Gas tax hike? How high? Debate begins over how much Minnesotans should pay at the pump

Business leaders who were instrumental in passing the state's last gas tax increase are wary of Gov. Tim Walz's plan to fix crumbling roads and bridges by asking Minnesotans to pay 20 cents more per gallon.

The state must spend significantly more on its transportation system, Chamber of Commerce presidents, labor leaders and representatives from the agricultural and trucking industries said. But exactly how to pay for it remains a matter of intense debate.

When the Minnesota Business Partnership meets with Walz this week, Executive Director Charlie Weaver said the group will likely tell Walz they agree with his goal. Then they will detail their opposition to a series of new costs for businesses outlined in the governor's budget proposal.

"Let's talk about this payroll tax and 12 weeks paid leave," Weaver said. "And if we can arrive at an agreement around these other issues that are expensive and burdensome to business, then we can have a productive discussion around the gas tax."

Walz, a Democrat, set out a spending plan last week that included a 70 percent increase in the gas tax, igniting debate across industries about how to improve transportation without overwhelming taxpayers and businesses. Minnesota has the 28th-highest gas tax in the nation, at 28.6 cents per gallon, according to the Tax Foundation. Walz's proposal would move the state to fourth-highest, bringing in billions of additional dollars over the next decade.

The governor repeatedly talked about raising the gas tax on the campaign trail and when he debuted his full budget plan, he said it is an idea voters endorsed.

In October, an 800-person poll by the Star Tribune and Minnesota Public Radio found 56 percent of respondents supported a 10-cent gas tax increase to build and maintain roads and bridges. The poll did not ask about 20 cents.

"This is not a choice between having a gas tax or not," Walz said. "It is a choice between living in a state with the best and safest transportation system in the country, or living in a state with crumbling roads and bridges that risk our safety and keep away businesses."

The state's roads earned a D-plus in the latest American Society of Civil Engineers report card. Five of the 100 worst truck bottlenecks in the nation were in Minnesota, according to the American Transportation Research Institute.

Frustrations are growing, and momentum is building to fix those problems. But this year is different from 2008, when there had been a two-decade gap since the last gas tax increase, Minnesota Chamber of Commerce President Doug Loon said.

With the Interstate 35W bridge collapse as a catalyst and a concerted push by powerful business groups, a contingent of Republican legislators broke ranks that year. They joined Democrats to override then-Gov. Tim Pawlenty's gas tax veto and passed an 8½-cent increase that was phased in over a number of years.

This year, Republican legislative leaders remain resolute in their opposition to a gas tax increase. There are other ways to pay for transportation needs, said Senate Majority Leader Paul Gazelka, R-Nisswa. Republican legislators proposed shifting revenue from sales taxes on auto parts and repairs and devoting that to roads and bridges. The tax dollars currently go to the general fund and are used for a variety of government programs.

"If we continue to take from the general fund we cannot invest in our children's education," Walz said.

House Minority Leader Kurt Daudt, R-Crown, said he thinks Minnesotans consider 20 cents extreme. In his district, an hour north of the metro, people often commute to the Twin Cities for work and spend a lot on gas, Daudt said.

"The gas tax is one of the most regressive taxes you can put in place," he said. "It hurts low-income people much more than high-income people, and it's also something that hurts greater Minnesota much more than it hurts the metro."

Brainerd Lakes Chamber of Commerce President Matt Kilian echoed Daudt's concern about the disproportionate impact on rural communities, where people drive longer distances and don't have the option of taking transit.

The increase would also affect their local economy, he said, because if people have to pay more to reach cabin country, they will spend less on dining and activities when they arrive. With a surplus in the state's budget, Kilian said, the governor should not be looking to taxpayers for additional infrastructure money.

Several groups, like the Minnesota Farm Bureau, are particularly opposed to a crucial piece of Walz's plan: indexing the gas tax to inflation, so it would automatically grow over time. It's disingenuous not to account for inflation, Walz said. If the state does not keep up with inflationary costs, the upkeep of roads and bridges will fall behind, he said, resulting in more gridlock and potential catastrophes.

Any increases should happen in a transparent way, not automatically, Minnesota Farm Bureau President Kevin Paap countered.

Minnesota Trucking Association President John Hausladen said the Walz administration's ability to pass the increase will depend on whether it can show specifically where the money will go, why it's needed and how people will benefit.

The gas tax increase is just one of the ways the governor wants to raise money for transportation. His plan also increases the vehicle registration tax and the motor vehicle sales tax that people pay when buying a car.

Those changes, along with the gas tax, would generate about $11 billion over a decade, according to budget estimates.

Walz also wants the state to borrow more money for transportation. And in the metro area, he proposed residents pay a one-eighth of 1 cent sales tax specifically for buses and transit. To offset the various transportation cost increases, Walz is seeking a tax credit for lower and middle-income families.

Over time, improvements to the transportation system would save people time and money on gas and repairs, said Kris Fredson, campaigns director of the Minnesota chapter of the Laborers' International Union of North America. The union is advocating for the 20-cent gas tax increase.

The average Twin Cities driver spends about 41 hours a year in traffic, at an average cost to the driver of $1,332 per year, the American Society of Civil Engineers report found. With the population projected to grow, that will get worse.

Transportation Commissioner Margaret Anderson Kelliher said it would take a 16-cent gas tax increase just to cover debt service and maintenance costs.

"Any new roads and bridges and ability to move more freely in the system comes above 16 cents. So this is not a pie-in-the-sky proposal," said Anderson Kelliher, who was House speaker in 2008 and instrumental in passing the last gas tax increase.

For many Minnesotans, the demand for a certain road improvement project is critical and personal. Hwy. 14 in southern Minnesota, which needs to be fully expanded to four lanes, is one of those.

Walz said his neighbor died on that highway.

Patrick Baker, vice president of Greater Mankato Growth Inc., said Hwy. 14 is one of the reasons his organization has not taken a firm stance opposing the gas tax. Every day the Hwy. 14 project is delayed, he said, more people are put at risk.

"There are some businesses that are willing to take on that additional cost to make sure we can keep moving forward as an economy," Baker said. "I will say, all of the other things that are surrounding the budget related to the cost of doing business really have them concerned, and I think is going to get in the way of finding some sort of compromise on transportation."