Minnesota DFL legislators agree to index gas tax to inflation

Minnesota Democrats have agreed to raise the gas tax, indexing it to inflation, while devoting $1.3 billion over the next two years to fund the state's vast transportation network.

The agreement, which was getting a hearing Saturday evening, would also raise the metro area sales tax to fund transit projects and create a 50-cent fee on deliveries over $100. Debate throughout the session has centered on how to catch up on lagging fixes to the state's roads, bridges and public transit systems.

Indexing the gas tax to inflation will amount to a 5-cent increase over the current rate by fiscal year 2027, Senate fiscal analyst Krista Boyd said. Minnesota's gas tax has remained stagnant since 2008 at 28.5 cents a gallon.

DFL transportation negotiators called the agreement a "generational investment" in transportation.

"The budget will make strategic investments in transportation and transit systems across the state, which will enable Minnesota to fix its crumbling road and bridge system and create a modern transit system," Sen. Scott Dibble and Rep. Frank Hornstein, both Minneapolis Democrats, said in a statement.

Republicans blasted Democrats for raising the gas tax while the state is sitting on a $17.5 billion surplus.

"No Minnesotan will understand why this is necessary at a time when we have a record surplus," Republican House Minority Leader Lisa Demuth said in a statement. "If Democrats were smart, this idea would be dropped immediately and they'd start looking for ways to help make Minnesotans' lives more affordable — not jack up costs even more."

Indexing the gas tax to inflation is projected to raise an additional $155 million in the next two-year budget and $266 million in the following two years.

The gas tax was last raised following the Interstate 35W bridge collapse in 2007 which resulted in 13 deaths. Talk of raising the gas tax, which is constitutionally mandated to fund state roads and bridges, has surfaced periodically at the Capitol in recent years, but it has not resulted in any action. A proposal by DFL Gov. Tim Walz to raise the gas tax in 2019 went nowhere under divided government.

Democrats did not have a hearing on raising the gas tax this session. But as they were trying to strike a final agreement on a two-year budget, they sought more money for transportation projects.

Earlier this year legislators debated a new 75-cent fee on most deliveries, but that idea faced pushback from businesses and retail groups. The negotiated agreement scales that fee back to 50 cents and exempts some purchases, including any delivery under $100.

The bill also raises the metro-area sales tax for transit projects. And it eliminates the minimum markup, a move legislators have said will save drivers money. Gas retailers have been required under state law to charge an 8-cent markup per gallon.

"This bill repeals the markup and prevents predatory pricing at the gas pump," the transportation chairs' statement said.