Iowa City Business Frets Increasingly Likely Gas Tax Hike

Five or ten cents extra a gallon can make a big difference when you have a fleet of vehicles to fuel every day.

Just ask Rafat Alawneh, owner of #1 CAB taxi service in Iowa City, who runs a fleet of six vehicles two shifts a day. 

"It does affect us absolutely, because we run on gas," Alawneh said. "The gas price goes up but the prices stay the same for our fares, and that affects us because that difference comes out of our pockets."

Alawneh said that these gas prices can make such a difference to the bottom line that he encourages his drivers to take advantage of the gas discounts offered by Hy-Vee; discounts which, appropriately enough, usually run in the six to nine cent range. 

To the dismay of Alawneh and other vehicle fleet owners like him, however, momentum appears to be shifting to an increase in the state’s fuel tax, which would pay to maintain Iowa’s roads that are badly in need of repairs.

While some doubt it will muster enough support, a bipartisan group of legislators now predicts it will pass, and Iowa Gov. Terry Branstad, who had opposed it, now says he is willing to listen. Meanwhile, several economists suggest the tax is wise and needed and will be hardly noticed.

State representative Mary Mascher (D- Iowa City) said Gov. Branstad's softening on his veto threat has opened the door for the bill to pass.

"Before we started the session, the governor came out in opposition to the gas tax. At that time many felt it was unwise to debate a bill that was likely going to be vetoed by the governor.  He has changed his view on the gas tax and is now willing to support the legislation so in all likelihood it will be debated and passed," Mascher said in an email to Iowa City Patch.

Mascher said while she personally supports the gas tax increase recommended by the transportation study committee, she does not support the committee's recomendation to increase licensing fees on hybrid and other energy efficient vehicles.

The details of the proposal are still being worked out, but officials are exploring a plan in which they would find $50 million in savings in the Iowa Department of Transportation and then consecutive 4- or 5-cent per gallon fuel tax increases, in 2013 and 2014. Iowa’s fuel tax is 21 cents per gallon for gasoline and 19 cents for ethanol-blended fuel. The tax was last increased in 1989.

Each 1-cent per gallon increase is expected to generate $22 million a year, meaning the increase would generate between $176 million and $220 million a year in additional revenue when fully phased-in.

The cost of regular gas, as of the writing of this article, is listed at $3.20 per gallon.

Legislators Rallying Behind Small Gas Tax Increase

Speaking with the Associated Press, Sen. Tom Rielly, D-Oskaloosa and Rep. David Tjepkes, R-Gowrie, the co-chairs of the House and Senate Transportation Committees, which is behind the measure, said it is needed and said they expect it to pass, in part because of Branstad’s softening stance.

Sen. Herman Quirmbach, D-Ames, said he wouldn't be against a reasonable increase in fuel taxes.

“The cost of not repairing roads is pretty stupid if you think about it,” Quirmbach said.

He added that no one would notice a nickle increase.

Economist Say It’s Worth It

During a taping of Iowa Press and reported by the Associated Press, Iowa State University economist David Swenson said a 10-cent per gallon increase in the tax would cost the average family about $32 a year. Swenson and Creighton University economist Ernie Goss said the tax is worth it because roads are vital to Iowa’s economy the tax would be hardly noticed.

Increasing vehicle registration fees has also been discussed, but some say targeting the fuel tax is favorable because out of state users of Iowa roads would share the cost, as opposed to registration fees, in which Iowans alone would shoulder it.

Iowa State University Mechanics and Economics Professor Ross Morrow said he doubts an 8-cent increase would significantly change driving habits across Iowa.

“People tend to be very unresponsive to gas price increases, especially small and steady ones,” Morrow said.

John Solow, an economics associate professor at the University of Iowa Tippie College of Business, said a gas tax increase would have a negative, although limited, impact on Iowans.

Solow said those with low incomes who have commutes would suffer, and it could hurt the production and employment in Iowa, particularly for industries that rely on fuel and can’t pass the hike along to their customer.

Still, he said the tax may be the most fair way to address road maintenance needs.

“Using gas tax revenue to maintain roads fits with what is called the "benefits principle" of taxation,” Solow said. “(This) is the idea that those who benefit from the expenditure should bear its cost, but it does so only loosely, in that the correlation between gasoline purchases and benefits from road use is not perfect.”

Can It Pass In An Election Year?

As with most things in the Legislature, it will depend on politics.

An advocacy group from Muscatine called Iowans for Tax Relief has urged the Iowa Legislature not to raise the gas tax “at a time when gasoline prices are predicted to spike,” and asked Iowans to contact their legislators to encourage them to oppose a bill if it is introduced.

The Farm Bureau, along with some cities, counties and labor groups, support the increase. Citing a state survey, the Cedar Rapids Gazette reported the state needs about $215 million to address "critical" infrastructure needs.

Christopher Larimer, political science professor at the University of Northern Iowa, questioned how strong the support would be during an election year, but said with Branstad’s support and if the economy continues to recover it may slide through.

"(It's) tricky. On one hand, in an election year you never want to vote for a tax,” Larimer