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December 2013 Policy Study, Number 13-10

   

Fuel Tax:  What Is a Fair System for Iowa?

   

Current Situation

   

 

When it comes to figuring out the funding for Iowa roads, it can make your head hurt as you try to understand RUTF. RUTF is revenue dedicated to the upkeep of our highways across the state. This includes the primary road systems, secondary roads, city streets, and farm-to-market roads. This fund was established in 1949 by the 53rd General Assembly.[11] The RUTF receives it’s funding from several different sources. These sources are the motor vehicle fuel tax, motor vehicle registration and title fees, fee for new registrations, and other revenue.

 

Along with our state funding, we also receive federal funding from the HTF. This fund was established by the Highway Revenue Act of 1956. In 2012, Iowa’s share of the HTF was $565 million.[12] The following chart shows the breakdown of taxes on gasoline and diesel for the state of Iowa. As you can see, for every gallon of gasoline you buy, 40.4 cents is going to taxes; with diesel you are paying 47.9 cents to taxes. This equates to 13 percent of the cost of gasoline when priced at $3.00 a gallon; for diesel it is also around 13 percent with the cost of diesel being $3.79 a gallon.[13]

 

Chart 1

 

In addition to the RUTF the Legislature created a separate funding stream called “TIME-21.” This fund stands for Transportation Investment Moves the Economy in the 21st Century Fund (TIME-21) and was created to address several issues that were developing in our state:

 

A large and aging public roadway system. Iowa’s public roadway system is comprised of over 114,000 miles with approximately 25,000 structures. This system was primarily developed and/or modernized in the 1940s, 50s, and 60s, which means much of the system is at a point in its useful life of needing reinvestment. [Note: Iowa is ranked 7th for the number of roads per resident.][14]
Increasing demands on the public roadway system. While overall travel in Iowa decreased slightly in 2007 (the second time that has occurred in the last three years but only the third time since 1985), large-truck travel is still increasing. Between 2005 and 2007, large-truck travel in Iowa increased over 3 percent, which is equivalent to an additional 152 million miles of large-truck travel in the state over those two years. Some of this increase is due to growth in renewable fuel production in Iowa the last two years. Ethanol production capacity has nearly doubled in the last two years, which results in a doubling of truckloads of corn shipped to those plants. That reflects an increase of approximately 600,000 truckloads annually.
Flattening revenue available for public roadway improvements. Revenue to the RUTF and federal HTF has flattened recently, and it is probable that those funding sources will decline as fuel-tax revenue decreases and other forms of funding are negatively impacted by the current economic situation.
Increasing construction cost inflation rate. The inflation of construction costs has been at an extremely high level the last few years, which has dramatically reduced the buying power of limited funding.[15]

 

While the fuel tax is a significant source of state road funding, there is also other revenue that is going into this fund, such as the annual vehicle registration fee, the fee for new registrations, and other fees. The following table shows the breakdown of the 2013 funding sources for the RUTF/TIME-21.[16]

 

Table 1 - State Road Funding

Table - State Road Funding
Funding Source FY 2013 (Millions of $) Percent of Total*
Fuel Tax $443.80 34%
Fees for New Registration $269.30 21%
Motor Vehicle Registration Fees $450.80 35%
Motor Carrier Registrations - Fees and Prorate $58.90 5%
Interest $2.80 0%
Underground Storage Tank Fees $21.30 2%
Other Receipts $14.10 1%
Payments and Adjustmenst $2.70 0%
Net Statutory Fund $14.70 1%
Trailer Reigstrations and Title Fees to TIME-21 $19.90 2%
     
Total RUTU/TIME-21 Revenue $1,298.20  


* - Percentages add up to more than 100 percent due to rounding.

 

As you can see from the table above, the motor vehicle registrations are the largest percentage of the funding for the roads, followed by the fuel tax. It is also important to note that of the funding listed above, 95 percent must be spent on Iowa roadways per the requirement in the Iowa Constitution.[17]

 

It is also important to note as we talk about how we get our funding sources the amount of money captured from out-of-state drivers. They also contribute to the wear and tear on our roads. The 2011 Road Use Tax Fund Study that the Iowa Department of Transportation (IDOT) did for the Iowa Legislature included the following paragraph concerning this issue.

 

Of these funding sources, only fuel tax and pro-rated annual registration fees from commercial vehicles generate funding from out-of-state drivers. The Iowa DOT estimated in their 2008 TIME-21 study that out-of-state drivers generate 20 percent of total travel on Iowa’s roadways but provide only 13 percent of state road revenue, while Iowa drivers produce 80 percent of the total travel on Iowa’s roadways but provide 87 percent of state road revenue.[18]

 

The following chart shows the current flow of all the funding sources for the state of Iowa.[19] This chart can be very confusing if you are trying to trace through a funding source to a specific program. But as you can see from this chart the vast majority of transportation money, $587.74 million, is going to pay for the highway improvement program.[20]

 

 

The RUTF then breaks down with 47.5 percent going to Primary Road Fund, 24.5 percent to Counties Secondary Road Fund, 8.0 percent to Farm-to-Market Road Fund, and 20 percent to Cities Street Construction. The TIME-21 Fund is 60 percent to Primary Road Fund, 20 percent to Counties Secondary Road Fund, and 20 percent to Cities Street Construction.[21]

 

   

 

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