Sales tax and higher fuel tax could fund roads

Bills that would dedicate a portion of the state sales tax and raise the motor fuel tax to fund roads were heard by the Revenue Committee Feb. 10.

LB84, introduced by Valentine Sen. Deb Fischer, would dedicate 0.5 cents of the state’s 5.5-cent sales tax for roads. Seventeen percent of the revenue generated from 0.5 cents of the sales tax would be credited to the Highway Allocation Fund, with the remaining 83 percent deposited in the new State Highway Capital Improvement Fund.

Up to 85 percent of the revenue allocated for the State Highway Capital Improvement Fund would be dedicated to roads projects prioritized by the state Department of Roads. At least $15 million of the fund would be used for construction of the Nebraska Expressway system.

The bill also would authorize up to $500 million in bonding by the State Highway Commission for road construction recommended by the department. No more than $25 million from the fund could be used to service bonds, which must be issued before Jan. 1, 2019, and paid off by Jan. 1, 2038.

The bonding requirement of LB84 relies on voter approval of LR3CA, a proposed constitutional amendment that would permit the use of state sales taxes to service road bonds.

Fischer said highway needs are facing a revenue shortfall of $6.8 billion over the next 20 years. Merely maintaining the current system is projected to cost $350 million annually, she said, and the 2010 road budget is only $316 million.

“We are no longer even funding the needed maintenance and repairs to our system investment,” Fischer said, adding that the percentage of highways in good condition has slipped from 81 percent to 74 percent in two years.

Fischer said her proposal to dedicate a portion of the state sales tax for roads would generate $125 million in revenue annually. The use of sales tax revenue is appropriate, she said, because roads represent one of the four core functions of government.

LB504, introduced by Lincoln Sen. Kathy Campbell, would increase the fixed portions of the motor fuel tax by 5 cents for two years, resulting in a 10-cent increase. The increase annually would generate approximately $77 million in revenue.

Campbell said her bill is similar to LB84 in that it would provide a means to fund roads, but instead of finding new revenue like the sales tax, it would raise the current funding source. She said the bill would put all options on the table for identifying an appropriate funding source for roads.

“[LB504] demonstrates the need that exists and what it will take to address the need,” Campbell said.

Ernie Mehl, representing the Nebraska Farm Bureau, testified in support of LB84, but opposed the bonding portion of the bill. Other states that have adopted bonding, such as Kansas, have had problems repaying the bonds and maintaining the financed roads, he said.

“The state of Nebraska should adhere to its current policy of pay as you go,” Mehl said.

Mehl also testified in favor of LB504, saying it would continue the user fee mechanism for funding roads. He said the level of support for roads is reasonable considering the great need for road funding.

Loy Todd, representing the Nebraska New Car and Truck Dealers Association, testified in support of LB84. The motor fuel tax method for funding roads was a great funding mechanism in the past, he said, but decreased fuel consumption due to high prices, cars’ higher gas mileage and alternative-fuel vehicles have rendered that funding source obsolete.

“That [gas tax] income is spiraling and spiraling down,” Todd said.

Larry Johnson, representing the Nebraska Trucking Association, supported the concept of an increase in the motor fuel tax. He said a gradual increase of 2 to 3 cents in LB504, combined with funding from LB84, may be more appropriate.

Bob Stubbe, public works director for the city of Omaha, said delayed road repairs cost both motorists and government. He said the average urban motorist in the U.S. is paying $402 annually for damage to his or her vehicle due to faulty roads. In addition, the cost of asphalt has doubled and road salt, diesel and gasoline have increased more than 50 percent, he said.

Richard Halvorsen of Lincoln testified in opposition to LB84. The state should not dedicate a percentage of the sales tax for a specific program, he said.

“I don’t think one sector should have this carved out in advance,” he said.

Keith Crandall of SAP Brothers Petroleum testified in opposition to LB504. The Nebraska motor fuel tax is between 2.4 to 13.4 cents higher than in neighboring states, he said, which results in significant numbers of motorists avoiding Nebraska fueling stations in favor of lower-priced counterparts out of state. He said reducing the gas tax by 5.4 cents to match Iowa would generate more revenue than a 10-cent hike.

The committee took no immediate action on either bill.

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