The tax and fee dollars that pay for state road repairs are expected to plummet as Minnesotans dramatically cut their driving time and buy fewer cars amid the COVID-19 crisis.
The Minnesota Department of Transportation estimates it will take in $440 million less than anticipated over this year and next. Despite the losses, transportation officials say road projects are moving forward as anticipated this year — but it’s too soon to tell what the long-term impacts will be.
“There’s going to be a significant decrease,” said Senate Transportation Committee Chairman Scott Newman, R-Hutchinson. “Our revenue for roads is going to go down, along with revenue for everything else. The question becomes: What do we do about it?”
Policymakers are looking for different ways to make up the shortfall, including pressing for federal assistance. DFL Rep. Frank Hornstein, chairman of the House Transportation Committee, said he will lobby for a large federal stimulus package that includes transportation dollars.
“Transportation projects and infrastructure projects in general … are really important job-producing, revenue-producing, stimulus type of investments,” the Minneapolis lawmaker said.
The American Association of State Highway and Transportation Officials has pressed Congress to provide $50 billion to backstop states’ losses. The group estimates over the next 18 months, state departments of transportation will see an average revenue drop of 30%.
But the push to provide more federal funding for local and state governments in the next coronavirus bill has become a point of sharp contention in Congress, with Senate Republican Leader Mitch McConnell of Kentucky suggesting that states should be allowed to declare bankruptcy.
If the money doesn’t come through, “states are going to pull back on projects that they planned to do and I think you’re going to see some states do furloughs of state DOT employees,” association Executive Director Jim Tymon said.
While some states have temporarily halted road construction over health concerns, financial fears have not yet been cited widely as the reason for delays. Missouri was one of the first states to announce that it might postpone road projects because of anticipated funding shortfalls. Tymon said Washington is also considering it.
MnDOT Commissioner Margaret Anderson Kelliher described a different situation.
“During this challenging time, essential workers across the state are delivering our current construction program and there will likely be minimal impacts to programs or activities this fiscal year,” she said in a statement.
Crews are continuing work on various MnDOT projects, including the Hwy. 5 improvements around the Minneapolis-St. Paul International Airport, which are ahead of schedule.
Anderson Kelliher said additional data is needed to determine MnDOT’s next steps. Highway officials don’t know the full picture of long-term impacts yet, she said.
Hornstein and Newman emphasized the importance of funding transportation projects this session through an expected construction borrowing bill, known in the Legislature as a bonding bill. Legislators are aiming to wrap up the bonding bill before the scheduled end of session on May 18.
“I would support a large bonding bill if it is very heavy on transportation,” Newman said. But he wants to leave out local projects that often end up in the mix, such as theaters and ice rinks.
Newman said he wants to prevent the state from using money in its designated highway user tax fund for anything other than roads and bridges. He also favors giving MnDOT more money from the state’s general fund, an idea DFL lawmakers have generally resisted. He said he will make that push during the 2021 budget year.
Hornstein, however, said the highway fund cannot be that narrowly tailored, noting that it is used for other critical purposes such as the State Patrol.
Last year, Gov. Tim Walz attempted to increase the state’s gas tax, now at 28.5 cents per gallon, arguing it was a necessary long-term investment in aging infrastructure ahead of any potential economic downturn. That effort stalled after Republican legislators rejected it.
Lawmakers aren’t talking about tax increases anymore, Hornstein said. With many Minnesotans out of work and struggling to pay their bills, Newman said now is not the time to raise revenue through tax increases.
Traffic volume has fallen by 30 to 50% recently, compared with last year’s traffic numbers, according to MnDOT spokesman Jake Loesch. The department has not yet received data showing what that means for gas-tax revenue in April. Through March, the tax dollars were down only slightly — $4.6 million, or 1.6 % — below what was forecast.
MnDOT predicts income from the gas tax will plummet by about 30% compared with what was anticipated for the rest of this fiscal year, which runs through June 30. During the 2021 fiscal year, which starts July 1, the agency said it might drop by 15%.
The gas tax is just one of the sources of revenue that pays for state highway work. Car tab fees and motor vehicle sales taxes remained in line with what was expected for March, but they also are predicted to fall.
Through the rest of the 2020 fiscal year, cash from vehicles sales taxes are likely to drop by 50% and then fall 25% in 2021, according to MnDOT. The tab fees are a more stable source of income and will not fall as dramatically, but they are also expected to see some losses.
Even with those estimated declines, Loesch said the agency’s work won’t be significantly impacted this year, “due to strong internal financial policies and healthy cash and fund balances.”