Transportation Finance Advisory Committee

New ways of thinking about how we finance transportation in Minnesota

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Minnesota Transportation Finance Advisory Committee

Summary Report and Recommendations

 

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INTRODUCTION

Governor Mark Dayton established Minnesota’s Transportation Finance Advisory Committee in January 2012 to develop recommendations for the next 20 years to fund and finance the state’s highways, roads, bridges and public transport systems, as well as its air, rail and port facilities. The ability of Minnesota’s transportation systems to meet the needs of a growing population is one of the key measures of the state’s business climate.


Investments in transportation will support an environment in which Minnesota businesses can continue to grow, ensure that the state continues to be an attractive location for companies looking to expand, and position Minnesota for the future.
Governor Dayton asked the committee to consider the implications of three future transportation scenarios for Minnesota:

 

BACKGROUND

Minnesota is a great place to live, work, play, visit, start a business and raise a family, and the state’s transportation system contributes to the overall quality of life and economic competitiveness.

 

To maintain what we have and position Minnesota for the future, we need to invest in and modernize our aging transportation infrastructure.  We want a transportation system that will help Minnesota compete for jobs and talent.  Doing so will provide opportunity for thousands of jobs – first in updating the infrastructure, then by attracting and keeping economic development in Minnesota.

 

The transportation system connects businesses to suppliers and customers around the nation and world. Minnesotans rely on the transportation system to get to their jobs and school, visit the doctor, enjoy the natural environment, shop, and take advantage of the amazing cultural, entertainment and recreational opportunities available in the Land of 10,000 Lakes. Both the state and the transportation system have great strengths as well as challenges.

 

PROCESS

To accomplish its charge, the committee developed a work plan for:

Initially, the committee received briefings on Minnesota’s transportation systems and gained an understanding of issues and trends facing transportation, particularly those related to funding and financing. Additionally the committee received information related to Minnesota’s national ranking in key size, performance and quality indicators for the various modes and systems. Plus, the committee was briefed on operations and maintenance of Minnesota’s roadways and other transportation systems.


To identify the various options for recommendations, the members developed guiding principles that not only identified how the funds are generated, but how the generated funds would be allocated and spent. The committee then brainstormed 30 various options to fund and finance the gap identified. From these options the members crafted 13 transportation funding and financing recommendations to present to the governor on December 1, 2012.  

 

CORE FUNDING AND FINANCING PRINCIPLES

The committee developed a set of beliefs on which to premise their recommendations. It was important to members that these principles provide a foundation for not only how the funds are generated, but also how these new revenues are allocated and spent. When the recommendations were completed, the committee did not recommend funding for 100 percent of the need identified; instead, it challenged all transportation providers and the state to address a portion of those needs by working more efficiently and effectively, being innovative in solutions and operations, and using technology to produce a higher quality product.

 

Additionally, the committee counseled MnDOT and the various transportation agencies to communicate to the public the results of their work and be accountable for meeting the 20-year needs.

 

The following principles, listed in no particular order, should guide the generation and allocation of transportation funds in Minnesota. The principles are intended to be used collectively. 

 

Principles for the generation of transportation funds

 

 

Principles for allocation and expenditure of transportation funds

  • Enhanced safety – The major goal of transportation investments is to maintain and enhance the safety of the public in all transportation systems.
  • Economic efficiency and high return on investment – Transportation investments are guided by efficiency and transparency through the development of cost-effective and performance-based solutions.
  • Fair and equitable – Multiple formulas for transportation investment may be used to balance the ability to meet the needs of Minnesotans.
  • Economic development, prosperity, competitiveness and job growth – Transportation investments are critical to preserve and improve mobility and accessibility opportunities for Minnesota residents and business. This in turn helps create a stronger economy and job growth by allowing Minnesota to remain competitive, allow for business development options, and preserve our quality of life.
  • Strategic investment, choice and options – Transportation systems are built to a maintainable scale with a variety of options/solutions for moving people and goods from one point to another in an efficient and effective manner. Broad-based revenue streams address different geographic needs around the state.
  • Balance market and public roles – Transportation investment balances the public and private roles in developing our transportation system using the market, where appropriate, and using government, where appropriate.
  • Cost sharing – There is recognition that all Minnesotans benefit from transportation investments and, therefore, share in some portion of addressing costs and minimizing burdens of a transportation system.
  • Flexible and responsive – As transportation needs change based on technology, demographics and/or economic conditions, the investment in transportation needs to be flexible enough to address and meet these issues.
  • Building and maintaining transportation systems – Funding options address both building new transportation systems and preserving existing transportation systems.

CONCLUSIONS

The committee was asked to define the problem as they saw it. Through a series of conversations, the members developed the following conclusions. They are:

 


RECOMMENDATIONS

In order to remain competitive in the national and growing world economy and to continue to provide a high quality of life for Minnesotans in the coming decades, the Transportation Finance Advisory Committee recommends that the state of Minnesota pursue a goal to foster and develop an Economically Competitive / World Class Transportation System.


The TFAC recognizes that this is an ambitious goal that can only be achieved with a bold vision and commitment and with significant new financial resources which may be attained through a limited number of options. 


In order to achieve this goal, the following funding and financing recommendations are offered for consideration by the governor in his 2014-15 biennial budget:

 

1) System-wide Revenue Options for Roads

 

Increase the motor vehicle registration fees to raise revenue by 10 percent through an adjustment in the multiplier, which will generate $1.1 billion in new revenue during the next 20 years for the Highway Users Tax Distribution Fund.

 

The registration fee for passenger class vehicles is determined by multiplying the vehicle base value by the tax rate of 1.25 percent plus $10. The base value depreciates by 10 percent every year for 10 years. The minimum tax for vehicles 11 years old and older is $35. (MS 168.013, Subd 1a)

 

An overall increase of 10 percent in registration fee revenue could be achieved by adjusting either or both of the multipliers used to calculate annual vehicle registration fees. The depreciation rate used to determine the base value could be changed to an annual rate less than 10 percent or the 1.25 percent tax rate could be increased. This would leave the minimum tax unchanged at $35.

Rationale

    • Cars are lasting longer while money collected decreases as the cars depreciate.
    • Consider this as an ad valorem tax (or standard amount based on value) to keep pace/maintain value of funds collected.

Increase per-gallon excise tax rate on motor-fuels to generate $15.2 billion in new revenue during the next 20 years for the Highway Users Tax Distribution Fund. This option can be achieved in many ways. The committee discussed the following two options in detail:

    

Option 1: Increase rate by $0.10 per gallon in the first year, with a subsequent phasing in of the excise tax rate at $.0156 per year for 19 years. This approach generates approximately $308 million of new revenue in the first year and total projected first-year revenue of $1.175 billion (adding to the SFY 2012 revenue baseline of $867 million).

 

Motor fuel tax revenue growth with initial 10 cent increase

                                                                   

Option 2: Increase rate by $0.035 per gallon per year for the first five years and phase in the excise tax rate at $0.015 per year for the remaining 15 years. This approach generates approximately $108 million of new revenue in the first year and total projected first-year revenue of $975 million.

 

20 year motor fuel tax revenue growth with initial 3.5 cent increase

 

Rationale

 

Outcomes Achieved by System-wide Revenue Options for Roads

 

2) Transit-Dedicated Sales Tax Options

 

Add $0.005 to the existing $0.0025 cent sales tax for transit in the Twin Cities metropolitan area (five counties), which is estimated to generate $200 million annually.


Direct $32 million annually to Greater Minnesota Transit to address statutory required service (71 percent of revenue gap for Greater Minnesota Transit over 20 years is $640 million).


Capture the remaining leased vehicle sales tax from the state general fund (estimated at $32 million annually) for transportation.

 

Rationale
The increased metropolitan area sales tax for transit:

Dedicating the remaining leased vehicle sales tax to Greater Minnesota Transit:

 

Outcomes Achieved With Transit-Dedicated Sales Tax Options
The Twin Cities metropolitan area sales tax increase would:

 

The increased revenue for Greater Minnesota Transit would:

 

 

3) Local Government Revenue Options

 

Expand the option of the wheelage tax for 80 counties in Greater Minnesota, including raising the cap limit for 87 counties.

 

Rationale

 

Enable the local option for the formation of Transportation Improvement Districts.

 

Rationale

 

Enable local option sales taxes for transportation in 80 counties without the need ofa referendum.

 

Rationale

 

Outcomes Achieved With Local Government Revenue Options

 

Expand regional transit capital levy (aka transit taxing district) in entire seven-county Twin Cities metropolitan area and use funds for capital and operating needs. Governance issues need to be considered.

 

 

4) Project-Level Revenue Options

 

Expand MnPASS System (which includes the concept of dynamic pricing) and dedicate revenue to multi-modal enhancements on managed lanes.

 

Rationale

 

Employ Value Capture concepts around transportation improvements.

 

Rationale

 

Explore the following areas in more depth: 

-Tolling options targeted for new capacity

-Public-private partnerships opportunities for enhancement and financial leveraging of transportation projects

-Monetizing assets to generate revenue

 

Rationale

 

Outcomes Achieved With Project Level Revenue Options

 

Continue state role in bonding for local roads and bridges, transit, ports, passenger rail, freight rail, safe routes to school (General Obligation Bonding).

 

Rationale

 

Outcomes Achieved

 

 

20-Year Funding Needs to Achieve Desired Outcome ($billions)

 

  Scenario 1 Scenario 2 Scenario 3
System/Mode
(Includes funding for bikes and pedestrian needs associated with highway projects)
Anticipated transportation revenue for the next 20 years: Baseline Increment added to baseline to maintain current performance for the next 20 years Increment added to baseline to become economically competitive/world class system for the next 20 years
State Highway System* $18.0

$5.0

$250 mil Annual Funding Gap:  AFG

$10.0 - 12.0

$500 mil.- $600 mil AFG

County State Aid  System

County System

$5.0

TBD

$3.0
$150 mil AFG 
$4.0

$200 mil AFG

$9.0
$450 mil AFG
$9.0

$450 mil AFG 
Township Roads   $0.3 $0.3

Municipal State Aid System

Municipal System

$1.6

TBD

$1.0
$50 mil AFG
$5.0

$250 mil AFG

$2.0
$100 mil AFG
$8.0

$400 mil AFG
Greater Minnesota Transit $1.9

$0.2

$10 mil AFG

$0.2

$10 mil AFG
Metropolitan Area Transit $8.5 

$1.8

$90 mil AFG

$4.2 - $5.7

$210-$285 mil AFG
Passenger Rail $0.1 ─ 

$5.0 - 7.0

$250-$350 mil AFG
Freight - Rail and Ports $0.3

$0.3

$15 mil AFG

$0.6

$30 mil AFG

State Airports

(Not MAC System)
$1.4

$0.6

$30 mil AFG

$0.8

$40 mil AFG
Metropolitan Airports Commission(MSP and Reliever airports) $2.5 $0.0 $0.6
Totals $39.3 $21.2 $50.6 - $56.1

 

 

IN CLOSING

The Transportation Finance Advisory Committee recommends that the state of Minnesota pursue the Economically Competitive / World Class Transportation System option in order to repair and modernize our transportation infrastructure.


In addition to helping Minnesota compete economically for jobs and talent, an Economically Competitive/ World Class system will enhance our high quality of life by connecting people to everything that matters -- jobs, education, healthcare, entertainment, shopping and recreation and more.

 

We are seeking a statewide high-performing, efficient and reliable transportation system that is maintained at optimal levels, funded and financed through sustainable means, enhances our quality of life and supports a vibrant economic climate.

 

It will move Minnesota in a smart direction.