Small businesses hit hard by new gas taxes in Virginia and Maryland


Climbing gas prices are forcing local business owners into some difficult decisions. (Matt Slocum/AP)

Jamie Smith has no idea how some of his employees are going to get to work.

His Baltimore-based plumbing company is moving at the end of April, but that’s not the reason for the concern. It’s due to a change in company policy, as Smith can no longer afford to let his workers take the firm’s service trucks home at night — a decision driven by the same factor that’s forcing him to uproot his business.

It all comes down to the price of gas.

“I know I’m going to have some problems, because some of our guys don’t have cars, so I’m really not sure how they’re going to commute,” said Smith, owner of Mr. Rooter Plumbing of Greater Baltimore. “But our fuel costs keep climbing, and I have to do something. It’s not ideal, but we don’t have many options.”

Smith’s company is one of many in the region bracing for an even steeper increase in gas prices, as state lawmakers in Maryland and Virginia recently approved new fuel taxes. Meanwhile, federal regulators are moving forward on new rules that could drive the price at the pump even higher nationwide.

In Maryland, gas taxes are expected to rise by about 4 cents a gallon starting in July. By mid-2016, legislative analysts estimate the tax will rise by 13 to 20 cents per gallon.

The state’s gas-tax hike is expected to raise about $4.4 billion for transit and maintenance projects over six years. Next month, Gov. Martin O’Malley (D) is expected to sign the bill, which he championed.

During a speech in March, O’Malley pledged to use the money to help “ease some of the worst traffic congestion in the nation while building and repairing our transportation infrastructure.”

But as soon as the idea started to gain momentum in the state legislature, Smith started searching for new locations outside Baltimore. He liked his spot in the city, but it meant driving a little farther to reach major highways and get his seven trucks out to customers.

That used to be a minor financial sacrifice, but Smith says the firm can no longer afford driving unless it’s absolutely necessary. So the firm is moving to Arbutus, Md., near the intersection of Interstates 95 and 695. The move should trim his monthly fuel bill, which is among the company’s three largest monthly expenses, along with materials and labor.

Still, the savings wouldn’t compensate for the fuel and maintenance expenses Smith has traditionally incurred by letting workers commute to and from work in the company’s trucks. Smith may allow some technicians to keep using the vehicles if they pay for their own gas, but he isn’t sure how to manage that effectively. Nor does he think all of them can afford that alternative.

“I have no option but to try to pass some of these costs to our employees,” he said. “I can’t raise prices on customers, especially right now, when we are already seeing a slowdown thanks to the sequester,” he added, referring federal spending cuts that are expected to hit the region’s economy hard.

In Virginia, state lawmakers have approved plans to convert the state’s gas tax from a conventional pennies-per-gallon formula to a 3.5 percent tax on the wholesale fuel price. By taking a percentage rather than a flat fee, the levy will rise with inflation, helping policymakers avoid raising the rates later to raise money for new projects.

The fees are part of a broader plan to raise at least $880 million per year, and like O’Malley in Maryland, Virginia Gov. Bob McDonnell (R) plans to spend a large portion of the revenue on repairing and building roads.

In the midst of both changes at the state level, the Environmental Protection Agency last month announced it will move forward on new regulations requiring cleaner gasoline and lower-pollution cars, which would cut down on air pollution. The environmental benefit is expected to equal of that of taking 33 million cars off the road, but it comes at a price. The administration estimates the new rules will tack about a penny per gallon on to the cost of gas, but some oil industry officials warn that could jump as high as 9 cents in some regions.

On its own, Virginia’s new gas tax is expected to cost most drivers about $15 more each month — but the toll will be far higher for business owners who depend on or provide ground transportation, like Kristina Bouweiri.

Bouweiri owns Reston Limousine, which operates a fleet of shuttles, buses and limousines in the District, Virginia and Maryland. Her company’s fuel costs account for about 11 percent of its total operating expenses, which translates into more than $100,000 a month at the pump.

“It’s very difficult for a business like mine,” Bouweiri said. Her company finds itself in a particularly tricky spot, because 90 percent of its revenue consists of long-term contracts for shuttle and bus service. The terms for those deals generally include fixed five-year prices with no fuel surcharge.

“It’s a major risk, because when prices go up like this, we’re stuck,” she said.

Nevertheless, Bouweiri supports the gas taxes, because she expects both governors to follow through on plans to invest the added revenue back into the area’s crumbling roadways.

“This region has not planned properly for additional roads and repairs, and I know this is necessary to improve our infrastructure,” she said. “I’m obviously disappointed that more money is coming out of my pockets, but something needed to be done, and I think our politicians should be congratulated for finding a solution.”

Smith has less faith that the money from the gas tax will find its way back into the roads in Maryland. He says many of the streets and highways he travels needed repairs back when the state government wasn’t nearly so strapped for cash.

“They always promise to clean up the roads, but it never happens,” Smith said. “I hope I’m wrong, but I just don’t see the promise.”

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J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he runs the On Small Business blog.
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