By Ryan Alessi
FRANKFORT, KY. As if gasoline prices approaching $2
a gallon weren't bad enough for Kentucky drivers, the state
is poised to add another penny a gallon in tax in July.
A 24-year-old law, passed when world oil prices were setting
records, calls for a temporary increase in the state's gas
tax when the wholesale price that stations pay averages more
than $1.11 over a selected month.
Last month, that happened for the first time since 1981.
Preliminary estimates show that the average wholesale price
in Kentucky during April was more than $1.27 a gallon.
Wendell Butler, a tax consultant in the revenue cabinet,
said he is waiting for final figures from the U.S. Department
of Energy before the 1-cent tax increase is official.
"But the data I have now is pretty conclusive that it's
going to go up," he said.
Currently, Kentucky collects 16.4 cents a gallon on gasoline
and 13.4 cents on diesel.
The increase, which would take effect July 1 with the next
calendar quarter, is temporary. The tax could return to its
current rate three months later if the average wholesale price
fell to less than $1.11 during July. That is the next specified
Or it could go up. Again.
Yesterday, oil prices hit the highest level in more than
13 years, based on turmoil in the Middle East. And speculators
drove prices for gasoline futures to a 20-year peak.
Kentucky's temporary tax is capped at 1 cent a gallon per
fiscal year regardless of how high wholesale prices go.
But July also is the start of a new fiscal year for the state.
So starting Oct. 1, motorists could start paying as much
as 1 cent more if July's average goes up enough.
Last month was only the fourth time that Kentucky's wholesale
gasoline prices have passed the $1.11 threshold. The first
three were during 1981 when oil prices peaked. But the next
year prices collapsed, and still remain shy of that level.
Drivers came close to seeing higher taxes in July 2001 and
again last month, but the wholesale price of gas didn't hit
the magic number.
The trigger mechanism was approved by the 1980 General Assembly
under a then-prevalent theory that steeply rising gas prices
would make consumers go to the pumps less often. That, lawmakers
feared back then, would reduce the gasoline-tax revenues needed
for road projects.
The theory has proven to be false, say the law's critics.
"When gas prices rise, that doesn't affect consumption,"
said Lilla Mason, spokeswoman for AAA Bluegrass Kentucky.
"At the time when they made that law, we didn't think
it was very effective."
Recent data support her claim.
The average price that Kentucky drivers paid for a gallon
of regular reached $1.77 yesterday, an increase of 35 cents
from May 2003, according to AAA's daily fuel gauge report.
But statistics from the U.S. Energy Information Agency show
that despite rising prices, Kentuckians purchased more regular
grade gasoline through February than in the first two months
Mason said AAA will ask the General Assembly to repeal the
trigger law during the next legislative session.
When questioned yesterday, state House and Senate leaders
and the governor's office would not comment on the law or
on repealing it.
Democratic House leaders are scheduled to meet with Republican
Gov. Ernie Fletcher today to discuss a possible special session
before June 30 to write a state budget. The General Assembly
could take up changing the gas tax then.
But the choice could be difficult. A penny-per-gallon increase
in gasoline and diesel taxes would put an additional $30 million
into the cash-strapped state Road Fund over a year.
The taxes are the Road Fund's largest source of revenue,
expected to bring in more than $458 million in fiscal 2004.
Kentucky $1.77 $1.42
Nation $1.82 $1.53