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New Jersey Takes Wrong Road to Invest in Infrastructure

October 13, 2016 at 1:45 PM

A New Jersey measure to raise gas tax revenue for transportation projects while cutting other taxes would “worsen the state’s existing budget challenges” by leaving less money for other state needs, Moody’s credit rating agency warned this week.  While now is an especially good time for states to invest in infrastructure assets that are key to long-term economic growth, these investments need not come at the expense of priorities like schools and health care, as other states have shown. 

The tax package, which state lawmakers have approved, raises New Jersey’s gas tax for the first time in nearly two decades to replenish the transportation trust fund, which ran out of money this summer, stalling transportation projects across the state.  But it pairs that much-needed increase with cuts in the estate, sales, and income taxes that will cost the state up to $13 billion over ten years.  Among other things, it phases out the state’s estate tax, which affects only the wealthiest 5 percent of estates, costing $485 million a year in 2019 when fully phased in.

The revenue loss from these tax cuts “will strain the state’s operating budget,” Moody’s explained.

Washington State has shown that states can invest in infrastructure without stripping resources from other priorities.  There, policymakers approved a 16-year multi-modal package last year that invests billions in improving roads, ferries, transit, pedestrian, and bike projects and doesn’t harm the rest of the budget.  Higher excise taxes and vehicle fees funded the initiative. 

With tax collections low in many states and the economy near full strength, states can finance needed infrastructure improvements by raising revenue without cutting other taxes, as Washington State did.

Alternatively, many states use debt to finance infrastructure projects.  Borrowing conditions have rarely been better, given today’s low interest rates.