OPINION | Gross-receipts gas tax a real fix for under-funded state highways

In good economic times and bad, in days of tax reform or no new taxes no matter what, one fiscal consensus has held firm in Minnesota across the policy and political spectrum: robust capital investment in many public assets that support our prosperity and quality of life.

This has been affirmed through decades of supermajority approval of billions in state bonding and most recently by Gov. Mark Dayton’s call for $975 million in new borrowing – at still historically low interest rates – by the 2014 Legislature. After last year’s general obligation bonding bill was wrung dry of practically everything but much-needed restoration of the State Capitol, a near-$1 billion capital investment program is a worthwhile goal this year.

The Capitol, a century-old architectural treasure that reminds us of a time when Minnesotans were unabashedly proud of their self-government, is but a tiny part of a great array of state buildings that ensure public safety, high-quality education, clean water and much more.

Interestingly, though, all this “vertical infrastructure” is, in turn, just a small fraction of the state’s entire asset portfolio.

In dollar value, the lion’s share of all state capital assets – 74 percent, according to the Minnesota Department of Transportation – is tied up in the 12,000-mile state highway system.

And strangely, it’s this huge “horizontal infrastructure” component of our shared wealth that’s been sadly neglected for most of the past quarter-century. In the same period, we’ve seen half of state highway pavements exceed 50 years of age (equal to about 100 human years), a tragic interstate highway bridge collapse and the condition of Minnesota’s full interstate system sink to the bottom third in the nation.

This is no way to treat a huge underpinning of our economy. It’s a good question why, and the answer lies in a flawed fiscal model for our most important roads and bridges that plays right into the wheelhouse of right-wing opposition to “new” taxes. There’s an opportunity this year, however, to put an end once and for all to this very un-conservative and profligate running up of transportation infrastructure deficits.

First, some familiar background that bears repeating:

The overwhelming majority of levies across every level of government – income, sales and property taxes – automatically increase as pay, prices and real estate values go up. In addition to operating costs, these taxes cover debt service on bonding to build and maintain most of the 26 percent of state assets not in the trunk highway system.

But roads and bridges rely mainly on per-gallon fuel taxes that don’t adjust for inflation without legislative action. In decades past, as more and more Americans took to the roads in higher- and higher-horsepower gas-guzzlers, and routine bipartisan rate hikes at the gas pump funded expansion, the system remained financially sustainable (if not environmentally). Lately, however, less driving in more fuel-efficient vehicles, including a few that burn no gasoline at all, has put highway revenues in a real downward spiral.

How much? In a new long-term investment plan, MnDOT estimates $30 billion in state highway needs over the next two decades, but only $18 billion in projected resources -- most of which would be spent on maintenance while lane-miles in poor condition would still double or triple. The huge $12 billion gap, though, is actually down significantly from the $50 billion shortfall trumpeted just a few years ago.

The savings come mainly from a smart new approach to Twin Cities traffic congestion that relies on priced MnPASS lanes instead of ever-wider freeways. It refutes right-wingers’ claims that government always wants more, more, more, although it’s mostly the same folks who keep demanding more, more, more freeway lanes.

Of course, the last thing they want to do is pay for them, and raising the gas tax has become such a heavy lift that even progressives shy away from it. So what to do? Somehow, highway funding has to be made sensitive to rising costs of building and maintaining the system. Some states have tried indexing fuel taxes to general inflation. (Wisconsin did for a while, until conservatives repealed it a few years ago.)

A better idea is to link highway finance to the price of petroleum fuel, which is still the near-universal power source for motor vehicles and has the added advantage of closely tracking pavement costs. Minnesota Go, a public-private-University of Minnesota consortium, proposes adding a gross-receipts tax dedicated to highway purposes that would be paid at the pump. The suggested rate is 5 percent calculated once a year, which at current prices, minus 47 cents in Minnesota and federal excise taxes, would add about 14 cents a gallon at the pump.

Naturally, the exact level should be subject to debate and compromise. Last year a Senate committee approved a 5.5 percent gross-receipts rate tied to a 6-cents-per-gallon reduction in the state excise tax, but the measure went no further. Instead, legislators and Dayton applied a $300 million band-aid of borrowing to mollify pent-up demand for trunk highway expansion. That step used up the last of MnDOT’s debt service capacity under current funding.

“The credit card is maxed out,” said Margaret Donohoe of the Minnesota Transportation Alliance. “We do need actual new revenue this year. The problem isn’t going away; it’s just getting more expensive.”

A broader, more permanent fix would shore up not just the 8.5 percent of Minnesota roadways in the trunk highway system, but also tens of thousands more miles of state-aid county roads and city streets. It should be a top priority in 2014 for policymakers who care about Minnesota’s future.

For more to look for in 2014, see accompanying Hindsight blog: More for One-Four in Transportation

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    Conrad deFiebre's picture
    Conrad deFiebre

    Conrad deFiebre is a Transportation Fellow at Minnesota 2020.