Iowa Takes Up Transportation Finance Reform

Published April 1, 2008

In December, the Iowa Department of Transportation (IDOT) issued its “Study of Iowa’s Current Road Use Tax Funds (RUTF) and Future Road Maintenance and Construction Needs” to the Iowa legislature.

For the 20-year period from 2005 to 2024, according to the report, the state will need to spend $67.2 billion on Iowa’s public roadway system. Federal, state, and local government revenue for the road system is forecast to total $39.5 billion, leaving the state with a $27.7 billion shortfall in road spending over the 20-year period.

Recognizing transportation funding is unlikely to increase by that much, IDOT has stated a minimum of $200 million per year in new funding is necessary to meet the most critical needs.

More Money

Members of the Transportation Investment Moves the Economy in the 21st Century (TIME-21) Funding Study Committee of the Iowa Legislature are considering options presented in the IDOT report. These encompass increasing current revenue sources, such as raising the gasoline tax, and adopting new funding sources.

Meanwhile, the federal government is considering proposals to increase the federal gasoline tax. In mid-January the National Surface Transportation Policy and Revenue Study Commission, a 12-member board of public and private leaders chaired by Transportation Secretary Mary Peters, released a study that recommended raising the federal gas tax from the current 18.4 cents a gallon to 40 cents and indexing it for inflation. Commissioners also proposed higher taxes on diesel fuel and a tax on public transit tickets.

Climbing Costs

An important factor contributing to the calls for more transportation revenue is the rising cost of materials and labor needed for construction.

“Since 2003 the Consumer Price Index has increased approximately 9.1 percent while the corresponding roadway Construction Cost Index has increased 28.2 percent,” the IDOT report notes. “In 1989, the last time the fuel tax was significantly increased, it cost about $140,000 per mile to resurface a two-lane roadway. Today, that same improvement costs about $290,000 per mile.”

The report also notes more revenue from higher fuel taxes or other sources could encourage road project costs to rise further. The IDOT report notes the largest one-year percentage increase in Iowa road construction costs (14.9 percent) occurred from 1989 to 1990–just after the state raised the tax on gasoline and diesel fuel two cents a gallon in 1989, “the last time the fuel tax was significantly increased,” according to the IDOT report.

Funding Diversions

Analysts note more of the current federal funding could be used for critical needs such as bridge repair if Congress would stop earmarking funds for specific projects such as bike paths, museums, and other items that have little or nothing to do with maintaining or expanding transportation facilities.

An even more effective reform would be to devolve federal gas tax collection back to the states. Instead of having gasoline taxes collected by both the federal and state governments, the federal government could repeal its gas tax and allow the states to collect all gas-tax revenue. Then state governments would have the primary responsibility for building and maintaining the country’s transportation system.

Asking those who live and drive in a state to provide the revenue to build and maintain its transportation system would bring us closer to the principle that road systems should be paid for by those who use them.

Amy K. Frantz ([email protected]) is senior research analyst at Public Interest Institute in Mt. Pleasant, Iowa. This analysis was adopted from “Spending Our Transportation Dollars Wisely,” by Amy K. Frantz, December 2007.

For more information …

“Spending Our Transportation Dollars Wisely,” Policy Study No. 07-4, by Amy K. Frantz: