The governor wants to put pause on fuel tax shift. What would that mean?
It was just one line item in Gov. JB Pritzker’s budget proposal Wednesday, pausing the final shift of the state’s motor fuel sales taxes to the road fund.
But for drivers, road builders and lovers of convoluted Illinois legislative history, it means a lot.
Since July 1, 2021, the state has incrementally transferred motor fuel sales taxes from its general fund to the road fund. The change was part of 2019 legislation enabling the Build Illinois capital program.
“For the longest time, the average person thought the sales tax on motor fuel wasn’t being used properly. It was going to the general fund and not going for road projects,” Illinois Department of Revenue Director David Harris said.
“The Pritzker administration and the General Assembly took note of that, and they made the decision to start transferring, in 16% increments, the sales tax on motor fuel to the road fund.”
The transition was intended to take five years, with July 1, 2025 marking the last stage of the shift.
That bumped up against Pritzker trying to balance the fiscal year 2026 budget amid economic uncertainties. Officials with the governor’s office said last week the pause would be lifted in fiscal year 2027, which runs from July 1, 2026 to June 30, 2027.
At stake is about $171 million, if the General Assembly adopts the budget plan.
Regarding the temporary one-year deferral, “there’s good logic to that because you can only spend the money so fast and there’s a lot of money in the road fund that hasn’t been committed yet,” said Harris, a former Republican state representative from Arlington Heights.
Meanwhile, Illinois Road and Transportation Builders Association President Michael Sturino noted, “we understand the budget has some stresses but there was an agreement when the Rebuild Illinois capital program was approved, and that included transferring proceeds from sales tax on motor fuel to the road fund, which previously had gone to the general revenue fund.
“So, it’s disappointing.”
In the interim, the IRTBA is working with legislators and the executive branch to expedite awarding IDOT construction contracts, which have lagged, Sturino said.
How does the transfer work?
The statewide sales tax rate on motor fuels is 6.25% and that’s split between state government and local governments, IDOR officials explained.
The state government gets 80% of the revenue (equivalent to a tax rate of 5.0%) and local governments receive 20% (equivalent to a tax rate of 1.25%).
The shift was designed to happen in equal stages over five fiscal years so by the end, the state’s 80% share would belong to the road fund. The 20% local share continues to be distributed to local governments.
The phase-in schedule is as follows: in fiscal year 2022, 16% of the 6.25% sales tax on motor fuels shifted to the road fund; in FY 2023, it was 32%; in FY 2024, it was 48%; and in FY 2025, it was 64%.
Fiscal year 2026 would have marked 80%, IDOR said.
What’s been deposited in the road fund so far? In FY 2022, $132 million in motor fuel sales taxes were transferred; in FY 2023, the tally was $484 million; and in FY 2024, the total was $570 million.
IDOT staff notes the revenue progression isn’t linear because revenues reflect the fluctuating price of gas.
Despite the delay, Harris’ takeaway is that sales taxes on gas are now funding road projects.
“And, they’re no longer going to the general fund, which dispels what was an irritation for a lot of people.”
Got an opinion on fuel taxes? Drop an email to mpyke@dailyherald.com