Coming up on another Legislative session, where transportation funding will once again be back on the table.  The past 5 sessions have been rather dismal regarding transportation funding.  The 2001 and 2002 sessions were extremely disappointing for transportation funding, especially in 2002, where an unprecedented 185 interest groups, chambers, and civic organizations supported a transportation funding package.  The 2002 session, unfortunately, closed without a funding bill, when partisan fighting in the House doomed discussion (the Senate had passed a measure with a 6-cent gas tax increase and bonding authority, giving $5 billion over 10 years).

The 2003 session made marginal improvement, where the Governor was successful in pushing his transportation bonding plan through the Legislature.  This bonding proposal authorized $400 million in bonds to MnDOT for trunk highway projects, split evenly amongst Metro bottleneck projects and outstate IRC projects, as well as authorization to leverage the bonds for an additional $400 million in federal Advance Construction (AC) funding.  The bonds will be repaid via "internal savings" at MnDOT, while future federal funding will pay back the AC funds.  While this has enabled MnDOT to jump-start a few high-profile projects, it's net effect on transportation funding is virtually zero, as the bonds are effectively a shift from operations/maintenance funding to construction funding while the AC funds takes away from future federal highway funding.

The 2004 and 2005 sessions were as disappointing as earlier Legislative sessions, as partisan politics plagued both branches of the Legislature.  The only significant transportation funding bill to pass both branches was an omnibus transportation bill (H.F. 2461) that included the following funding provisions:

- Enables all counties to levy up to a $20 "wheelage tax".
- Repeals the maximum level for vehicle registration fees and modifies the depreciation schedule.
- A 10-cent increase in the state gas tax (to a total of 30-cents per gallon), to be phased in over 2 years.
- Dedicates 0.25% of the state's 6.5% sales tax to transit, 80% to Twin Cities metro transit services and 20% to Outstate transit.
- Proposes a Constitutional Amendment to phase in and dedicate 100% of the Motor Vehicle Sales Tax (MVST) to transportation by 2012, with 60% going to the state's highway fund, 38% to Twin Cities area transit, and 2% to Outstate transit.
- Authorizes the same of $1 billion in trunk highway bonds.

The bill was submitted to the Governor on May 19, 2005.  True to his "no new taxes" pledge, the Governor promptly vetoed the bill, leaving the Legislature to eventually submit a smaller omnibus transportation bill during the special session that omitted any funding increases.  However, even though the Governor vetoed H.F. 2461, the MVST Constitutional Amendment proposal of the bill is still valid, and will be on the November, 2006 ballot.

The funding information, plus proposals and ideas of mine are based on research I began in early 2001.  Most of the following is the results of my research, primarily into four main potential funding sources.  Although recent national and world events, combined with the poor economy, may make some of the numbers variable, the basic concepts remain the same.

According to the recent district long-range transportation plans, which utilize performance-based criteria in allocating funding, the state will require a $38.1 billion investment to meet performance targets through 2030.  With only $14.2 billion in anticipated revenues available (not counting $300 million for community priorities), a shortfall of $23.9 billion between 2008 and 2030 boils down into an annual shortfall of just over $1 billion per year, a significant amount.  This figure is in line with a report by the Minnesota Transportation Alliance, who used MnDOT data, Metropolitan Council data, and other governmental data, to determine that an additional $1 billion per year is needed for highways and transit statewide.

Highway User Tax Distribution Fund (HUTDF)

Also known as the Highway Trust Fund, this is the primary depository for the three main taxes that are earmarked for transportation.  Two of these three taxes, the Highway Fuels Tax (known as the "gas tax") and the Motor Vehicle Registration Tax (better known as "license tab fees") are constitutionally dedicated to the HUTDF.  The third, a portion of the Motor Vehicle Sales Tax (or MVST...some people may know it as the MVET), is statutorily (i.e. legislatively) dedicated to the HUTDF.  The Constitution further stipulates that these revenues are to be used for "highway purposes only", which has been a source of contention for transit advocates.  The following table lists the breakdown of where funding in the HUTDF goes to, and what the FY 2001 allocations were:

The Special Account, which receives 5% of the proceeds of the HUTDF, is a special portion of the HUTDF.  By law, the Legislature has the authority to determine where that 5% is deposited, although they can only change the formula every 6 years.  Presently, 53.5% of the Special Account goes to the Turnback fund (for MnDOT Turnbacks to the counties and cities), 30.5% goes to township roads, and the remaining 16% to township bridges.

The Trunk Highway Fund is what pays for construction and maintenance projects on Minnesota's State Highway system.

The County State Aid Highway Fund provides funding to the counties for each county's CSAH highway system.  The CSAH system is, simply put, a system of county roads which are eligible for State Aid.

The Municipal State Aid Highway Fund provides funding for cities with a population above 5,000, for improvements to city streets that are eligible for State Aid.

The following table is a rough distribution percentage from the Trunk Highway Fund to each MnDOT district, based on the recent Target Formula reevaluation study.

The following table depicts the rational behind how the County State Aid Highway Fund and the Municipal State Aid Highway Fund proceeds are distributed:

** - Needs are defined here as the cost required to reconstruct all CSAH highways or Municipal State Aid streets to fully meet State Aid design standards.

Sources of Transportation Funding

The following lists four potential sources for transportation funding:

Highway Fuels Tax - Commonly known as the "gas tax", gasoline and other petroleum-fuels-based taxes are the primary source of revenue for the Highway User Tax Distribution Fund (HUTDF), depicted above.  An amendment in Minnesota's Constitution requires all gas/petroleum-fuel-based taxes to be deposited into the HUTDF.  The current gas tax rate is $0.20 per gallon for gasoline and diesel fuel, and various other rates for other fuels.  Gas tax revenues for FY 2004 were around $648 million, with regular gas and diesel taking the lions share of that, on roughly 3.2 billion gallons of gas sold.  Additionally, the split between gasoline and diesel was about 85/15 in FY 2004.

Motor Vehicle Registration Tax - Commonly known as "license tab fees" or "vehicle registration fees", these revenues are also deposited into the HUTDF.  Former Governor Ventura was successful in getting "license tab fees" reduced, effective in Fiscal Year 2001.  This has in turn reduced revenue going to the HUTDF from these fees, going from a total of just over $600 million in FY 2000 to about $460 million in FY 2001.  Raising the fees back up on the 3.9 million vehicles in Minnesota would be one way to make up the shortfall in transportation funding.  Vehicle Registration revenues in FY 2004 were approximately $495 million.

Motor Vehicle Sales Tax (MVST) - Formerly known as the Motor Vehicle Excise Tax, or MVET, this tax has normally gone into the state's General Fund instead of the HUTDF or another transportation fund.  With the reduction in the Motor Vehicle Registration Tax, that lost funding was made up by allocating 30% of the MVST to the HUTDF.  Also, as part of the Governor's push to get property tax rates reduced, additional amounts of the MVST are to be dedicated to transit for operating expenses, replacing property tax levies previously used for those operating expenses.  21.5% of the MVST now goes to Metro Transit (the main Twin Cities transit service), while 1.43% of the MVST goes to Greater Minnesota Transit.  Two additional levies currently exist in the form of 0.65% to the CSAH fund and 0.17% to the MSAS fund.  These two levies will expire after FY 2007, at which point the HUTDF portion increases to 32%.  The remaining 46.25% of the MVST still goes to the General Fund.  Overall FY 2004 MVST revenues were around $592 million.

Sales taxes - The state sales tax is currently 6.5% (with its many exemptions), with all collections going to the State General Fund. FY 2004 collections were about $4.0 billion statewide.  According to a Senate budget committee and an April, 2001 Star Tribune article, a 1/2 cent increase in the sales tax in the metro area could generate up to $300 million a year. Such a proposal has been considered for a metrowide referendum, and would dedicate the extra 1/2 cent to highways and transit.  There are precedents elsewhere.  The state of Virginia dedicates 1/2 cent of its sales tax to transportation, while Maricopa County, AZ (the Phoenix area) is using a 1/2 cent sales tax to fund its freeway system construction.  Other metropolitan areas, including Atlanta, Denver, and Seattle, use a sales tax to help fund their transit systems.

Transportation Needs

The following table is a summary and partial breakdown of the transportation needs from the 2001 Road Transportation Needs Assessment Study and Transit Needs Report studies from the Transportation Policy Institute.

According to a 2001 MnDOT Metro Division report, roughly $15 billion will be needed through 2025 in order to maintain current mobility levels.  The following table lists the breakdown:

The Metropolitan Council has estimated transit goals through 2025 in the area of $4 billion.  The following table lists the breakdown:

Funding Examples

The following table shows various examples and alternatives for increasing highway funding revenue, and how much each option would impact specific programs:

* - Based on FY 2004 collections.
** - Based on FY 2004 vehicle registrations.

Froggie's Proposal

My proposal is multifold:

Motor Vehicle Sales Tax (MVST) - Add a Constitutional Amendment dedicating the full 100% of the MVST to transportation, with 60% going to the HUTDF, 37.5% to Twin Cities area transit, and 2.5% to Outstate transit.  The MVST would be phased-in between 2008 and 2011, with full 100% implementation by 2011, as shown in the following table:

Highway Fuels Tax (the "gas tax") - Increase the fuel taxes by 6 cents per gallon, effective 7/1/06, and index the fuel taxes to inflation, to be implemented on July 1st of each following year.

Motor Vehicle Registration Tax ("License tab/registration fees") - Add a flat $25 back to the registration and license tab fees.

Sales Tax - Approve a 1/2 cent sales tax for the counties in the 11-county Twin Cities Metropolitan Area, effective 7/1/07, and distribute it as follows:  40% to bottleneck removal on and within the I-494/694 beltway, 20% to IRC corridors leading up to I-494/694, 20% for transit, and 20% to the counties for their county highway networks (both CSAH and non-CSAH).

Highway User Tax Distribution Fund - Three sources of contention regarding the HUTDF have been A) the overall distribution formula, B) distribution of CSAH funds, and C) interpretation of "highway use only".  To partially remedy "A", I propose changing the distribution formula (this would likely require a Constitutional Amendment) within the 95% Highway Fund portion to 64% Trunk Highways, 27% CSAH, and 9% MSAS.  This will improve the funding situation for state trunk highways.  When combined with my proposed funding increases, it will still improve funding for the CSAH routes.

"B" is largely an issue for the suburban counties of the Twin Cities metro (especially Dakota County), who feel that they're being short-changed by the existing CSAH allocation system which in their view overly favors the rural counties.  My proposed solution to this issue is listed below.

"C" has been an issue for transit advocates, many of whom are calling for a broader interpretation of "highway use only", arguing that transit that relieves congestion should qualify.  While I am inclined to agree, there is too much potential for loopholes that would siphon off significant portions of the Highway Trust Fund to transit projects with questionable, little, or no benefit to congestion.  That said, there are some transit items which are highway-based that I believe are acceptable uses of the HUTDF, including HOV bypass ramps at ramp meters, wider shoulders (for bus use), and park-and-ride lots.  If not an Amendment outright, the interpretation of "highway use only" should be adjusted to include these uses.

County State Aid Highway funds distribution -  My proposal for revising the way CSAH funds are allocated to the counties will also require a Constitutional Amendment.  Presently, the funds are distributed based on a formula that is 50% based on CSAH "needs" (as identified by MnDOT's State Aid division), 30% based on CSAH lane-mileage, 10% based on county vehicle registrations, and the remaining 10% is distributed evenly amongst the 87 counties.  My proposal is for a revision to the distribution formula, based 25% on each of the following four criteria:  an even split amongst the counties, lane-mileage, vehicle miles traveled (VMT), and "needs".  This proposal will move CSAH funds more towards where they are needed to relieve congestion, and when combined with my proposed funding increases, all but 2 counties will see their CSAH allocations at or above 2003 levels.  A "hold harmless" allocation will be provided to those two counties so that their allocations remain at least at 2003 levels.

The following assumptions are made:

- Collections stay constant (meaning number of vehicles registered, sales purchases, and gallons of gas purchased).
- The tax increases suggested above are not changed further.
- "Inflation" for the purposes of indexing the fuels tax is assumed to be 2% per year.
- A 1/2 cent sales tax increase in the metro generates $150 million per year (half of what backers say it could reach).

With those assumptions in mind, the following table shows how much additional funding my proposal would provide for each category:

While not completely eliminating the needs deficit, my proposal makes significant inroads.  It provides an additional $1.3 billion through 2025 (assuming constant dollars) for metro area transit improvements, plus an additional $5 billion through 2025 for metro area highway improvements.  Outstate Minnesota benefits from an additional $3.8 billion through 2025 for outstate trunk highways.

This page shows a series of maps detailing what could be improved in the Twin Cities if my funding proposal is carried through.

Comments are welcomed.

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Page last modified 26 December, 2005