nine times more than any other administration.
Haslam's plan is designed to be balanced and equitable for both rural and urban counties across Tennessee. The act intends to keep Tennessee a pay-as-you-go state and its roads debt free. Tennessee last addressed how it funds its roads and bridges in 1989 when it raised its fixed tax rate to 21.4 cents per gallon, creating a transportation network that spurred the economic growth the state has seen during the last three decades. Due to inflation, increases in construction costs and the cost of land and better gas mileage, the state comptroller estimates that 21.4 cents in 1989 is now worth approximately 11 cents a gallon.
The IMPROVE Act increases the road user fee by 7 cents for a gallon of gas and 12 cents for a gallon of diesel and increases car registration fees by $5 for the average passenger vehicle. It places an annual road user fee on electric vehicles and increases charges on vehicles using alternative fuels. The proposal also includes a 3 percent charge on rental cars and changes the state's open container law to allow the Tennessee Department of Transportation flexibility to use $18 million in existing federal dollars on roads. Fuel taxes would be indexed - but also capped - to the Consumer Price Index in order to keep up with the rate of inflation.
The impact on the average Tennessee motorist will be approximately $4 a month. Those funds will be used to provide funding for 962 projects across all 95 counties plus an additional $39 million to cities and $78 million to counties. The legislation would also allow municipalities, only if approved by local voters through referendum, to impose a surcharge on their sales tax rate that would be solely dedicated to public transit projects.
The governor also announced that his FY 2017-2018 budget proposal would use surplus one-time funds to finish repaying the Highway Fund by transferring $120 million from the General Fund.