Democratic leaders agree to raise gas tax

TRENTON - After weeks of wrangling, Democratic leaders in the Legislature reverted to the original plan to fund transportation projects in New Jersey – raise the gas tax by 23 cents and scrap the estate tax.

In a news release sent out Friday, Assembly Speaker Vincent Prieto and Senate President Stephen M. Sweeney announced they are now backing a plan designed in the Senate – and opposed by Gov. Chris Christie – that would phase out New Jersey’s estate tax and raise the gasoline tax from 14.5 to 37.5 cents a gallon.

MORE: SJ motorists fear gas tax hike

In the end, Sweeney and Prieto landed on a slightly modified version of the tax overhaul drafted by Sens. Paul Sarlo, D-Wood Ridge, and Steven Oroho, R-Sussex. The new legislative deal means that a competing plan from Christie and Prieto – to cut the sales tax from 7 percent to 6 percent while also raising the gas tax by 23 cents – is now off the table.

Christie’s plan would have cost roughly $1.7 billion in lost annual revenue for a state already struggling to pay for its schools, pensions, health care and a host of other programs in the $34.5 billion budget. Senators from both parties balked, refusing to consider the Christie-Prieto plan.

The new Senate plan comes with a lower cost of $550 million a year once fully phased in over five years.

Christie last month ordered a shutdown of road projects – which is still in effect – to coerce the Senate to pass his plan. Instead of acceding, Sweeney convinced Prieto to abandon the governor’s plan and sign on to his.

Sweeney, who is expected to run for governor next year, for months has been planning a ballot measure that, if approved by voters, would mandate sizable pension payments through the state constitution. Compared with Christie’s plan, the lower price tag of the Senate plan makes it more likely – but, experts say, not certain – that the state would be able to afford both the pension- and transportation-funding initiatives.

“This is a bipartisan plan that supports a $2 billion a year Transportation Trust Fund and provides affordable tax cuts that will allow us to meet the state’s pension obligations without creating a fiscal crisis,” said Sweeney, D-Gloucester.

Amid a shutdown of road projects, Prieto said the stalemate between both houses “cannot continue.”

“As I’ve been saying for more than two years, New Jersey needs a viable Transportation Trust Fund or we risk economic disaster,” he said in a statement.

With motorists paying more to fill up at the pump, the state would be able to spend $20 billion over the next 10 years on roads, rails, bridges and other transit projects, using a combination of new revenue and borrowing.

The Transportation Trust Fund has borrowed copiously over the years, is tapped out of money, and the current revenue reaped from the gas tax is not enough to cover the interest payments on its debt. Road repairs and transit upgrades across the state are usually paid by the trust fund, making it a crucial program for a state filled with commuters.

But lawmakers and Christie have been unable to find a lasting funding fix. And it’s unclear whether Christie will sign the new plan unveiled Friday; the governor has said several times that the original Senate plan did not cut enough taxes to soften the blow from a higher gas tax.

The new components that won Prieto over are a new income tax deduction of up to $500 for gas expenses for residents with incomes below $100,000; a $3,000 income tax exemption for honorably discharged veterans; and added funding for the Earned Income Tax Credit, which is geared at people who work but still live close to the poverty line.

The Senate plan no longer would institute a new deduction in New Jersey’s income tax for contributions to charity. But it still increases income tax exemptions on retirement income fivefold.

Some lawmakers from districts that include regional airports also balked at an increase in the jet fuel tax that was part of the original Senate proposal. That tax was not included in the new proposal, likely giving Prieto more room to pass the plan in the Assembly.

Sweeney and Prieto indicated they will once again attempt to pass their plan by overriding a likely Christie veto in both houses. They will need Republican support to reach the two-thirds majorities required in each chamber. Enough Republicans in the Senate support the plan, but last month, the Assembly fell short.

“I will now look for a firm commitment of strong support from Assembly Republicans to keep our roads and bridges safe and workers on the job,” said Prieto, D-Secaucus.

Direct relatives and surviving spouses do not pay the estate tax, but they do pay New Jersey’s inheritance tax. Heirs who are more removed, such as friends or extended family members, do fall under the estate tax, but whatever amount they pay is then reduced from their inheritance tax bill.

Sweeney said the Senate Budget and Appropriations Committee will convene next week to amend and pass the plan.