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In 2015, legislatures in four Midwest states boosted funding for roads

by Tim Anderson ~ December 2015 ~ Stateline Midwest »
Four state legislatures in the Midwest made major moves on transportation policy this year, adopting increases in motor fuel taxes that in some cases had been left unchanged for more than a decade.
This decision to boost funding for roads and bridges was one of the region’s more notable legislative trends from the past year. Several factors, transportation experts say, caused 2015 to be a breakthrough year for transportation measures — lower gas prices, growing shortfalls in state transportation funds, gubernatorial and legislative leadership, and the support of key business groups.
In this region, the tax hikes on gasoline and diesel fuel have already taken full effect in Iowa and South Dakota. Nebraska’s four year, phase-in plan begins in January, while in Michigan, the state’s new transportation plan won’t be fully implemented until 2021.
Michigan taps mix of sources, including general fund
In recent years, various alternative funding mechanisms have been proposed for states to increase road funding and to reduce their reliance on a per-gallon gasoline tax. (As cars become more fuel-efficient and people drive less, this tax brings in less revenue.) Ideas have included use of a general sales tax, a wholesale sales tax on gasoline or a charge based on vehicle miles traveled.
But at least in 2015, the Midwest’s state legislatures largely stuck to traditional revenue sources: raising the excise tax on motor fuels and increasing registration fees.
One exception, though, was Michigan.
Once fully implemented, the state’s recently enacted transportation plan will bring in an additional $1.2 billion for road and bridge projects, and about half of that new money will come from the state’s general fund.
Under the legislative package signed into law, general-fund dollars will begin to be used for transportation projects starting in fiscal year 2019, at $150 million a year and then gradually increasing to $600 million by 2021.
The Legislature also increased vehicle registration fees by 20 percent (from $100 to $120, starting in 2017) and created an annual surcharge on hybrid and electric vehicles (ranging from $30 to $200). Two years from now, Michigan’s tax on all motor fuels will be raised to 26.3 cents per gallon. Then, in 2022, that tax rate will be adjusted annually based on changes in inflation.
According to the Urban Institute’s Tax Policy Center, only two other U.S. states were indexing gas tax rates as of 2014 (Florida and Maryland).
In contrast to Michigan’s multi-year implementation of a new transportation funding plan, Iowa’s SF 257 took effect even before this year’s Legislature adjourned. As a result, motorists are already paying an additional 10 cents per gallon in taxes at the pump (the tax rate was raised to 31 cents for gasoline and 22.5 cents for diesel). This change is estimated to bring in an additional $215 million every year for city, county and state roads.
Prior to this year, Iowa’s gas tax had last been changed in 1989.
South Dakota hadn’t adjusted its per-gallon rate since 1999, and because of language in its state Constitution, a two-thirds vote was needed for any increase in the gas tax.
Near the end of the 2015 session, though, enough legislators backed legislation (SB 1) to increase the per-gallon tax on motor fuels by 6 cents (it became effective earlier this year) and to increase vehicle license-plate fees by 20 percent. The Legislature also increased the excise tax on vehicle purchases, from 3 percent to 4 percent.
Nebraska legislators override veto to increase funding for roads
In Michigan, Iowa and South Dakota, all three governors supported these increases in gas taxes. But that was not the case in Nebraska, where the Legislature had to override a gubernatorial veto.
Supporters of LB 610 mustered just enough votes to get it enacted into law. As a result, the state will gradually increase motor fuel tax rates over the next four years — one-half cent per gallon annually for state roads and one cent annually for city and county roads. The tax rates begin to increase at the start of 2016.
Nebraska’s per-gallon tax will eventually increase from 10.3 cents to 16.3 cents per gallon. In addition, the state levies a wholesale sales tax on gasoline (currently 13.5 cents per gallon).
There was also a big breakthrough in 2015 in federal transportation policy. In December, President Obama signed the Fixing America’s Surface Transportation Act, a five-year, $305 billion bill paid for with a combination of gas tax revenue and $70 billion in offsets from other areas of the federal budget. The federal gas tax is 18.4 cents per gallon; it was last raised in 1993.