Implications of State Aid Cuts for Local Road Funding

Project summary:

Reductions in state property tax relief or general-purpose aid upset the fiscal balance of many local governments. Roads are just one public service affected by this, but policymakers need to give roads special attention because of their high capital costs and long life cycles. This study examined the implications and policy options that follow from changes in the state-local fiscal relationship, as well as how local governments responded to budget constraints in 2005, and whether spending on local road networks will keep pace with long run investment needs.

Local governments in the U.S. use a variety of tax mechanisms to fund local roads. Twelve options are examined in this report related to property access, vehicle use or local economic activity. The most frequent local levies are property taxes, special assessments, vehicle registration taxes, motor fuel taxes and local sales taxes. The overall mix of local road funding also varies widely by state and region. Nebraska, Wisconsin and Kansas have local road revenues most like Minnesota, while local roads funding in New Hampshire, Florida and Nevada is the least similar. The benefits of any individual road tax must be judged in the context of the larger state and local tax system.