16. Highway Funding CITY ENGINEERS ASSOCIATION
of MINNESOTA
ENCllyfsv
Olz I
February 10, 1988
TO: Mayors, Councilmembers, City Administrators,
City Clerks, and City Engineers
RE: Highway Funding
1
At the City Engineers Association of Minnesota annual business meeting on
January 21, 1988, the need for additional monies to preserve existing roadways,
' reconstruct roads as necessary, and complete construction of the roadway system
was discussed. A motion was passed supporting the highway funding
recommendations of the Transportation Finance Study Commission. The
recommendations are outlined in the enclosed document. The two primary
recommendations are that the gasoline tax be increased by three cents per gallon
effective June 1, 1988, and that the share of the motor vehicle excise tax
(MVET) revenues going to transportation be increased from the present 5% to 35%.
The motion directed that cities be informed of this position of the City
Engineers Association of Minnesota, and be asked to take action supporting this
' position. Mayors , councilmembers , administrators and other individual
representatives of cities are also requested to contact their legislators to
ask them for their support of the recommendations of the Transportation Finance
Study Commission.
A sample resolution is enclosed for your consideration. Your support of this
very essential funding increase for transportation is encouraged.
' Yours truly,
acatAii-d L . Gnu-A444-7k
' Ronald L. Rudrud, P.E.
Vice President, CEAM
RLR/an
FEB 18 1988
CITY OF CHANHASSEN
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l 4,P�,-,.,1�; I. COMMISSION BACKGROUND
The Transportation Finance Study Commission was created as part of the Transportation and Semi-States
1988-89 appropriation bill enacted in the 1987 legislative session. That legislation directed the
Commission to study.
1. Present and future highway and transit needs. '
2. The adequacy of existing revenue sources to meet those needs.
3. Methods of raising additional revenue. I
4. Alternatives to raising revenue.
5. Alternative methods of distributing revenues among various levels of government.
The Commission was directed to report its findings and recommendations to the legislature by February
15, 1988.
The following members of the legislature were appointed to the Commission:
Senator Gary DeCramer Representative Doug Carlson
Senator Keith Langseth Representative Bob Jensen
Senator Marilyn Lantry Representative Henry Kalis
Senator Lyle Mehrkens Representative Bernie Lieder
Senator Clarence Purfeerst Representative Art Seaberg
At the Commission's first meeting Senator Purfeerst and Representative Kalis were selected to serve as
co-chairs.
II. COMMISSION ACTIVITIES
The Commission's first meeting was in the State Capitol and provided essential background on the
developments which had led to the Commission's creation. Rep. Bob Vanasek, Speaker of the House,
testified on the scope of the Commission's work, a subject also addressed in a statement provided by
Senator Roger Moe, Senate majority leader, and Governor Rudy Perpich. Transportation Commissioner
Leonard Levine spoke on the changes which the Department of Transportation were forced to make as a
result of funding shortfalls after the 1987 legislative session. The iiext three meetings, also in the
Capitol, focused on state and local highway and transit needs and also heard a report on the Legislative
Auditor's study of county state-aid distribution.
The Commission then began a series of hearings at locations around the state in an attempt to obtain a
sense of what the public expected and demanded of the legislature in terms of transportation service and
willingness to finance that service. Meetings were held in Shakopee, Richfield, Two Harbors, Breezy
Point, Mankato and Marshall. All these meetings were characterized by heavy attendance (several to the
point of capacity) and public testimony from more than 150 persons. While the testimony covered a
broad range of transportation subjects almost all of it spoke to the public's awareness of the
importance of transportation to the state's economic health.
• The specific points brought out most frequently in these hearings may be summarized as follows:
1. The motoring public is willing to pay for the support of highways as long as it can be sure that
the money will actually go for highway improvements and maintenance.
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2. The motor vehicle excise tax (MVET) is a highway user and( ) gh y tax an should be treated like other
highway user taxes -- that is, dedicated to transportation.
' 3. Throughout the state people have been waiting many years for highway improvements and are
becoming impatient with what they see as endless delays.
' 4. In rural areas weight restrictions on highways are a serious impediment to economic growth and
add significantly to the costs borne by many segments of the economy, particularly those related
to agriculture and manufacturing.
5. Public transit is a subject of vital importance to a sizeable segment of the population, and there
is strong support among these people for expanded use of MVET funds for transit as well as for
highways.
6. Local elected officials are particularly appreciative of the local bridge bonding program and hope
it can be continued.
' 7. People generally believe that Minnesota's highways are in fundamentally good condition but
Y g can
and must be improved in areas of capacity and safety.
The Commission completed its work with an examination of the costs and benefits of credit financing for
highways, then began its consideration of its final report.
111 III. SCOPE OF THE COMMISSIONS WORK
' The overall charge given to the Transportation Finance Study Commission was an extremely broad one.
If taken literally it would require several years of study, debate and public testimony to cover
adequately. Given the limited amount of time available to the Commission it was necessary for us to
' concentrate primarily on the most pressing issues of transportation finance and to look specifically for
recommendations to be made to the 1988 legislative session. This meant that we have been unable to
formulate a plan for resolving transportation financing questions beyond the 1990-91 biennium.
' This decision was not made easily. One of the major problems facing transportation today is the fact
that many of its financing decisions have been made on a short-term basis which inhibits long-range
planning and leads to public confusion and frustration. To the public the practice of scheduling highway
' projects and then cancelling them appears as bad management and bad planning when in fact it is the
inevitable result of short-term decision making. Nonetheless we determined that our first responsibility
in fulfilling the legislature's charge was to seek out the public's views on the kind of transportation
system it wants and is willing to pay for. This concentration on learning what the public expects from
' the 1988 legislative session made it impracticable for us to conduct the kind of in-depth hearings
necessary to formulating a long-term proposaL
' Even with this limitation we believe that the recommendations in this report will provide a foundation
on which a more permanent solution can be constructed.
' IV. COMMISSION FINDINGS AND RECOMMENDATIONS
The Commission believes that the most immediate transportation needs facing the 1988 legislative
session are:
(1) the restoration of the Minnesota Department of Transportation's highway improvement program
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for I
or the 1988-89 biennium to its level before the August, 1987, project deferrals were announced,
and
(2) the restoration of state public transit assistance at least to its 1986-1987 level.
In both these areas the fundamental issue is one of commitment. The first responsibility of the
legislature in financing transportation should be to avoid retreating on the state's commitment to a
highway system adequate to sustain economic development in Minnesota and a transit system which
provides a basic level of mobility for a substantial portion of the state's people. Both those objectives
have been compromised by recent legislative actions. The reasons for those actions need not be debated
here, but we feel that it is now time for the legislature to resolve, or at least alleviate, the problems
raised by those actions. Only when the cutbacks of recent years in both highways and transit have
been addressed can the legislature begin seriously to restore its full commitment to an adequate
transportation system. -
The magnitude of the cutbacks in the highway development program did not become fully apparent until
August, 1987, when the Department of Transportation announced that 36 highway projects with a total
cost of about $96 million, originally scheduled for contract letting during the 1988-89 biennium, would be
indefinitely postponed. These deferrals were made unavoidable when the 1987 legislature reduced from
. 50% to 5% the share of Motor Vehicle Excise Tax (MVET) revenues going to transportation in this
biennium. This had the effect of reducing the Trunk Highway Fund's share of the MVET revenue from
about 23% to about 2%, requiring a cutback in the highway improvement program. A failure to increase
the share of MVET revenue going to transportation in the 1990-91 biennium beyond the 5% level (a 75%
level was provided in the original MVET transfer legislation) will necessitate another round of project
deferrals, amounting to approximately $150 million, in that biennium as well.
The present level of state assistance to public transit is also characterized by cutbacks which, while ,
perhaps less dramatic than those in the highway area, nonetheless are symptomatic of a declining state
commitment to transit. Appropriations for transit assistance for the 1988-89 biennium were some
$500,000 less than actual state spending for the same purposes in the previous biennium, and some $3
million below the original appropriation for that biennium. This continues a pattern of maintaining state
support for transit at an essentially unchanged level throughout the 1980s, a pattern which when
combined with flat farebox revenue and declining federal aid has made transit throughout the state
increasingly dependent on property taxes to meet rising costs. The opportunity to attract new riders to
transit and to make it more effective in meeting the transportation needs of rapidly-growing areas is
being lost.
At a time when Minnesota is making major efforts to enhance economic development in all parts of the
state a transportation program which is characterized by reductions, delays and uncertainties is clearly
counterproductive. The first step toward making transportation part of the solution instead of part of
the problem must be to take major steps toward restoring the cutbacks of the past year. To help
accomplish this the Commission recommends the following actions:
Recommendation No, 1. The state gasoline tax should be increased by three cents Der z_allon, effective
June 1, 1988,
The gasoline tax has been the foundation of state highway financing for over fifty years, and we
believe it is an essential part of any highway financing package in 1988 as well. The gasoline tax is the
one tax where payments for most taxpayers are most closely related to actual highway use, so that it is
widely viewed not simply as another tax but as part of the overall cost of motoring. As long as the
gasoline tax is dedicated solely to highway purposes it has widespread public acceptance, and we believe
that the public is willing to pay such a tax as the price of improving the highway system to meet the
demands of its users.
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In increasing its gasoline tax (which has been unchanged since January ary 1, 1984) Minnesota would be
following a clear national trend which has seen eighteen states increase their gasoline taxes since
' September 1, 1986. Among these states is Wisconsin, which in 1987 increased its tax to 20 cents per
gallon. We expect that a number of other states will adopt increases in 1988, including possibly Iowa
where the state Transportation Commission has proposed raising that state's 16 cent tax by three cents.
Recommendation No, 2. The share of Motor Vehicle Excise Tax revenues
going to transportation should
be increased from the present 5% to 35%,
As has been noted, many persons who testified before the Commission felt strongly that the excise tax
on motor vehicles is as much of a highway user tax as are the gasoline tax and motor vehicle license
taxes, and should be dedicated to highways just as those taxes are. We believe that this testimony is
representative of a sizeable portion of public opinion. The fact that many people believe that the MVET
was always dedicated to highways, and that the legislature in 1983 took it away from highways and has
refused to give it back, reflects not so much an erroneous view of the legislative history of MVET as a
deep-seated sense that an MVET dedication to highways is fair and equitable.
The Commission agrees with this public sense. Additional funds are needed if transportation is ever to
' become a stimulus for economic development, and the excise tax must be an essential component of a
funding package. We recognize the strong feeling on the part of many members of the legislature that
they cannot accept an increase in the gasoline tax without a substantial increase in the share of MVET
' going to highways.
We further believe that both sound policy and the necessity of public acceptance of any funding package
require that the present division of MVET's transportation share between highways and transit (75% to
' highways, 25% to transit) be retained.
The excise tax is of particular importance as the legislature is faced with proposals to reexamine
highway jurisdiction in Minnesota. Because it is free of constitutional requirements for its distribution
among state and local governments the excise tax is the only potential highway user tax with the
flexibility to finance transfers of highways among jurisdictions.
' The additional 30% transfer would increase the total share of the excise tax going to transportation to
35%. The 30% figure was selected in order to keep the proposal within the realm of feasibility given the
fiscal realities facing the next legislative session and also to provide a rough parity in the total package
' between MVET revenue and gasoline tax revenue. -
Table I shows the anticipated revenue from the Commission's transportation financing proposal. The
trunk highway share will be sufficient eventually to restore all the projects deferred from the current
biennium's highway improvement plan and avoid more than 80% of the probable deferrals in the next
biennium. While this package does not go as far as some of us would like in providing revenue for state
highways we feel that it is the largest highway funding package which can realistically be presented to
the legislature.
The total amount which the package will raise for statewide transit assistance over the next three
' years is about $52.1 million, or an average of $17.4 million per year. It will be up to the legislature to
determine how much of this money will be used to augment present transit appropriations from ti
general fund and how much will be used to replace those general fund appropriations. The Commission
recommends that whatever this decision is, the following financing objectives should be met:
1. The dedication of revenue from driver license fees which was used to supplement transit
appropriations in the 1988-89 biennium should be repealed for fiscal 1989, and that money be
provided from the new MVET revenues going into the transit assistance fund (the dedication is
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scheduled to expire at the end of fiscal 1989). Driver license fee revenue should properly be 111
used to finance the driver licensing system and ought not to be used permanently as a revenue-
raking device. Repeal of this dedication will require about S43 million in MVET funds for
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fiscal 1989.
2. The new MVET money should also be used to provide the additional funds needed to maintain the
Metro Mobility program through the rest of the biennium at its present level of service. The
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increased demand for this service will force it to run out of money before the end of the
biennium unless its appropriation is supplemented or service cut back. The amount which the
Regional Transit Board is presently requesting for the Metro Mobility supplement is S7.2 million.
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These two objectives will require about S11.5 million in fiscal 1989. The Commission hopes that the
legislature will find it possible to use the remainder of the additional MVET revenues going to the
Transit Assistance Fund as supplemental rather than replacement funds, so that the state can make a
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meaningful renewal of its commitment to transit as a vital public service.
While the Commission believes that this program will mark and end to a policy of retreat in the face of
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transportation problems and a start toward a permanent solution, it is by no means a complete plan.
There is a need for a long-range plan to define Minnesota's real transportation needs and to formulate
methods of meeting those needs, including long-term sources of financing. Our final recommendation '
calls for a process for developing such a plan.
Recommendation No. 3. The legislature should create a Transportation Study Board to prepare a long-
range study of transportation needs and funding, ..
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Such a board ought to consist of both legislators and a broad cross-section of the public, including
representatives of business, labor, manufacturing, agriculture, tourism and other major highway users. It
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should be given sufficient time, staff and resources to make a thorough study of transportation needs
both today and over the next twenty year and to develop a plan to meet those needs. Such a plan will
necessarily be a compromise between the desires of all highway users and the ability of the state to
make those desires a reality, but it is hoped that the board's studies will be aimed primarily at achieving
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a transportation system which will be a positive force for encouraging economic development and
expanding public mobility.
Specifically, we recommend that as part of its studies the board should consider: I
L The possible use of tolls for financing major highway improvements.
2. The costs and benefits of further borrowing to finance highway and bridge improvements. I
3. The role of town roads in the state's overall road system and the appropriate level of state I
highway user tax revenue which should go for town roads and bridges.
4. The possible restoration of the Minnesota Department of Transportation's exemption from the
state sales tax, and the exemption from the Motor Vehicle Excise Tax previously enjoyed by
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both Mn/DOT and local units of government.
5. The use of wheelage taxes as a measure for financing local road and street improvements.
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6. The desirability of amending the Minnesota Constitution to provide permanent dedication to
transportation purposes of some portion of MVET revenues.
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7. The abandonment of the present per-gallon basis for the gasoline tax and its replacement by a
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tax indexed to fuel consumption, fuel prices, construction or maintenance costs or some other
variable.
8. The feasibility and desirability of imposing a sales tax on motor fuel, either at the retail or
wholesale IcveL
9. The future of financing major highway improvements through a sharing of the cost between
public agencies and benefited economic development centers.
10. The use of the State Transportation Plan as a mechanism for guiding future transportation
investment.
While the focus of the board's studies would be on transportation it is our intention that it consider
transportation spending within a broader context of overall state spending. The events of recent years
indicate that transportation spending and particularly highway spending, can no longer be considered in
a vacuum apart from other state programs and commitments. The sooner such a broad context is
achieved the more likely it is that the present uncertainties and policy shifts can be replaced by the
funding stability needed to carry out any long-range plan.
REVENUES FROM TRANSPORTATION FINANCE STUDY CCIMISSION RECC MEMOATICNS
1989 1990 1991 1990-91 Biennium
MOTOR VEHICLE EXCISE TAX (ADDITIONAL 30X TRANSFER)
Total NVET revenue 221,800,000 231,559,000 241,748,000 473,307,000
30% of MVET revenue 66,540,000 69,467,700 72,524,400 141,992,100
Transit share 16,635,000 17,366,925 18,131,100 35,498,025
Metro 13,308,000 13,893,540 14,504,880 28,398,420
Man-setro 3,327,000 3,473,385 3,626,220 7,099,605
Highway share 49,905,000 52,100,775 54,393,300 106,494,075 -
Trunk Highway Fund 30,691,575 32,041,977 33,451,880 65,493,856
Co. State-Aid Fund 14,771,880 15,421,829 16,100,417 31,522,246
Counties 14,594,617 15,236,767 15,907,212 31,143,979
To 177,263 185,062 193,205 378,267
Nun. State-Aid Fund 4,441,545 4,636,969 4,841,004 9,477,973
3 CENT GASOLINE TAX INCREASE
Net per penny 20,682,706 20,663,588 20,583,882 41,247,471
Net from 3 cants 62,048,118 61,990,765 61,751,647 123,742,412
Trunk Highway Fund 38,159,592 38,124,320 37,977,263 76,101,583
Co. State-Aid Fund 18,366,243 18,349,266 18,278,488 36,627,754
Counties 18,145,848 18,129,075 18,059,146 36,188,221
Toms 220,395 220,191 219,342 439,533
Nun. State-Aid Fund 5,522,282 5,517,178 5,495,897 11,013,075
TOTAL ADDITIONAL REVENUE
Trunk Highway Fund 68,851,167 70,166,297 71,429,142 141,595,439
Canty State-Aid Fund 33,138,123 33,771,0% 34,378,904 68,150,000
Counties 32,740,465 33,365,843 33,966,357 67,332,200
Tons 397,657 405,253 412,547 817,300
nun. State-Aid Fund 9,963,827 10,154,147 10,336,900 • 20,491,047
Metro Transit 13,308,000 13,893,540 14,504,880 28,398,420
Non-Metro Transit 3,327,000 3,473,385 3,626,220 7,099,605
Total 161,726,240 165,229,560 165,229,560
Sample Resolution
RESOLUTION #
WHEREAS, there is a need for additional funding for highways to preserve
the existing roadways, reconstruct roads as necessary, and complete the
incomplete system of roadways; and
WHEREAS, the 1981 Minnesota State Legislature directed that the motor
vehicle excise tax (MVET) be transferred to Transportation by increasing
increments of 25% percent per biennium beginning with 1984-85 biennium and
ending with the total transfer in the 1990-91 biennium; and
WHEREAS, the 1981 Legislative law directed that of the amounts transferred
to Transportation, 75% go to the Highway Users Tax Distribution Fund (HUTDF) and
25% to the Transit Assistance Fund (TAF) ; and
WHEREAS, the 1983 Legislature, reacting to the State's general fund
shortfall, delayed the MVET transfer to the 1986-87 biennium; and
WHEREAS, the 1984 Legislature modified the schedule by advancing the first
phase of transfer to the year 1985 and was to continue through the 1986-87
biennium; and
WHEREAS, the 1986 Legislature acted to eliminate the transfer of MVET funds
for the 1986-87 biennium; and
WHEREAS, the 1987 Legislature acted to eliminate the transfer of MVET funds
for the 1988-89 biennium; and
WHEREAS, the roadway systems under the jurisdiction of State, County, City
and Township can no longer be maintained to minimal standards utilizing current
funding; and
WHEREAS , the liveability of Minnesota is highly dependent upon its
transportation system of which the roadway system is the major artery; and
WHEREAS, a major portion of the roadway system in the state is over 40
years old and in need of major repairs or reconstruction; and
WHEREAS, the roadway systems will continue to deteriorate at a faster rate
than current funds will provide for future repairs or reconstruction; and
c
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