As coronavirus keeps people home, North Carolina gas and sales tax revenues plummet
With businesses closed and people staying home, North Carolinians are driving less, depriving the state of tens of millions of dollars in fuel taxes used to build and maintain roads.
The N.C. Department of Transportation will lose more than a third of its expected revenue over the next three months because of the coronavirus outbreak, according to Bobby Lewis, the department’s chief operating officer. Lewis told the Board of Transportation on Thursday that NCDOT will receive up to $200 million less in revenue than it had counted on by July 1.
Most of that money will come in the form of lost gas taxes, which account for about 54% of NCDOT’s state revenue. Also hurt by COVID-19 and the resulting downturn in the economy is the highway use tax, a tax on car sales that makes up another 21% of NCDOT’s state revenue. (The third big source is fees, mostly collected by the Division of Motor Vehicles.)
The drop in tax revenue comes as NCDOT is still digging out of a financial crisis that mostly resulted from storm repair and cleanup costs and legal settlements related to the Map Act, a law that was declared unconstitutional. Lewis told legislators last month that NCDOT was still operating on “razor thin” margins and didn’t have room for any big unexpected expenses.
Now the unforeseen blow is coming from lower revenue.
“We’re in uncharted territory and waters now,” Lewis told board members Thursday. “We anticipate major impacts to our revenue sources, especially in the gas tax and the highway use tax, which is going to make our cash situation even more challenging.”
Falling tax revenue is going to be a problem for all local governments and state agencies in North Carolina, as residents hunker down and stop spending money. Sales taxes on retail, restaurants and hotel rooms are all taking a hit, as is the state’s income tax as businesses lay off hundreds of thousands of workers.
“From a public finance perspective we are looking at very dreary times,” said Whitney Afonso, a professor in the School of Government at UNC Chapel Hill.
Afonso says government budget officers have been asking her how they should prepare for the coming fiscal year.
“I tell them, ‘Like we’re going to be in a recession,’” she said. “Because we’re going to be in a recession, and it’s not just sales taxes.”
Lewis said it’s too soon to say where NCDOT will cut expenses. He said the department doesn’t want to stop work on construction projects that are already underway but that it is evaluating all future projects to determine which ones can and should be delayed. The department also receives money from the federal government and bond sales, which will help keep current projects going.
‘Major economic contraction’ ahead
The reduction in traffic is clear to anyone who has ventured out recently or visited a gas station. Gas prices in North Carolina averaged $1.80 on Thursday, about 76 cents less than a year ago, according to AAA Carolinas. Overproduction by Russia and Saudi Arabia partly explains the decline, but the big factor is a sharp drop in demand, AAA says.
“Because of social distancing and the stay-at-home order, we are continuing to see even less traffic on the roadways,” spokeswoman Tiffany Wright said in a written statement. “These factors will ultimately drive down demand, increase gasoline supply and continue to lower pump prices for the foreseeable future.”
With the coronavirus outbreak still growing in North Carolina and country, the length and depth of the economic fallout is still unknown. Lewis said NCDOT currently expects its tax revenues will be down through the summer and into next fall and will be 7% to 11% lower in the coming fiscal year, which begins July 1.
But that forecast is likely to change, Lewis said.
“The only thing we really know right now is that there is agreement with all economists that this is going to be a major economic contraction,” he said.
This story was originally published April 2, 2020 at 12:40 PM with the headline "As coronavirus keeps people home, North Carolina gas and sales tax revenues plummet."
