State Aid for Local Transportation

My report focuses on Minnesota’s Highway User Tax Distribution Fund (HUTDF), established in 1956 to build and maintain bridges and roads in Minnesota. The HUTDF gathers revenues from the Motor Fuel Excise Tax, Motor Vehicle Registration Tax, and Motor Vehicle Sales Tax (Transportation Funds Forecast). Minnesota State Aid for Local Transportation (SALT), a division of the Minnesota Department of Transportation (MnDOT) was established to administer funding from HUTDF through the County State Aid Highway (CSAH) and Municipal State Aid Street (MSAS) portions of the Fund (State Aid for Local Transportation). Funds are allocated to Minnesota counties and cities, which use it to assist with construction and maintenance of local highways and streets.

The Minnesota Legislature established a formula to distribute funds from the HUTDF, dividing revenues between the Trunk Highway Fund, County State Aid Fund and Municipal State Aid Street Fund. The 2012 forecast for total revenue of the HUTDF was $1.79 billion, with a 2013 forecast of $1.83 billion. Of the total revenue in the HUTDF, 95% is allocated through the following formula: 62% is allocated for trunk highways, 29% is allocated to the CSAH, and 9% is allocated to the MSAS. The remaining 5% is allocated to the CSAH. The Trunk High Fund receives revenues from various sources with approximately 62% coming from the HUTDF, 34% from federal aid agreements and 4% from other sources like investments (State Aid)

In recent years, the revenue sources for the HUTDF have been falling short of expenses. The State Legislature has been working to find a compromise on a gas tax increase, but the idea faces staunch opposition. Senator Dibble has championed a 7.5-cent gas tax increase that would raise $216 million annually for state and local highway improvements, in addition to a half-cent sales tax increase in the 7-county metro area that would raise $226 million annually (Star Tribune). This week the Senate passed a 5-cent gas tax increase that will now go to the House (MPR News)

As a comparison to Minnesota’s Highway User Tax Distribution Fund, I examine how state aid is allocated for local transportation in Iowa. The state of Iowa established the Road Use Tax Fund (RUTF) in 1949 to provide a sustained source of funding for Iowa’s primary, secondary, and municipal roadways (Iowa High Finance). The RUTF gathers revenue from several sources, with the primary sources being the Fuel Tax, Fees for New Registration, Motor Vehicle Registration Fees, and Motor Carrier Registration Fees (Revenue Forecast). The Iowa legislature established another funding stream for maintenance and construction of certain primary highways in 2008 called Time-21. It came as a response to an estimated $267 million annual shortfall that would have negatively impacted the state’s ability to maintain and improve roadways.

It is clear from this analysis that state highway systems require a considerable amount of funding resources to be maintained and improved over time. While traditional taxes and fees have supported highway system costs, both Minnesota and Iowa have seen huge budget shortfalls in recent years and need to create new funding streams to support primary, county and local roads.