Fixed-price gas tax leaves state roads in bad shape

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It seems as if nearly every kind of tax increase under the Minnesota sun — save for one — has been under consideration at some point during the legislative session that will run out of constitutional gas on May 22.

What's been avoided? It's the venerable state tax on gasoline — the one that's approaching a milestone birthday.

Next year marks a 100th anniversary for Minnesota's per-gallon gas tax, which since 2008 has clocked in at 28.5 cents per gallon. In 1924, voters enthusiastically — well, in big numbers anyway — amended the Minnesota Constitution to require that all gasoline tax proceeds be directed to the trunk highway fund. There, the funds could be spent on roads, bridges, and nothing else.

Were 60% of 1924 voters saying "Let us pay more at the pump, please!"? Not likely. My reading of old newspapers suggests that the gas tax may have been no more popular then than it is today.

What was popular was the idea that a tax related to driving should accrue to the benefit of drivers, not other recipients of state general-fund dollars. In short, the gas tax was to be a user fee. Thanks to those 1924 voters, it still is.

The century-old lesson: Transportation is best funded with dedicated taxes.

But there's a modern-era caveat: If dedicated revenue sources are allowed to lag behind inflation for a decade or three or four, transportation systems suffer, perhaps as much as they would have if they'd been battling for general-fund dollars all along.

That's been the latter-day transportation funding story in Minnesota. Since 1988, Minnesota's gas tax has been increased exactly once. That was in 2008, and it took a freeway bridge collapse, a veto override and career-sacrificing votes by several brave House Republicans to get it done.

If the 1988 Legislature that set the gas tax at 20 cents per gallon had added an automatic adjustment for inflation per the Consumer Price Index, today that tax would be 52 cents. And MnDOT would not be projecting a $17.7 billion shortfall in funds needed through 2042 just for road maintenance — not to mention all the other state transportation needs. A new report by North Star Policy Action, a left-leaning think tank, put the total 20-year transportation funding gap at $30 billion as it called for new sources of dedicated funding.

This DFL-trifecta year looked like a fine time for legislators to tie the gas tax to inflation. Instead, legislators of both political varieties have shunned the gas tax as if it were a new coronavirus variant. Gov. Tim Walz, who got nowhere in 2019 with a proposed 20-cent-per-gallon increase, has been mum on the topic.

The projected slow decline of gas-tax receipts as electric vehicles catch on is sometimes cited as a reason to freeze the tax or let it fade into eventual oblivion. But the opposite argument deserves consideration: Why not use a higher gas tax to send a louder pricing signal to auto buyers about the advantages of operating EVs?

House DFL transportation chair Frank Hornstein told me that "there's still some conversation" about linking the gas tax to inflation. But among legislators, "there's a lot of concern about what happened last summer," when gas prices that approached $5 per gallon rattled consumers. Politicians were reminded that events far from their control, such as the Russian invasion of Ukraine and the pricing whims of OPEC autocrats, could make even a modest gas-tax increase tough to defend in a re-election campaign.

Republican legislators have been calling for years for the general fund to be tapped for transportation, essentially seeking to revisit the judgment about user-fee funding that Minnesota voters made in 1924. Rep. John Petersburg of Waseca, the House GOP transportation lead, notes that "transportation is integral to everybody's life." Its funding burden should not rest so heavily on drivers, he says.

Petersburg's argument may be slowly gaining traction. This year's transportation bills both include shifting to highways all of the sales taxes attributed to auto repairs, about two-thirds of which previously flowed into the general fund.

"That's a tiny part of the transportation budget and a tiny part of the general fund," said Hornstein. "It's not my favorite idea. But I always come back to the need, the need. It's become so huge."