With gasoline prices in Connecticut creeping to their highest levels in seven years, Gov. Ned Lamont conceded Tuesday he likely won’t be able to revive legislative interest in joining a regional Transportation Climate Initiative any time soon.
But while the TCI is focused on containing greenhouse gas emissions, enhancing air quality — while also raising revenue for the state’s transportation program — its fate also hinges on Connecticut’s regressive state-and-municipal tax system.
More specifically, the fiscally moderate-to-conservative Lamont and some of his fellow Democrats remain divided on tax relief for the poor — particularly in Connecticut’s biggest cities — and how to pay for it.
“Look, I couldn’t get that through when gas prices were at historic [lows],” the governor replied when asked if he would press lawmakers to reconsider joining the initiative they balked at last spring. “So I think legislators are pretty clear, it’s going to be a tough rock to push when the gas prices are so high, so no.”
But rising gas prices aren’t the only obstacle.
“There are some people who are living on such a tight margin that anything that adds to their regular expenses is going to put a squeeze on them and put them in a tight hardship,” said Senate President Pro Tem Martin M. Looney, D-New Haven, one of the key players wary of the TCI.
Though Looney calls the regional initiative’s environmental goals laudable, the program’s potential impact on some of Connecticut’s most vulnerable households remains a concern for him.
TCI would raise taxes on fuel producers — which would be passed onto all motorists at the pump — adding about 5 to 9 cents per gallon by 2023, according to the Lamont administration.
Though many are quick to call that burden negligible, progressive Democrats note that that’s not the case for all in Connecticut, which is home to some of the most extreme income and wealth inequality in the country.
Nearly all of the revenue raised independently by cities and towns comes from property taxes. But communities don’t offer varying mill rates depending on a household’s income or ability to pay.
And while a progressive income tax supports nearly half of the state budget’s General Fund, the second-largest revenue engine, the sales tax, also is largely regressive.
A 2014 tax incidence analysis found that the poorest 10% of households in Connecticut in terms of adjusted gross income — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011. A tax incidence analysis studies which groups pay taxes and how those burdens are shifted — such as is done with fuel taxes.
By comparison, the middle class paid about 13%, while the top 10% of earners paid 10% and the top 1% paid about 7.5%.
That is also the case when it comes to fuel taxes, which means the fiscal impact of TCI would be felt equally by all households with vehicles.
Motorists pay a 25-cents-per-gallon retail tax when they fill up at the pump.
But many don’t know there is a second levy imposed on gasoline at the wholesale level. And while gasoline distributors shift the entire cost of Connecticut’s 8.1% wholesale fuel tax — plus a surcharge that effectively boosts the rate to 8.81% — onto local filling stations, those stations then pass it all onto motorists.
According to the Connecticut Energy Marketers Association, the average wholesale price last week at New Haven harbor, the single-largest fuel importing site in the state, was $2.56 per gallon.
Based on that price, consumers currently pay 47.6 cents per gallon in state taxes alone: a 25-cent retail tax and 22.6 cents to cover the wholesale levy.
Gasoline prices continue to rise
And prices have been rising for a while now.
Wholesale prices are on pace to finish 2021 at an average greater than $2 per gallon, a benchmark last topped in 2014, according to the U.S. Energy Information Administration.
The Connecticut AAA reported the average retail price of regular gasoline here as $3.55 per gallon on Tuesday. That’s 16 cents higher than it was one month ago and $1.42 above the average price of one year ago.
State fiscal analysts recently upgraded their fuel tax projections for the current fiscal year by $13 million. That’s about 7% better than last year but still 10% below pre-pandemic levels.
Chris Herb, executive director of the Energy Marketers Association, said fuel distributors already are seeing demand return to pre-COVID levels.
And unless OPEC reverses its decision not to increase production, wholesale gasoline prices — and state fuel tax revenues — likely will keep rising for at least another year.
“I think in 2022 gasoline prices will still be the story,” he said.
Melissa McCaw, Lamont’s budget director, said that “at this time, the global oil market is especially erratic” and analysts will reassess fuel revenues twice more before the fiscal year ends next June.
TCI has pros and cons for poor cities
If Connecticut’s participation in TCI were to add 5 to 9 cents per gallon to the price of gasoline, that’s roughly 50 to 90 cents per car, per week. A household with two cars might face nearly an extra $100 in annual expenses.
But to those who call that negligible, advocates for low-income people would point to the state income tax’s Earned Income Tax Credit. Though it’s touted as a program to help working poor families save funds, advocates say most recipients actually must spend every penny they get — usually on groceries, utility bills, or diapers and other supplies for young children.
The United Way of Connecticut estimates 38% of all households in the state earn too little to meet basic survival needs.
New Haven’s Board of Alders echoed those concerns earlier this month when it unanimously enacted a resolution endorsing TCI — provided the program is not punitive to low-income households.
Board member Eli Sabin, who proposed the resolution, said improving air quality is a huge priority, especially in New Haven, where residents make about 1,600 asthma-related hospital visits annually.
But New Haven is home to more disparities than just those involving health care caseloads.
“For a long time, Connecticut has had a sort of upside-down tax system,” he said. “We wanted to make sure that the legislature and governor understood that all of that important [climate change] work can’t come at the cost of making energy unaffordable for the poor.”
Looney said that if the TCI is to move forward, the administration must be ready to discuss helping needy households cover that cost. This could involve redistributing some tax burdens in the state.
Lamont blocked progressive Democrats’ efforts this past spring to increase taxes on Connecticut’s wealthiest households and major corporations. The governor, a Greenwich businessman, has argued repeatedly that boosting state taxes on the wealthy would prompt them to flee Connecticut and that any major tax hikes would weaken the economic recovery from the pandemic-induced recession.
And while expanding tax breaks for low- and moderate-income households likely wouldn’t require tax hikes on the wealthy as large as those considered last spring, it could require some more revenue from Connecticut’s wealthiest taxpayers to keep the state’s budget in balance.
Lori Brown, executive director of the Connecticut League of Conservation Voters, said it would be unfortunate if state leaders don’t reach some agreement to join TCI, because the cities would be the biggest losers.
Urban centers offer some of the worst air quality and highest asthma rates in the state.
TCI not only would seek to improve on that situation by curbing greenhouse gas emissions, but some of the revenue raised through this program would be used to expand bus and other state transit services, which are in great demand, Brown said.
The Lamont administration estimates TCI would generate about $80 million annually for the state’s transportation program. This would provide sorely needed matching funds to help Connecticut qualify for the maximum amount of federal assistance possible under the new infrastructure bill recently enacted by Congress.
Many of the state Department of Transportation’s highest-priority highway projects are in or near Connecticut’s largest cities.
TCI advocates hope for a special session vote in December
“There’s a ton of money we can end up leaving on the table” by not joining TCI, Brown said, adding that environmental advocates still hope lawmakers would consider approving the transportation initiative in special session before the calendar year’s end.
Another environmental group, Save the Sound, called Lamont’s comments on Tuesday “incredibly disappointing.”
“We know that oil prices are incredibly volatile,” the group wrote in a statement. “That is one of the strongest reasons to implement TCI and provide transportation alternatives that won’t subject Connecticut’s citizens to the whims of distant oil markets. We can’t base long-term decisions about our climate commitments, transportation infrastructure, and Connecticut residents’ health on the conditions of this moment—we need to look at trends and needs over time and plan for decades to come.”
Max Reiss, Lamont’s communications director, said that if the legislature were ready to address environmental issues, the governor would be ready to act.
“The governor still wants to de-incentivize gas-guzzling cars off the road and reduce consumption of fossil fuels,” Reiss said. “Those things haven’t changed.”
Reiss added that Lamont continues to be responsive to families feeling the pain of inflation and the coronavirus.
The new budget the governor signed pumps hundreds of millions of dollars in new state aid into municipalities. And Lamont recently reopened the idea of expanding the property tax credit within the state income tax to relieve burdens on low- and moderate-income households.
Lamont pledged during his 2018 campaign for governor to expand the property tax credit but has not fulfilled that pledge during his first three years in office.
Lamont would need to reach common ground with Democratic legislators, who hold majorities in the House and Senate, to have any hope of winning passage for TCI because the proposal has drawn strong opposition from Republicans, who argue environmental goals can be achieved without raising more revenue from motorists.
“This administration and the [Democratic] majority have a track record of just foisting taxes on Connecticut residents,” Senate Minority Leader Kevin Kelly said, citing a new highway usage tax on large commercial trucks proposed by Lamont and passed by the legislature this past spring.
That transportation program already will reap $90 million annually from that truck tax, which Republicans opposed, arguing it would drive up the cost of many commercial goods.
A TCI-related increase in fuel taxes would only exacerbate the problem, Kelly said.
State Capitol Bureau Chief Mark Pazniokas contributed to this article.