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Midwest states continue debating, enacting gas tax hikes for roads

by Jon Davis ~ June/July 2017 ~ Stateline Midwest »
Stuck between the reluctance to raise taxes and the omnipresent need to fix transportation systems, legislators and governors may well feel the frustration of drivers caught in traffic.
In Wisconsin, for example, Gov. Scott Walker and Assembly and Senate Republicans have been at odds over how to close an almost $1 billion deficit in transportation spending. Walker’s initial $6.1 billion transportation budget, unveiled earlier this year, included a $40 million increase in general transportation aid to local governments and $500 million in borrowing.
In early May, Assembly Republicans proposed raising gasoline taxes to pay for roads while significantly cutting income taxes over the course of a decade, moving from the state’s progressive income tax to a 3.95 percent “flat tax.” Their plan includes new fees on hybrid ($30) and electric vehicles ($125) and the elimination of tax credits aimed at homeowners. It also would cut the existing 30.9-cent per-gallon fuel tax by 4.8 cents while applying the 5 percent state sales tax to fuel purchases.
The Legislative Fiscal Bureau estimated those changes would increase revenue by about $380 million over the next two years, most of which would be used to reduce the borrowing that Walker proposes (from $500 million to $200 million) and to eliminate a transfer of funding from the general fund to the transportation fund.
Gov. Walker rejected the plan’s new sales tax on gasoline, saying it amounts to a new gas tax, but has indicated that he’s open to the tolling of interstates (another proposal from Assembly leaders), if such a plan brings in revenue from out-of-state drivers and is linked to a reduction in the gas tax.
A budget all sides can accept remained elusive as of mid-June. Absent a budget in place before the state’s new fiscal year began on July 1, funding would continue at current levels until one is approved.
Biting the gas tax bullet
Since 2012, six Midwestern states — Indiana, Iowa, Michigan, Nebraska, North Dakota and South Dakota — have raised gas taxes to provide additional transportation funding. Collectively, half of all U.S. states have enacted transportation funding packages since 2012 to make up for the erosion of gas tax revenues by inflation, says Joung Lee, policy director at the American Association of State Highway and Transportation Officials.
“I think there is some recognition in terms of doing something about that purchasing-power loss,” he says.
Passage of Indiana’s HB 1002 in April will raise an estimated $854 million annually by increasing fuel taxes by 10 cents per gallon and indexing rates to inflation (increases are limited to 1 cent per gallon per year).
Indiana’s new law also increases the car registration fee by $15, adds a $15 registration surcharge on large trucks, creates a $150 registration fee on electric vehicles ($50 for hybrids), and dedicates the state sales tax on fuel to highway funds rather than the general fund.
Under the measure, lawmakers repealed a statutory restriction on tolling and directed the Indiana Department of Transportation to seek a federal waiver to allow tolling on interstate highways — although there is no assurance that one would be available, or granted.
In a special session last month to finish budgetary matters, Minnesota legislators passed a nearly $6 billion funding package (HF 3) for transportation. Signed into law by Gov. Mark Dayton on May 30, it dedicates about $300 million in general fund dollars to transportation. Opponents argued this takes money from other needs, and that the state should instead provide a dedicated source of funding, such as an increase in the gas tax or license plate fees.
Under a legislative package signed into law by Michigan Gov. Rick Snyder in November 2015, the state will begin using general fund dollars for transportation projects starting in fiscal year 2019, at $150 million a year and gradually increasing to $600 million by 2021.
That package also increased vehicle registration fees from $100 to $120 starting this year, created an annual surcharge on hybrid and electric vehicles (ranging from $30 to $200), and raised the motor fuels tax to 26.3 cents per gallon starting this year. In 2022, that tax rate will be indexed to inflation. Once fully implemented, the package will bring in an additional $1.2 billion for road and bridge projects. Also in 2015: