Last week, the Iowa Legislature approved a 10 cent gas tax increase. After the bill was immediately signed into law by Governor Branstad, it went into effect on March 1. The bill is estimated to provide an additional $215 million to the Road Use Tax Fund (RUTF), from which cities receive per capita distributions to pay for the construction, repair and maintenance of road infrastructure.
Prior to the increase, the gas tax rate in the state was 21 cents per gallon of gasoline and 22.5 cents per gallon of diesel fuel. In addition to the gas tax, RUTF also receives revenue from several vehicle registration and other related fees before it is distributed to the state, county and city governments based on established percentages, with most going to the primary (47.5%) and secondary (24.5%) road funds. The remaining revenue is divided between cities (20%) and farm to market roads (8%).
The Road Use Tax Fund has provided a stable source of revenue for the state’s primary, secondary and municipal roadways since it was established in 1949 by the 53rd Iowa General Assembly. Because the state does not use any General Fund revenue for highway projects, the importance of the RUTF cannot be overstated. Beyond the Road Use Tax Fund, the state does not collect any general tax revenue specifically earmarked for maintaining roads.
Code of Iowa Section 312.6 states that funds received by cities from the RUTF shall be used for, “any purpose relating to the construction, maintenance and supervision of the public streets.” Cities are allowed to use the revenues on any road-related expense, including employee wages for those who perform work on the city’s streets.
Early projections indicate that the increase in fuel tax will result in nearly $40,000 of additional revenue the City of La Porte City can use for street projects, bumping the total amount of RUTF dollars to more than $265,000 it will receive annually.
In recent years, La Porte City has combined road use tax dollars with property tax revenue to fund the operations of its Street Department, which, in most years, has not included any major street projects. In 2014, $317,919 was spent on operational costs (wages, benefits, street sweeping and snow removal, fuel, vehicle maintenance and other operational materials and supplies). Of that total, road use tax dollars funded more than half ($180,924), while La Porte City taxpayers funded the balance ($136,995).
While the increase in road tax use dollars will be welcomed, city officials acknowledge that fixing local streets is anything but cheap. Recent road construction projects in La Porte City offer ample evidence of the financial challenges associated with street repairs. In the past three years, major street projects in the community have included the resurfacing of portions of Cedar Street, Pine and Fillmore streets, First Street, Benton/Bishop/Maple and Adams streets, Second Street and Commercial Street. For all of these projects, Road Use Tax Fund revenues contributed approximately $175,000. The vast majority of the cost, however, nearly $1.7 million, will be paid by La Porte City taxpayers over the life of the bonds the City had to borrow to finance these much-needed improvements.
In Fiscal Year 2015, the City anticipates resurfacing Third Street and a portion of West Main, a project for which nearly $300,000 has been budgeted. The challenge before the Mayor and City Council is how to continue to respond to the City’s need for street repairs while balancing the City’s debt load in such a way to minimize potential spikes in the property taxes assessed to La Porte City citizens. It is a formidable challenge indeed, one that will not be going away anytime soon.