Falling Gas Prices Harm State Tax Revenue

HARTFORD (AP) — A steep drop in gas prices has created an estimated $100 million revenue shortfall in Connecticut’s state budget for this fiscal year, which already has a projected deficit.

State officials thought the state’s petroleum wholesale tax was going to raise more this year than the $340.7 million it brought in the year before. But at least a third of the expected revenue is gone because of the falling gas prices.

The average price of a gallon of regular gas in Connecticut has dropped from an all-time high of $4.39 on July 7 to $1.98 on Monday, according to the automobile club AAA.

State lawmakers met last week and reduced the deficit for this fiscal year, which ends next June 30, by $300 million. But officials say the current $18 billion budget still has a deficit of at least $250 million, and the revenue shortfall for the next two years is estimated at $6 billion.

State Comptroller Nancy Wyman on Monday increased her deficit estimate for the current year to $338 million.

The wholesale tax, called the Petroleum Products Gross Receipts Tax, is imposed whenever petroleum products, including gas, jet fuel, and kerosene, are sold. It is separate from the retail tax of 25 cents a gallon that consumers pay.

Arthur Wright, an emeritus professor of economics at the University of Connecticut, has studied the wholesale tax.

“The state, by having this tax, became a speculator in the oil market,” he said. “Somebody budgeted wrong. Somebody guessed wrong about oil prices. And this is an example of how an investor gets burned.”

Adding to the revenue problem, the legislature and Governor M. Jodi Rell earlier this year decided to postpone a planned increase in the wholesale tax, from 7 percent to 7.5 percent.

The move was intended to give motorists a break at the pumps and cost the state an estimated $35 million in additional income for this year’s budget. Industry officials say postponing the tax increase saved consumers 3 cents a gallon.

State Representative Art Feltman, D-Hartford, was the only lawmaker to oppose the tax increase postponement. He called it “feel-good legislation.”

“People are now suffering, people who need shelter, medicine, food, health care, and we’re just going to have to turn them away because we gave away our ability to tax,” said Feltman, who did not seek reelection. “We’re facing a deficit, and we reduced the gas tax which, as we now know, wasn’t needed.”

Representative Denise Merrill, D-Mansfield, said legislators had no way of knowing that gas prices would plunge when they delayed the tax increase.

“You would’ve had to have a crystal ball,” said Merrill, who will be majority leader in the regular session that starts next month.

Representative Steve Fontana, D-North Haven, said lawmakers at the time did not want to exacerbate the problem of high gas prices by increasing the wholesale tax.

“But the chickens will come home to roost, and we will have to deal with it,” he said.