Transportation Finance Reform

Summary

Minnesota state and local roads generate 52 billion vehicle miles of travel (VMT) annually at a cost of $2.6 billion. Spending averages 5 cents per VMT statewide, but travel on local government roads, especially low volume networks, costs more. State road aid reduces the local tax effort significantly in most high cost areas. State and local road funding is supported primarily with motor fuels excise taxes, vehicle registration and sales taxes, local property taxes, and state property tax relief. The average Minnesota household pays about $600 annually for roads, but this estimate varies widely with household characteristics. Substituting travel-dependent taxes for fixed or hidden charges could improve the tax system efficiency, and potentially distribute the road tax burden more fairly. Compared to current law, even radical tax reform may not change the road tax bill for some households. Thomas F. Stinson is an Associate Professor in the Department of Applied Economics at the University of Minnesota, St. Paul. Barry Ryan is a Research Fellow in the Department of Applied Economics at the University of Minnesota, St. Paul. Ple ase direct all comments or questions to Barry Ryan at phone number 612-625-7233, e-mail, [email protected]