Proposed transportation package would use carbon allowance auction proceeds and state operating funds, increase fees, and impose a new exported fuel tax

By: Emily Makings
12:52 pm
February 9, 2022

Yesterday the chairs of the Senate and House transportation committees proposed a transportation package that would provide $16.801 billion over 16 years (FY 2023 through FY 2038). SB 5974 (the revenue bill) is scheduled for public hearing in the Senate Committee on Transportation tomorrow. (SB 5975 is the spending bill. Summaries and project lists are available here.)

The table shows where the $16.801 billion would come from.

Climate Commitment Act. The largest source of funding is $5.411 billion from the climate commitment act, which was adopted last year (E2SSB 5126). That is apparently the amount of proceeds from the auction of carbon emission allowances that will be deposited in the carbon emissions reduction account (RCW 70A.65.240).

(However, note that the language in statute about the amount of revenues to the carbon emissions reduction account in FY 2038 is ambiguous. RCW 70A.65.100(7)(a)–(d) specify the amount to the account in each year through FY 2037—which will be the 15th year of auctions. Then, RCW 70A.65.100(7)(e) says that the deposits in (a)–(d) must not exceed $5.2 billion “over the first 16 years.” Then RCW 70A.65.100(7)(f) says that for FY 2038 and thereafter, the carbon emissions reduction account will receive 50% of auction proceeds. Based on that language, the fiscal note for E2SSB 5126 assumed that the account will receive just $5.2 billion through FY 2038 (the 16th year). The transportation committee chairs are apparently assuming that that the $5.2 billion limit applies just through FY 2037. By reading the statute that way, based on the fiscal note’s estimate of total proceeds in FY 2038, the portion to the account would be $250.5 million in FY 2038, making the total deposits to the account $5.411 billion from FY 2023 through FY 2038.)

Fuel Taxes. The package would impose a new tax on exported fuel, which would increase revenues by $2.053 billion over 16 years. Currently, fuel taxes are not imposed when fuel is meant for delivery out of state. Under the proposal, fuel taxes would not be imposed when fuel is meant for delivery out of the country.

Washington’s fuel tax is currently 49.4 cents per gallon. Under the proposal, a credit against that tax would be allowed for fuel exported to other states in the amount of 43.4 cents per gallon. Effectively, this proposal would levy a new tax of six cents per gallon on fuel exported to other states.

However, if the importing state has a fuel tax that is higher than 43.4 cents per gallon, the credit would be equal to the rate of the importing state (not to exceed the tax due). Thus, if fuel is exported from Washington to Oregon (whose tax rate is 38.83 cents per gallon), the tax would be six cents per gallon. But if the fuel is exported to California (whose tax rate is 66.98 cents per gallon), the tax would be zero.

Additionally, the proposal would increase the aircraft fuel excise tax from 11 cents per gallon to 18 cents per gallon. This would increase revenues by $25 million over 16 years.

Fee Increases. The third-largest source of funding for the package is $2.388 billion in fee increases. This includes increases in fees for license plates, vehicle checks, dealer permits, enhanced driver’s licenses, and driver abstracts. (See the table below for details.)

Funding from the Operating Budget. The proposal would use $2.0 billion in one-time funding from the operating budget (which, as we’ve written here and here, has a substantial surplus).

Additionally, the proposal would transfer the sales and use tax revenues generated from the proposed new transportation projects from the general fund to the new move ahead WA flexible account for FY 2026 through FY 2038. The transfers to the transportation budget would be $31.0 million a year, for a total of $403 million. (None of the transfers would occur within the current four-year budget outlook.)

Under current law, beginning July 1, 2022, fuel cell electric vehicles will be subject to just 50% of the sales tax. Funds from the electric vehicle account must be used to backfill the loss of this revenue to the general fund. Under the proposed transportation package, that backfill would be eliminated. This provides $80 million for the package.

Other. The package would not use new bonds, but it would use $956 million from existing bond authority. Additionally, the proposal would use $3.4 billion from the federal infrastructure bill.

SB 5974 includes various other notable provisions that would not directly affect state revenues:

  • Currently, border area jurisdictions may levy motor vehicle fuel excise taxes if approved by voters, not to exceed one cent per gallon. Under the proposal, such taxes could not exceed two cents per gallon for ballot propositions submitted in CY 2022. After 2022, the maximum rate would be adjusted by inflation.
  • Cities and towns would be allowed to impose a tax of up to 2% on the privilege of conducting a natural gas, steam energy, or telephone business. The proceeds would have to be used for transportation improvements.
  • Transportation benefit districts may currently impose sales and use taxes up to 0.2% for up to 10 years, and the tax may be extended for another 10 years if voters approve. Under the proposal, the district would be allowed to impose sales and use taxes up to 0.3%, and the tax could be extended for another 10 years by voters or the governing board. (The governing board could only extend a tax of up to 0.1%.)
  • Dealers may currently charge documentary service fees of up to $150 per vehicle sale. They could charge up to $200 under the proposal.
  • The proposal would set a target that all passenger and light duty vehicles of model year 2030 or later sold, purchased, or registered in Washington be electric.
  • It would establish a transit support grant program. To be eligible, transit agencies would have to allow passengers who are 18 years old and younger to ride for free.
  • It would require Washington state ferries to allow passengers who are 18 years old and younger to ride for free.
  • Automated traffic safety cameras would be allowed to be used to issue infractions for speed violations in school walk areas, public park speed zones, and hospital speed zones. The state would receive 50% of any revenues collected.
  • In E2SSB 5126, the state was not allowed to spend money from the carbon emissions reduction account or other accounts created by the bill if the Legislature does not adopt legislation by April 1, 2023 that “outlines a compliance pathway specific to emissions intensive, trade-exposed business for achieving their proportionate share of the state’s emissions reductions limits through 2050.” The transportation proposal would repeal this provision.
Categories: Budget , Energy & Natural Resources , Tax Policy , Transportation.