August 6, 2007

The Tax Argument

Earlier today, I reported on the earmarks from the 2005 federal transportation bill in answer to the argument that Minnesota didn't have the money to properly maintain the St. Anthony Bridge from collapsing as it did last Wednesday. That bill, despite its almost $500 million in earmarks for everything but the I-35W bridge, still provides Minnesota with nearly $3 billion in unearmarked federal funds for transportation, the vast majority of which gets spent on highways.

What about state funds? In the wake of the tragedy, many have called for an increase in the gas tax from its present rate of 20 cents per gallon. That has not changed in 19 years -- but that doesn't mean revenues have remained static. For almost every year after 1988, gas tax revenue increases have been "stellar" -- and in the one year they weren't, an interesting phenomenon kept revenue flat:

But by no longer buying gasoline for his 12-year-old Chevy, Dawson is no longer a contributor through the state gasoline tax to the state highway trust fund. That's the big pot of money that pays for a good share of road and bridge building in Minnesota.

And here's the irony.

Unlike Matt Dawson, most Minnesotans are driving more, not less. So, one would expect gas tax revenues to be higher. But the vehicles are slightly more fuel efficient, and a small but increasing number of them burn fuels that aren't taxed or are taxed at a lower rate.

The result is that in 2005, for the first time in nearly a quarter of a century, Minnesota's gasoline tax revenue declined. Lawmakers can no longer count on year after year of stellar increases in gas tax revenue.

The 20-cent tax had fed fuel-tax revenue increases for many years without raising the tax rate itself. Why? More people moved to Minnesota, and more people drove more miles. Until gas prices started to rise, people had no problem buying gas for their cars. After prices became an issue, people bought more efficient vehicles and bought fewer gallons of gasoline. In other words, higher prices led to less fuel bought. What do gas-tax increase advocates think will happen when the state artificially increases prices again?

In any case, the numbers remained well over $600 million per year in revenue, or almost as much as the federal highway funds, after a 46% increase in the latter over the last six-year period. But that's not the only source for highway funds here in Minnesota. City and county governments spend their property-tax revenues on streets and highways.

Even more significantly, vehicle registration fees go to highways as well. In FY2006, that accounted for $484 million in revenue. According to the Minnesota legislature, 31% of that goes to highways, 23% to transit alternatives -- and 46% goes to the general fund. That adds roughly $150 million to the state's highway funding, which in 2006 meant around $780 million, apart from the federal funds available.

But wait -- there's more! A percentage of motor vehicle sales taxes also go to highway funds. In the last three years, that has mean an additional $500 million. Adding the 2006 portion to the other funding, we now have about $940 million in state revenues going to highways in that year. After this year, though, the percentage of MVST revenues for highway funding changes ... by going up. Instead of 30%, it will go up to 38% in 2007, 46% in 2008, and beginning in 2012, 60%.

Between state and federal tax revenues, MnDOT had around $1.6 billion dollars, some of it earmarked, for highways in FY 2006, and probably has more this year. That could have paid for at least three new bridges to replace the St Anthony Bridge, if necessary, just in 2006 alone.

I'd say the notion that we don't collect enough revenue to make our bridges safe is at least premature.

Addendum: Oh, and let's not forget that we have a $2 billion surplus over the next three years. Why not use that instead of a tax increase? We're already overcollecting as it is.

UPDATE: Here's a chart showing the budget for MnDOT since 2000:


This comes from the state's budget report, drafted last November. This clearly shows trendlines that confirm increased budgeting for MnDOT, and an annual budget of around $2 billion in 2006 and projected at the same level for the next several years. Except for 2003 when Minnesota had a spike in its Trunk Highway funds, that represents a steady funding level for the last few years.

That doesn't prove we don't need more -- but before we start talking about new taxes, let's find out whether additional funds would have prevented the bridge collapse and where the money MnDOT gets now goes.

UPDATE II: In the next budget, transportation gets over $3 billion for two years in state funds (not including the $1.4 billion from the federal transportation bill), and comprises 8.7% of all state spending. It's the third largest category, with Health and Human Services (38.4%) and K-12 education (27.4%) being the only functions with larger shares of the state budget. Public safety only gets 3.9%.


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Comments (15)

Posted by starfleet_dude | August 6, 2007 6:05 PM

Ed, here's a blast from the past that points out how revenues have failed to keep pace with Minnesota's transportation needs:

Highway Spending - Office of the Legislative Auditor, State of Minnesota
By some accounts, highway infrastructure in Minnesota is in tough shape. Transportation spending has been the slowest growing category of state and local government spending over the last 20 or so years. Since 1972, transportation spending in Minnesota has shrunk from 13 to 8 percent of state and local government spending. Meanwhile, traffic on Minnesota's roads has increased about 80 percent. Some concerned groups also point to national data showing Minnesota's trunk highways to be in much worse condition than the national average. However, data also indicate that state and local governments in Minnesota generally spend about 40 to 60 percent more per capita on highways than the national average. ...

Being a farm state that requires an extensive rural road network, it's not surprising that Minnesota's per capita spending on highways is higher than the national average.

FWIW, I know the report above is ten years old, but nothing has really changed in terms of the increasing backlog of needed road and bridge repairs.

Posted by docjim505 | August 6, 2007 6:31 PM


And Minnesota's response to the deplorable condition of its highways?

Bike paths!

Hundreds of millions of dollars available from taxes collected at the local, state and national level, and it isn't enough??? What the hell ARE they spending the money on in Minnesota? Perhaps if they weren't spending 23% of the money they collect for vehicle fees on "transit alternatives" (whatever those are) and putting another 46% into the general fund (i.e. pork barrel), they'd have money to pay for what the fees are designed to fund in the first place, i.e. roads and bridges.

I also chuckle over the idea that "going green" is costing the state money. Didn't this happen recently in California? Didn't state legislators suddenly realize that the fuel efficient cars they'd been urging meant people were buying less gas which meant less tax revenue which meant less pork barrel?


This is almost enough to make me go green (not that my little Honda isn't pretty green anyway...): I get to save money on gasoline AND keep a little bit of tax revenue out of the greasy clutches of my elected leaders. SUH-WEET!

Posted by Ray | August 6, 2007 7:02 PM

One of the reasons for a decrease in highway expenditures since 1972 is the after-effect of the large highway and freeway construction projects that occurred in the 50's, 60's, and 70's. There were tens of thousands of miles of new roads built in that thirty year period all across the state and after that construction was completed, the amount of spending needed for construction was greatly reduced. Since it is much cheaper to maintain the existing infrastructure than it is to build new roads and bridges, there will be a corresponding decrease in expenditures in later years.

That's not to say that some roads do not need work, they do as this is Minnesota and the climate is harsh, but you can't just compare the levels of expenditures in the past with expenditures today and say that we are neglecting our infrastructure. It's a lot more complicated than that.

Posted by KauaiBoy1960 | August 6, 2007 7:05 PM

As a child growing up in the last century, I distinctly remember being promised jetpacks and aircars as the transportation of the future. It is long past time for them to start spending on this so I can enjoy it in my lifetime. This way there won't be any need for silly infrastructure like bridges, tunnels and highways. Think of the boon for the insurance industry.

Posted by akabaseball | August 6, 2007 7:07 PM

We have a problem with safe bridges, and Alaska got Big Fed Bucks in pork for a shinny Bridge to no-where. Thanks to no term limits in 2 branches of our government. The problem aint the white house.

Posted by Rose | August 6, 2007 7:09 PM

When they have enough taxes to spend money teaching San Fransiscans how to have homosexual sex (not a SAFE SEX CLASS), fund NEA, ACLU, Planned Parenthood, illegal alien ENTITLEMENT programs, to fight crime resulting from NOT PROSECUTING ILLEGAL ALIEN SMUGGLARS WITH LESS than 500 lbs of MJ, and the UN, but not BRIDGE REPAIRS, that isn't a TAX FUNDING problem.

Is there a law about waterboarding POLITICIANS?

Posted by Rose | August 6, 2007 7:15 PM

And Minnesota's response to the deplorable condition of its highways?

Bike paths!

Hundreds of millions of dollars available from taxes collected at the local, state and national level, and it isn't enough??? What the hell ARE they spending the money on in Minnesota? Perhaps if they weren't spending 23% of the money they collect for vehicle fees on "transit alternatives" (whatever those are) and putting another 46% into the general fund (i.e. pork barrel), they'd have money to pay for what the fees are designed to fund in the first place, i.e. roads and bridges.
Posted by: docjim505 at August 6, 2007 6:31 PM


They get approval for gas taxes for highways, then divert to all their pet pork projects, and then want to hike transportation fees and taxes again.


Posted by patrick neid | August 6, 2007 8:12 PM

thanks capt for putting in black and white what many of us have been saying all along. money is never the problem. the problem has always been in its management. the problem persists in virtually all state and federal agencies.

there is no accountability---that's why earmarks exist.

Posted by Ray | August 6, 2007 9:00 PM

Over the last few days I have witnessed several people making statements that Minnesota is neglecting it's transportation infrastructure and I must admit, I am perplexed.

Every year there are various projects to maintain and improve the transportation infrastructure in this state. We have spent tens of billions of dollars on maintenance and improvements in the state over the last 20 years alone yet we are accused of neglecting our transportation system to the point where it is becoming dangerous.

For example, here in the Twin Cities there are several major maintenance and expansion projects occurring simultaneously. In the last ten years there has been several bridges replaced, like the Lake Street Bridge, or repaired, like the Mendota Bridge, and several expansions of existing highways and freeways all over the area and yet I am told that the infrastructure is deteriorating badly and we are not providing enough funds to keep up.

I have to wonder where those who claim that our infrastructure is deteriorating badly are getting their information (or if they even live in this state) as someone is greatly mistaken about Minnesota and our commitment to the needs of our citizens and our continual attention to our infrastructures.

Posted by rockdalian | August 6, 2007 9:16 PM

Just a note about funding, I didn't see listed the road use taxes paid by every out of state semi. I am sure this would be a large sum.

Posted by jaeger51 | August 6, 2007 9:18 PM

Yep, standard politico babble. They never have any money for what the people want, so they need more. However, there's always money for useless, if not harmful, social programs. And they never, ever grasp that raising taxes on something makes people use less of it, while lowering taxes makes people use more of it, raising revenues. That's cause they all took multicultural studies instead of economics in college. How did all these tiny brained wipers of other people's bottoms end up making the decisions on how our money is spent, anyway?

Posted by Loren | August 6, 2007 11:32 PM

Bridges repaired/replaced in my 19 years in the twin cities, just off the top of my head, may be more. Marshall-Lake street. 46th-Ford Ave. Mendota bridge. High Bridge. Wabasha Ave. Bridge, Robert Street Bridge. Bloomington Ferry Bridge.

Posted by Hugh Beaumont | August 7, 2007 1:18 AM


Posted by Loren | August 7, 2007 11:00 AM

Additional Bridges replaced of significantly remediated that have come to mind:

I35E over the Missisippi, I494 over the Missisippi (in progress), I94 over the St. Croix to WI. Selby Street over Ayd Mill railroad tracks.

Posted by Tommy Irvin | August 9, 2007 9:40 AM

I hope all that took time to comment sent a copy to your U.S. and state representatives.

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