Reprinted from CTS News; March 5, 2024
—Pam Snopl, CTS senior editor
The fuel tax is the backbone of our roadway funding system, but its ability to generate revenue is under pressure: more vehicles are using less fuel—or no fuel at all. In response, many states are turning to alternative revenue mechanisms to help bridge the funding gap.
Continue reading States Explore Fee Alternatives to Fund Roadway InfrastructureTransportation funding continues to be a contentious issue in Minnesota: Are we spending enough, too little, too much? One way to help answer that question is to compare spending with other states.
“A simple comparison, however, may not accurately reflect the real level of transportation funding across the states,” says Jerry Zhao, an associate professor in the Humphrey School of Public Affairs. “States face different levels of demand and costs due to different geographic, demographic, or labor market conditions.”
To better understand the factors that influence the transportation funding level, Zhao and Professor Wen Wang at Rutgers University developed a cost-adjusted approach to systematically compare highway expenses among states. They found that while Minnesota spends more than average on highways, its spending level actually ranks low in cost-adjusted measures.
“We controlled for the effects of some major cost factors, such as demographics and natural weather conditions, which are outside of the control of state and local officials,” Zhao explains. “We found that natural weather conditions have a significant impact on highway spending—a lower winter temperature is associated with higher highway expenditures.”
The effect of population size isn’t as straightforward: “There is some impact of economy of scale, but only to a certain threshold,” he says. While urban areas have greater complexity, the higher population density is associated with less spending per capita, probably due to spreading the costs across a greater population.
The analysis also found that state and local governments tend to spend less on highways when they are under fiscal stress, and states with a higher gross domestic product (GDP) appeared to spend more on highways per capita. “Essentially, highway investment decisions may be greatly influenced by the economic fluctuations and fiscal stresses faced by a state,” he says.
According to unadjusted 2010 data, Minnesota ranks 8th on highway spending per capita and 18th on its share of statewide highway spending in GDP. “But after adjusting for those factors that are largely out of control by transportation policy, we found that Minnesota’s rankings drop to 37th on highway spending per capita and 41st on the share of highway spending in GDP,” Zhao says. “This suggests that the relatively high level of highway spending in Minnesota is largely driven by the cost factors of demographics and weather conditions.”
“This study confirms what MnDOT has experienced and that transportation financing is more complicated than one would expect,” says Tracy Hatch, MnDOT deputy commissioner. “Not only is Minnesota’s transportation system significantly undercapitalized—there are considerable financial impacts from factors outside of our control.”
The analysis was conducted as part of the U’s Transportation Policy and Economic Competitiveness Program (TPEC). In previous work, TPEC researchers created the Minnesota Transportation Finance Database, which compiles data about Minnesota’s transportation finance and shows the change of transportation spending in Minnesota over time.
A large percentage of Minnesota’s local highways were built in the 1950s, the same era that birthed the modern interstate system. But the golden age of highway construction has caught up to counties, who are struggling to maintain and rehabilitate aging road systems with fewer and fewer dollars.
“Our economic resources do not meet the financial investment needed as the bulk of our pavements surfaced in the 1950s reach the end of their useful life all about the same time,” said Freeborn County Engineer Susan Miller.
In rural Otter Tail County alone, the cost of road construction has climbed 10.5 percent per year for the past 10 years.
Meanwhile, there has been only one increase in funding — an 8.5-cent bump in the state gasoline tax “that was eaten up the moment it was enacted,” said County Engineer Rick West.
Otter Tail’s funding gap? An estimated $11 million in year 2011 alone.
With no change in sight, counties across the state are banding together in a research project through the Local Road Research Board to identify ways to reduce the size of their road systems and lower preservation costs.
The LRRB launched the study at the behest of counties who were considering turning some paved highways back to gravel just to get by — even though it would probably increase long-term maintenance costs.
In addition to providing expertise on that topic, consultants worked with a group of pilot counties to develop other strategies of stretching county road dollars further. These include: changing maintenance schedules; using different gravel road materials; transferring roads to city or township ownership; adopting different road performance measures; and raising local revenue.
“This project of how five different counties approach funding limitations and how to manage a system with constrained resources is one of the best that I have been a part of through the LRRB,” said Miller, who found the data critical to convincing her county board to pass a wheelage tax.
Although the ideas developed through the study aren’t entirely new, for a busy county engineer with few staff, the assistance to implement them has been very valuable.
“We’re practitioners — not researchers,” said Otter Tail’s Rick West. “It’s really forced us to look at our system in its entirety and from a long-range perspective. For us, that’s huge.”
The LRRB selected pilot counties (Dakota, Otter Tail, Freeborn, Stearns and Anoka) that reflect the diversity of the state. After researchers help them implement their chosen strategies, they will hold informational workshops for others throughout the state.
“Other counties with similar roadway preservation issues or management structures can follow these best practices,” said Michael Marti of SRF Consulting Group. “There are a lot of tools out there, there just needs to be more demonstration or training on each of these tools.”
Anoka County, for example, undertook a detailed analysis to determine which roads should become city-owned and which roads the county should assume.
The evaluation system used by Anoka, which examines travel data and other factors, could be adopted by other counties.
Public education
While some ways of changing the system of road maintenance may not be immediately popular, the community will get on board if they understand why, said Otter Tail County Board Chairman Wayne Johnson.
For instance, Otter Tail had to explain why it’s more cost-effective to sealcoat four-year-old roads than reconstruct beat-up, low-volume roads.
“That’s hard to get your arms around when it’s been the other way for 50 to 60 years,” Johnson said.
Community residents did, however, reject one possible strategy discussed at eight public outreach meetings: unpaving roads.
Otter Tail’s entire county road network is paved — a reflection of investments made back in the 1950s that have become somewhat of a community ethic for Ottertail’s 57,000 residents (a population that triples during the summer).
Tools used in the study enable counties to illustrate just how far behind they are in terms of maintenance and prioritize where to make improvements.
“Everyone wants roads to be maintained, but until the road system preservation study, nobody understood the magnitude of the funding gap between where we are and what we need to do to preserve the system,” said Johnson, who recently shared his county’s findings at the National Association of County Engineers conference.
The data is critical for the public to understand why a county might seek a local tax or different method of road maintenance.
“It’s far better to try to tell them what the problem is on the front end, rather than defend the decision on the back end,” Johnson said. “We’re after them to buy into something because it’s their roads and their money.”
Those who use the roads in Minnesota are generally those who pay for them — through gasoline and vehicle taxes.
But motorists aren’t the only ones who benefit when a new interchange is built or a highway is improved. Home and business values along the corridor go up and the price of undeveloped land can skyrocket.
With highway funds strapped, a new method of funding road expansion, called “real estate value capture,” is garnering attention.
This emerging technique strives to identify beneficiaries of transportation improvements beyond just the highway user, so they provide their fair share of the costs — a concept not dissimilar from residential street assessment.
For instance, a local government might dedicate the additional property tax revenue generated due to a new highway to offset some construction costs, or collect fees on land that is developed near an interchange.
However, value capture is a relatively new technique that has been used primarily for transit projects. To be considered for roads or bridges, questions need to be addressed about potential revenue, impacts and public acceptability.
In a new case study, researchers use a long-delayed planned extension of Highway 610 in Maple Grove to model the impact of a completed highway on nearby property values, and, for the first time, quantify the potential revenues from several value capture strategies.
With properties near new highway exits worth an additional $65,450 more per acre, researchers calculated that $37.1 million in revenue could be generated through assessments on existing development and impact fees for future development.
Other strategies explored include tax-increment financing and private-public development of undeveloped parcels, in which revenue generated by that development is split.
“This research demonstrates a way to estimate the value of transportation improvement and to communicate that to the public,” said principal investigator Jerry Zhao, an associate professor of public administration at the University of Minnesota’s Humphrey School of Public Affairs.
Crossroads 