The streets in the City of Duluth, and the poor condition of many of these streets, has been an issue for decades. Many past administrations kicked the can down the road, especially when the city lost funding through the casino a few years back. That being said, there has never been much imagination used to create a funding source for fixing many of our streets that are in very poor condition.
You don’t have to drive very far, and can do so in just about any neighborhood of this city, and find that our streets are simply not maintained to the quality deserved by citizens that live in the highest taxed city in the state. Additionally, we need a program that doesn’t just simply increase taxes on current residents.
The current administration is recommending a tax increase and is lobbying the legislature to approve this tax. The administration will also tout this as a “voter approved” tax increase. This technically is true. The majority of people that voted did in fact vote to increase this tax that would be applied to the street program. The issue is that only 17% of registered Duluth voters actually went to the polls! Do we want a tax increase based on a majority of only 17% of registered voters? And, this program does not address all the vehicles that use our city streets.
Watch for more to come on this issue as to other funding sources and a fairer way of providing funding to the streets program, without raising your taxes.
Gas Tax Doesn’t Fit the Bill
The governor is proposing an additional gas tax increases to include all areas of transportation revenues streams the state receives, i.e. gas tax at the pump (20 cents proposed; 5 cents every 6 months for two years), motor vehicle registration, title transfers and general sales tax on vehicle purchases. The City is requesting to collect a half-cent general sales tax dedicated to road maintenance plus the county already has a half-cent sales tax of their own. Over the next two year, driving could be well on it way to becoming unaffordable for the average citizen. This is especially true considering that world market price for oil by the barrel and the aging gas production facilities actually dominate the delivery price of gas to the pump before taxes.
In a nutshell here is the issue. Gas supply is up. Gas consumption is down and expected to continue to decline for the foreseeable future. And by the way that was a government’s plan. Why? Because the U.S. wants to become less dependent on foreign oil. Thus, new CAFÉ Standards were developed and implemented, more fuel-efficient cars are being sold, electric cars and duel fuel cars are beginning to capture market share. The results: less gas is being consumed. But because road and bridge maintenance revenues are generated base on a ‘per gallon’ of gas consumed, the state revenue in the form of gas taxes are declining. The challenge: the cost of road construction and maintenance continues to rise. Less money means fewer projects can be completed each year.
So maybe it’s time to ask the questions: is there a better way to solve revenue shortage than the same old process of just raising taxes; are there options available that would use existing money more efficiently; or if gas does not fuel vehicles in the future how will we pay for road maintenance?
Changing the formulas – Distribution of funds
In today’s world ‘gas taxes’ may be collected by every existing unit of government. That said, this discussion is limited to the state of Minnesota and the city of Duluth. And like every topic the devil is in the details.
Minnesota’s current gas tax is 28.5 cents per gallon. The last change in the law was 2008. Total gas tax collected is distributed 62% to the state (for distribution to state projects, projects that counties do for the state, and bridge projects on state roads), 29% goes to counties and 8% goes to cities.
Could the city be helped if this formula were changed? Say for example if the formula was 54/33/12? Of course! At 12% the city of Duluth would receive an increase of state funding equal to half again what they receive now. And if more money were the only objective of the city’s fathers then changing this formula could help.
Not only does the state dictate how the money is divided, but they also set the rules on how the money is to be spent. Perhaps the real question is: should we be rethinking how we use the money between new construction and just resurfacing? Approximately two-thirds of the money spent on road work goes to new construction. The approximate cost per mile of new construction is $1.5 to $1.7 million per mile while resurfacing (or Layover) get one third but is considerably less expensive at around 7 to $800,000 per mile. Thus, just a small shift in this usage formula could change the number of miles repaired per year significantly. Example: $100 million in revenue received divided by the formula would provide for about 86.5 miles of upgrades. But if the formula was adjusted to 50/50 that would generate 93.75 miles per $100 million.
Across the U.S., road construction is expected to provide a useful road life of approximately 50 years. The further south one goes the longer the road can be useful beyond the expected life. But in Minnesota, especially Northern MN, 10-15 years is more likely the life before some or considerable maintenance is necessary. Just think about the bricks on Superior Street for example.
Adjusting either of both formulas even slightly could make a big difference in the money received and street maintenance achievable with these limited resources.
Taxes is the tradition
Taxing a gallon of gas has long been accepted as the fairest way to generate money to pay for infrastructure (roads). After all, a gas tax is a user fee. If you drive you need gas and gas tax is ‘pay to play’ fee. But looking ahead consumption is not the future standard/measure that can support the massive road system currently in place by itself.
Several years ago St Louis County imposed a ‘Sales Tax’ dedicated to roads. Duluth does not share in these revenues. Now Duluth wants a sales tax dedicated to roads of its own. But Duluth already has a ‘sales tax’ to supplement the General Fund and the city has a history of having trouble keep its hands off of dedicated funding streams. Maybe a dedicated sales tax is not the answer.
Options to a Sales Tax
In the last transportation funding bill in 2008, local governments were allow the option of assessing a ‘wheelage tax.’ Local governments could add a tax to the vehicle registration based on the number of wheels on the vehicle. If your address was Duluth and you owned a vehicle you would be subjected to the tax. The advantage is that the City Council controls revenue to be collected and budgets determine the actual amount of tax to be collected each year. If local control is the goal ‘wheelage tax’ should be considered.
Both gas and sales taxes are considered user taxes. But not everyone that uses the roads help pays for the road maintenance. Take Schwans Ice Cream trucks, for example, they run on propane and not just one or two trucks but the whole fleet and electric cars don’t pay gas tax. If we continue to believe that if you use the roads then you should help maintain them, then lets get serious about a ‘mileage tax.’ Do away with the state gas tax and replace it with a ‘mileage’ tax. The more one drives the higher the tax. This is not a new concept. The issue has been how to measure the mileage and collect. Solving this problem in the past was to look to the federal government for an answer. But what if states were allowed to set up their own system and keep the Federal Gas tax in place.
One benefit is the price of gas at the pump could drop. Individuals could control their expense by adjusting their driving habits. The bill would be paid with the use of monthly deposits. Each year at tax time or in January a consolidation report would be file using the odometer reading to confirm the accurate reading. Legislature would set the tax rate as it does now.
When discussing taxes, citizens are more concerned about fairness than the revenue generated while governments is concerned about quantity.