Oil Franchise Tax changes are key to plan’s success

Some area legislators expect their chambers eventually will pass Gov. Tom Corbett’s transportation proposals, including uncapping a wholesale tax on fuel.

In his 2013-14 budget proposal, Corbett said he wants to gradually remove the cap on the state’s Oil Franchise Tax. That change, after five years, is predicted to generate an additional $1.8 billion annually for roads, bridges and mass transit.

State Sen. John H. Eichelberger Jr., R-Blair, thinks the governor’s transportation proposals “probably will” make it through the Senate.

His reasoning is that Corbett’s proposals closely follow recommendations released 18 months ago by the Governor’s Transportation Funding Advisory Commission.

On the House side, Rep. Jerry Stern, R-Martinsburg, said it’s going to be difficult to get passage of the transportation plan, but he said there has been discussion among House members that “this needs to get accomplished.”

“The big key is the thousands of deficient bridges. It we fail to act now, we face potential hazard in the future,” said Stern.

State Rep. John McGinnis, R-Altoona, said the House probably will support the governor’s transportation proposals, but that’s because the additional money will be used to fund mass transit in Philadelphia and Pittsburgh. He doesn’t like the idea that “we have to pay off Philadelphia and Pittsburgh to get things done.”

He would like to see some additional offset for taxpayers, such as elimination of the prevailing wage requirement that makes construction projects so expensive.

Eichelberger said senators have had the opportunity to study and to consider the recommendations.

He added that uncapping the Oil Franchise Tax, which is collected from distributors, will not necessarily be passed on to the consumer.

Retail prices for gas are determined by many factors, Eichelberger said, such as the price of crude oil, the prices at the refineries and even the weather. Oil company overhead, which would include the Oil Franchise Tax, is determined on a regional or even a national basis, he said, not state by state.

McGinnis disagreed, saying he believes fuel buyers will end up paying the full cost of the uncapped Oil Franchise Tax at the pump.

While Eichelberger believes that a transportation program will make it through the Senate, he won’t estimate how long it might take, noting there are other, more controversial issues on the horizon such as the governor’s proposal to privatize the sale of liquor and addressing the state’s pension system.

The governor is also proposing that a flat tax of 12 cents per gallon charged at the pump be reduced to 10 cents during the next two years. Another proposal is to provide more money to local municipalities from the Liquid Fuels Tax.

Stern emphasized the need for increased funding at the municipal level, and he likes the idea of immediately reducing the flat tax at the pump.

Stern predicted there will be a lot of discussion in the House on the issues, noting “people already are starting to take positions.”

Sam Hayes, a former state representative from Warriors Mark, predicted many months ago that the only solution to the state’s transportation funding problems was to uncap the Oil Franchise Tax.

Hayes wrote the bill in the early 1980s that capped the Oil Franchise Tax at $1.25 per gallon, noting no one thought gas prices would go above that level.

The tax was capped because of the belief that otherwise it would produce too much money for PennDOT.

Hayes, who also has served as lieutenant governor and who wrote Pennsylvania’s billion dollar bridge bill in 1982, said there is no other way to fund the system than uncapping the Oil Franchise Tax.

There may come a time when a petroleum-based tax will not be the ideal way to fund improvements, but he said solar power and electric cars are not the answer at this time. Another idea whose time has not yet arrived is attaching a GPS system to each car and taxing motorists on the miles they travel, he said.

“In terms of the job that needs to get done, the Oil Franchise Tax is where I thought the governor would end up and where I think the Legislature will end up.”

But Hayes is a political realist. Unless there are 102 votes in the House and 26 votes in the Senate, then the Legislature “is not much different than a debating society.”

Steve Chizmar, a PennDOT spokesman, said under Corbett’s plan the Oil Franchise Tax will be “gradually uncapped,” meaning all the new money won’t be pouring in at once.

The tax change is expected to bring in $510 million in its first year – in addition to the $1.3 billion it already provides – and is predicted to bring in $1.8 billion in additional money in the fifth year.

In the meantime, Chizmar stated, PennDOT will be preparing a Decade of Investment list of projects that will benefit from the money.

PennDOT is predicting the governor’s plan will create 50,000 jobs, compared with a loss of 12,000 jobs if nothing is done.