California continues to pay the most for gasoline on average, but Island drivers pay more in fuel taxes than any other state.

Nearly 58 cents of the average $2.036 for a gallon of regular gasoline on O'ahu goes into federal, state and county coffers.

The state's high gasoline prices can be traced to numerous causes largely out of the hands of local decision-makers, including Hawai'i's small market size and lack of Mainland-type competition.

But taxes are another story. The $148.7 million in state and local fuel taxes collected in the fiscal year ended June 30 are a large part of why pump prices are so high.

To drive down prices, state legislators passed a gasoline price cap law set to take effect next summer. However, a state-commissioned report scheduled for release tomorrow is expected to criticize such price controls and offer up alternatives.

However, apart from a possible tax increase to pay for monitoring the oil industry, among other things, the report isn't expected to address state and county tax policy.

"If taxes were lower, gasoline prices would probably be lower," acknowledged David Hackett, president of Stillwater Associates, one of the report's authors. "But we were more interested in (addressing) supply and demand issues."

Oil industry officials would like gasoline taxes to be part of the debate on addressing Hawai'i's high gasoline prices.

"I think the level of taxes needs to be discussed at the Legislature," said Melissa Pavlicek, a lobbyist for the Western States Petroleum Association trade group, which represents oil companies such as ChevronTexaco Corp.

"If consumers were aware that what they're paying is (about) 56 cents of tax for every gallon, that would put the price in a little bit better perspective," she said.

Taxpayers seek relief

The price caps and alternatives for lowering gasoline prices are expected to be among the hottest issues the Legislature will take up next year.

Lawmakers have been hearing an earful from constituents seeking a break from high gas prices.

Roy Ishihara, a retiree in Captain Cook on the Big Island who is paying $2.39 a gallon for gas, said he'd like to know more about how gasoline taxes are spent. He doubted the state or counties would consider lowering fuel taxes.

"There's no way it's going to be done," Ishihara said. "Government doesn't cut taxes; the only thing they do is spend and spend."

In July, the latest month that comparative numbers are available, Hawai'i gas taxes were the highest in the nation at 54.7 cents a gallon. That was 12 cents a gallon more than the nationwide average tax of 42.7 cents, according to the American Petroleum Institute. Alaska enjoyed the lowest taxes at 26.4 cents a gallon.

While the federal, state and county fuel tax rates remain relatively stable, the amount of general excise taxes that Hawai'i drivers pay varies depending on the price of gasoline.

As of Friday, total gasoline taxes stood at almost 58 cents a gallon in Honolulu, based on a AAA travel club survey price of $2.036 a gallon. The general excise tax is applied against the price of gasoline at the pump, minus the other taxes.

In breaking down the taxes, the most — 18.4 cents a gallon — goes to the federal government while 16 cents goes to the state. County taxes vary, and are 16.5 cents on O'ahu.

Another 0.1 cent a gallon tax for environmental response goes to pay for cleaning up oil spills, drinking water contamination and underground storage tank leakage.

On top of it all, a total of 4.5 percent in retail and wholesale general excise taxes are applied to gasoline sales.

How taxes are used

Apart from general excise taxes, which go into the general fund, the state and county taxes go toward road construction and repair, and in Honolulu they are also used to subsidize the city bus system.

However, finding out where that money is spent isn't always evident judging by the condition of the roads, said Alvin Makimoto, owner of Uptown Chevron in Wailuku, Maui.

In Wailuku, gasoline prices are about $2.37 a gallon. Included in that price is 18 cents in Maui county taxes, raised by 5 cents in July.

"I don't care what we pay, but show me what I get for it," Makimoto said.

Lowering gasoline taxes may not be feasible given the state and county budget problems.

Last year an estimated that $73.7 million in fuel taxes went into the state's highway special fund, which is mainly used for road building and maintenance and to match federal construction money. State fuel tax dollars accounted for about 43 percent of the fund's total revenues of $170.5 million last fiscal year.

The highway special fund typically provides 23 percent of all money spent on state road construction, with the rest of the money coming from revenues bonds, the federal government and other sources.

At the end of June, the balance in the highway special fund was estimated at $66.5 million, or nearly one-year's worth of fuel tax revenues.

The balance was down sharply from a year ago when it stood at $105.9 million. That's because expenses ran more than revenues and because the state took from the fund $22 million paid by Hawai'i's oil companies to settle allegations of gasoline price fixing and funneled the money into the general fund.

What remains in the highway special fund will likely be drawn down to less then $1 million by fiscal 2009 largely because of anticipated spending increases, according to the state Department of Transportation.

Souki: no tax cuts

State Rep. Joe Souki, D-8th (Wailuku, Waiehu), who introduced a bill to repeal the price caps this year, said the state isn't financially strong enough to consider cutting fuel taxes.

But he said the $22 million in settlement money from oil companies should have been kept in the highway special fund for road repair.

"I don't think that should have been taken out," Souki said. "I think we're already behind on our repairs of the highways.

As for the counties' portion of gasoline taxes, total collections in fiscal 2003 were $67.65 million, of which $47.63 million was raised in Honolulu.

The money goes into the city highway fund, which in fiscal 2003 provided $53 million for road maintenance, traffic signals, road markings and police traffic patrols. Another $35 million went to subsidize TheBus and Handi-Van service.

Ivan Lui-Kwan, director of Honolulu's budget and fiscal services, said the city's highway fund does not have a surplus.

"We don't hold any money back," he said. "Once the money comes in, it's all appropriated out."

So while government officials turn out their pockets, drivers are having to absorb the ever-increasing cost of gasoline.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.