Iowa considers ethanol fuel tax reduction

By Ron Kotrba | January 03, 2009
Web exclusive posted Jan. 8, 2009, at 1:50 p.m. CST

The Iowa Department of Transportation released a report Dec. 31 to the state general assembly titled TIME-21 Funding Analysis, which examined critical needs of Iowa's roadway systems along with the projected revenue the state would need to fix its transportation infrastructure. Several options, including eliminating the E10 and E85 fuel tax reductions, were listed in the report to help solve the $267 million annual budget shortfall projected through 2018.

Approximately $6 million a year could be generated by eliminating the "gasohol," or E10, and E85 state fuel tax reductions, according to Iowa DOT, which would raise the per-gallon tax from the current 19 cents per gallon to 20 cents per gallon. If that would occur, the state's regular gasoline tax would drop from 21 cents per gallon to 20 cents.

Stuart Anderson with the state DOT told EPM that Iowa has a variable tax rate based on the share of gasohol in the combined state gasoline/gasohol market. He said in 2007, ethanol blended gas constituted 74 percent of the combined gasoline/gasohol fuel market in Iowa. "As the volume of ethanol increased, it had an impact in lower fuel tax revenue," Anderson said. Essentially, the intent of the variable tax rate was not to increase revenues, but to "freeze the negative impact," Anderson said.

Advantages from eliminating the ethanol fuel tax reduction include simplifying the fuel tax rate administration and making the fuel tax rate schedule easier to understand. On the downside, however, the report stated that eliminating the ethanol fuel tax reduction may "impact consumption of ethanol-blended fuels."

Another option listed in the DOT's funding analysis report to bridge the state infrastructure repair deficit is increasing the fuel tax across the board for all fuels, including E10, E85, gasoline and diesel, which the DOT estimates could generate $84 million annually if a four-cent across-the-board fuel tax hike were implemented; $21 million for a one-cent across-the-board increase.

With a national decrease in motor vehicles due to record gas prices in 2008, some are pondering the advantages and potential political consequences of raising federal fuel taxes. In early January, the Associated Press reported that the National Commission on Surface Transportation Infrastructure Financing is urging Congress to raise gas and diesel fuel taxes by 50 percent.