Friday, May 4, 2012

Between a Rock and a Hard Place: Funding for Local Roads in Minnesota

Many states, including Michigan, North Dakota and South Dakota are doing what used to be unthinkable—tearing up portions of paved roads and replacing them with gravel. South Dakota has been the most aggressive at turning paved roads to gravel, where approximately 120 miles have already undergone the change. Michigan is not far behind—approximately 100 miles have been converted with the possibility of 100 more in the near future. Funding for local roads is reaching a turning point as tax revenue has not kept pace with the rising cost of maintenance.  Minnesota has been spared so far, but many County budgets are being squeezed so that gravel roads are becoming an option.

What is happening that municipalities can no longer maintain roads to the level they once could? Minnesota roads are funded by four major sources—a state gas tax, a tax on the sale of cars, vehicle registration fees and federal funds. Revenue from motor vehicle sales tax, or MVST, has been declining, with a large drop between 2008 and 2009 when the nation was experiencing a large recession. The other major funding source for Minnesota roads is a sales tax on motor fuel that was raised from 20 cents per gallon to 28.5 cents in 2008. [see this table for a state by state comparison] According to the Metropolitan Council, more revenue is expected to come in as a result of the tax increase, but the tax is becoming a less stable source of revenue. In fact, they estimate that the 43% increase in the tax will only bring in 34% more revenue—partially due to the shift to more fuel efficient cars.

To make matters worse, several factors have combined to make the maintenance of roads more expensive. The cost of asphalt has risen dramatically recently. The increasing weight of farm equipment is also raising the maintenance cost of roads in rural areas.

Municipalities have responded in several ways. As mentioned above, gravel roads can save a lot of money . An Indiana engineer estimates that it costs $22,000 per mile to build and maintain a gravel road compared to $25,000 per mile for a paved road. Cost savings are even more dramatic if paved roads deteriorate to the point where major rehabilitation is needed to bring it back to like-new condition. A North Dakota engineer estimates the cost per mile per year of rehabilitating a paved road at approximately $31,300—the cost per mile per year of converting a paved road to gravel and then maintaining that road is approximately $1,700. 

Some counties have considered closing roads altogether. A recent report from the University of Kansas considered the costs and benefits of closing certain low volume roads. The report concludes that counties with relatively more roads while also having a relatively higher population density could see benefits from strategic road closure.

A particularly clever strategy for reducing the amount of roads to maintain is to hand over responsibility for maintenance down to a lower level of government, commonly called a “turnback.” Three such instances have been identified in Scott County, Minnesota in 2012 alone. In one case, responsibility for maintaining approximately two miles of road was given from the State to Scott County. The State must pay for a one-time rehabilitation as part of the turnback agreement, but after that rehabilitation is complete the State has fewer roads to maintain. The turnback process appears to mainly take place as a practical consequence of road construction and not a general strategy to push the cost of maintenance onto another government, but it remains a possible outcome as traffic levels decline and roads increasingly serve local purposes.

It may be that either converting paved roads to gravel or reducing the numbers of roads altogether is what realistically needs to happen. That certainly doesn't make it easy. It is clear that a transportation funding is in something of a crisis right now. Finding more adequate sources of revenue to meet the challenges of today’s economy should be an important part of any state or national solution.

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