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Making Political Hay Over High Gas Prices

By Pete Shuler · July 13th, 2000 · Statehouse
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Just as a tidal wave of enthusiastic hysteria has lifted the price of dot.com stocks to atmospheric levels for no logical reason, some unidentified, mysterious force has propelled upward the price of gasoline in the Midwest.

According to U.S. Department of Energy records, the average price of a gallon of self-serve, regular, unleaded gasoline in the Midwest was $1.439 on May 8. Before dropping slightly at the end of June, the price jumped more than 30 percent to $1.874. In contrast, the national average price reached a peak of only $1.681 in June, an increase of less than 16 percent from its May 8 level.

Oil company explanations of these geographically specific skyrocketing prices, from restricted capacity in pipelines serving Midwestern states to environmental regulations, haven't satisfied the Federal Trade Commission. The commission's Bureau of Competition has begun an investigation into the rapid rise, issuing subpoenas for testimony from oil company executives.

Although she won't be conducting a formal investigation, Ohio Attorney General Betty Montgomery also has promised to monitor oil company activities.

Some Ohio Democrats, however, are eager to offer immediate financial relief to the state's drivers. Led by Senate Minority leader Rhine McLin, D-Dayton, and House Minority leader Jack Ford, D-Toledo, Democrats recently proposed that the state suspend its 22 cents-per-gallon gasoline tax for two months. The Legislative Budget Office, a state agency responsible for determining the financial impact of legislative actions, has calculated that such a move would cost Ohio $228 million. Under McLin and Ford's plan, the state would siphon money from Ohio's $1 billion rainy day fund -- a reserve built up to help the state weather economic downturns -- to fund highway construction and repairs normally financed by the gasoline tax.

But the loss of more than one-fifth of the state's emergency funds is only one of the possible adverse effects of the proposed tax suspension. Of the 22 cents-per-gallon tax, 4.5 cents is earmarked for repaying bonds issued to finance highway construction. According to the terms of these bonds, principal and interest payments are to be funded specifically by gas tax revenue. If the revenue stream vanishes due to the proposed suspension, even if other revenue sources are substituted, Ohio has technically defaulted on its bonds.

Bondholders then could demand immediate and total repayment of all affected highway bonds, and Ohio's credit rating could sink, raising the amount of interest the state must pay to attract future bond investors.

Given the financial cost and risks of this proposal, the benefits of suspending the gas tax are minimal. Even as gasoline prices continue to rise -- and industry experts predict that we haven't yet seen the peak -- the economy continues to chug away, with only slight signs of slowing down. While there are undoubtedly some who would welcome any form of financial relief, the savings from a tax suspension are insignificant to most and temporary to all. A person who drives 2,500 miles during the proposed two-month suspension period in a vehicle that averages 25 miles-per-gallon would save only $11 per month.

And even though no one likes paying more at the pump, high gasoline prices could eventually produce environmental benefits. At the current gasoline price level, mixtures of gasoline and ethanol, an alcohol manufactured by the fermentation of corn and grains, are competitive with gasoline. Most cars that use unleaded gas can use this mixture, popularly known as gasohol, without alteration. The burning of this alternative fuel produces fewer pollutants -- carbon monoxide, carbon dioxide, nitrogen oxide and hydrocarbons -- than the burning of gasoline.

Other emerging technologies could also be given a boost by high gasoline prices. Honda has reported brisk sales of the Insight, an extremely fuel efficient car powered by both electricity and gasoline, and skyrocketing gas prices could push sales of such environmentally friendly cars upward while perhaps decreasing the popularity of notoriously gas guzzling sport utility vehicles. Economic disincentives to drive could also clean the air by encouraging the use of car pools and mass transportation.

In her proposal, McLin stated that the tax suspension would help families afford their summer vacations. Thankfully, Gov. Bob Taft, who immediately denounced any gas tax suspension, feels that saving a few dollars, literally, on a vacation isn't worth risking the state's financial health.

 
 
 
 

 

 
 
 
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