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Next year will mark the 100th anniversary of the Minnesota gas tax, which, since its inception, has been constitutionally dedicated to funding the state's system of roads and bridges through a trust fund. Road finance has always been walled off from the state general fund budget because its revenue sources were respected as dedicated user fees. The gas tax long enjoyed broad bipartisan support and was regularly increased because it honored the "user pays" principle.
We used to treat our roadway system as a public utility like water, sewer or energy. Both fairness and efficiency dictated that it be funded by the people who use it in proportion to their usage. The idea is that when people pay for what they use, they use the resource more judiciously.
We don't bundle the cost of our water, sewers or energy into our property tax bills, because we understand it's important to incentivize their wise use by pricing them appropriately and charging separately for their consumption. If we paid a flat rate for all the water or energy we used, there would be no incentive to conserve, and consumption would increase dramatically.
We shouldn't be bundling the cost of roads into our property taxes, either, but that's what's been happening since the gas tax was last increased in 2008. More than half of our statewide spending on roads and bridges now comes from local property taxes, and less than a quarter comes from the state gas tax. About 20% of the typical Minnesota local government budget is now spent building and maintaining city streets and county roads, and more than half of that is financed from local taxes. If the gas tax were increased, almost 40% of the added revenue would automatically go to our cities and counties to relieve this pressure.
Yes, the gas tax is regressive, costing lower-income drivers more as a portion of their incomes. But the same is true of the property taxes we're paying instead. The gas tax's regressivity is offset by the sales tax on new cars and our steeply progressive vehicle registration fees, each of which now provides almost as much highway trust fund revenue as the gas tax itself. The owner of a new $50,000 vehicle will pay $652 in tab fees, while the owner of an 11-year-old used car pays only $35.
Why, one might ask, would we consider raising any tax when the state is enjoying a huge budget surplus? First, most of that surplus is "one-time" money left over from federal COVID relief and previous legislative gridlock. Close to a billion dollars of this money will be used to fund our one-time match to obtain our share of federal infrastructure act dollars and fund other one-time transportation projects. The ongoing "structural surplus" is about $2.75 billion per year, and these funds are being allocated largely to tax relief, education, health and human services, such as increased pay to lure workers into direct care professions.
Our state transportation budget is still walled off from the state general fund for the same reason it was walled off in 1924 — our roads and bridges should still be considered a public utility that should be financed by user fees and not subsidized by general taxes to the extent that they are today.
Why is this such a difficult issue? At its heart this is a nationwide ideological battle. On one side are Republicans who are determined to shift transportation funding to state general funds as part of a "starve the beast" strategy to deprive Democrats of funding to support education and human services programs. On the other are Democrats equally resolved to protect those programs. We've now fought this battle to a stalemate for 15 years since the last gas tax increase in 2008, and the casualties are our transportation infrastructure and our property tax statements.
Last week, we members of the House transportation committee spent an hour and a half one morning twisting ourselves into pretzels discussing novel ideas for raising roadway revenues. Package delivery fees? Shifting sales taxes on auto parts? Boosting sales tax on new cars? Everything was on the table — except a gas tax increase.
The driver of a car with average gas mileage (25 miles per gallon) driving an average number of annual miles (11,500) only pays about $11 a month in state gas taxes. A 5-cent increase in the state gas tax would increase that cost by less than $2 a month. At these levels the gas tax has but a small impact on household budgets.
To put another objection to rest, the typical rural driver doesn't actually drive more miles than the typical urban driver. A recent study revealed that rural drivers make longer but fewer trips. It bears mentioning that, while gas tax collections are about evenly split between the metro area and greater Minnesota, more than 60% of these revenues are spent on greater-Minnesota roads.
While we sit here dithering, gas tax revenues are gradually drying up. The gas mileage of new cars improves every year, teleworking has taken hold and baby boomers will be driving less in retirement. While electric vehicles are currently a tiny fraction of the cars on the road today, their adoption is about to explode. EVs could comprise 20% of the vehicle fleet by the end of the decade.
To observe the "user pays" principle, EV owners should pay an equivalent road user charge based on odometer mileage. Oregon, Utah and Virginia are already doing this, and I have introduced a bill modeled after Utah's program. In these programs, odometer readings are electronically recorded directly from the vehicle, without revealing the vehicle location. The fee would be set so that as EVs displace gasoline-powered vehicles, mileage-based road user charges would offset the loss of gas taxes, dollar for dollar.
The gas tax should continue for gasoline-powered vehicles because it is our most effective "carbon tax" and it is extremely efficient to collect from the state's gasoline wholesalers - collection costs are a fraction of 1% of the gross revenues.
We cannot continue to rely on sporadic one-time infusions of cash like the federal infrastructure bill. A serious unintended consequence of this year's sudden infusion of one-time cash is that more money chasing a fixed supply of construction capacity is causing runaway inflation in road construction bids that's being felt at every level of government. Our highway construction industry has no incentive to expand its capacity without assurances of a reliable funding stream that finances a regular and predictable flow of work justifying a long-term investment in capital equipment and manpower.
It's time for us to stop procrastinating and do what needs to be done to put our transportation system on a permanently solid financial footing using fair, efficient and sustainable user fees that incentivize drivers to use the system wisely.
Steve Elkins, DFL-Bloomington, is a member of the Minnesota House.