What Maryland’s governor can do about gas, inflation and the economy

Published on: July 18, 2022 6:00 AM EDT

An Exxon gas station on North Howard Street.

Democratic and Republican candidates for governor are trying to woo voters worried about the economy and hit by budget-crushing inflation and gas prices.

A June Goucher College Poll survey conducted in partnership with The Baltimore Banner and WYPR revealed the economy weighs heavy on the minds of voters in both parties. Eighty-four percent of Democrats and 83% of Republicans polled said the state business climate and economic condition were at least a minor concern, while 74% of Republicans and 41% of Democrats said they had a “mostly negative” outlook on Maryland’s current economic situation.

Members of both parties overwhelmingly said the inflation rate and gas prices were major concerns.

In campaign press releases and gas station stump speeches, gubernatorial hopefuls have pressed the legislature and even called on the president to speed relief to Marylanders by way of gas tax holidays and stimulus checks. But what power on their own do governors have to address the price of gas, rising inflation or boost their state’s economy?

“It’s very difficult for the governor of an individual state to have a lot of influence over inflation,” said Anand Anandalingam, a management science professor and former dean at the University of Maryland’s Robert H. Smith School of Business. “But what the governors can do, though, is that they can provide some relief from these inflationary problems.”

What is inflation and what causes it?

Put simply, inflation happens “because the demand for things is greater than the supply of things,” Anandalingam said.

Each month The Bureau of Labor Statistics calculates the Consumer Price Index, or CPI, by measuring how much the prices of goods and services in urban areas has changed over the last 12 months.

Since June of last year, the average price of goods and services, such as food and transportation, has skyrocketed 9.1% — a 40-year high, according to The Bureau of Labor Statistics. The retail price of gas, a component of inflation, increased 60% over the same period.

Fluctuations in CPI can raise or lower interest rates, making it more or less expensive to get a loan. CPI controls how much the American dollar can buy.

However, national and international policies drive inflation not state policies, Anandalingam said.

“One big problem, as we know, the last two years or so, is that the supply chain has gotten disrupted, partly because of the pandemic, but partly also because we’ve started a trade war with China,” Anandalingam said.

How does Maryland’s gas tax work?

Restrictions placed on Russian oil sales by the U.S. and Western allies as punishment for Russia’s February invasion of Ukraine are also pouring fuel on the inflationary bonfire and causing crude oil prices to rise.

The cost of crude oil and state and federal taxes push retail gas prices up or down. While it’s true that states can give gas tax holidays, those taxes are levied at the port, not at the pump. So, unless the middleman decides to pass along the savings, it’s not a guarantee the tax break will land in the retail customer’s wallet.

A 2013 state law signed by then-Gov. Martin O’Malley, a Democrat, linked Maryland’s gas tax rate, now just under 43 cents per gallon, to national inflation. As inflation climbs, so does the amount suppliers are charged at the port.

A spokesman from the comptroller’s office said in a statement that “both repealing the state gas tax and decoupling (the gas tax) from the CPI would require legislative action.” The Office of the Comptroller is not associated with Comptroller Peter Franchot’s gubernatorial campaign.

One way governors can mitigate inflation: With a pen

Here’s where the governor can mitigate inflation — by signing a gas tax relief bill into law after the legislature passes one, just as Gov. Larry Hogan did in March. The emergency legislation first passed by the legislature gave Marylanders a 30-day tax break.

Once the tax holiday ended, candidates in both parties continued their calls for action.

Franchot, Wes Moore and Tom Perez, all Democrats, have said they would support a gas tax holiday, as have Republicans Dan Cox and Kelly Schulz. Franchot, Schulz and Cox have all gone a step further and said Maryland should repeal the annual inflation adjustment to the state’s gas tax — which raises the tax in order to help revenues keep pace with the rising costs of road and bridge projects. Last year, revenues totaled more than $860 million.

Perez has said he would call a special session to rescind the most recent inflation adjustment and figure out “a good additional measure of rollback” to continue through the end of the year.

Schulz and Franchot were both in office in 2013 — Schulz in the legislature and Franchot as Comptroller — and opposed the law.

What can the governor do to boost the economy?

Anandalingam said governors can create long-term impacts on their state’s economies by incentivizing businesses to set up shop in their states.

States can give corporate tax breaks, or tax holidays, for years at a time, and give away land or ease the building costs of related infrastructure, like roads, sidewalks and utilities, Anandalingam said.

Enriching the state’s secondary education system can also encourage corporate investment.

”Companies like to locate themselves in places where they can hire well-educated and really talented young people,” he said.

Tax Foundation, a conservative-leaning tax policy research organization, ranked Maryland 46th among the 50 states in business friendliness in its 2022 State Business Tax Climate Index. The corporate tax rate in Maryland is 8.25%, the 33rd highest in the country.

States, however, must weigh the cost of funding social safety nets against providing corporate tax breaks, Anandalingam said.

On enticing businesses and funding social programs, he said, “It’s a little bit of a dance.”

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