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A substantive Senate package is parked in the Tax Committee, and a “lights-on” measure passed off the House floor on a bipartisan vote.
(Published Apr 26, 2013)
Despite steady pressure from transportation advocates, including the business community and local government groups, passage of a comprehensive transportation funding package in 2013 appears in doubt. A Senate package containing new investments in roads and transit statewide was laid over indefinitely in the Senate Taxes Committee; meanwhile, the full House passed a bare-bones measure that keeps funding at current levels.
Senate Action Stalled
Earlier this month the Senate Transportation and Public Safety Committee abandoned a “lights-on” bill and on April 19 passed a package containing substantial increases in transportation funding. By all accounts, the new bill, SF 1173 (Sen. Scott Dibble, DFL-Minneapolis), is a comprehensive transportation funding package that includes significant new revenue for highways and transit statewide. It was then heard on April 19 in the Senate Finance Committee, which passed it on to the Senate Taxes Committee. The Taxes Committee on April 22 laid it over for further discussion.
The package includes a new funding concept—a sales tax at the fuel distributor level—that was suggested by transportation advocates, including the Minnesota Transportation Alliance. Proponents of the distributor tax argue that gas tax revenues are declining and any increase in the per-gallon tax would not only fail to keep up with inflation, but would decline as fuel consumption is projected to decrease. An increase in fuel efficiency and the advent of more all-electric vehicles will mean the gas tax won’t generate the revenue previously projected. In 2008, a 1-cent increase in the fuel tax raised $32 million annually. Today, a 1-cent increase in the fuel tax generates $29 million annually.
A 5-cent increase in the current fuel tax would generate about $145 million per year. With the constitutionally required distribution of 62 percent to the Trunk Highway Fund, 29 percent to the County State Aid Fund and 9 percent to the Municipal State Aid (MSA) Fund, that means about $85 million per year for state highways and bridges, $40 million for all 87 counties, and about $12 million for all MSA cities with a 5-cent increase in the tax.
The proposal developed by the Senate Transportation and Public Safety Division would decrease the current 25-cent-per-gallon fuel tax by 6 cents per gallon, and replace that tax with a 5.5 percent gross receipts tax on distributors. Due to the fact that the tax is a percentage of the price, the revenue will increase automatically as the price increases. There is more volatility with this revenue source as prices fluctuate, the base 20 cents per gallon plus the 3.5-cent-per-gallon fuel surcharge will remain in place and will provide more stability.
The estimates are that this proposal will generate an additional $230 million in fiscal year (FY) 2015, the first full year of collections, and that estimate grows in the future.
The division has determined that this fuel tax fits the constitutional dedication requiring revenue from a tax on fuel to be deposited in the Highway User Tax Distribution Fund, so the money will have to be used for a highway purpose as is currently done with the per-gallon fuel tax.
The Senate bill also includes an increase in the metropolitan area sales tax for transit of a half-cent for the counties currently collecting the one-quarter-cent sales tax for transit, and an increase of three-quarters of a cent for Scott and Carver counties, so the total sales tax rate for transit will be three-quarters of a cent throughout the seven-county metro area.
The bill includes the expansion of the wheelage tax to all 87 counties at a rate of $10 per vehicle rather than the current $5 per vehicle, and removes the requirement that counties in Greater Minnesota hold a referendum vote prior to imposing a local option sales tax for transportation purposes.
The Senate proposal also increases funding for Greater Minnesota transit by providing an increase in general fund dollars and by equalizing the sales tax on leased and purchased motor vehicles. Currently, the sales tax rate on the purchase of an automobile is 6.5 percent, but on a leased motor vehicle, the sales tax rate is 6.875 percent. The proposal makes the rate consistent at 6.875 percent. The Minnesota Constitution requires that all motor vehicle sales tax revenue be divided 60/40 between highway and transit purposes, and state statute had split the 40 percent for transit with 36 percent for metro transit and 4 percent for Greater Minnesota transit. The new proposal makes the transit split 35 percent for metro transit and 5 percent for Greater Minnesota transit.
Summary of proposal:
• New gross receipts tax on fuel distributors—provides additional $185.7 million for state road construction in FY 2014-15 biennium.
• Equalization of motor vehicle sales tax (MVST) between leased and purchased vehicles—increases funds for Trunk Highway Fund, county state aid highways (CSAH), municipal state aid streets (MSAS), townships, and transit systems statewide.
• Increase of a half cent in metropolitan area sales tax for transit in the five counties currently levying the one-quarter-cent tax and three-quarters of a cent in Carver and Scott counties.
• Increase in general funds for Greater Minnesota transit, and change in MVST distribution for transit from a 36/4 split between metro and Greater Minnesota to 35/5 split between metro and Greater Minnesota.
• Increase in funding for CSAH, MSAS, and township road and bridge funds through the gross receipts tax on fuel, and increase in MVST for FY 2014-15 biennium:
CSAH: +$98.5 million
MSAS: +$30.5 million
• Expands authority for the wheelage tax to all 87 counties at a $10 annual rate until 2017. After 2017 counties can charge up to $20 per vehicle.
• Removes the referendum requirement for the local option sales tax allowed under chapter 152 in Greater Minnesota and expands the use to transit operations as well as capital.
• Allows cities to create municipal street maintenance districts.
• Creates and funds the Corridors of Commerce program. This program gives priority for the new funding to improving segments that are two-lane segments in an otherwise four-lane corridor.
• Provides new language for the Transportation Economic Development program and provides $20 million for the biennium in trunk highway funds.
House Passes Lights-On Measure
Described by its author, House Transportation Finance Chair Rep. Frank Hornstein (DFL-Minneapolis), as a bill that is “the beginning of an urgent conversation” the House on April 24 passed an omnibus transportation finance package that proposes to spend nearly $2 billion on road and bridge construction across the state; however it does not include an increase to the statewide gasoline tax or new transit-dedicated metro area sales taxes.
HF1444 proposes to spend $1.7 billion on road and bridge construction over the next biennium, increase spending on Greater Minnesota transit by $11.6 million and establish the framework for a program to identify and improve critical commercial corridors across the state. The bill passed the House on a bipartisan vote of 101-30.
Gov. Mark Dayton’s stated firm opposition to increasing the state’s gas tax led to the scaled-back bill that lawmakers passed.
Other proposed measures in the bill include:
• the establishment of a “Safe Routes to School” program;
• an increase in the driver’s license filing fee;
• the establishment of — but not funding for — a “Corridors of Commerce” program to highlight commercial thoroughfares badly in need of improvements;
• added State Capitol Complex security staffing through the State Patrol; and
• required periodic review of MnDOT-owned property for potential sale.
Tax measures that included authorizing Greater Minnesota counties to implement optional transit-dedicated sales taxes and new wheelage taxes were passed Wednesday as part of the omnibus tax bill.
Since the House bill has passed off the floor, it will be sent to the Senate. Procedurally, the Senate is likely to refer the measure to Taxes, where the Senate version is currently sitting. The Senate Tax Committee will then amend the House bill with Senate language (or an amended version of it), and send it to the Senate floor for debate. If the measure passes off the Senate floor, a conference committee will be appointed to work out differences between the House and Senate versions of the bill.
Transportation advocates are hopeful that the idea of making new investments in transportation will gain momentum in the days ahead, both within the legislature and with the governor.
Questions? Contact Anne Finn at email@example.com or at (651) 281-1263.
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