Maryland motorists will see a small break in the state's gas tax starting July 1, when the tax at the pump will drop by nine-tenths of a penny to 46.10 cents per gallon.
It's the third decrease in the gas tax since since the General Assembly passed a law in 2013 linking the rate to annual inflation, and comes despite an increase in the consumer price index over the last year.
Maryland's gas tax includes two components.
The first portion is a per-gallon tax tied to the consumer price index, which rose 3.4% from May 2023 to April 2024. That would have added 1.1 cents to the motor fuel rate, according to Robert Rehrmann, director of the Bureau of Revenue Estimates.
But that increase was offset by a drop in retail gas prices, the second component of the rate, Rehrmann wrote in a letter to Gov. Wes Moore (D), Senate President Bill Ferguson (D-Baltimore City) and House Speaker Adrienne Jones (D-Baltimore County).
"Due to a decrease in pre-tax gasoline prices, the Sales and Use Tax Equivalent decreases by 2.0 cents per gallon," Rehrmann wrote in the letter obtained by Maryland Matters. "The new rates, as a result of slower inflation and lower fuel prices, decrease by 0.9 cents per gallon."
That means the current rate of 47 cents per gallon for gasoline will decrease to 46.10 cents. The tax for diesel fuel, called special fuel, will decrease from 47.75 cents per gallon to 46.85 cents, according to the rates released by the Office of the Comptroller.
Despite this year's drop, Senate Minority Leader Stephen S. Hershey Jr. (R-Upper Shore) said indexing to inflation remains a concern and should be repealed.
"The other part is something I would say that Maryland doesn't really control if that's simply what the average cost of fuel has been over the last year," Hershey said. "I'm not giving them any credit for the cost of fuel fluctuating based on global economic prices and stuff like that."
By law, the comptroller must set and announce the new rate by June 1, to take effect on the July 1 start of the fiscal year.
When lawmakers passed a law increasing the gas tax in 2013, it was the first such increase in more than two decades. The Democratic majority in the legislature that year indexed future increases to inflation. The automatic increases, calculated annually, would not require politically charged debates and votes.
The law included a safety valve meant to prevent spikes if annual inflation grew by more than 8% annually. At the time, sharp inflation spikes were rare.
Last July, the gas tax rate jumped by nearly 7 cents per gallon, driven by an annual inflation rate of 7.1% and higher wholesale gas prices.
As a result, the governor joined House and Senate Republicans in calling for ending the automatic increases linked to inflation.
The new rate for fiscal 2025 is just the third decrease since the tax was indexed to inflation in 2013. In each case, lower wholesale prices were the cause.
The previous two decreases, for fiscal years 2021 and 2022, were caused by lower fuel prices during the pandemic, when fuel demand waned as more people worked from home and traveled less.
While motorists may applaud the new rate, the reduction could increase pressure on how the state funds transportation projects.
The decrease comes at a time when the state's Transportation Trust Fund is failing to keep pace with a growing backlog of highway and transit projects. Gas taxes make up a substantial portion of what flows into the dedicated account.
Senate Budget and Taxation Chair Guy Guzzone (D-Howard) said it is too soon to project how the reduction in the gas tax will affect the transportation fund.
"The bottom line is I don't know how it will affect the Transportation Trust Fund and how significant it's going to be. My sense is that it's not going to be dramatic," Guzzone said.
The effect could be mitigated by how fuel is purchased over the next year, he said.
"If there's an increase in travel, it can change how much we get faster than anything else in terms of actual total revenues," Guzzone said. "So, the answer is we won't know really until the end of the year, whether or not it would have had a significant effect on the overall dollar amount that comes in because it's really based on people's behavior."
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