The Democratic chairman of the Senate budget committee Tuesday laid out the framework for a potential deal on the Transportation Trust Fund – reducing taxes in three ways, in exchange for a hike in the gas tax that could support a larger construction program.

Sen. Paul Sarlo, D-Bergen, didn’t specify exactly how much the gas tax would increase, but he said it should support most of the $2 billion a year in spending he envisions as part of a 7- to 10-year plan. It isn’t determined if the tax would be leveled at the pump or refinery; either way, drivers would pay.

It almost certainly would involve borrowing that would be repaid through gas-tax revenues, as it would require roughly a 40-cent increase in the gas tax to generate $2 billion a year without selling bonds.

Sarlo said that in conjunction with raising the gas tax, the state should cut its estate tax, reduce the income tax on retirement income and allow income-tax filers to deduct charitable contributions.

“There’s going to be those who are going to criticize us on the tax fairness issues, but I believe the tax fairness issues helps justifies a gas tax increase for the folks and the residents of New Jersey,” Sarlo said.

New Jersey transportation officials testify to the Senate Budget & Appropriations Committee. (Michael Symons/Townsquare Media)

Acting Transportation Commissioner Richard Hammer, testifying before Sarlo’s committee, declined to comment on the framework described by Sarlo.

“If the Legislature is going to come up with a plan, or if you have a plan in place, the governor is anxiously awaiting receipt of that plan,” Hammer said.

Here are the details of what Sarlo laid out:

  • Estate tax: Phase out over five years. The version passed by a Senate committee backloads the impact by gradually raising the $675,000 threshold at which the tax kicks in, then eliminating it in 2021. Details are subject to negotiation; an estate tax that follows the federal exemption threshold may be retained.
  • Retirement income: Exempt more retirement income, such as from pensions, from income taxes. The blueprint is Senate President Stephen Sweeney’s. Over three years, it would gradually boost the amount exempted from taxes to $100,000 for a married couple and $75,000 for an individual.
  • Charitable contributions: Allow income-tax deduction for contributions to New Jersey-based charities. The amount that could be exempted would be capped, so it likely to be less generous than what a Republican bill seeks, which could be as large as half of adjusted gross income.

The Transportation Trust Fund currently spends $1.6 billion a year in state dollars. Sarlo said that number hasn’t been raised since 2007 and should increase to keep up with inflation and demand.

The trust fund expires at the end of June, unable to borrow more money and needing to devote all revenues it receives to paying off past debts. It is projected to run out of cash in early August.

Assembly Speaker Vincent Prieto, D-Hudson, said Monday that he would not post any legislation for a vote reducing or repealing the estate tax unless it was done in conjunction with a solution for the Transportation Trust Fund.

Though Sarlo’s committee already advanced legislation repealing the estate tax by 2021, at a projected cost to the state budget eventually reaching $550 million a year, he said it was always going to be approved as part of a TTF bargain.

“Although I personally believe in this,” Sarlo said of cutting the estate tax, “I understand from a public policy perspective that it’s not going to – it would be very difficult for it to pass this Legislature without an in conjunction.”

Hammer told Sarlo the DOT would do a cost-benefit analysis to decide how to allocate the additional resources, should the TTF be authorized at $2 billion a year rather than $1.6 billion. Some of that added money, perhaps $120 million or more, would likely go to counties and municipalities as local aid, under the plan Sarlo and Sweeney have been advocating.

“Certainly the priority for the Department of Transportation is maintaining a state of good repair and making sure that our roads are safe. Those types of investments take precedent at this point. So we want to make sure that we’re staying on top of our state of good repair needs,” Hammer said.

Sen. Jennifer Beck, R-Monmouth, says a $1.6 billion a year, seven-year plan can be done without increasing the gas tax. Her blueprint relies in part on using the typical, economy-driven growth in tax collections, which Democrats want to devote to increases in the payment into the pension funds.

“I would love to do $2 billion if we could afford to do $2 billion, and I’m not so sure we can,” Beck said.

“My concern with the gas tax (is) that it is the most regressive tax that you can impose on our citizens,” Beck said. “If you are a low-income person and you have to drive to work, and I raise the cost of that commute, it impacts my family and I enormously.”

Sen. Sam Thompson, R-Middlesex, floated a new idea – locking in yearly 2-cent increases in the gas tax, apparently in addition to an immediate 11-cent increase that could pay for borrowing $2 billion a year for five years.

Thompson said borrowing $10 billion would require $560 million a year in revenues for 30 years to pay it off. That’s equal to 11 cents per gallon of gas. After five years, the state would be in the same position it is now. Instead of waiting five years to grapple with another sizable gas tax hike, he suggested the state increase it by 2 cents every year in perpetuity.

“If the price of gas went up 2 cents Jan. 1 every year – hey, you see that kind of variation at your gas pump every day. Nobody would scream: ‘My God, it went up 2 cents,’” Thompson said.

“This would be a plan that would just keep going and keep going. We would not be back here in five years to try to figure out what we’re going to do, or in 10 years,” Thompson said. He added later: “You would have stable funding forever.”

Sarlo said he’s not on board with Thompson’s idea.

“Listen, I look at five to 10 years as long term,” he said. “Sen. Thompson was talking 30 years. I’m not ready to go that far.”

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